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[PODCAST] EU Open Rundown 14th March 2019

  • Asian stocks were initially higher across the as the region took early impetus from the US. However, the risk tone was eventually clouded as participants digested Chinese data
  • UK Government Brexit motion to rule out a no-deal in any scenario and Brexit Amendment A were both accepted by the HoC last night
  • Focus now turns to today’s vote on potentially extending Article 50; Government extension motion proposes an extension until June 30th
  • US President Trump said he is in no rush to get a China trade deal and that it is going along very nicely
  • Looking ahead, highlights include, German & French CPI (Final), US Import/Export Prices & Jobless Claims, HoC Vote on Extending the Brexit Negotiating Period, US Treasury Secretary Mnuchin budget testimony, ECB's Nowotny & Lane, BoC's Wilkins Speaking
  • Earnings: Bollore, Generali, Adobe, Oracle

 

ASIA-PAC

Asian stocks were initially higher across the as the region took early impetus from the US, where sentiment was underpinned by favourable data. This saw all US major indices finish positive with the S&P 500 at a 4-month high and in turn spurred the momentum in Asia, although the risk tone was eventually clouded as participants digested Chinese data. ASX 200 (+0.3%) and Nikkei 225 (+0.1%) both gained at the open with energy the outperformer in Australia after oil prices hit their best levels since November, while SoftBank shares were among the top gainers in the Japanese benchmark after reports it is in discussions regarding a USD 1bln investment into Uber’s self-driving unit. Chinese markets instigated a turnaround but with the downside in the Hang Seng (Unch.) limited by notable strength seen in China’s oil majors and as China Unicom rallied post-earnings, while Shanghai Comp. (-1.2%) underperformed and fell below the 3000 level following mixed data with Retail Sales inline with expectations and Industrial Production at a 17-year low. Finally, 10yr JGBs were lacklustre amid upside in Tokyo stocks and as the BoJ began its 2-day policy meeting, although there was a different picture in the longer-end as both 20yr and 30yr JGB yields fell to November 2016 lows.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.7009 (Prev. 6.7114)

Chinese Industrial Production YTD (Feb) Y/Y 5.3% vs. Exp. 5.6% (Prev. 6.2%); weakest in 17 years. (Newswires) Chinese Retail Sales YTD (Feb) Y/Y 8.2% vs. Exp. 8.2% (Prev. 9.0%)

US President Trump said he is in no rush to get a China trade deal and that it is going along very nicely.Trump also commented that there is a very good chance there will be a deal with China and that It does not matter whether a deal is made at or before a summit, while he added that Chinese President Xi has seen that he can walk away. (Newswires

UK/EU

UK Government Brexit motion was accepted in Parliament through votes of 321 for vs. 278 against (margin of 43) which calls on the Government to rule out a no-deal in any scenario. Brexit Amendment A was also accepted by 312 for vs. 308 (margin of 4) which rejects the UK leaving the EU without a Withdrawal Agreement and a Framework for the Future Relationship, removing any reference to the default position of a no-deal Brexit, while the “Malthouse Plan B” Amendment F was rejected by 164 for vs. 374 against (margin of 210), which ITV's Political Editor Peston suggested shows remainers are taking hold of Brexit. (Newswires) Note, four senior Tory ministers abstained from last night’s vote on the no-deal Brexit motion: Works and Pensions Secretary Amber Rudd, Justice Secretary David Gauke, Business Secretary Greg Clarke and Secretary of State for Scotland David Mundell. Furthermore, middle-ranking minister Sarah Newton resigned after voting against the government. (Sky News)

UK PM May said the House has provided a clear majority against leaving without a deal and the onus is now on us in the house to find a solution, while the legal default position remains that UK will leave without a deal unless something else is agreed. PM May further commented that the options remain the same in which we could have a second referendum but that would risk no Brexit at all and that the EU has been clear this is the only deal available, while she added that without getting a consensus on a deal in the coming days there will need to be a longer extension which would require the UK to take part in EU elections. (Newswires)

UK House Speaker said Government extension motion proposes an extension until June 30th. In related news, there were earlier reports that Government Officials are making contingency plans for European Elections if Brexit is delayed according to the Guardian’s Political Correspondent, while the Telegraph reported that EU officials will tell PM May to ask for a lengthy extension to the Brexit negotiations at an EU summit next week. (Newswires/Guardian/Telegraph)

UK PM May reportedly prepares a 3rd vote on the Brexit deal and is also said to warn Tory rebels to back her deal by next week or risk a long extension to Article 50. There were also reports that some ERG MPs said they will support PM May's deal in a 3rd meaningful vote on the condition PM May resigns according to BuzzFeed’s senior political correspondent Wickham. However, ERG's Baker said we will keep voting down UK PM May's deal and ERG’s Francois also said he would not back PM May’s deal. while the PM’s office UK PM May office said PM May is not mulling resigning and that the default position remains that the UK is to leave the EU on 29 March. (Newswires/Times/Guardian)

ECB's Coeure (neutral) said TLTROs are instruments that are equal and accessible everywhere, while he added that Italy faces a challenge, particularly longer-term growth, which has nothing to do with the EU and is not a threat to the EU. (Newswires)

UK RICS Housing Survey Feb -28 vs. Exp. -24.0 (Prev. -22.0). (Newswires)        

FX

FX focus was once again on GBP which rallied by around 2% to a 9-month high on Wednesday after Parliament voted for the UK Government Brexit motion which calls on the Government to rule out a no-deal in any scenario. However, GBP/USD has significantly pulled back overnight to firmly below 1.3300 as uncertainty remains considering that motions are not legally binding and that a no-deal remains the legal default position; next up for GBP is today’s vote on a potential extension to Article 50. Elsewhere, the DXY found some much-needed reprieve from yesterday’s slip from the 97.00 level and its 4th consecutive loss, as its major counterparts traded lacklustre in which EUR/USD faded some of the prior day’s gains and with antipodeans dampened by the China data, while USD/JPY and JPY-crosses remained underpinned by the positive risk appetite in Japan and amid a decline in Japanese longer-term yields. 

COMMODITIES

Commodities were mixed overnight in which WTI crude futures remained afloat after the prior day’s gains of more than 2% to above the USD 58.00/bbl and its best levels in 4 months. This was attributed to risk sentiment and inventory data as the DoE inventories report showed an unexpected drawdown in headline crude stockpiles, while analysts also noted lingering factors such as Venezuela output uncertainty and OPEC+ reductions adding to the bullish backdrop for prices. Elsewhere, gold continued to pullback marginally overnight as the greenback found mild reprieve and copper was dampened after the poor Industrial Production numbers and subsequent underperformance from its largest buyer China.

 

US is seeking to reduce Iran oil sales by about 20% to below 1mln bpd from May and is likely to renew sanctions waivers to Iranian oil buyers but could deny waivers to countries not using them, according to sources. (Newswires)

 

CME lowered COMEX 5000 silver futures margins by 8.4% to USD 3300 per contract and lowered COMEX copper futures margins by 11.1% to USD 2400 per contract. (Newswires)

GEOPOLITICS

US plans to test-launch missiles later this year after President Trump recently pulled out of the Nuclear Force Treaty. (Newswires) 

US Senate voted 54-46 to end US support for the Saudi-led war in Yemen. (Newswires)

 

US

Treasury futures were in the red as US traders got to their desks in the morning’s risk on sentiment but pared back losses as the session progressed. The T-plex got off on a downward path as CTAs and real money reportedly pared long positions in the front-end through the belly while the leveraged accounts weighed down the long-end. The long-end of the curve sold off going into the Treasury auction for USD 16bln of 30-yr bonds today, which saw a high yield of 3.014%, the lowest yield since July last year and tailing the WI by 0.8bps. Domestic demand was a little disappointing with directs taking a small share and dealers taking a large share, although indirects took a fair chunk too. Going into settlement, there was steepening across the curve with the front-to-long end being the most pronounced, 2s/30s widened by 1.8bps. US T-note futures (M9) settled half a tick lower at 122-27+.

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