Original insights into market moving news

[PODCAST] European Open Rundown 16th November 2021

  • Asia-Pac stocks traded mixed in a slight improvement from the inconclusive Wall St. handover
  • Opening remarks at the Biden-Xi virtual meeting set a friendly tone although expectations had been lowered ahead of the event
  • Chinese President Xi said both sides must increase communication and cooperation
  • The DXY has seen a mild pullback from advances above 95.50. EUR/USD remains sub-1.14
  • Looking ahead, highlights include UK Labour Market Report, IEA OMR, Hungarian Rate Decision, US Retail Sales, Industrial Production, Business Inventories, ECB's Lagarde, Fed's Barkin, Daly, supply from the UK. Earnings from Vodafone and Imperial Brands


US warned against travel to Czech Republic, Hungary and Iceland over COVID-19 cases, while COVID-19 travel risks for India, Japan and Pakistan was lowered to level 1, according to the CDC. (Newswires)

South Korea's serious cases of COVID-19 were said to have reached a new high, while there were separate reports that Novavax (NVAX) and SK Bioscience (302440 KS) submitted to the Ministry of Food and Drug Safety for the first protein-based COVID-19 vaccine candidate in South Korea. (Newswires/Yonhap)


Asia-Pac stocks traded mixed in a slight improvement on the inconclusive handover from Wall Street where the major indices ended a choppy session flat as yields grinded higher led by inflation breakevens, while focus shifted to the Biden-Xi virtual meeting in which the opening remarks set a friendly tone although the expectations had been lowered beforehand as tariffs were unlikely to be on the agenda and with the meeting not expected to yield further deliverables or dialogues. ASX 200 (-0.7%) and Nikkei 225 (+0.1%) were mixed with the Australian benchmark pressured by broad weakness across most its sectors and with the declines led by the mining and materials industries, while Tokyo stocks were just about kept afloat amid a choppy currency and after the recent draft details of the incoming stimulus plan but with upside capped by resistance on approach to the 30k level. Hang Seng (+1.1%) and Shanghai Comp. (-0.2%) were both initially encouraged after the warm start to the Biden-Xi meeting in which President Biden stated that he hopes the leaders meet face to face next time and that their responsibility as leaders is to ensure ties do not veer into open conflict, while Chinese President Xi said that he was happy to see his 'old friend’ and suggested that they must increase communication and cooperation. The advances in Hong Kong were led by gambling names and tech, although gains were capped for the mainland as the tempered expectations for the meeting came to fruition and with the PBoC draining liquidity, as well as lingering default concerns with Kaisa Group so far failing to make payments to its dollar bond investors due last week, but still has a grace period. Finally, 10yr JGBs declined as Japanese stocks remained afloat and with spillover selling from the bear steepening stateside which was led by inflation breakevens and amid corporate supply in the long-end, while the latest 5yr JGB auction did little to spur prices despite a higher b/c as all other metrics printed relatively inline with the previous.

PBoC injected CNY 50bln via 7-day reverse repos with the rate at 2.20% for a CNY 50bln net daily drain. (Newswires) PBoC set USD/CNY mid-point at 6.3924 vs exp. 6.3921 (prev. 6.3896)

US President Biden said at the start of the virtual meeting with Chinese President Xi that he hopes the leaders meet face to face next time and added their responsibilities as leaders of China and US are to ensure ties do not veer into open conflict, while he also suggested that common sense guardrails are needed. Furthermore, Biden said the US will always stand up for its values and countries must play by rules and that they will discuss areas US has concerns from human rights to Indo-Pacific. At the start of the meeting, Chinese President Xi said he was very happy to see his 'old friend' and that both sides face multiple challenges together, while they must increase communication and cooperation. Chinese President Xi also stated that a sound and steady relationship between their countries is required and the countries should both respect each other. while he suggested that China and US should cooperate and deal with their own domestic affairs while taking up international responsibilities. (Newswires)

Chinese state media noted after the meeting that Chinese President Xi and US President Biden discussed strategic and fundamental issues during talks and that President Xi said US and China should abandon zero-sum games with the earth big enough for development of both China and the US. Chinese state media also stated that President Biden told Chinese President Xi that the US does not back Taiwanese independence and seeks peace and stability in the Taiwan Strait, while President Xi said that China will have to take decisive measures if Taiwan independence forces cross the red line. However, the White House statement noted the US remains committed to One China policy but opposed to efforts to change status of Taiwan and that President Biden raised concerns about China's practices in Xinjiang, Taiwan, Tibet and Hong Kong, while Biden stressed the importance of freedom of navigation and safe overflight with Xi and the discussed taking measures to address global energy supplies. (Newswires)

Chinese developer Kaisa has not yet paid the interest that was due last week to dollar bond investors, although the Co. has a 30-day grace period for the interest. (Newswires)


French opposition leader Le Pen said that France should act on Brexit threats against the UK and that President Macron is not aggressive enough with the UK on fisheries. (Newswires)

EU Parliament and Council have reportedly reached an agreement for the 2022 budget. (Newswires)

ECB said it decided to increase the upper limit of cash as collateral for the Eurosystem's securities lending programme from EUR 75bln to EUR 150bln. (Newswires)


In FX markets, the DXY marginally retraced some of yesterday’s gains after having extended above the 95.00 level to print a fresh 16-month high during US hours. Nonetheless, the greenback retreated from the prior day's highs with CNY making some headway following the amicable remarks at the start of the Biden-Xi meeting, while participants also await President Biden’s decision on the next Fed Chair nomination which was suggested to be “imminent”, while FBN’s Gasparino noted Wall Street odds of a Powell reappointment at just 50-50. EUR/USD nursed some of the losses from its recent decline beneath 1.1400 but with the recovery limited after yesterday's comments from ECB’s Lagarde. GBP/USD rebounded from support near 1.3400 as the momentum in the greenback petered out although the pair remained within yesterday’s modest range despite the plethora of BoE rhetoric including from Governor Bailey who suggested that he is very uneasy about the inflation situation and that that they now have much more two-sided risks, while he added they will be looking at today's labour data and that all meetings are in-play for a rate hike. USD/JPY and JPY-crosses found some mild support as the Biden-Xi meeting got underway which also spurred upside in antipodeans, but with the gains later reversed after a lack of breakthrough at the talks as expected and amid rhetoric from the RBA which reiterated the unlikelihood of a near-term rate hike and noted that it is still plausible that the first increase in the Cash Rate will not be before 2024.

RBA Minutes from the November 2nd meeting stated they remain committed to keeping highly supportive monetary conditions and that the economy is expected to bounce back as COVID-19 restrictions are eased further, while the RBA will not increase the Cash Rate until wage and inflation criteria are met. RBA stated that a further pick up in underlying inflation is expected but would only be gradual and members acknowledged that risks to the inflation forecast had changed. Furthermore, it stated that the main uncertainties are related to persistence of current disruptions to global supply chains and behaviour of wages, although the central scenario for the economy continued to be consistent with the Cash Rate remaining at the current level until 2024. (Newswires)

RBA Governor Lowe said the latest data and forecasts do not warrant a rate increase next year and it is still plausible that the first increase in the Cash Rate will not be before 2024, while he added that there could be a case for a rate increase before 2024 if inflation increases faster than expected and that the economy and inflation would have to turn out very differently for the Board to consider increasing rates next year. Lowe also commented that underlying inflation at the 2.5% mid-point would not warrant a rate increase and they need to see inflation well within 2%-3% range, as well as be confident it will stay there. Furthermore, he stated that inflation pressures in Australia are more muted than globally and they have yet to see a broad-based rise in wages. (Newswires)


Commodities traded with marginal gains overnight in which WTI crude futures extended on the intraday rebound seen during Wall St hours to reclaim the USD 81.00/bbl level but with upside capped by a lack of solid drivers for the energy complex and amid the mixed risk tone in Asia. There were recent comments from US Energy Secretary Granholm that US President Biden is looking at the limited tools available and is evaluating SPR amid the high prices, although this failed to impact prices and was largely inline with the Biden's administration's calls for action, while focus for the complex turns to upcoming inventory data beginning with the private sector report later today. Gold was uneventful but remained afloat due to ongoing increased inflation expectations and with the greenback slightly softening overnight, while copper prices were flimsy with pressure seen after confirmation of the lack of breakthrough in Biden-Xi talks despite the early friendly rhetoric.

EIA forecasts US Permian Basin output to hit a record high of 4.953mln BPD in December to surpass the 4.913mln BPD in March 2020, while EIA total shale regions oil production for December seen +84k BPD at 8.315mln BPD (prev. 73k BPD rise M/M). (Newswires)

White House Press Secretary Psaki said the US will look at all options to reduce gasoline prices. (Newswires)

Canada's Trans-Mountain oil pipeline was shut down due to British Columbia rainstorms. (Newswires)


US State Department said Russia conducted a test of anti-satellite missile against one of its own satellites that generated debris, while it added that Russia's actions threaten the interests of all nations and called the tests dangerous and irresponsible. There were also comments from Secretary of State Blinken who stated that the US is to work with allies and partners to seek to respond to Russia's anti-satellite missile test which he stated endangers the security of those seeking to use outer space for peaceful purposes. (Newswires)

French President Macron had a call with Russian President Putin on Monday and Macron expressed his concerns over the Ukraine situation and both agreed there should be a de-escalation of migration tensions in Belarus, while Russian President Putin told French President Macron that US Black Sea operations are provocative. (Newswires/Interfax)

Pentagon said an Iranian helicopter came close to US warship in Gulf of Oman, although there was no impact on ship or operations. The Pentagon also stated that it continues to see unusual Russian military activity near Ukrainian border and will host the Ukrainian minister of defense later this week. (Newswires)

Iran, Russia and China reportedly discussed nuclear talks in a phone call. (Newswires)


Treasuries bear steepened on Monday led by inflation breakevens after the five-year TIPS breakeven rate hit the highest level since issued while corporate supply weighed on the long end. By settlement, 2s +0.2bps at 0.524%, 3s +1.3bps at 0.869%, 5s +2.0bps at 1.259%, 7s +3.3bps at 1.508%, 10s +4.4bps at 1.628%, 20s +5.6bps at 2.051%, 30s +5.9bps at 2.014%. 5yr TIPS -4.9bps at -1.935%, 10yr TIPS +1.0bps at -1.152%, 30yr TIPS +3.4bps at -0.477%. Treasuries bear steepened on Monday led by inflation breakevens after the the five-year TIPS breakeven rate hit the highest level since issued while corporate supply weighed on the long end. Initially, Treasuries tracked bonds in Europe higher on the new lockdown announcements in Austria and Netherlands while German cases continue to surge, however the initial bid was reversed amid a wave of corporate supply, particularly in the long end, and the rally in inflation breakevens. Desks highlighted that supply-linked trades started the pullback but saw further activity as real money accounts start making room for the deals. With 5yr TIPS breakeven reaching highs, desks also highlight the 5yr note yield broke through several support levels and triggered a wave of algo selling; note, CFTC data highlights net short positions in the 5yr hit its largest since November 2020 last week. Technicians also highlight 1.63% in the 10yr as next level of support, although the 30yr yield broke above the psychological resistance of 2%, the highest since November 4th, but this did reportedly reduce some of the heavier algo selling with shorts covering positions. T-note (Z1) futures settle 7+ ticks lower at 130-09+.

Fed's Barkin (2021, 2024 voter) said he does not think the infrastructure bill is a near-term stimulant and anticipates supply chain issues will last well into next year. Barkin also stated that he will watch wages and labour market for signs inflation is becoming more persistent, while he added that household and market indicators suggest inflation expectations in medium to longer term are still in line. Furthermore, Barkin noted that if the need is there, the Fed will act to curb inflation but added that it is good to have a few more months to see where reality is. (Newswires)

Fed's Kashkari (2023 voter) said the FOMC should not overreact to probable temporary factors and that he has not seen anything that indicates a shift in long term expectations. Kashkari also stated that COVID-19 remains the biggest issue for the economy, while he added that inflation is only half of the mandate and that there are millions of jobless. (Newswires)

US Senate Banking Chair Brown said he was told by White House officials that President Biden's decision for Fed Chair was imminent. (Newswires)

US President Biden signed the USD 1tln infrastructure bill into law, as expected. (Newswires)

US CBO is to release a complete cost estimate for the Build Back Better act by this Friday. (Newswires)

US Senate Majority Leader Schumer said he will add legislation to boost US competitiveness with China to the defence policy bill which the Senate are set to begin considering this week. (Newswires)