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[PODCAST] EU Open Rundown 21st September 2018

Asian equity markets traded higher as the region took impetus from the rally in US where the Nasdaq outperformed on a rebound in tech

Former UK Brexit Secretary Davis warned as many as 40 MPs could vote against PM May's Chequers plan but added that Brexiteers are "reasonably terrified" of a Labour general election victory

Looking ahead, highlights include EZ and US PMIs, Canadian CPI and retail sales, Baker Hughes Rig Count

ASIA

Asian equity markets traded higher as the region took impetus from the rally in US where the Nasdaq outperformed on a rebound in tech, while the S&P 500 and DJIA notched all-time highs. ASX 200 (+0.3%) and Nikkei 225 (+0.9%) were positive with Australia led by strength in miners following the recent upside in the metals complex, while the Japanese benchmark remained underpinned by a weaker currency and approached closer towards this year’s highs. Hang Seng (+1.0%) and Shanghai Comp. (+1.0%) both conformed to the heightened global risk appetite, despite a flimsy start for mainland China after the PBoC refrained from liquidity operations and dramatically slowed its net liquidity efforts for the week. Finally, 10yr JGBs declined amid gains in stocks and after a reduction of the BoJ’s Rinban purchases of 25yr+ JGBs to JPY 50bln from JPY 60bln, which pushed the 20yr yield and 30yr yield to their highest since July 2017 and October 2017 respectively.

PBoC skipped open market operations for a net weekly injection of CNY 60bln vs. CNY 330bln net injection last week. (Newswires)
PBoC set CNY mid-point at 6.8357 (Prev. 6.8530)

Japanese Economy Minister Motegi said they will hold a 2nd round of bilateral trade discussions with US in New York on Monday, while he added he wants a win-win outcome and doesn't expect it to lead to FTA negotiations. Furthermore, Japanese Chief Cabinet Secretary Suga said PM Abe and US President Trump will meet for dinner on September 23rd and will hold a summit on September 26th. (Newswires)

Japanese National CPI (Aug) Y/Y 1.3% vs. Exp. 1.1% (Prev. 0.9%) (Newswires)
Japanese National CPI Ex. Fresh Food (Aug) Y/Y 0.9% vs. Exp. 0.9% (Prev. 0.8%)


UK/EU

Former UK Brexit Secretary Davis warned as many as 40 MPs could vote against PM May's Chequers plan but added that Brexiteers are "reasonably terrified" of a Labour general election victory and that Downing Street is "banking on" this fear. (Independent) As a heads up, Davis is due to publish his alternate Brexit plan before the Tory Party conference (30th September). (Times)

UK Cabinet minister Chris Grayling has warned there will be no deal with the EU on Brexit if it does not soften its position on the Irish border. (BBC)

An EEF survey has revealed that over 80 per cent of UK manufacturers say they are not prepared for a no-deal Brexit scenario. (FT)

ECB's Praet (dove) said markets have interpreted the ECB's reinvestment timeframe between 2-3 years, while he added he is confident Euro area inflation will converge to target and sees ample degree of monetary accommodation as necessary. Praet also commented the Euro area continues to expand at a rate that is above potential and that money market rates imply a very moderate pace of rate hikes beyond the expected date of lift off. (Newswires)

Italy's Deputy PM and Five Star Leader Di Maio said he never wanted to bring down the government and reiterated being committed to keep election promises, while Italy's League said it will govern with Five Star Movement for five years and will respect all the points in the government programme. (Newswires)

FX

In FX markets, USD was subdued with the DXY below the 94.00 level following the prior day’s slump against its major counterparts which had pushed EUR/USD firmly above 1.1700, while GBP/USD briefly eyed the 1.3300 handle as Retail Sales added to the recent GBP-supportive data releases. Elsewhere, JPY weakened further on safe-haven outflows and AUD/USD kept in close proximity to test 0.7300 to the upside with the currency mildly supported following a sovereign outlook upgrade by S&P. Chinese currencies also took a swipe at the greenback with CNY supported by a firmer fix and with USD/HKD shedding as much 2 points to trade at a 7-month low despite no news catalysts. However, some have attributed it to a breakdown of a 5-month support line and the 7.8400 handle, as well as increases in HIBOR rates in which 7-day, 3-month and 12-month rates rose to the highest since December 2008 in anticipation of a Fed hike next week and subsequent lock step move by the HKMA.

S&P maintained Australia sovereign rating at AAA; Outlook raised to Stable from Neutral. (Newswires)

COMMODITIES

Commodities were mixed with oil prices subdued following the recent Trump-triggered retreat towards the USD 70.00/bbl in which the US President renewed his calls for lower oil prices as he stated that OPEC monopoly must get prices down now and that the Middle East would not be safe for very long without the US and yet they continue to push for higher and higher oil prices. Elsewhere, gold marginally extended on this week’s gains amid a subdued greenback, while copper outperformed on heightened risk appetite and amid the Shanghai Futures Exchange launch of copper options.

Goldman Sachs revised its 12-month gold price forecast to USD 1325/oz from USD 1450/oz and said that USD is unlikely to derail its bullish outlook for commodities, while Goldman Sachs also commented that oil has the strongest fundamental outlook moving forward due to strong US demand, sanctioned declines and other disruptions to supply, as well as constrained US shale output. (Newswires)

US

Yields were modestly higher across the Treasury curve, and major curve spreads also narrowed slightly. Talk of the day was short-covering led by the long end as yields eyed 3.25% for the long-bond. A 10yr TIPS auctioned tailed by 1.5bps. US T-note futures (Z8) settled 1 tick higher at 118-19.

US President Trump said China will open up its markets to US Farmers. (Newswires)

Canada Foreign Minister Freeland said she will return to Canada tomorrow, while she added she will be in close contact with the ambassador next week by phone and email but no immediate plans for face to face talks. Elsewhere, Canada Unifor union leader Dias said parties are not close to a deal on NAFTA but added he has guarded optimism, while there were also separate reports that Canada wants guarantees it will not be hit with auto tariffs. (Newswires/Globe and Mail)

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