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[PODCAST] EU Open Rundown 8th April 2019

  • A mixed start to the week for Asian indices, as Friday’s momentum fades and markets catch up from their extended weekend
  • On the Brexit front, the government is prepared to change the Political Declaration to achieve a deal while the EU thinks May’s short extension is risky
  • Looking ahead, highlights include German Trade, US Factory Orders, Durables Revisions, ECB’s de Galhau, BoC’s Wilkins, Norges Bank’s Olsen, Riksbank’s Floden

 

ASIA-PAC

Asian equity markets began the week mixed as the region somewhat failed to sustain the initial momentum from last Friday’s gains on Wall St, where all majors edged higher and the S&P 500 notched a 7-day win streak after the latest NFP data. ASX 200 (+0.6%) and Nikkei 225 (-0.2%) both opened higher with commodity-related sectors among the biggest gainers in Australia due to strength in metal prices and after WTI crude rallied to fresh YTD highs above the USD 63.00/bbl level, while risk appetite in Japan was less decisive and eventually waned as exporters contended with flows into JPY. Hang Seng (+0.3%) and Shanghai Comp. (-0.1%) were initially buoyed on return from their extended weekend as they played catch up to the optimism from last week’s US-China trade talks in which both sides noted significant progress was made and with discussions to continue via teleconference this week, while China also plans to ease the burden on businesses in which it will reduce companies’ social insurance contributions by CNY 300bln. However, the mainland gradually deteriorated as some were kept cautious by reports that plans for a US-China joint statement hit a stalemate due to differences regarding access to China’s market. Finally, 10yr JGBs were mildly higher with prices supported as the initial positive momentum in the region waned and with the BoJ present in the market for JPY 280bln in JGBs, while prices also tracked the rebound seen in T-notes in the wake of the US jobs data where weak wage growth subsequently saw the probability of a Fed rate cut this year increase to 75% before paring back to 50%.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.7201 (Prev. 6.7055)

China and EU leaders' plans for a joint statement hit an impasse amid opposing views on the extent of how much access to China's market should be improved. (SCMP)

Chinese FX Reserves (USD)(Mar) 3.099tln vs. Exp. 3.095tln (Prev. 3.09tln). (Newswires)

UK/EU

UK government spokesperson said the government is prepared to seek changes to the political declaration in order to deliver a deal that is acceptable to both sides. (FT) The Times reports that PM May is set to offer Jeremy Corbyn a legally binding soft Brexit deal with a “Boris lock” that would make it difficult for a future Eurosceptic prime minister to tear up after she leaves No 10. Times) Conservative MPs are warning that they will move to remove UK PM May within weeks if the UK is forced to partake in EU elections and extend membership beyond the end of June. (Guardian)

UK opposition Labour party said "we are disappointed that the government has not offered real change or compromise and urge the PM to come forward with genuine changes according to Business Insider's Payne, while ITV Political Editor Peston noted the UK government and opposition Labour party talks to end Brexit deadlock are close to collapsing. (Business Insider/ITV)

EU reportedly thinks UK PM May's request for a short delay to Brexit is "very risky" if MPs don’t approve the prime minister’s Brexit deal before the extension is granted. (BuzzFeed)

Manufacturers are calling on PM May to revoke article 50 if she fails to strike a Brexit agreement next week, in the latest sign that the looming possibility of Britain leaving the EU without a deal is hammering confidence in the sector. (Times)

Fitch affirmed Belgium at 'AA-'; Outlook Stable. (Newswires)

FX

In FX markets, price action was relatively quiet and typical of the post-NFP lull in which the DXY gave back some of its recent gain. This helped its major European counterparts recover recent lost ground with EUR/USD now lingering near a large option expiry of EUR 1.4bln at 1.1225, while GBP/USD resumed its rebound from support around 1.3000. Conversely, antipodeans remained hampered by the current dovish consensus for their respective central banks and with AUD/USD dejected after it slipped below the 0.7100 handle, while USD/JPY was lower amid a deterioration of risk appetite and technical selling in related crosses in which EUR/JPY and NZD/JPY tested support at the 125.00 and the 75.00 levels respectively.

COMMODITIES

 

Commodities were higher overnight in which WTI crude futures extended on the post-NFP gains to print a fresh YTD high above the USD 63.00/bbl level after Friday’s US jobs data and supply side factors including further sanctions on Venezuela’s PDVSA and with the escalating situation in Libya where 21 were killed in a battle between the UN-backed government and rebel forces attempting to capture Tripoli. Elsewhere, gold prices were mildly underpinned as the greenback softened overnight and copper benefitted amid gains across Chinese commodity prices in which Dalian iron ore futures extended on record highs, while Shanghai rebar and hot rolled coil rallied over 3% shortly after the open.

 

Baker Hughes (April 5): oil rigs +15 at 851, gas rigs +4 at 194, total rigs +19 at 1025. (Newswires)

 

White House is planning an executive order which aims to boost pipeline construction and lower energy prices. (CNBC)

US was reportedly mulling further sanctions on Venezuela financial sector and is also sanctioning 34 ships owned/operated by PDVSA. (Newswires)

 

GEOPOLITICS

Fighting between rebel forces and Libya’s UN-backed government near Tripoli resulted to 21 deaths and many injuries. (BBC)

US

Treasuries initially had a downward bias on Friday after US President Trump talked about reaching a trade deal with China within four weeks, while his Chinese counterpart were also optimistic. Selling resumed after German industrial production beat expectations, after a run where manufacturing data had been grim (however, the sector remains in recession). There was two-way action during the payrolls report, with upside being seen on a weaker wages number, though sellers were latching on to the above-trend headline. The probability of a Fed rate cut this year rose to 75% after the data, though pared back to around 50% as the dust settled. The Treasury complex remained near highs after Trump reiterated his preference for loose monetary policy. At settlement, curve spreads were slightly narrower. US T-note futures (M9) settled 1+ ticks higher at 123-19.

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