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[PODCAST] EU Open Rundown 28th November 2019

  • Asian markets traded mostly lower as the positivity from another record setting session on Wall St heading into Thanksgiving Day, quickly faded
  • US President Trump signed the Hong Kong bills into law despite Beijing's objections, according to the White House
  • China Foreign Ministry reiterated it strongly opposes the US bill on Hong Kong and that the bill severely meddles in China's internal affairs
  • UK YouGov MRP General Election Poll showed Conservatives are set for a 68-seat majority with the party on track to win 359 (+42) seats
  • Looking ahead, highlights Swiss Q3 GDP; EU Economic & Industrial Sentiment; German CPI (Prelim); Japanese CPI, Unemployment Rate, ECB’s de Galhua, Coeure, Lane, supply from Italy
  • Desk Closure: The desk will operate a normal service on today until 1800GMT/1200CST, upon which the desk will close and then re-open later at 2200GMT/1600CST for the beginning of the Asia-Pacific session

ASIA-PAC

Asian markets traded mostly lower as the jubilation from another record setting session on Wall St heading into Thanksgiving Day, quickly faded after US President Trump signed the Hong Kong bill into law which triggered some concerns of a potential derailment in US-China trade talks. Nonetheless, ASX 200 (+0.2%) remained afloat as it took its cue from US counterparts and notched a fresh all-time high led by a resumption of the outperformance in telecoms. Nikkei 225 (-0.2%) was indecisive amid swings in the currency and following the worst decline in Retail Sales data since early 2015. In terms of Japan’s notable stock movers, Panasonic was the biggest gainer on reports it will offload its loss-making semiconductor division to a Taiwanese firm, while Japan Display was on the other end of the spectrum amid allegations of improper accounting. Elsewhere, Hang Seng (-0.2%) and Shanghai Comp. (-0.5%) weakened after US President Trump’s Hong Kong bill signing which prompted strong opposition from China’s Foreign Ministry and threats it will take firm countermeasures if the US continues in its interference. Finally, 10yr JGBs were lower following the bear-flattening in the US and amid profit taking from recent gains, with demand also subdued as all metrics pointed to a weaker result for today’s 2yr auction.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 7.0271 vs. Exp. 7.0264 (Prev. 7.0349)

US President Trump signed the Hong Kong bills into law despite Beijing's objections according to the White House, while President Trump said the bills were enacted in the hope China and Hong Kong settle differences. (Newswires) China Foreign Ministry reiterated it strongly opposes the US bill on Hong Kong and that the bill severely meddles in China's internal affairs, as well as violates international law. China also suggested the US attempts to interfere in Hong Kong are doomed to fail and that China will take firm countermeasures with the US to shoulder all consequences if it continues in this way. (Newswires) China Foreign Ministry says it summons US Ambassador in China and has lodged stern representations with US regarding Hong Kong rights law, while it urges US to correct its error. Hong Kong Government said the US bills harms HK-US relationship and interests, while it added that the bills obviously intervene in internal affairs which are unnecessary and unwanted. (Newswires)

Global Times tweeted that Chinese analysts noted that President Trump’s HK bill signing is not out of their expectation, as the US views Hong Kong as an important leverage and the act could become a new legal tool to exert. Furthermore, analysts suggested US President Trump may selectively implement provisions of the HK act as a leverage for trade talks but may put on hold those sanctions that are unfavourable for negotiations. (Twitter)

Japanese Retail Sales (Oct) -7.1% vs. Exp. -4.4% (Prev. 9.1%, Rev. 9.2%); largest decline since March 2015

 

UK/EU

UK YouGov MRP General Election Poll showed Conservatives are set for a 68-seat majority with the party on track to win 359 (+42) seats and Labour to win 211 (-51), Lib Dems 13 (+1), Brexit 0 (Unch.), Green 1 (Unch.), SNP 43 (+8), PC 4 (Unch.), Other 1 (Unch.). (Newswires) Note, the projected margins of victory are below 5% in at least 30 seats predicted to be Conservative

UK Savanta/ComRes General Election Poll for Telegraph: Conservatives 41% (-1), Labour 34% (+2), Lib Dems 13% (-2), Brexit Party 5% (Unch.) conducted November 25th-26th. (Telegraph)

Opposition Labour Leader Corbyn has decided to pull-out of the Sky News Leader debate, which has subsequently been cancelled. Corbyn will also not appear at the seven-way debate on the BBC tomorrow and will instead send shadow business secretary Long-Bailey. (Telegraph)

UK Conservative adviser Cummings said there is a real possibility of a hung parliament and that things are tighter than they seem citing the polls. (Newswires)

ECB's Villeroy said what matters is not only level of ECB's key short-term rates but the time horizon of policy measures. Villeroy also suggested that countries with fiscal space should use it quickly. (Newswires)

 

FX

DXY was slightly softer as US breaks for Thanksgiving to retrace the mild gains which just about helped EUR/USD to reclaim the 1.1000 handle. GBP/USD was the outperformer after the YouGov MRP model suggested the Conservatives are on track for a 68-seat majority with the party projected to win 359 seats and with Labour at 211 seats. The initial knee-jerk reaction was volatile given that a significant Conservative majority had already been flagged earlier by a journalist, although the follow through from the highly anticipated poll eventually lifted the currency to around 1.2950 where it then met resistance. Elsewhere, USD/JPY pulled back from near 6-month highs and antipodeans were also pressured after the announcement of President Trump’s Hong Kong bill signing, however, NZD/USD later recovered after the ANZ business surveys printed the best reading so far this year, while AUD/USD remained subdued after mixed Capital Expenditure data.

Australian Capital Expenditure (Q3) -0.2% vs. Exp. -0.1% (Prev. -0.5%). (Newswires) Australian Private Capital Expenditure 2019-2020 (Est. 4) 116.7B (Prev. 113.4B)

New Zealand ANZ Business Confidence (Nov) -26.4% (Prev. -42.4%). Activity Outlook (Nov) 12.9% (Prev. -3.5%)

 

COMMODITIES

Commodities were mixed in which WTI crude futures languished below the USD 58.00/bbl level following the recent bearish EIA inventory report, and with the complex also subdued by the risk averse tone brought on by renewed US-China tensions. Gold only eked marginal gains despite the dampened sentiment and USD-pullback, while copper prices reflected underperformance in its largest purchaser China.    

Baker Hughes Rig Count (27 Nov): oil rigs -3 at 668, nat gas rigs +2 at 131, total rigs -1 at 802. (Newswires)

 

GEOPOLITICS

US President Trump’s administration issued guidance for Iran sanctions on the Dalian units of China’s shipping Co. COSCO and assures US banks they can continue to process USD transactions through December 20th. (Newswires)

France warned of possible re-imposition of Iran nuclear sanctions and stated that European signatories to the nuclear deal are debating whether to invoke a dispute resolution mechanism. (AFP)

US

The T-Note sold off modestly on Wednesday ahead of the Thanksgiving holiday (lighter volumes), the selling pressures extended after the upside surprise to US GDP, providing some relief to investors’ outlook on the economy (GDP trackers were also revised higher after durable goods data, with Atlanta Fed now tracking 1.7% in Q4 vs 0.4% previously). The strong 7-year auction failed to provide a meaningful bid too, where the US sold USD 32bln of 7-year paper on the screws, with above average takedown from foreign bidders and B/C ratio, whilst dealers took less than average. The curve, in fact, bear flattened on the day, where despite a less-than-rosy PCE release, the front-end was sold the most (NOTE: the Fed has expressed its unwillingness to raise rates until inflation is comfortably above its 2% target, however). The 2s10s fell by around 1.5bps, flirting with the 14bps support level, whilst the 2s30s fell by just shy of 3bps; the 2-year yield settled 4bps higher. US T-note futures (Z9) settled 10 ticks lower at 129-12.

Fed's Beige Book stated economic activity expanded modestly from October through mid-November and that outlooks generally remained positive, while employment continued to rise slightly overall even as labour markets remained tight. A majority of the 12 districts continued to note difficulty in hiring workers and some contacts noting their inability to fill jobs was limiting growth. Furthermore, wage pressures rose at a modest pace during the reporting period and most districts reported stable to moderately growing consumer spending, with increases in auto sales and tourism also seen in several districts. (Newswires)

Fed's Kaplan (2020 voter, neutral) said we still have a situation where we have weak global growth, weak manufacturing, and weak business investment. (Newswires)

USTR Lighthizer met with Mexico’s top negotiator and spoke to Canada's Deputy PM Freeland to work through new language in a possible addendum to USMCA satisfying Democrats wishes. In related news, Mexican Deputy Foreign Minister Seade said he had a "positive" phone call with Canada’s Freeland and plans to visit Canada on Friday for a meeting. (Fox/Newswires)

US President Trump’s administration trade officials announced they will provide an official response on Monday to the French tax on US technology giants following an investigation of the policy. (AFP)

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