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[PODCAST] US Open Rundown 12 March 2019

  • UK PM May secured assurances from the EU regarding the Northern Irish Backstop
  • Sterling loses some of its stride ahead of AG Cox’s verdict and the meaningful vote
  • European equities are somewhat mixed having waned off opening highs [Euro Stoxx 50 U/C]
  • Looking ahead, highlights include US inflation, API crude inventories, UK House of Commons to vote on PM May’s Brexit deal

 

ASIA

Asian equity markets traded mostly higher as the region took impetus from the M&A inspired tech-led rally on Wall St and with sentiment also underpinned on Brexit related optimism after UK PM May’s last-ditch effort to reach an agreement with the EU resulted in legally binding changes that is said to strengthen and improve the withdrawal agreement. ASX 200 (U/C) was led higher by the energy sector following recent strength in oil prices but with gains eventually pared by weakness in gold miners and financials, while the Nikkei 225 (+1.8%) outperformed with the JPY-risk dynamic in full swing. Elsewhere, Hang Seng (+1.5%) and Shanghai Comp. (+1.1%) conformed to the heightened risk appetite and tech-kindled momentum, while China’s tax commissioner reiterated to enact significant tax cuts and there were also reports that top US and China trade negotiation officials discussed key issues and set the next steps in working arrangements over the phone. Finally, 10yr JGBs were initially subdued with demand sapped as focus was centred on riskier assets and with participants tentative ahead of a 5yr JGB auction, although prices then found mild support on return from the lunch break and after the auction results printed relatively inline with the previous. 

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

PBoC set CNY mid-point at 6.7128 (Prev. 6.7202)

 

Chinese Vice Premier Liu He conducted a phone call with US Treasury Secretary Mnuchin and Trade Representative Lighthizer in which they discussed key issues regarding ongoing trade talks and set the next steps in working arrangements. (Xinhua)

US

US Senior Treasury Official says what we have seen of the most recent French digital tax proposals could be 'highly discriminatory' against US business, & various parts of US government are studying whether this would right to react under trade agreements. (Newswires)

UK/EU

*PLEASE SEE THE HEADLINE FEED FOR A ROLLING BREXIT ANALYSIS POST AHEAD OF THE MEANINGFUL VOTE. 

UK PM May secured legally binding changes that strengthen and improve the withdrawal agreement, according to UK cabinet office minister Lidington who added that the whole UK cabinet approves of Brexit deal improvements. Lidington announced to lay a joint legally binding instrument and joint statement in parliament which provides confirmation EU cannot try to trap the UK in the backstop and if EU were to act with that intention, the UK could use it as basis for formal dispute through independent arbitration, while the joint statement said EU and UK commit to finding alternative arrangements to the backstop by 2020. However, PM May did not get the power to unilaterally exit the backstop, nor did she get a time limit placed on it. (Newswires)

European Commission President Juncker told reporters that the legal add-on to the Brexit deal which stresses the temporary nature of the backstop, complements the withdrawal agreement without reopening it. Juncker also warned if her deal is voted down, there was “no third chance”. Juncker said the EU wants the UK to exit an orderly way and we have a deal which does that. Juncker also commented there will be no new negotiations on Brexit and that it is this deal or Brexit may not happen at all, while he added that the UK must leave by May 23rd or hold elections for EU lawmakers. (Newswires/Guardian)

UK PM May said the UK will make a unilateral declaration that there will be nothing to stop UK from leaving backstop if talks break down and that we have secured what parliament has asked for regarding the backstop, while PM May added she stands by what Brexit deal achieves for Britain and that it sets us on course towards a good future relationship with the EU. Furthermore, the Times reported that PM May is understood to have discussed the possibility of extending Article 50 with EU’s Juncker. (Newswires/Times)

ERG's Rees Mogg said it was too early to say if this is enough but it’s a move in right direction, while ERG's Baker suggested it was not the first time the UK government has had to put a very good gloss on something which falls short of what was expected. Elsewhere, UK MP Collins said he will be voting against the government's motion on EU withdrawal and the DUP said it will study the detail of the latest EU-UK agreement, while UK opposition Labour Party Leader Corbyn said PM May's negotiations have failed and agreement with EU does not contain changes PM May promised parliament. (Newswires/BBC)

BBC Newsnight political editor tweeted 'Leading Brexiteer tells me: PM’s agreement with EU tonight just about looks OK. All down to Geoffrey Cox. If can provide robust legal advice that the UK can get out of the NI backstop, then this should go through'. (Twitter)

EU is said to be preparing for a delay to Brexit of at least a year, according to senior officials. (Times)

Irish PM Varadkar says the agreements outcome is positive, hopes it will be endorsed by parliament; adds the instrument does not undermine the backstop or applications. (Newswires)

Government Ministers seem wary regarding the idea of Attorney General Cox answering questions on his legal advice; BBC's Smith. (Twitter) Cabinet sources concerned that Attorney General Cox's advice will not be strong enough to win over the DUP/ERG; Times Coates.

Attorney Gernal Cox to make his statement on the legal opinion at 12:30 GMT, if there are no UQ this should begin at around 12:35; Parly. (Twitter)

New assurances do not meet tests for allowing the UK to override backstop set by ERG; according to top lawyers. (Guardian)

- do not allow the UK to terminate the backstop in the event that negotiations over its future relationship with the EU cannot be brought to a satisfactory conclusion

- do not provide the UK with a right to terminate the backstop at a time of its choosing, or indeed at any time, without the agreement of the EU

 

UK PM May's pitch to MPs said to say that the new deal "may not be everyone's perfect vision of Brexit - but we have won some important legally-binding changes, the unilateral decleration means there is ‘nothing to prevent’ the UK breaking off backstop"; according to Telegraph's Swinford. (Twitter)

 

A Parliamentary party meeting and a 1922 committee meeting are reportedly scheduled for 11:30 GMT. (Newswires)

EU27 ambassadors will meet at 09:00 tomorrow in Brussels, to deal with the meaningful vote fall out; FT Brussels Correspondent. (Twitter)

UK GDP Estimate MM (Jan) 0.5% vs. Exp. 0.2% (Prev. -0.4%)

- UK GDP Estimate YY (Jan) 1.4% vs. Exp. 1.2% (Prev. 1.0%)

- UK GDP Est 3M/3M (Jan) 0.2% vs. Exp. 0.2% (Prev. 0.2%)

 

EQUITIES

European equities are somewhat mixed having waned off opening highs [Euro Stoxx 50 Unch] following a relatively upbeat Asia-Pac session. Sector wise, energy stocks lag their peers alongside telecom names, whilst consumer discretionary outperforms. FTSE 100 (Unch) has been fluctuating with the Pound ahead of tonight’s Brexit Meaningful Vote (analysis available on the headline feed).UK banks are faring well with RBS (+3.0%), Lloyds Group (+2.7%) and Barclays (+1.6%) shares all higher on the latest Brexit developments where PM May secured “legally binding” assurances on the NI backstop. Upside in UK homebuilders [Persimmon +3.9%, Taylor Wimpey +2.7%] are also attributed to Brexit progress. Elsewhere, German Union Verdi has disapproved the proposed merger between Deutsche Bank (-1.5%) and Commerzbank (-1.2%), although share prices were little moved as the news hit the wires. Volkswagen (-0.5%) reported their final numbers which were largely in-line with the prelim report. Finally, State-side, Boeing (-2.0%) shares resumed its decline after Australia became the latest country to ground the Boeing 737 Max 8.

FX

GBP - Some volatility around the raft of UK data that was mostly better than expected, but ultimately it’s all about the looming Meaningful Vote after PM May managed to secure last minute legally binding assurances to the Irish backstop. Sterling remains elevated across the board, though some way off best levels as Cable pivots 1.3200 vs almost 1.3290 at one stage and Eur/Gbp rebounds from circa 0.8475 lows towards 0.8550 awaiting several potentially key and game-changing events before the debate starts in Parliament and the ballot begins from 19.00GMT. In terms of the aforementioned major factors that could have a bearing on the outcome, the Attorney General’s verdict on the addendums to the WA appear paramount and are expected before 11.30GMT when the ERG is scheduled to meet and formulate opinions. On that note, independent legal advice for the Group concludes that the assurances still fall short of providing the UK with a get out from the contingency arrangement, but the DUP decision could sway the ERG’s final judgement.

NZD/CHF/EUR/AUD - All firmer vs the Greenback that remains soft in wake of Monday’s mixed US retail sales release and due to Sterling’s extended recovery from sub-1.3000 lows, as the DXY straddled 97.000. The Kiwi is hovering just below 0.6850 and Franc is back above 1.0100, while the single currency has consolidated its comeback from post-ECB levels under 1.1200 to trade nearer the top of a 1.1245-90 range. Note, several big option expiries in Eur/Usd are close enough to influence trade into today’s NY cut, with 1.4 bn at 1.1250, 2.2 bn at 1.1225 and 1.9 bn at 1.1200 vs 1 bn at 1.1300. The Aussie has also benefited from a general improvement in risk sentiment within 0.7058-80 parameters, but still lagging its NZ peer as the Aud/Nzd cross remains capped ahead of 1.0350.

SEK/NOK - Mixed fortunes for the Scandi Crowns as softer than forecast (overall) Swedish inflation data contrasts with recent Norwegian CPI and the Nok also derives momentum from firm oil prices along with an upbeat Norges Bank regional survey. Hence, Eur/Sek sits around 10.5700 vs Eur/Nok circa 9.7350, +0.15% and -0.15% on the day respectively.

FIXED INCOME

Gilts continue to lead the way, and have rebounded quite sharply from worst levels as the countdown to major events in UK Parliament gets down to the wire. The 10 year UK benchmark is still around ½ point below Monday’s Liffe close but 40+ ticks above the low and Bunds have reduced their arrears to just 3 ticks vs 61 ticks at the 132.92 Eurex base. Meanwhile, US Treasuries are marginally softer and the curve a tad steeper ahead of US CPI, a speech from Fed’s Brainard and the 2nd slug of this week’s supply in the form of Usd24 bn 10 year notes.

COMMODITIES

WTI (+0.9%) and Brent (+0.9%) futures continue edging higher on the back of heightened risk appetite wherein the former extended gains above USD 57.00/bbl whilst the latter gained a firmer footing above USD 67.00/bbl. Traders will be eyeing tonight’s release of API crude inventories following last-week’s much wider-than-expected build in stocks.

Elsewhere, gold (+0.3%) posts marginal gains, aided by a mild pullback in the Greenback, copper (+1.4%) on the hand outperformed on the firmer risk sentiment.

OPEC Secretary General Barkindo that the oil market rebalancing continues to be a work in progress and supply adjustments will continue this year. (Newswires)

US Secretary of State Pompeo said US is to withdraw all remaining diplomatic staff from Venezuela this week. (Newswires)

India's government has warned companies to stop purchasing Venezuelan oil or face undisclosed consequences, according to Petroleum Secretary Kutty who added that large companies have already stopped accepting Venezuelan crude. (Newswires)

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European Equity Movers this Morning: Persimmon (PSN LN) +14.0% RBS (RBS LN) +11.0% Peugeot (UG FP) +2.6% Airbus (AI… https://t.co/CLr4moTta4