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[PODCAST] EU Open Rundown 18th March 2019

  • Asian stocks began the week mostly higher after last Friday’s tech-led upside on Wall St, China outperformed
  • A summit between US President Donald Trump and Chinese counterpart Xi Jinping could be delayed to June according to sources
  • UK PM May received backing by some staunch Brexiteers after she personally lobbied MPs but still remained significantly short of the number she needs to win a vote this week
  • In FX markets, price action was relatively quiet amid a lack of overnight catalysts and with participants tentative ahead of the upcoming central bank policy meetings
  • Looking ahead, highlights include Bundesbank Monthly Report and ECB’s Praet

 

ASIA-PAC

Asian stocks began the week mostly higher after last Friday’s tech-led upside on Wall St, but with early cautiousness observed ahead of the week’s plethora of central bank activity and amid uncertainty with the Trump-Xi summit said to be pushed back to June. ASX 200 (+0.3%) eked marginal gains as underperformance in telecoms and financials offset some of the commodity-driven strength in the Australian bourse, while the Nikkei 225 (+0.6%) was underpinned by a weaker currency following mixed data in which Trade Surplus topped estimates but both Exports and Imports contracted more than expected. Elsewhere, Hang Seng (+1.0%) and Shanghai Comp. (+1.4%)were both positive after the PBoC increased its liquidity efforts and as mainland China shrugged off an early whimsical tone caused by uncertainty from the delay of the Trump-Xi summit. Finally, 10yr JGBs were relatively unchanged with demand dampened by the gains in riskier assets and with downside also restricted by the BoJ’s presence in the market.

A summit between US President Donald Trump and Chinese counterpart Xi Jinping could be delayed to June according to sources who noted they will not be able to finalise an agreement by April. In related news, a source reportedly suggested that there was a divergence within the Trump administration regarding the deal with China. (SCMP/Twitter)

Chinese President Xi is set to visit Europe this week in efforts to bolster trade relationships. The Chinese President will travel to France, Italy and Monaco from March 21st to 26th; according to Chinese Foreign Ministry Spokesman Lu Kang. (Newswires/Xinhua) 

PBoC injected CNY 60bln via 7-day reverse repos). (Newswires) PBoC set CNY mid-point at 6.7088 (Prev. 6.7167)

Japanese Trade Balance Total (JPY)(Feb) 339.0B vs. Exp. 310.2B (Prev. -1415.2B, Rev. -1415.6B). (Newswires) Japanese Exports (Feb) Y/Y -1.2% vs. Exp. -0.9% (Prev. -8.4%) Japanese Imports (Feb) Y/Y -6.7% vs. Exp. -5.8% (Prev. -0.6%, Rev. -0.8%)

UK/EU

UK PM May received backing by some staunch Brexiteers after she personally lobbied MPs but still remained significantly short of the number she needs to win a vote this week. Furthermore, it was separately reported that 40 Tory rebels told PM May they would only support her deal if she quits as PM. (Times/BuzzFeed)

Various UK ministers suggested PM May could cancel this week's 3rd Brexit vote if there is not enough support. In related news, former UK Foreign Minister Johnson called for a delay in the 3rd Brexit vote and said it is not too late to get a real change regarding backstop. (Telegraph)

The DUP reportedly want a seat in trade negotiations with the EU in exchange for supporting PM May and there were also reports citing senior DUP figures that they held constructive Brexit talks with ministers, while sources close to the DUP also said that the regulatory alignment offer may have won over the DUP. (Newswires/Telegraph/Times)

UK opposition Labour Party leader Corbyn is to hold cross-party talks in an attempt to solve the Brexit deadlock,while he warned that PM May cannot keep bringing back an unchanged deal. Furthermore, there were reports that the labour leader signalled that his party would back an amendment aimed at securing a second Brexit referendum, set to be tabled this week. (Sky News/Guardian)

EU ambassadors were reportedly told that there is nothing in Article 50 to prevent multiple extensions but if UK has not held European elections by 23 May, it will not be able to extend again beyond 1 July. Furthermore, it was also reported that the European Council cannot attach conditions to an extension of Article 50 according to Guardian’s Daniel Boffey. (Newswires/Twitter)

British Chambers of Commerce cut its 2019 growth forecast to 1.2% from 1.3% and cut 2020 growth forecast cut to 1.3% from 1.5%, while it sees UK business investment this year to decline by most in a decade of 1.0% Y/Y due to Brexit. (Newswires)

UK Rightmove House Prices (Mar) M/M 0.4% (Prev. 0.7%). (Newswires) UK Rightmove House Prices (Mar) Y/Y -0.8% (Prev. 0.2%)

S&P raised Portugal sovereign rating from BBB- to BBB; Outlook Stable. (Newswires)

Fitch affirmed Switzerland at AAA; Outlook Stable and affirmed Norway at AAA; Outlook Stable. (Newswires)

 

FX

In FX markets, price action was relatively quiet amid a lack of overnight catalysts and with participants tentative ahead of the upcoming central bank policy meetings including FOMC and BoE. This initially provided DXY with a breather from its recent data-driven downtrend in which Industrial and Manufacturing Production numbers on Friday added to the ongoing run of soft releases ranging from jobs numbers to inflation figures, and therefore further supporting a patient view by the Fed. However, the reprieve was short-lived with the greenback later pressured amid the gradual improvement in risk sentiment which underpinned antipodeans to push AUD/USD above 0.7100, while USD/JPY was also higher but with upside capped by recent USD-woes and large option expiries totalling over 1bln at around 111.55-60 for today’s New York cut. Elsewhere, EUR/USD was relatively flat at the 1.1300 handle and GBP/USD was constrained by resistance around 1.3300 with participants bracing themselves for more potential Brexit-related impulses with parliament to possibly vote on PM May’s deal again this week prior to the European Council meeting, although some suggested this could be cancelled if there is not enough support.

COMMODITIES

Commodities were mixed overnight with WTI crude futures lacklustre after running out of steam having recently hit multi-month highs just shy of the USD 59.00/bbl level and with Brent flatlining around USD 67.00/bbl. In addition, participants await comments from the latest OPEC and Non-OPEC monitoring committee today, while the rhetoric ahead of the meeting has shown some differing views with Saudi Energy Minister Al-Falih adamant OPEC needs to stay on course regarding the supply cut deal, while his Russian counterpart Novak suggested a decision on future steps by May-June. Elsewhere, gold was flat as a lack of demand for safe havens was counterbalanced by a lacklustre greenback, while copper benefited from the improved risk appetite as well as gains in Dalian iron futures on supply concerns after a Brazilian court ordered for Vale to halt operations at another mine and as the miner suggested a 12mln tons decline in annual output due to dam suspensions. 

Baker Hughes Rig Count (15 Mar): total rigs -1 at 1026, oil rigs -1 at 833, gas rigs unchanged at 193. (Newswires)

Saudi’s February production stood at 10.09mln BPD vs. 10.24mln BPD in January, according to sources. (Newswires) 

Saudi Energy Minister Al-Falih said OPEC and its allies remain ready to continue monitoring supply and demand and doing what we have to do in H2 to keep the markets balanced. (Newswires)

Russia Energy Minister Novak said that a decision will be made on the future steps of an oil output by May-June, while he also commented that Russia has begun lowering oil output as part of the OPEC+ agreement. (Newswires)

GEOPOLITICS

Russia President Putin stated that Japan-Russia peace treaty talks need a short rest if Japan is unwilling to exit security cooperation pact with US concerning disputed islands. (Newswires) 

US

Treasuries caught a bid on Friday, in a session influenced by both flows and macro themes, where against the grain, equities made healthy gains. The T-plex gained momentum going into the US equity open, with CTA short covering and real money and hedge fund buying kickstarting the rally, also supported by a gloomy outlook from the BoJ on top of North Korea woes, and was exacerbated by the both disappointing Empire Manufacturing survey and Manufacturing/IP data. Once equities opened in the green, Treasuries lost their tailwind as traders took their profits. The curve flattened going into settlement with the belly’s yields falling the most, where the 2s/10s flattened by 2bps. However, spreads in the belly to long-end still remain at their steepest levels in months. US T-note futures (M9) settled 8+ ticks at higher 122-31.

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