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[PODCAST] EU Open Rundown 20th December 2019

  • Asian equity markets traded mixed as the Christmas rally on Wall St failed to filter through to the region
  • UK House of Commons is to vote on UK PM Johnson's Brexit deal today at 1430GMT
  • FCA Chief Executive Andrew Bailey has reportedly been selected as next BoE Governor, according to the FT
  • US House voted 385 vs. 41 to approve the USMCA trade agreement
  • Looking ahead, highlights include UK GDP, Canadian Retail Sales, US Personal Income, Consumption, Core PCE, Uni. Of Michigan, EZ Consumer Confidence, BoE’s Haskel, Quadruple Witching

ASIA-PAC

Asian equity markets traded mixed as the Christmas rally on Wall St, where all major indices notched fresh record highs and the S&P 500 breached the 3200 milestone for the first time, only partially transitioned into the region amid a lack of significant macro drivers. ASX 200 (-0.3%) was subdued by weakness in energy and financials, with the consumer sectors the worst performers as markets continued to digest the dampened prospects for further easing as reflected by OIS which priced in an under 26% chance of an RBA rate cut in February, while Nikkei 225 (-0.1%) was pressured by recent adverse currency flows. Elsewhere, Hang Seng (+0.3%) and Shanghai Comp. (-0.1%) were indecisive after the PBoC conducted another respectable liquidity operation to bring this week’s total net injections to CNY 630bln but then kept its 1yr Loan Prime Rate unchanged which defied the consensus for a 5bps cut, while reports also suggested lingering uncertainty on the trade front related to the technological restrictions the US may impose on China. Finally, 10yr JGBs extended on the slump below the 152.00 level following selling pressure in T-notes and as the benchmark Japanese 10yr yield turned positive for the first time since March, which overshadowed the slightly firmer demand at the enhanced liquidity auction for longer dated JGBs.

PBoC injected CNY 150bln via 14-day reverse repos for net weekly injection of CNY 630bln vs. last week's net neutral position.

PBoC set USD/CNY reference rate at 7.0020 vs. Exp. 7.0033 (Prev. 7.0025)

PBoC 1yr Loan Prime Rate 4.15% vs. Exp. 4.10% (Prev. 4.15%). PBoC 5yr Loan Prime Rate 4.80% vs. Exp. 4.80% (Prev. 4.80%)

Chinese President Xi said Macau has become one of the safest cities in the world and that people in Macau are able to rationally express different demands, while he added that China will not allow foreign forces to interfere with Hong Kong and Macau affairs. (Newswires)

CNBC report noted that US-China phase one agreement softens trade risks but suggested that an unpredictable factor lingers which is the technological restriction US may impose on China. (Newswires)

Japanese National CPI (Nov) Y/Y 0.5% vs. Exp. 0.5% (Prev. 0.2%). (Newswires) Japanese National CPI Ex. Fresh Food (Nov) Y/Y 0.5% vs. Exp. 0.5% (Prev. 0.4%) Japanese National CPI Ex. Fresh Food & Energy (Nov) Y/Y 0.8% vs. Exp. 0.7% (Prev. 0.7%); largest increase since April 2016.

China’s President Xi is reportedly not planning on attending the World Economic Forum/Davos event in January., according to sources. (Newswires)

UK/EU

FCA Chief Executive Andrew Bailey has been selected as next BoE Governor. (FT)

UK House of Commons is to vote on UK PM Johnson's Brexit deal today, the bill would also prevent the Government from extending the transition period past 2020; voting is expected at around 14:30GMT. The bill is expected to pass as the Conservatives have an 80-seat majority, and all Conservative MPs pledged their support to the deal prior to the election. (Newswires/BBC)

Multiple French Unions state that talks over pension reform have failed to progress, and they intend to continue protesting. (Newswires)

EU Council President Michel said the bloc will make deeper ties with China a priority in 2020, whilst not letting US dictate the bloc's approach to China. (WSJ)

German Finance Ministry said exports are to be subdued in approaching months amid global risks and slowing world trade but added that a strong labour market will continue to support the domestic economy. (Newswires)

UK GfK Consumer Confidence (Dec) -11 vs. Exp. -14.0 (Prev. -14.0). (Newswires) UK Lloyds Business Barometer (Dec) 10 (Prev. 9); 5-month high.

FX

DXY eked marginal gains and re-approached the top of the prior day’s thin range after the Senate passed the spending bills to avert a government shutdown, while also in Congress, the House voted to approve the USMCA agreement which helped MXN retain its recent spoils. EUR/USD and GBP/USD were uneventful and have consolidated north of near-term floors at 1.1110 and 1.3000 respectively, with both pairs residing in the midst of several minor option expiries for today’s New York cut. Elsewhere, USD/JPY traded subdued and JPY-crosses reflected their base currencies, with mostly inline Japanese CPI data not doing much to spur prices, while antipodeans were steady in which AUD/USD briefly tested 0.6900 to the upside as the recent jobs data continued to reverberate for the currency and NZD/USD struggled to hold on to the 0.6600 handle.

Mexican Central Bank cut its interest rate by 25bps to 7.25% as expected, although the decision was not unanimous as one member voted for a 50bps cut, while the central bank stated that the current environment continues to present risks that could affect the macroeconomic conditions in the country and its potential for growth. (Newswires)

COMMODITIES

Commodities traded flat overnight in which WTI crude futures were uneventful but remained above the USD 61.00/bbl level after the prior day’s gains which coincided with the Christmas rally in stocks that lifted Wall St. to fresh record highs, although the momentum in the energy complex has since petered out as the pre-holiday cheer failed to fully transpire across Asia. Elsewhere, gold was relatively unchanged amid a lack of drivers and as the greenback edged marginal gains, while copper prices also conformed to the sideways price action amid the indecisive risk tone, before eventually drifting lower.

US 

T-Notes sold off early in yesterday’s session, catching momentum as US participants came to their desks, although the losses were reversed heading into the close, leaving the T-Note slightly firmer, with yields falling most pronounced in the belly, by approximately 2bps. Desks note that as liquidity begins to thin, desks will be eager to close positions and take advantage of any large moves, with this Friday likely serving as a last chance before Christmas for many. Thursday’s reversal of the move higher in yields could potentially be technically driven as the 2s10s flirted with 30bps earlier on, perhaps the misses in the Philly Fed Index and US housing starts tamed the Treasury sell off somewhat, too, whilst some desks attributed participants ceasing the low prices before the weekend. T-notes (H0) futures settled 4+ ticks higher at 128-10.

US President Trump tweeted that the Democrats gave him no due process in the House and now want to tell the Senate how to run their trial, while he added that they have zero proof of anything and that he wants an immediate trial. In related news, US Senate Republican Leader McConnell said he met with Senate Democrat Leader Schumer and that they remain at an impasse on impeachment trial process, while he added that witness testifying at the Senate impeachment trial continues to be a sticking point. (Twitter/Newswires)

US House voted 385 vs. 41 to approve the USMCA trade agreement, while it was also reported that the Senate passed the two-bill spending package to avert a government shutdown in which the first bill on domestic programs passed by 71-23 vote and the second part of the funding measure was passed by 81-11 vote. (Newswires)

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