[PODCAST] EU Open Rundown 26th March 2019
- Asian equity markets were mostly higher as the region took the consolidation on Wall St as a cue to pick itself up from the prior day’s sell-off
- UK Parliament voted (327 vs. 300) to approve government motion which included the Letwin amendment (A) of taking control of Parliament time to hold indicative votes on Brexit options
- In FX markets, price action left much to be desired with the DXY stuck around the 96.50 level as most major currencies traded rangebound overnight
- Looking ahead, highlights include German Gfk Consumer Sentiment, US Building Permits & Housing Starts, US Consumer Confidence, Fed's Rosengren, Evans, Harker & Daly, BoE's Broadbent & ECB's Makuch, German EUR Schatz Auction
Asian equity markets were mostly higher as the region took the consolidation on Wall St as a cue to pick itself up from the prior day’s sell-off. ASX 200 (+0.1%) was choppy as weakness in energy, tech and financials off-set the strength in miners, while Nikkei 225 (+2.0%) outperformed on bargain hunting after the prior day’s 3% drop and its worst performance YTD with Tokyo sentiment also boosted by currency weakness and reinvestment buying heading into ex-dividend day tomorrow. Hang Seng (-0.2%) andShanghai Comp. (-1.2%) both began higher, although sentiment in the mainland eventually deteriorated after another PBoC liquidity drain and amid tentativeness ahead of upcoming blue-chip earnings including the Big-4 banks later this week with the industry anticipated to post slower profit growth for a 5th consecutive year. Finally, 10yr JGBs were lower with demand subdued amid the heightened risk appetite in Tokyo and following the mixed results in the 40yr auction.
PBoC skipped open market operations for a net daily drain of CNY 50bln. (Newswires) PBoC set CNY mid-point at 6.7042 (Prev. 6.7098)
BoJ Summary of Opinions from the March 14th-15th meeting reiterated that although it will take time to achieve 2% target, it is necessary to persistently continue with the current powerful monetary easing as the momentum toward 2 percent is maintained. BoJ viewed Japan's economy is expanding moderately and private consumption is likely to follow an uptrend for the time being, although there was also the opinion that downside risks are clearly increasing and that there seems to be room for the conduct of JGB purchase operation to be revised. (Newswires)
UK Parliament voted (327 vs. 300) to approve government motion which included the Letwin amendment (A) of taking control of Parliament time to hold indicative votes on Brexit options. This was after MPs voted (329 vs. 302) in favour of the Letwin amendment A which seeks to change the rules of parliament on March 27 in order to provide time for lawmakers to debate and hold indicative votes. Furthermore, MPs voted (311 vs. 314) against the Beckett amendment (F) which called on the government to seek parliament approval on a no-deal if there is an agreement is not reached 1 week to Brexit date, while the Labour amendment (D) to provide parliamentary time for lawmakers to find a majority for a different approach on Brexit was not moved. (Newswires)
The Brexit Ministry said the Letwin amendment upends balance between our democratic institutions and sets a dangerous, unpredictable precedent, while it added that any options put forward by Parliament must be deliverable in negotiations with EU. In related news, 3 junior ministers resigned in order to vote for the Letwin amendment. (Newswires)
UK Brexit Secretary Barclay said the government will return to parliament if Brexit deal is not approved this week, while there were separate comments from UK Cabinet Office Minister Lidington that a further extension possibility is dependent on what parliament decides to do this week on Brexit. (Newswires)
ERG's Rees Mogg said he will support PM May's deal if the DUP does, although DUP's Sammy Wilson stated there is no chance of that happening at the moment. (BuzzFeed/Twitter)
In FX markets, price action left much to be desired with the DXY stuck around the 96.50 level as most major currencies traded rangebound overnight. EUR/USD was little changed at the weaker end of the 1.1300 handle near an option expiry for today’s New York cut and in the midst of several key DMA levels circa 1.1310-47. GBP/USD was also flat despite mild support after UK MPs voted in favour to approve the government motion including the Letwin amendment A which was against government wishes and saw 3 junior minsters resign to support the effort to take control of the Brexit process in Parliament. Elsewhere, antipodeans marginally extended on Monday’s gains with NZD/USD also propped up by a surprise Trade Surplus and better than expected Exports data, while USD/JPY initially benefitted amid the risk appetite but was capped by technical levels around 110.00 and as strength in some of the Asia-Pac bourses began to wane.
New Zealand Trade Balance (Feb) M/M 12M vs. Exp. -200M (Prev. -914M, Rev. -948M). (Newswires) New Zealand Exports (Feb) 4.82B vs. Exp. 4.70B (Prev. 4.40B, Rev. 4.33B) New Zealand Imports (Feb) 4.80B vs. Exp. 4.90B (Prev. 5.32B, Rev. 5.28B)
Commodities were mixed overnight in which WTI crude futures benefitted from the improved risk appetite and reclaimed the USD 59/bbl level but with gains limited as relevant news flow for oil remained light and with participants turning attention to the latest inventory data kicking off with this evening’s APIs. Elsewhere, gold prices pared back some of the prior day’s gains as the recovery in Asia-Pac stocks dampened safe-haven appetite, while copper extended on this week’s sideways trade as mineral mining operations in Australia begin to resume post-cyclone and as copper’s largest buyer China underperformed its regional peers.
BHP expects to resume loading iron ore ships at Port Hedland on Tuesday and ramp up output over the approaching days, while it found no major damage from the recent cyclone. (Newswires)
The Treasury complex saw another bout of bull-flattening, with the 3m/10yr spread inverting further to -7bps at one point in US trade, which put the equity complex on the defensive (analysts at Nomura have suggested this could explain some of the price action late on Friday); during that episode, 10-year yields also fell below the effective Fed Funds Rate (at 2.41%), and markets were pricing around a 75% chance that the Fed would CUT rates this year (it was 25% before the FOMC meeting last week). Today's moves - like Friday's - are being attributed to the FOMC dovishness, which is likely to be echoed in Fedspeak through the course of the week. There has been heightened attention on its implications, and specifically, what it portends for the future performance of the US economy, given that the 3m/10y part of the curve inverted aead of recessions in 2007/09, 2001, and the 1990/1 recession; it also inverted in 1998 slightly, and at the end of 1995 though the economy continued to grow. Traders have been passing around the SF Fed's analysis on yield curve spreads, penned last August, which concluded that "the traditional 10y–3m spread is the most reliable predictor (of recession), and we do not find any evidence that would support discarding this long-standing benchmark as a measure of the shape of the yield curve. US T-note futures (M9) settled 9+ ticks higher at 124-10+.
Fed's Rosengren (voter, hawk) said returning Fed assets to pre-crisis levels is not desirable nor feasible and that the balance sheet is likely to grow, while he added that it may be important to increase share of Treasury bills as well as lower duration of balance sheet more quickly. Furthermore, Rosengren noted that Fed pause is the responsible action to do now and that the dot plot is not a promise of policy direction which depends on changes to the economy. (Newswires)
Apple (AAPL) - hosted its Showtime event today, where it unveiled its expected streaming service, still with no price indication, which will included Amazon (AMZN) Prime content. Apple also unveiled: a new gaming service Apple Arcade, weighing on competitors (ATVI, EA); a new payment service “Apple Card” in collaboration with Goldman (GS) and Mastercard (MA); Apple News service for USD 9.99/month. (Newswires) Co. shares closed lower by 1.2% (S&P 500 closed lower by 0.08%)