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[PODCAST] EU Open Rundown 23rd December 2019

  • Asian equity markets traded somewhat mixed as the region once again failed to follow suit from Friday’s gains on Wall Street
  • China is to lower import tariffs on certain products beginning January 1st in which it will cut some import tariffs on 850 items
  • Reports suggested President Xi is willing to continue meeting with US President Trump
  • In FX markets, currency flows were limited owing to the lack of tier-1 data releases and lighter volumes heading into the holidays
  • Looking ahead, highlights include US Durable Goods, New Home Sales, Canadian GDP and US 2yr supply

ASIA-PAC

Asian equity markets traded somewhat mixed as the region once again failed to fully join in on the Christmas cheer which had propelled Wall Street to fresh record highs on Friday, with volumes light heading into the holidays. ASX 200 (-0.5%) and Nikkei 225 (+0.1%) were varied with Australia dragged by commodity-related losses and due to the adverse effects of its recent currency appreciation, while the Japanese benchmark remained afloat but with upside capped by an indecisive JPY and after Japanese Chief Cabinet Suga clarified that they have not eased export controls on South Korea. Hang Seng (+0.1%) and Shanghai Comp. (-0.8%) lacked conviction despite the announcement that China is to lower import tariffs for some products beginning January 1st and after the recent Trump-Xi call in which the leaders were said to have conducted a very good talk regarding the trade deal, although reports further noted that Chinese President Xi stated US interference is harming China’s interests and there were also downward revisions to November Chinese trade data including a wider contraction in Exports. Finally, 10yr JGBs languished firmly below the 152.00 level after the recent bear-flattening in USTs and with demand also dampened by the lack of BoJ presence in the market today. 

 

PBoC injected CNY 50bln via 14-day reverse repos for a daily net injection of CNY 50bln. (Newswires)

PBoC set USD/CNY reference rate at 7.0117 vs. Exp. 7.0119 (Prev. 7.0020)

 

Chinese President Xi reportedly told US President Trump that US interference is harming Chinese interests and expressed concerns regarding the US stance on Taiwan, while other reports noted that President Xi is willing to continue meeting with US President Trump. (Xinhua/China Daily/Hong Kong Daily)

 

China is to lower import tariffs on certain products beginning January 1st in which it will cut some import tariffs on 850 items and will further lower import tariffs for some IT products from July 1st. Furthermore, it was also reported that China is taking a major step to open up sectors ranging from oil and gas to telecoms and railways by easing market regulations and reducing financing costs for private companies, with the government to offer more tax breaks and broaden incentives to more firms. (Xinhua)

 

US Commerce Secretary Ross said the US has been very careful on providing exclusions to the Huawei entity list and reiterated the US could increase tariffs on China if they do not hold up to the trade deal. (Newswires)

 

China Global Times tweeted that China would reduce import tariffs even without the phase-one deal as it is seeking a more cooperative and inclusive global trade environment, citing Beijing Economic Operation Association Vice Director Tian Yun. (Twitter)

 

China November USD-denominated trade data revisions: Trade Balance revised to 37.93B (Prev. 38.73B), Exports revised to -1.3% (Prev. -1.1%), Imports revised to 0.5% (Prev. 0.3%). (Newswires)

Japanese Chief Cabinet Secretary Suga clarified that they have not eased export controls on South Korea and that the change to controls are just procedural. (Newswires) 

UK/EU

ECB's Knot said cannot dismiss worrying prospect of current low interest rates lasting another half-decade and that low interest rate policy risks becoming counterproductive, while he added that the ECB have to reassess policy in time. (Newswires)

 

FX

In FX markets, currency flows all but dried out owing to the lack of tier-1 data releases and lighter volumes heading into the holidays which saw the DXY little changed as its major counterparts traded mixed, with EUR/USD dejected after its recent slip to below 1.1100 and with GBP/USD off Friday’s worst levels as it battled to retain the 1.3000 handle after the House of Commons overwhelmingly voted to approve the second reading of PM Johnson's Brexit deal. Elsewhere, USD/JPY and JPY-crosses mirrored the mixed risk appetite, while AUD/USD and NZD/USD slightly outperformed after having reclaimed the 0.6900 and 0.6600 handles respectively in the aftermath of the recent encouraging data releases across the Tasman, although some analysts remained unconvinced including JPMorgan which sees potential for QE by the RBA in Q4 2020.

COMMODITIES

 

Commodities were mixed amid a similar overnight risk sentiment owing to the holiday-thinned conditions in which WTI crude futures marginally extended on Friday’s losses on bearish supply side factors including an increase in the number of Baker Hughes oil rigs and following reports of a potential Saudi-Kuwait agreement to resume output from the shared neutral zone by year-end, which had been idled for over 3 years and has a daily capacity of 500k bpd. Elsewhere, gold mildly benefitted from the uneventful greenback and revisited last week’s highs, while copper trickled back below the USD 2.80/lb level with prices hampered by the broad indecision.

Baker Hughes Rig Count (20th Dec): Oil +18 at 685, Natgas -4 at 125, Total +14 at 813. (Newswires)

Saudi Arabia and Kuwait reportedly could agree to renew oil output in the shared neutral zone along the border between the countries by year-end. (Newswires)

French CGT workers voted to halt output at Petroineos Lavera refinery which has a capacity of 210k bpd, according to a union official. (Newswires)

 

GEOPOLITICS

Syrian anti-aircraft defence fired at hostile missiles which allegedly came from Israel. (Newswires)

Center for Strategic and International Studies’ Victor Cha said possible launch sites in North Korea look that they are basically ready to go. (Twitter)

North Korean Leader Kim Jong Un is expected to take a ‘wait and see’ approach regarding making a deal with the US due to US President Trump being politically vulnerable (impeachment & 2020 election); if Trump were to win another term North Korea may be more likely to return to negotiations., according to a source familiar with North Korean leadership. Adding, that the likely hood of a proactive test is ‘very low’ as this would be too confrontational for China and Russia. (CNN)

US 

The bias was slightly towards bear-flattening, although yields were up by around 1bps or so. Traders attributed the unrevised Q3 GDP print, with the data also revealing consumer spending better than expected, and businesses spending on non-residential structures, like power infrastructure, wires noted. The small upward revision in Michigan sentiment was also said to be a contributing factor. The theme this week has been steepening of 2s10s, although that wasn't seen on Friday, with many desks wrapping up for the year, there was a quiet feel to Treasury trade, which may again be seen in the early part of next week, before the Christmas holidays. US T-note futures (H0) settled 2 ticks lower at 128-08.

US President Trump signed the USD 1.4tln spending bill on Friday to avert the government shutdown as expected. (Newswires)

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