Original insights into market moving news

[PODCAST] EU Open Rundown 28th January 2019

  • Asian equity markets initially began the week mostly higher, however the region later failed to hold on to early gains
  • Ireland said it will not accept changes to agreement aimed at avoiding a hard border, while UK PM May reportedly told cabinet ministers privately, she will not allow Britain to exit without a deal
  • US ended the government shutdown after a tentative agreement was reached on a stopgap bill to fund the government till February 15th but President Trump said he will declare an emergency if a deal is not reached
  • Looking ahead, highlights include US National Activity Index, ECB’s Draghi, BoE’s Carney, Fed’s Mester, US 2yr and 5yr Auction

EARNINGS: Caterpillar, T Rowe, Atlas Copco


Asian equity markets initially began the week mostly higher as the region resumed the positive momentum seen on Friday in the US, where all majors gained and President Trump agreed with lawmakers to end the record-long government shutdown. This lifted sentiment across the Asia-Pac bourses in early trade with ASX 200 and Nikkei 225 (-0.7%) the exceptions as Australia remained closed for holiday and Japanese stocks were hampered by recent currency flows, with Japan Display among the worst hit after it flagged a severe situation regarding its FY net. Elsewhere, Hang Seng (-0.3%) and Shanghai Comp. (-0.3%) positive for most the session as corporate updates also provided a catalyst in which Sinopec were underpinned by an increase in preliminary FY net and revenue. However, the region later failed to hold on to early gains amid several factors including PBoC liquidity inaction, a consecutive monthly decline in Chinese Industrial Profits and looming risk events including US-China trade discussions. Finally, 10yr JGBs were relatively uneventful with only brief support despite the underperformance of Tokyo stocks and BoJ presence in the market for JPY 1tln of JGBs, while the BoJ minutes from the December meeting also failed to garner a reaction as it provided no surprises and considering there was also a more recent meeting held last week.

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.7472 (Prev. 6.7941)

Chinese Industrial Profits (Dec) Y/Y -1.9% (Prev. -1.8%). (Newswires)

WTO is expected to announce probe into whether US tariffs on China violate WTO rules. (Newswires)

Chinese Premier Li said China's economy has enough resilience, as well as potential and ample space for growth, while he added they are fully confident and able to keep growth within appropriate range despite multiple risks and challenges this year. (Xinhua)

BoJ December meeting minutes stated that members said it is appropriate to continue easing persistently and that CPI was likely to gradually increases towards target. The BoJ also stated that financial conditions are highly accommodative, while one member suggested that long-term yields should be allowed to temporarily turn to negative. (Newswires)


Ireland said it will not accept changes to agreement aimed at avoiding a hard border and that the backstop was already a compromise drawn up to meet May's negotiating redlines, while the EU and Ireland were said to be united in the view it was not going to change, according to reports citing Deputy PM Coveney. (Newswires)

UK PM May reportedly told cabinet ministers privately she will not allow Britain to exit without a deal, although is said to not be ready to rule out a no-deal publicly as it would impact negotiations with Brussels. (The Sun)

Remain ministers stated during a secret conference call that UK PM May must commit to securing her Brussel deal within 2 weeks to avoid resignations regarding a no-deal Brexit. In related news, Conservative MPs loyal to PM May are reportedly threatening to abandon support for her Brexit deal and will push for a soft Brexit if Parliament passes Labour MP Cooper’s proposal which could delay the withdrawal date. (Telegraph/Times)

House of Commons leader Leadsom said EU could delay Brexit to get a deal through, while she added backstop issue must be resolved and that many conservative MPs and the DUP can support PM May's deal. (BBC)

Former UK Foreign Minister Johnson said PM May plans to renegotiate the backstop with EU, citing senior sources. (Telegraph)

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


In FX markets, the DXY remained subdued following its slip to below the 96.00 level and recent reports which suggested Fed officials were nearing a decision on ending the balance sheet wind-down sooner than expected. This kept its major counterparts afloat with EUR/USD above 1.1400, while GBP/USD rose to its strongest in more than 3-months and briefly reclaimed the 1.3200 handle. The latest reports suggested UK PM May privately ruled out a no-deal to cabinet ministers but was not prepared to declare this publicly as it would impact negotiations, while PM May is reportedly planning on renegotiating the backstop with Brussels although Ireland refused to budge and said it will not accept changes to the agreement aimed at avoiding a hard border. Elsewhere, high-beta currencies found support from the early positive risk tone, while USD/JPY was dragged lower and the PBoC set the firmest CNY fix since July 19th in the wake of the subdued greenback.


Commodity prices began the week mixed in which WTI crude futures lacked any significant drivers and consolidated within a tight range, while gold was also flat as it took a breather from Friday’s rally which had buoyed the precious metal to a 7-month high and above the USD 1300/oz level amid expectations of a pause on rate hikes and reports that Fed officials are also nearing decision to end bond portfolio runoff sooner than expected. Elsewhere, copper saw a mild pullback from last week’s highs and aluminium prices were pressured after the US lifted sanctions on Rusal, while iron ore prices gained in the aftermath of a deadly Vale dam disaster in Brazil.

Baker Hughes Rig Count (25/Jan): oil rigs up 10 at 862, nat gas down 1 at 197, total up 9 at 1059. (Newswires)

Venezuela's President Maduro said they are ready to ship oil exports away from the US if needed, while there was a source report that stated the US lobbied UK officials to cut off the Maduro regime from gold and that UK is said to deny Maduro's bid to pull out USD 1.2bln of gold. (Newswires)

US Treasury Department lifted sanctions on Rusal and other companies associated with Russian billionaire Deripaska. (Newswires)


US Senator Graham said President Trump spoke to him regarding possibility of using military force in Venezuela. (Axios)

US and Taliban officials in Doha, Qatar were reportedly finalizing a draft agreement that will end the 17-year-old war in Afghanistan. (Newswires)


The treasuries complex drifted lower on Friday as equities rebounded as investors are hopeful on a mix of key events next week including US and China trade talks and the Fed interest rate decision. Rumours of a potential end to the government shutdown pushed treasuries to new lows; the complex remained around these levels after US President Trump confirmed a tentative deal has been reached with lawmakers to end the government shutdown until February 15th. Most of the actions was concentrated in the belly of the curve where yields were higher by c.5bps at settlement. Spreads were narrowly mixed. US T-note futures (H9) settled 11 ticks lower at 121-13.

US ended the government shutdown after a tentative agreement was reached on a stopgap bill to fund the government till February 15th while negotiations continue on funding for a border wall. Furthermore, President Trump said he will declare an emergency if he doesn't reach a deal, while an administration official said the final deal to keep government open must have wall funding but does not have to amount to USD 5.7bln to get the White House’s approval. (Newswires)

US President Trump said he sees less than a 50% chance of reaching a deal by Feb 15th and he is open to declaring a national emergency if lawmakers fail to provide funding for border wall and was said to have told advisers that declaring a national emergency may now be his best option. Trump added that another shutdown is certainly an option and dismissed suggestions he would accept less than USD 5.7bln for the border wall. (WSJ/Washington Post)

Busy week ahead, via Danske: