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[PODCAST] EU Open Rundown 9th July 2018

  • Asian stocks began the week higher across the board as the region followed suit to Wall St’s performance on Friday
  • UK Brexit Secretary Davis resigned, stating that PM May’s policy is now more likely to break the manifesto pledge and leaves the UK in a weak negotiating position
  • Looking ahead, highlights include German trade, ECB’s Praet, Draghi and Fed’s Kashkari


Asian stocks began the week higher across the board as the region followed suit to Wall St’s performance on Friday after a Goldilocks US jobs report. The broad appetite for risk saw all majors gains from the open with the ASX 200 (+0.2%) led higher by mining stocks including BHP amid reports BP is front running the bidding for its US shale assets and with Nikkei 225 (+1.2%) supported by a predominantly weaker currency. Hang Seng (+1.5%) and Shanghai Comp. (+1.7%) conformed to the upside with broad gains across the sectors in both indices and which followed the PBoC snapping its recent streak of liquidity drains, while focus in Hong Kong also turned to Xiaomi which declined over 4% in early trade on its debut due to valuation concerns. Finally, 10yr JGBs were subdued as focus was centred around stocks and amid a lack of Rinban announcement, although downside was also stemmed as prices sat near their best levels since May and at close proximity to retest resistance around 151.00.

PBoC skipped open market operations for a net neutral daily position. (Newswires)

PBoC set CNY mid-point at 6.6393 (Prev. 6.6336)


UK government outlined its Brexit negotiating position in which it commits UK to ongoing harmonisation with EU on goods that are needed for frictionless trade and stated it wants to work with EU on introduction of a facilitated customs arrangement which would remove need for all border checks between UK and EU as if a combined customs territory. The government added it will seek a different position for services which means the UK will not have current levels of access to the EU and stated that its Brexit negotiating position would end free movement of labour and return control of immigration. (Newswires)

UK Brexit Secretary Davis resigned, while he stated that PM May’s policy is now more likely to break the manifesto pledge and leaves the UK in a weak negotiating position. Furthermore, Brexit Ministers Steve Baker and Suella Braverman have also resigned, while UK PM May's office said they will name Brexit Secretary today. (Newswires) UK PM May is said to have promised to fire UK Foreign Minister Johnson if he undermines the new Brexit negotiating position, according to reports on Friday. (The Times)

UK Environment Minister Gove said the Brexit plan is a realistic compromise, while he also commented the UK will not walk away from the negotiations now but should be willing to if a "proper" withdrawal from the EU cannot be reached. (Newswires/BBC)

Jacob Rees-Mogg is to vote against UK PM May's Brexit plan, while there were also reports that Brexiteer MPs threaten to topple PM May and replace her with Jacob Rees-Mogg in anger at the PM’s Chequers deal. Furthermore, Jacob Rees-Mogg more recently commented that UK PM May's Brexit plan must be bad if Davis cannot support it and that a serious mistake by PM May led to Davis quitting. (Telegraph/Sun)

EU countries were said to be lobbying EU Brexit negotiator Barnier not to reject the UK White Paper. (Newswires)

British Chambers of Commerce said UK manufacturing and services companies’ domestic sales picked up slightly during Q2 but UK business investment plans and confidence weakened, while it added BoE rhetoric around hiking rates seems ill-judged. (Newswires)


ECB's Coeure said the ECB is not complacent to trade-war risks and that its June decision considered trade and other risks, while he added that Euro zone economy remains strong and that rate guidance has been effective. (Newswires)


In FX markets, the DXY remained subdued and below the 94.00 level in the wake of the mixed US jobs data. This saw the greenback’s major counterparts extend their gains with EUR/USD near its highest level in over 3 weeks, while GBP/USD was also firmer on PM May’s soft Brexit proposal despite a bout of pressure on the resignation of Brexit Secretary Davis and Brexit Ministers Baker and Braverman. Elsewhere, commodity-linked currencies gained amid strength in oil and metals prices, which also coincided with a firmer CNH following a larger than expected increase in Chinese Foreign Reserves.


Commodities were higher across the board in which WTI crude futures reclaimed the USD 74/bbl to the upside in an extension of Friday’s advances and amid broad upside across commodities, while there were also reports of Saudi Aramco’s chief was concerned regarding a supply crunch amid increasing demand. Elsewhere, gold was underpinned by a softer greenback following the US jobs data, while copper outperformed on the risk appetite and in tandem with an early surge in Shanghai metal prices.

Saudi Aramco CEO Nasser is reportedly concerned on oil supply crunch and sees projects such as shale insufficient in meeting increasing demand. (FT)

US Baker Hughes Rig Count (6 July): Total rigs +5 to 1052 (Prev. 1047). (Newswires)

Oil prices could hit USD 100/bbl if Iranian supply is cut, according to reports. (SHANA)


North Korean Foreign Ministry stated discussions with US Secretary of State Pompeo were 'regrettable' and accused the US of unilateral demands for denuclearization. (Newswires)

Syria stated that Israel launched a strike on a T-4 military base in Homs, Syria. (SANA)


Treasuries drifted mildly higher and the yield curve continued to flatten, though the complex gave up most of the gains seen after the solid NFP report and as equities continued to climb higher. Yields across the curve were higher by c.1bps. 10s30 narrowed by c.1bps whilst all the other spread widened by less than 1bps. US 10YR T-notes futures (u8) settles 3 ticks higher at 120-11.

Source: RANsquawk