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[PODCAST] EU Open Rundown 9th January 2020

·       US President Trump confirmed no Americans or Iraqi lives were lost by the Iranian strike and added that Iran appears to be standing down

·       Two rockets reportedly hit Baghdad’s Green Zone near the US Embassy in Iraq with no casualties reported, according to Iraq military

·       Asia-Pac bourses traded with firm gains across the board after a positive handover from Wall Street; Nikkei 225 outperformed

·       DXY was contained in a tight range, USD/JPY remained underpinned, Brent futures consolidated, and spot gold stabilized

·       Looking ahead, highlights include German Industrial Output, Production and Trade, EZ Unemployment, US Initial Jobless Claims, BoE’s Carney, Fed’s Clarida, Williams, Evans & Bullard, ECB’s Lane, supply from Spain, France and US

GEOPOLITICS

US President Trump confirmed no Americans or Iraqi lives were lost by the Iranian strike and added that Iran appears to be standing down. Trump said the US is to immediately impose more sanctions on Iran as it looks at options to respond. Trump stated that just because the US has strong military equipment, it does not mean the US has to use it; economic strength is the best deterrent. The President also said US allies must abandon 2015 JCPOA, but world powers can work on a new deal; allies must work together to send unified message to Iran and called on NATO to get more involved. Trump said US is ready to embrace peace, can work with Iran on battling ISIS. Trump reiterated that as long as he is President, Iran will never be allowed to have a nuclear weapon. (White House) US reportedly considered striking Iran after its attack on Iraqi airbases, but the decision was held off until more information was gathered regarding intent and casualties, according to CNN. (CNN)

Two rockets reportedly hit Baghdad’s Green Zone near the US Embassy in Iraq with no casualties reported, according to Iraq military. (Newswires)

US VP Pence said the US is receiving intelligence that Iran is telling militias not to move against US targets, CBS Interview. (CBS) US Chief of Staff stated that the US expects Shiite militias in Iraq to launch terrorist attacks against coalition forces. (Newswires) Iraqi Shiite militia spokesman said, "the response of the resistance factions will be very harsh, and the coming days will be full of surprises.", according to NBC News Analyst Kohnlan. (Twitter) - ELINT News noted that the Iranian-backed Iraqi Shia militias have so far not responded to the killing of 25 of their men in western Iraq and the assassination of al-Muhandis, who was the leader of Iraqi Hezbollah and deputy commander of the Popular Mobilisation Units. (Twitter) US Defence Secretary Esper said US military remains "poised and ready" - nothing major was damaged in yesterday's Iranian attacks on Iraqi bases. Defence Secretary Esper also tweeted "We can report 100% accountability of US personnel in Iraq", and added that US remains vigilant and calls on Iran to take this chance to de-escalate tensions. (Twitter)

UN delegate to Iran said our countries are able to solve their problems through dialogue, including differences in the Gulf, and added that Tehran does not consider the Nuclear Deal to be dead following recent steps, reported via Al-Jazeera. (Twitter)

US justifies IRGC Commander Soleimani's killing as self-defence, US said it is prepared to take additional action in the Middle East to protect US personnel, US stands ready to engage in negotiations with Iran to prevent escalations, via a letter to UN. (Newswires) Iranian Foreign Minister Zarif reiterated that the people in the region wants the US out. (Twitter)

UN investigation reportedly found that Yemen Houthi's did not launch the attacks on the oil facilities in Saudi Arabia last September, according to a confidential report. The report found that “Some of those weapons have technical characteristics similar to arms manufactured in Iran” (Newswires)

NATO Secretary General, in response to US President Trump’s call for more involvement, said NATO could contribute more to the regional stability, according to The Times citing a NATO spokesman. (Times)

Western Intelligence agencies reportedly assess the Boeing (BA) jet which crashed last night, was not bought down by a missile, but a technical malfunction as there is evidence the engine overheated, according to a Canadian security source. In related news, the initial Iranian investigation report into the crash noted that the plane had a technical problem prior to the crash. (Newswires) US intelligence looking into Boeing (BA) 737 crash in Tehran, according to CNN. (CNN) Note: There were also uncited reports that Iran may seek help from the US regarding the Boeing investigation after Tehran refused to hand over the plane’s black box. (Newswires)

ASIA-PAC

Asia-Pac bourses kicked off the session with firm gains across the board after a positive handover from Wall Street - which saw the Nasdaq Comp notching intraday and closing records, whilst the S&P hit intraday all-time highs. Global sentiment was bolstered by what seems to be a simmering down in US-Iran tensions, with US President Trump also stating that the US is ready to embrace peace after saying that Iran appears to be standing down. US equity futures and cash experienced some losses heading into the Wall Street close amid reports of two rockets hitting Baghdad’s Green Zone near the US Embassy, although negative sentiment failed to materialise as no casualties were registered. ASX 200 (+0.7%) gleaned support from its largest weighted financials sector, but gains remained hindered as oil and precious metal names are pressured by recent price action in the respective complexes. Nikkei 225 (+2.2%) outperformed peers in the region as the index welcomed favourable JPY dynamics and with only a small fraction of its constituents in negative territory. Elsewhere, Hang Seng (+1.3%) and Shanghai Comp (+0.6%) echoed the performance in regional peers after the Mainland initially side-lined below-forecast Chinese inflation figures for a bulk of the session, with the US-China Phase One deal signing drawing closer. 

China is reportedly picking up soybean cargoes in Brazil, the report notes it dashes hopes for large US sales immediately after the signing of the Phase One deal next week. (Newswires)

Chinese CPI YY (Dec) 4.5% vs. Exp. 4.7% (Prev. 4.5%) (Newswires) Chinese PPI YY (Dec) -0.5% vs. Exp. -0.4% (Prev. -1.4%)

PBoC set USD/CNY reference rate at 6.9467 vs. Exp. 6.9464 (Prev. 9.9450) (Newswires) PBoC skipped open market operations for a net neutral daily position

Huawei is reportedly in talks with international banks to raise USD 2bln via loans and bond sales outside China, according to sources cited by The Information. (The Information)

China Finance Ministry reportedly to front load in excess of CNY 500bln quota for local government general purpose bond issuance, sources state, which added that it should be used up before March. (Newswires)

World Bank cut 2019 global growth forecast to 2.4% (Prev. 2.6%) and cut 2020 forecast to 2.5% (Prev. 2.7%) due to slower-than-expected recovery in trade and in investments 2019 EM growth forecasts cut to 3.5% (Prev. 4.0%) and 2020 forecast cut to 4.1% (Prev. 4.6%). (Newswires)

UK/EU

UK PM Johnson was clear the UK would not extend the implementation period into 2021, noting any future partnership with the EU must not involve alignment or ECJ jurisdiction, says UK PM Spokesman. States UK would keep control of UK fishing waters and its immigration methods. (Newswires)

France's CFDT Union leader states a deal with the government on the pension reform is still far away. (Newswires)

UK BRC Retail Sales Monitor (Dec) YY +1.7% (Prev. -4.9%) - distorted by timings of Black Friday sales. (Newswires)

FX

DXY was choppy within a tight intraday range amid a lack of overnight catalysts. The index briefly dipped below 97.25 from a high of 97.30 ahead of its 50 DMA, seen around 97.40. EUR/USD and GBP/USD remained uneventful above 1.1100 and around 1.3100 respectively and largely moving in tandem with the Dollar, with the former having found an overnight base at the round figure. EUR/USD sees hefty option expiries ahead of today’s NY cut with around EUR 1.0bln at 1.1090, EUR 980mln at 1.1110, EUR 650mln at 1.1125 and EUR 1.2bln at 1.1150. Elsewhere, USD/JPY continued to remain underpinned by the overall risk-appetite – with the pair having found some support at 109.00 after surpassing its 50 DMA and 50 WMA both around 108.93-94.  Antipodeans traded within narrow parameters with AUD/USD still north of its 50 DMA at 0.6865 but failing to gain impetus from a substantially larger-than-forecast November trade balance figure led by a combination of higher exports and lower imports, potentially as economic impacts from the ongoing bush fires remain in mind.

Australian Trade Balance G&S (A$) (Nov) 5.800B vs. Exp. 4.1500B (Prev. 4.502B, Rev. 4.075B) (Newswires)

COMMODITIES

A quieter session for WTI and Brent futures overnight, as the benchmarks consolidated from yesterday’s sizeable losses in wake of easing geopolitical tensions between US and Iran. Brent Mar’20 futures obtained an overnight base at USD 65/bbl before probing USD 66/bbl for a bulk of the session. Meanwhile, WTI Feb’20 futures found support just above USD 59/bbl after taking it out its 100 WMA (USD 60.70/bbl) in the prior session. Elsewhere, spot gold steadied around the USD 1560/oz after its free-fall from 1600/oz+ levels and with some support seen around the 1552.50/oz level as the yellow metal awaits the next catalyst. Spot palladium continued its marathon bull-run with prices hitting fresh record highs of almost USD 2150/oz, with traders citing tight supply-demand fundamentals. In terms of base metals, copper prices tracked the risk appetite and the red metal reclaimed USD 2.8/lb+ status. Finally, Dalian iron ore futures pulled back from yesterday’s highs as a rise in Australia’s exports of the base metal to China eased some steel-mill demand concerns. 

US President Trump stated that the US has achieved energy independence, and that helps to shape its response; added that US does not need Middle East oil. (White House)

Libya's NOC Chair announced it has raised production rates to 1.174mln BPD (Prev. 1.15mln BPD in December). (Newswires)

US 

* US T-NOTE FUTURES (H0) SETTLE TICKS 12+ LOWER AT 128-24+. Yields were higher across curve, with a very slight steepening bias, inspired by improving geopolitics in the Middle East, while on the data slate, ADP payrolls surprised to the upside. The US 10-year auction tailed by a chunky 1.6bps basis – the largest since August. However, analyst noted that this was likely a function of geopolitics, which saw 10-year yields drop to as low as 1.7050%, before rising back towards around 1.85% heading into the auction. The rest of the metrics fared better, with cover coming in at 2.45x, a touch above the previous and recent averages. In terms of the breakdown, dealers took down slightly more than recent averages, as did direct bidders, leaving indirects with a takedown below recent averages. SocGen thinks the 30-year sector appears slightly cheap in asset swap. The bank also notes that the current WI is trading below the last two auction stop-out rates, which could indicate relative richness, compared to those auctions. The December 30-year auction saw healthy demand, stopping through by a whopping 2.1bps, and ending the run of tails. SocGen also notes that 5s30s has steepened since the previous auction cycle, which might speak to the relative cheapness of the sector. The bank has a positive bias going into the auction. 

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