Original insights into market moving news

[PODCAST] EU Open Rundown 6th January 2020

  • US President Trump stated that there will be a “major retaliation”, perhaps in a disproportionate manner, should Iran retaliate
  • Iran has finalised a new retreat from the Nuclear Deal in which it will not comply with any restrictions on the amount of uranium enrichment, enrichment rate and number of centrifuges
  • US President Trump threatened sanctions against Baghdad after the Iraqi parliament voted to work on plans to end US troop presence in Iraq
  • Chinese trade delegation, led by Vice Premier Liu He, tentatively plans to travel to Washington on January 13th to sign the Phase One trade deal, according to sources
  • Asian equity markets were mostly lower, Nikkei 225 underperformed as it played catchup
  • FX was quiet, Brent Mar’20 futures topped USD 70/bbl, spot gold hit levels last seen in April 2013
  • Looking ahead highlights include German Retail Sales, Swedish CPIF, EZ, UK & US Services and Composite PMIs, EZ Producer Prices


Reports noted of multiple rocket impacts in the vicinity of the US Embassy in Baghdad which resulted in civilian casualties, via ELINT News. Reports noted that three Katyusha rockets fell inside Baghdad’s green zone near the US Embassy. Two civilians from the US Department of Defense were reportedly wounded, according to INTELSky. Furthermore, a US official noted that Iranian missile forces across the country are at a heightened state of alert, although it is unclear if Iran is in the defensive or preparing for an offensive. (Newswires) This comes after Iraq’s Kataib Hezbollah militia warned Iraqi security forces to stay away from US bases in the country from Sunday, reported via al-Mayadeen TV. Iran may retaliate by striking allies of America in Iraq and the Middle East, according to CNN citing a “well-informed” source. (CNN) Iranian Foreign Ministry spokesman stated that no war can be expected but Iran is prepared for all possibilities. (Al-Jazeera) On Friday, Iranian Foreign Minister Zarif said Iran will retaliate to the US' attack at any time and any way, according to state TV. (Newswires) Hackers claiming to be from Iran hacked a US government website dedicated to the Federal Depositary Library Programme and posted messages vowing revenge for the assassination of Senior IRGC Commander Soleimani. (Guardian)

The Iraqi parliament has voted for the government to work on plans to end US troop presence in Iraq following the assassination of Senior IRGC Commander Soleimani. (CNN) Further, Iraqi Militia leader Khazali said US troops will be considered an occupying force if they do not leave. In response, US President Trump has threatened sanctions against Baghdad and said US will not leave Iraq unless it pays for the US air bases there. (Newswires)Trump administration officials have warned senior Iraqi officials that Iraq would suffer dangerous consequences if the U.S. withdrew its military and its funding of the Iraqi security apparatus, according to sources cited by Axios. (Axios)

Iran has finalised a new retreat from the Nuclear Deal in which it will not comply with any restrictions on the amount of uranium enrichment, enrichment rate and number of centrifuges. (Al-Jazeera) Subsequently, French President Macron is attempting to hold talks with Iranian President Rouhani in the coming days, according to Macron's office. (Newswires)

US Military said one US service member and two American defence contractors have been killed at Manda Bay airfield in Kenya following an attack by Al-Shabab – an al-Qaeda branch. (Newswires)

US President Trump tweeted that the US will quickly and fully strike back, perhaps in a disproportionate manner should Iran strike any US persons or targets and stated that there will be a “major retaliation” if Iran retaliates. On Saturday, the President tweeted that Iran will be hit very fast and very hard, adding that the US wants no more threats. (Twitter/Newswires) US House will introduce and vote on a War Powers Resolution to limit President Trump's military actions regarding Iran, according to a statement by House Speaker Pelosi. (Newswires)

NATO will today hold an urgent Ambassador-level meeting on the Iraq-Iran situation, according to a NATO official. Meanwhile, a joint statement by French President Macron, German Chancellor Merkel and UK PM Johnson condemned the recent attacks on coalition forces in Iraq and are gravely concerned by its negative effects in the regions. The countries note of an urgent need for de-escalation. (Newswires)

Turkish military units have started to move towards Libya, according to reports, despite Libya’s parliament unanimously voting against Turkey’s military intervention in the region. (Al-Jazeera)

US President Trump said he does not believe North Korean Leader Kim would break his word but "maybe he will". (Newswires) This comes after North Korea's official newspaper warned of "immediate and powerful" strikes against threats.


Asian equity markets kicked the week off mostly in the red following downside seen on Wall Street on Friday as US-Iran developments and dismal US ISM metrics weighed on sentiment. ASX 200 (Unch) was initially led lower by a bulk of its constituents in negative territory including its largest weighed financial sector, albeit losses were somewhat cushioned by gold miners and energy names as prices in the complexes rose amid the escalating geopolitical tensions, thus the index later pared losses. Meanwhile, Nikkei 225 (-1.9%) underperformed given the recent safe-haven demand in the JPY and as Japanese participants had the first chance to react to the Middle Eastern events after their extended New Year break. Elsewhere, Hang Seng (-1.1%) opened modestly in negative territory but extended losses as heavyweight financial names accelerated downside - with traders attributing the closures of local bank branches due to the protests, albeit the index later climbed off lows as energy names benefitted from the surge in crude prices with oil-giants CNOOC and PetroChina notching gains in excess of 3%. Finally, Shanghai Comp (-0.1%) oscillated between gains and losses as the overall risk aversion in the market was countered by the tentative dates touted for the US-China Phase One signing and with the PBoC’s RRR cut going into effect today, releasing over CNY 800bln of long-term funds. 

Chinese trade delegation, led by Vice Premier Liu He, tentatively plans to travel to Washington on January 13th to sign the Phase One trade agreement and will return on January 16th, according to a source cited by SCMP. (SCMP)

China has dismissed the official in charge of relations with Hong Kong, Wang Zhimin, who will be replaced by the Communist Party Secretary for Shanxi, Luo Huining. (BBC)

China will not “sit idle” if Huawei is excluded from Germany’s 5G rollout, according to Global Times citing the Commercial Counsellor of the Chinese Embassy in Germany. (Global Times)

PBoC set USD/CNY reference rate at 6.9718 vs. Exp. 6.9692 (Prev. 6.9681) (Newswires) PBoC skipped open market operations for a net daily drain of CNY 50bln

Chinese Caixin Services PMI (Dec) 52.6 vs. Exp. 53.2 (Prev. 53.5) (Newswires) Chinese Caixin Composite PMI (Dec) 52.5 (Prev. 53.5)

PBoC reiterated that it will keep monetary policy prudent, flexible and appropriate and will continue progress on financial reforms. PBoC said banking system liquidity is at a relatively high-level to absorb factors including maturing reverse repos, PBoC confirmed that the RRR effective today releases over CNY 800bln of long-term funds (Newswires)


UK PM Johnson urged European Commission President von der Leyen to conduct intense trade negotiations within weeks. The EC President will be meeting with UK PM Johnson on Wednesday. (FT/Newswires)

UK Shadow Brexit Secretary Kier Starmer has confirmed he will be standing in the contest for Labour leader. (BBC)

France has warned that the US will face retaliation from the EU if it attempts to impose “highly disproportionate” trade tariffs in response to digital tax against tech-giants. (FT)

Acting Spanish PM Sanchez has lost the first round of voting (166 for vs.165 against, 18 abstentions, 1 no-show) to support the formation of government. An absolute majority was needed to win the round (176 out of a possible 350). The second round will be conducted on 7th January and requires a simple majority – which is Sanchez likely to obtain. (RTE/Sputnik)

Austria’s Foreign Ministry has been targeted by a “serious cyber-attack” which the ministry suggests could have been conducted by a “state actor”. (BBC)

ECB’s Lane (Dove) said underlying EZ inflation measures are moving higher but remain too low. (Newswires)

FX DXY remained within a relatively tight range below the 97.00 mark and held onto a bulk of the losses seen on Friday and with little by way of a reaction seen at the release of the FOMC Minutes. EUR/USD and GBP/USD were also uneventful amid a lack of overnight catalysts, with the former moving sideways above 1.1150 ahead of its 50 WMA seen at 1.1172 with around EUR 780mln of options expiring at strike 1.1170. Meanwhile, Cable traded on either side of 1.3075 having briefly dipped below its 200 WMA at 1.3070. Elsewhere, USD/JPY initially gapped lower to sub-108.00 levels as the intensifying geopolitical landscape prompted safe-haven demand. That said, the pair later recouped some losses amid a lack of news-flow and hovered around 108.00 ahead of a sizable USD 1.2bln of options expiries at 108.50. Antipodeans remained choppy, but within narrow parameters with AUD/USD probing the 0.6950 level throughout most of the session whilst its Kiwi counterpart briefly dipped below 0.6650 having tested the psychological figure on multiple occasions overnight.

Turkish President Erdogan reiterated that the country’s interest rates, and inflation will fall to single digits this year. (Newswires)


Energy futures saw renewed upside at the at the open amid concerns regarding the implications of the deteriorating relationship between Washington and Tehran, and with participants on the lookout for possible Iranian retaliation after the burial of Senior IRGC Commander Soleimani, touted to be on Tuesday. WTI and Brent futures gapped higher and continued its upwards trajectory with Brent front-month contracts topping USD 70.00/bbl to levels last seen May 2019. Elsewhere, spot gold surged almost USD 30/oz at the open to a fresh six-year high of just shy of 1588/oz amid the aforementioned geopolitical tensions. Traders noted that gains were possibly exacerbated by stops tripped at the prior multi-year high of USD 1557/oz. Likewise, other precious metals were also bolstered with spot silver prices testing USD 18.50/oz to the upside whilst spot palladium surpassed USD 2000/oz to a record high. Finally, copper prices posted a modest rebound after Friday’s hefty losses as a tentative Phase One deal signing date provided the red metal with some relief from the recent sentiment-driven downside.

Baker Hughes US Rig Count (3th Jan): Oil -7 at 670, natural gas -2 at 123 and total rigs -9 at 796 rigs. (Newswires) 


Minutes from the December meeting stated that the current stance "likely to remain appropriate for a time", and minutes do not outline a contrary view. A few raised concerns that low rates for a long time could exacerbate imbalances in the financial sector whilst many saw risks to the outlook as tilted to the downside, but some risks had eased in recent months. Policymakers agreed that they would not reaffirm existing statement on long-run goals in the January statement, but would revisit these in mid-2020. The minutes also stated that the Fed will discuss SRF in upcoming meetings and technical adjustments to IOER may be seen ahead.


* US T-NOTE FUTURES (H0) SETTLED 24+ TICKS HIGHER AT 129-12+. The TPLEX caught a bid on the step-up in geopolitical risk, which saw a flight-to-quality across macro markets, which became more acute throughout the session (10s yields down by around 9bps). The curve bull-flattened, particularly in the front to belly, with the 2s10s narrowing by around 4bps at settlement, and 2s30s narrowing by around 3bps at settlement (taking this week’s 2s30s narrowing to around 8bps). The complex shrugged-off grim ISM as well as the Fed’s December’s meeting minutes, despite the former’s headline falling to the lowest since 2009. Traders also noted that it was interesting that, while equities rebounded off of lows from the late European morning onwards, the Treasury space has not done so, with the T-Note only slightly off highs at settlement.

White House Trade Advisor Navarro said there will be an anchor of growth closer to 3% in 2020. (Fox)

Fed's Williams (Voter, Neutral) states that low global interest rates are here to stay and should lead Central Bank members to renew their inflation goal commitments. (WSJ)

Fed’s Kaplan (Voter, Neutral) said Fed should not make any moves with the fed funds rate. it is too early to guess if a rate hike or cut comes next. He expects 2020 to deliver solid growth and said he would be willing to allow inflation to run above target for a short amount of time. Kaplan sees US sees growth between 2.00-2.25% this year, though he noted ongoing uncertainties on trade, as well as manufacturing difficulties. (Newswires)

Fed's Barkin (Non-Voter, Hawkish) said he wants to see the effects of the insurance rate cuts before taking further action. Fed is focused on providing liquidity during pressure days in the repo market; April 15th could serve as such a date; USD 1.5trln in reserves is a reasonable amount while longer term solutions are worked on. (Newswires)

Fed balance sheet size rises to USD 6.13trln this week (prev. USD 5.86trln)