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[PODCAST] EU Open Rundown 17th January 2020

  • Asian equity markets traded mostly positive after taking impetus from another record-setting session on Wall St.
  • Chinese GDP printed in-line with expectations, whilst both Industrial Production and Retail Sales topped estimates
  • China’s Global Times noted comments from an expert who suggested that China could demand that the US roll back all tariffs prior to phase two talks
  • DXY was relatively flat and held near the prior day’s highs, while its major counterparts were indecisive
  • Looking ahead, highlights include UK Retail Sales, EZ CPI (F), US Building Permits, Housing Starts, Industrial Production, JOLTS, Uni. Of Michigan, Baker Hughes, Fed’s Harker, Quarles

ASIA-PAC

Asian equity markets traded mostly positive after taking impetus from another record-setting session on Wall St. following the recent Phase 1 deal signing and where sentiment was underpinned by encouraging earnings and data, while participants also digested a flurry of key Chinese data including GDP which grew inline with expectations. ASX 200 (+0.3%) extended on all-time highs led by broad strength in mining names including Rio Tinto despite the Co. printing weaker Q4 iron ore shipments, although Nufarm was at the other end of the spectrum with double-digit losses after it flagged weaker earnings across several segments. Nikkei 225 (+0.4%) was kept afloat by favourable currency flows, while Hang Seng (-0.1%) and Shanghai Comp. (-0.1%) initially gained after the continued PBoC liquidity efforts and slew of tier-1 Chinese data in which GDP printed inline with expectations and both Industrial Production and Retail Sales topped estimates. However, the data showed China’s 2019 growth slowed to 6.1% from 6.6% Y/Y which was the weakest since 1990 albeit still within the official 6.0%-6.5% target range. Finally, 10yr JGBs were marginally higher in a reclaim of the 152.00 level with the rebound unfazed despite the positive risk tone and all metrics pointing to weaker results at today’s 20yr JGB auction.

PBoC injected CNY 200bln in 14-day reverse repos for a net weekly injection CNY 600bln vs. CNY 50bln drain W/W. (Newswires) PBoC set USD/CNY mid-point at 6.8878 vs. Exp. 6.8843 (Prev. 6.8807)

Chinese GDP (Q4) Q/Q 1.5% vs. Exp. 1.5% (Prev. 1.5%). Chinese GDP (Q4) Y/Y 6.0% vs. Exp. 6.0% (Prev. 6.0%) Chinese GDP YTD (Q4) Y/Y 6.1% (Prev. 6.2%); slowest pace of growth since 1990. Chinese Industrial Production (Dec) Y/Y 6.9% vs. Exp. 5.9% (Prev. 6.2%) Chinese Retail Sales (Dec) Y/Y 8.0% vs. Exp. 7.8% (Prev. 8.0%)

SCMP opinion piece suggested that China will stick to the Phase 1 if it maintains China’s stability and that President Xi's absence from the signing suggests Beijing is leaving it open by how much they will abide by, while China Global Times noted comments from an expert who suggested that even if China agrees to begin negotiations for a phase two agreement, it will likely demand that the US roll back all tariffs prior to talks. (SCMP/Global Times)

BoK kept the 7-Day Repo Rate at 1.25% as expected, while it stated that the South Korea economy is forecast to grow at lower 2% level this year and inflation will gradually reach 1%, while it added growth is inline with previous projections and downturn in exports is likely to ease. Furthermore, BoK Governor Lee said it would be appropriate to keep policy rate above rates in advanced economies and that the rate decision was not unanimous with board members Cho and Shin the dissenters.

UK/EU

German Defence Minister Kramp-Karrenbauer suggested the EU should offer Britain “privileged third-party status” in defence and foreign policy cooperation post-Brexit following a meeting with her UK counterpart Ben Foster. (Guardian)

EU Trade Commissioner Hogan said EU wants to strengthen economic ties with US and that he had very good talks with USTR Lighthizer. Hogan also reiterated EU's plan for retaliatory tariffs over Boeing aid but also told US officials again that the EU is keen to work towards a negotiated solution on the aircraft subsidy issue. Furthermore, Hogan said the sides are still talking about digital services tax and noted agriculture is still a sticking point in tariffs cut goal although the EU is willing to explore options to break impasse and get past the sticking point. (Newswires) 

FX

DXY was relatively flat and held near the prior day’s highs following recent strong US data, while its major counterparts were indecisive with EUR/USD clustered among more than EUR 4bln of option expiries between 1.1120-1.1150 rolling off at today’s New York cut. GBP/USD was also relatively unchanged and remained near this week’s best levels as it found support from its 200-hour MA at 1.3061. Elsewhere, USD/JPY extended above 110.00 to print its strongest since May as the positive risk tone spurred mild safe-haven outflows from the Japanese currency, while antipodeans were indecisive following the deluge of Chinese data and softer PBoC reference rate which the central bank weakened for the first time in more than a week. 

COMMODITIES

Commodities were uneventful in which WTI crude future remained rangebound near the USD 58.50/bbl level to hold on to most the prior day’s gains which had been spurred in tandem with the fresh record highs for stocks on Wall St, although price action across the energy complex lacked any excitement as participants mulled over the slew of Chinese tier-1 data releases and due to quietness on the geopolitical front. Elsewhere, gold re-approached the top of yesterday’s thin range amid a lacklustre greenback, while copper eked mild gains which was seen to be slight short-covering rather than a reaction to the Chinese data. 

GEOPOLITICS

US Central Command said at least 11 US troops were injured in last week’s Iranian missile attack on the Al-Asad air base in Iraq. (Newswires)

US 

T-Notes were offered on Thursday amid risk appetite in the wake of the Phase 1 trade deal, positive data and a strong MS earnings supporting financials. The TPLEX traded sideways in Europe, before finding offers as US participants came to the scene, then experiencing additional selling on a firm US retail sales release and strong Philly Fed Index print. The bid in equities was persistent through the session, keeping yields firmer, although a slew of FIG issuance post-earnings blackout (in additional to other ex-financials) likely helped some of the concession in later trade; by settlement, yields were around 2bps higher in the belly- and long-end. US T-note futures (H0) settled 6 ticks lower at 129-05.

US Treasury decided it will issue 20-year bonds in H1 this year after having considering proposals including a 50-year or 100-year bond to bridge the financing budget deficit, while it reportedly expects strong demand for the new issuance. (Newswires)

White House officials confirmed they are planning election year stimulus which will focus on tax reductions. (Fox Business News)

US Senate voted 89-10 to pass the USMCA deal which had already received strong bipartisan support at the House in December. (Newswires)

US President Trump has announced Judy Shelton and Christopher Waller as nominees for the Fed Board of Governors, according to the White House. Trump in July noted that he would nominate the two. (Newswires/FT)

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