Original insights into market moving news

[PODCAST] EU Open Rundown 7th March 2019

  • Asian stocks were mostly lower following the negative lead from Wall Street, China wobbled after Huawei filed a lawsuit against the US government
  • EU officials are reportedly pessimistic about reaching a Brexit breakthrough. Negotiators suspect that whatever they offer will not be enough to get Parliament to back PM May's Brexit deal
  • UK PM May's Cabinet believes her Brexit deal 'will be defeated by 100 votes', Chief Whip Smith recently warned that Parliament will force a soft Brexit if deal is defeated
  • In FX markets, DXY rose to recent highs, AUD supported by trade balance and NZD rebound, EUR awaits ECB
  • Looking ahead, highlights include EZ GDP (R), ECB Rate Decision & Press Conference, BoE's Tenreyro, Fed's Brainard, ECB's Praet, supply from France & Spain
  • Earnings: Costco, Continental, Merck, Aviva, LafargeHolcim



Asian stocks were mostly lower following a three-day losing streak on Wall Street where the Dow and S&P fell to a three-week low. ASX 200 (+0.4%) was kept afloat by its telecom and utilities sectors, although upside was capped by the underperformance of its heavyweight metal and mining names. Meanwhile, Nikkei 225 (-0.8%) gave up the 21,500 level as the domestic currency gains weighed on the Japanese index. Semi-conductor name Renesas fell over 15% after Nikkei reported the company is to temporarily halt operations at 13 of its 14 production facilities amid uncertainty in China, thus Japanese chipmakers were hit in sympathy. Elsewhere Hang Seng (-0.8%) and Shanghai Comp. (-0.3%) conformed to the overall risk tone with the former pressured by Geely shares after the company fell over 3.5% amid dismal February sales, moreover the Chinese stocks wobbled after Huawei filed a law suit against the US government, but the indices ultimately came off worst levels.

US President Trump said China talks are moving along well and added that there will be a good deal with China, or no deal. (Newswires)

China and US trade negotiators have been keeping good communication to advance the final stage work, according to China Global Times editor Hi Xijin, and there will be some positive information released soon. (Twitter)

Huawei has filed a lawsuit against the US for banning equipment from certain networks. Huawei says it is not owned, controlled or influenced by the Chinese government. Company said US Congress has repeatedly failed to give evidence as to support restrictions on Huawei products. Huawei noted that the lawsuit filed against the US government is independent from the Huawei CFO case. Furthermore, separate reports said US allies in EU are said to be sceptical of Trump Admin's efforts to persuade countries from not using Huawei equipment. (Newswires)

China to make forced technology transfer illegal as Beijing tries to woo back foreign investors. (SCMP)

A Washington think-tank says China's economy is around 12% smaller than official figures indicate, and its real growth has been overstated by around 2 ppt per annum in recent years, according to new research, also added concern that China’s slowdown is more severe than the government has acknowledged.

PBoC set CNY mid-point at 6.7110 (Prev. 6.7053) (Newswires) PBoC skipped open market operations for a net neutral daily position

India is reportedly mulling retaliatory tariffs on the US worth USD 10.6bln, which comes after US decided to scrap USD 5.6bln worth of duty benefits on Indian exports by May. (Newswires)


EU officials are reportedly pessimistic about reaching a Brexit breakthrough. Negotiators suspect that whatever they offer will not be enough to get Parliament to back PM May's Brexit deal; according to sources. Furthermore, Brussels believes that unrealistic expectations have build up in London. (Newswires) EU officials have urged the UK to table fresh proposals within the next 48 hours and said they will work non-stop over the weekend if “acceptable” ideas are received to break the Irish backstop impasse. (BBC)

UK AG Cox presented two ideas to EU negotiator Barnier, that were both rejected by the EU Chief Negotiator, BuzzFeed reported. This includes the "idea of an “arbitration panel” that would determine if the two sides were acting in good faith and were being reasonable in their efforts to identify alternative arrangements to the backstop – the insurance policy that guarantees that guarantees that there can be no hard border between the Republic of Ireland and Northern Ireland in all circumstances.". "Cox also proposed the concept of a new "mini backstop" that would limit the mechanism to only cover elements that relate to border infrastructure," Buzzfeed said. (Buzzfeed)

UK PM May's Cabinet believes her Brexit deal 'will be defeated by 100 votes' after talks collapsed with Brussels. (The Telegraph) Reminder: Chief Whip Smith said If UK MPs reject PM May's deal a second time next week, parliament would take control and force a softer Brexit.

UK Upper House has voted in support of an amendment that would keep the UK in a customs union, vote: 207 to 141. The implication is that it will force the UK PM May to schedule another vote in the Commons if she wants to maintain her current policy of leaving the customs union when we leave the EU. (Newswires)

Labour Leader Corbyn is working with Tory backbenchers to reach a soft Brexit deal that can go through Parliament, he is holding cross-party talks with MPs who are backing a Norway-style deal. Corbyn said "“I left both meetings more certain than ever that we can find a way to work across Parliament to force the Government to back a sensible Brexit plan that protects jobs and more determined to achieve it.” (The Mirror)

Remain Tory MPs will today meet with senior members of French President Macron's government to discuss extending Article 50 as a path to a second referendum. (The Telegraph)

Expert panels, formed by trade and customs experts, business and trade union representatives, and MPs and peers will advise the government on developing alternatives to the Irish backstop in Brexit talks. (Sky News)

MPs have demanded to be given details of the government's plans for post-Brexit trade tariffs following reports that the Department of International trade intends to cut tariffs by 80-90% in a no-deal scenario. (Sky News)

EU wants to seal an investment deal with China by next year and will use next month’s summit with China to push for progress on a bilateral investment accord. (FT)


BOE's Saunders (Hawk) said it is possible that monetary tightening may be needed in the future, not necessarily now; says it makes sense to wait and see how Brexit unfolds, the bank will not alter its assumptions until the government has a more robust policy post-Brexit. He added that UK households will likely return to the recent trend if the Brexit deadline was extended by a couple of years; certain monetary policy could not prevent damage to the economy from a no-deal Brexit. (Newswires)

Fed's Williams (Voter, Neutral) said if strong economy continues but inflation trends lower, we might need a lower interest rate. He has no answer on when the balance sheet will end, and Fed is actively discussing the matter with a decision to come in the upcoming months. He added Sees no sign of significant inflation, despite strong labour market and moderate growth. Williams said major risks to the US economy are global; global growth concerns have materialised. (Newswires)

Fed's Beige Book: US economy continues grow in late-January/February with 10 of 12 Fed districts reporting slight-to-moderate pace of extension, two said growth was flat. (Newswires)

The Federal is mulling lowering interest rates for special investment firms and announced a request for comment. (Newswires)

Fed voted 4-1 to keep counter-cyclical buffer for banks at 0%; Fed's Brainard dissented. (Newswires)

ECB said the governing council had no objection to Phillip Lane (Dove) becoming a board member. (Newswires)


In FX markets, DXY initially eased from the prior session’s highs of 96.900 as traders in Asia digested the US record high trade deficit, however the Dollar later gained some traction which coincided with Huawei’s lawsuit against the US government. As such, EUR/USD retreated from early highs to test 1.1300 to the downside, with the aid of yesterday’s ECB sources and ahead of the ECB rate decision later today (Full preview available on the Research Suite). It is also worth keeping in mind a chunky 2.0bln in EUR/USDoptions expiring at strike 1.1250 at today’s NY cut. GBP/USD gained more ground above 1.3150 during early hours and the marginal EUR weakness alongside a pick-up in the greenback kept Cable afloat around 1.3180 throughout most of the session. EUR/GBP remained a laggard after dipping from around 0.8590 before finding some mild support at 0.8575. NZD stood as the G10 outperformer as it retraced some lost ground following yesterday’s Aussie-slump. NZD/USD breached its 100 DMA (at 0.6770) to the upside ahead of its 50 DMA at 0.6796, while the Aussie moved higher in tandem, albeit to a lesser extent. The AUD/USD was briefly dented upon the release of below-forecast retail sales, although the wider-than-expected trade surplus somewhat helped the currency resurface. UBS became the latest bank to downgrade its RBA rate forecast and now sees two back-to-back 25bps cuts in July and August this year vs. a prior view of one cut in November 2019 and one in Q1 2020. JPY and CHF benefitted from marginal safe-haven flows amidst the overall risk-averse tone. USD/JPY resided in a range of 111.60-80 ahead of its 100 and 200 DMAs at 111.40 and 111.37 respectively. In the EM FX space, USD/INR fell below 69.00 (vs. an open just below 71.00) to levels last seen in early January after it breached its 200 DMA to the downside ahead if its 50 WMA at 69.77.

Australian Retail Sales MM Jan 0.1% vs. Exp. 0.3% (Prev. -0.4%) (Newswires) Australian Trade Balance (A$) Jan 4.549B vs. Exp. 3.0B (Prev. 3.681B)


The energy complex posted modest gains as prices retraced some of the recent losses, although some desks are attributing the upside to OPEC output curbs and renewed concerns surrounding Iranian/Venezuelan sanctions. WTI futures advanced further above USD 56.00bbl but upside is capped as US output remains at a record high. Elsewhere, gold remained in a tight range ahead of this week’s key risk events, whilst copper remained subdued from yesterday’s OECD global growth cut. Finally, Shanghai aluminium hit a near three-week low after falling for the third consecutive day due to rising inventories and worries from the Chinese demand side.

Saudi Energy Minister Al-Falih reportedly said that the Kingdom is exporting around 7-8mln BPD of crude; according to Saudi press citing the Energy Minister. (Newswires)

CME lowered Nymex WTI Crude and Diesel futures margins. (CME)

Israel PM Netanyahu accused Iran of smuggling oil by sea in order to avoid US sanctions. (Newswires)

China's Hebei Province Party Chief says steel capacity will be reduce by 14mln tonnes this year followed by another 14mln tonnes in 2020. (Newswires) Note: The Hebei Province is China’s largest steel-making province


Activity has been detected at a North Korean ICBM production side; according to South Korean press. (Newswires)

US President Trump said he would be 'very, very disappointed' if North Korea is rebuilding missile site. (Yonhap)

South Korea has confirmed it has modified another US-South Korea joint drill. (Newswires)

US National Security Advisor Bolton said the US is putting foreign financial institutions on notice that they will be sanctioned if they cooperate in "illegitimate transactions" with Venezuela's Maduro and his network. (Newswires)

Venezuelan authorities have released the American journalist arrested this morning; according to local media. (Newswires) Venezuela’s government has expelled the German ambassador to Venezuela after he welcomed the opposition leader Juan Guaido on his return to Caracas earlier this week. The ambassador has been given 48 hours to leave. (FT)


Nomura's quant desk has noted the sluggishness in the global rates market. "CTAs seem to have reduced their long positions on the major DM bond futures market, but systematic selling pressure in bond futures is relatively subdued," noting that "for 10-year US Treasuries, CTAs' net position on the 10-year UST futures (TY) is close to 'flat' or slightly short," and that "as downward price momentum in TY is not so strong, systematic trend-followers have currently refrained from chasing market downside by adding short positions." That sluggishness was not apparent today, and Treasuries bull steepened as equities dropped on reported CTA selling. Today's price action seemed sentiment driven rather than event driven, with more timely reminders about the slowing global growth narrative (OECD cut outlook on Weds, BOC talked about uncertainties, Aussie GDP was soft overnight, the Beige Book mentions of "slow"). There was talk of CTA buying after a dovish ECB sources story. Action stalled in the afternoon on reports of profit taking. * US T-Notes (H9) settled 8 ticks at 121-30.

House Intelligence Panel Chairman said Former Trump Lawyer Cohen has provided documents and a cooperative testimony in the second day of hearings. Furthermore. US Representative Schiff said Cohen's material will allow then to substantially advance in the investigation. (Newswires)

Moody's, commented on the US trade deficit, says 77% widening of US budget deficit is reflected in the CRA's assessment of the US, and added it has no immediate credit impact. (Newswires)

European Equity Movers this Morning: Persimmon (PSN LN) +14.0% RBS (RBS LN) +11.0% Peugeot (UG FP) +2.6% Airbus (AI…