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[PODCAST] EU Open Rundown 20th January 2020

  • Most major Asia-Pac indices began the week higher as the global rally just about remained intact following another record finish last Friday on Wall St
  • PBoC kept the Loan Prime Rate unchanged at 4.15% vs. forecasts for a 5bps cut
  • UK Chancellor Javid urged UK companies forget about being closely aligned to the EU post-Brexit and adjust to the new reality
  • Crude markets supported by supply disruptions in Libya after Libya's National Oil Corp. declared a force majeure
  • Looking ahead, highlights include German PPI. Note, US markets are closed for MLK Day
  • The desk will shut today at 1800GMT/1200CST and re-open on Monday for the beginning of Asia-Pac coverage at 2200GMT/1600CST

ASIA-PAC

Most major Asia-Pac indices began the week higher as the global rally just about remained intact following another record finish last Friday on Wall St, but with gains capped heading into this week’s mass closures and after weekend news flow provided very little to fuel the advances. ASX 200 (+0.2%) was higher led by the mining-related sectors including energy names after oil prices gained from supply disruptions in Libya where General Haftar’s LNA ordered the blockade of ports in the eastern region, while Nikkei 225 (+0.2%) was also positive but with upside limited by a mixed currency and as the region awaits a looming deluge of earnings this week, as well as the conclusion of the BoJ 2-day policy meeting due tomorrow. Elsewhere, Hang Seng (-0.7%) and Shanghai Comp. (+0.4%) were somewhat indecisive despite another firm liquidity injection by the PBoC heading into the Lunar New Year holidays, as the central bank also surprisingly kept the Loan Prime Rate unchanged vs. forecasts for a 5bps cut and with Hong Kong sentiment dampened by a resumption of violent clashes between protestors and police over the weekend. Finally, 10yr JGBs were subdued and broke below near-term support at 152.00 level despite the BoJ in the market for JPY 810bln in up to 5yr JGBs, with participants remaining on the fence as the central bank also began its 2-day policy meeting. 

PBoC injected CNY 250bln via 14-day reverse repos. (Newswires)

PBoC set USD/CNY mid-point at 6.8664 vs. Exp. 6.8672 (Prev. 6.8878)

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

US President Trump reportedly said the US will vigorously enforce terms but hopefully won’t have in regards to the US-China trade deal, while he added there will probably be a ceremony in the White House for USMCA signing and suggested Europe is in many ways more difficult than China on trade disputes, according to Voice of America's White House Bureau Chief Herman. (Twitter)

China may include Bilateral Investment Treaty (BIT) terms into Phase 2 talks according to sources, although reports added that official BIT and Phase 2 talks may not start until after the US election. (Newswires)

Wuhan Health Commission in China confirmed 136 new cases of coronavirus emerged over the weekend, while South Korea also announced its first confirmed case of coronavirus in the country. (Newswires)

UK/EU

UK Chancellor Javid urged UK companies forget about being closely aligned to the EU post-Brexit and adjust to the new reality. This is said to have alarmed EU officials who warned of an economically damaging split at the end of the year, while the Society of Motor Manufacturers and Traders suggested that a split away from EU regulations post-Brexit will cost UK billions and impact consumer choice. (FT) Furthermore, The Telegraph reports that there is a deepening fault line emerging between UK and EU regarding how much Britain must continue to adhere some EU regulations post-Brexit in return for a basic FTA, according to reports citing officials. (Telegraph)

US administration is said to criticize the UK government of “foot dragging” regarding negotiations for a UK-US trade deal as time runs short heading into a summer deadline. (The Sun)

Fitch affirmed Germany at 'AAA'; Outlook Stable and affirmed Slovenia at A; Outlook Stable. (Newswires)

UK Rightmove House Prices (Jan) M/M 2.3% (Prev. -0.9%). (Newswires) UK Rightmove House Prices (Jan) Y/Y 2.7% (Prev. 0.8%)

FX

DXY was little changed and remained near Friday’s best levels amid a lack of fresh catalysts and with US participants enjoying an extended weekend due to Martin Luther King Jr. Day. The greenback’s major counterparts were subdued in which EUR/USD languished beneath 1.1100 after having recently collapsed through several key DMA levels and GBP/USD just about held on to the 1.3000 handle in the aftermath of dismal Retail Sales data, while UK Chancellor Javid also suggested UK companies forget about being closely aligned to the EU post-Brexit and adjust to the new reality which prompted alarm among EU officials and a warning from the SMMT industry group that it could cost UK billions and impact consumer choice. Elsewhere, USD/JPY was rangebound and antipodeans partially nursed recent losses, but with the rebound in AUD/USD and NZD/USD only minimal despite the PBoC’s firmer reference rate setting and surprise hold on the Loan Prime Rate. 

COMMODITIES

Commodities gained overnight with oil prices underpinned by supply disruptions in Libya where General Haftar’s LNA ordered the blockade of ports which NOC stated would see oil exports drop by 700k bpd and could result in output to decline to 72k bpd from around 1.2mln bpd within days if the blockade continues, while Iraq momentarily halted operations at an oil field amid escalating public unrest which also threated operations at another site. This lifted WTI crude futures to firmly above USD 59.00/bbl and Brent crude towards the USD 66.00/bbl level where they then met resistance and retraced some of the gains but still held on to gains of more than 1%. Elsewhere, gold was higher in a mild extension of last week’s best levels amid an uneventful greenback, while copper also eked marginal gains following a rebound from support just south of the USD 2.85/lb level.

Baker Hughes US Rig Count (17th Jan) Oil rigs +14 at 673, natural gas +1 at 120 and total rigs +15 at 796 rigs. (Newswires)

Iraq momentarily halted operations on an oil field yesterday amid an escalation of protests in which anti-government demonstrators blocked a bridge in the south of the country with tires that were set alight, while a 2nd production site was also said to be at risk. (Newswires) 

Libya's National Oil Corp. declared a force majeure after the LNA ordered the blockade of ports in the eastern region which would see oil exports drop by 700k bpd and a drop in production by 800k bpd, while the NOC noted that only one port will stay open and sees the country’s oil output to be cut to 72k bpd from around 1.2mln bpd within several days if blockades persist. (Newswires) A number of countries, those which are most influential within Libya, have agreed to a 9-page document; calling for a return to the politico process refraining from military intervention and adhere to the arms embargo. Countries including Russia and Turkey. (Politico) 

GEOPOLITICS

North Korean leader Kim Jong Un has sacked its foreign minister and top diplomat Ri Yong Ho, who is to be replaced by Ri Son Gwon, according to unconfirmed local reports – which analysts say could prompt a tougher stance from North Korea regarding denuclearisation talks with the US. The NK outlet said the reshuffled would likely be confirmed on or before Thursday. (Newswires/FT)

US President Trump criticized Iran’s leadership in which he stated that "The so-called 'Supreme Leader' of Iran, who has not been so Supreme lately, had some nasty things to say about the United States and Europe", while President Trump added Iran’s economy is crashing, people are suffering and that the Supreme Leader should be very careful with his words. (Twitter)

US received intelligence related to a potentially imminent attack being planned against its military personnel stationed in Germany, according to Twitter reports citing an official memo seen by Newsweek. (Twitter/Newsweek)

US 

T-Notes sold off as the US session got underway, with a new US 20-year bond unveiling, strengthening US Dollar and decent housing data weighing on duration. The 10-year yield found resistance at just below 1.85%, before retreating somewhat in the latter end of the session. Note that the long bond saw the most selling pressure earlier in the session on the back of the US Treasury announcing it would be increasing its maturity offerings with a new 20-year bond, to launch in 2020. By settlement, the Treasury curve was steeper, with the 2-year yield little changed whilst the 30-year yield was 3bps higher. More broadly, the T-Note future settled little changed on the week, where participants digested a slew of factors, including another strong week of corporate issuance, the Phase 1 deal signing and a mixed bag of data (lacklustre CPI against firm retail sales), all in the background of US equity bourses continuing to push to new all-time-highs. US T-note futures (H0) settled 3+ ticks lower at 129-01+.

NEC Director Kudlow said appointing Judy Shelton and Christopher Waller to the Federal Reserve Board in part because they believe faster economic growth does not cause inflation, while Kudlow also suggested that that Shelton should have no difficulty getting confirmation to join the Fed. (FBN/Twitter)

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