Original insights into market moving news

[PODCAST] EU Open Rundown 22nd May 2019

  • Asian indices were mixed as markets await further US-China updates and FOMC minutes
  • US is contemplating blacklisting as many as 5 Chinese surveillance firms
  • UK PM May’s latest Brexit offer has led to a backlash from both Conservative Eurosceptics and the Labour Party
  • Looking ahead, highlights include UK CPI, Canadian Retail Sales, DoEs, FOMC minutes, ECB’s Draghi, Praet, Fed’s Williams, Bostic, and BoE’s Haldane



Asian equity markets were indecisive as the momentum from Wall St, where all majors gained as Huawei's reprieve inspired the trade sensitive sectors, somewhat dissipated as markets await the next developments in the US-China trade saga and upcoming FOMC minutes. ASX 200 (+0.1%) and Nikkei 225 (+0.3%) were mixed for most the session with Australia subdued by weakness in mining related stocks as well as financials, while the Japanese benchmark was kept afloat by recent currency weakness and after varied data releases including better than expected Machine Orders. Hang Seng (+0.3%) and Shanghai Comp. (-0.1%) diverged with the mainland cautious amid ongoing trade uncertainty and with Hangzhou Hikvision heavily pressured after reports that the Trump administration is considering restrictions on the Co. This has also weighed on other tech names, although losses in the broader market were stemmed after a liquidity injection by the PBoC and with the central bank seeking to further reduce borrowing costs for small businesses. Finally, 10yr JGBs initially softened amid gains in Japanese stocks and with participants sidelined ahead of a 20yr auction later, although prices then recovered on strong auction results in which the b/c rose to its highest on record.

US President Trump administration is said to consider placing limits on Hangzhou Hikvision Digital Technology, while reports later suggested the US is contemplating blacklisting as many as 5 Chinese surveillance firms. (Newswires/NYT)

China Ambassador to US Cui Tiankai said he thinks accusations against Huawei are groundless and that China remains ready to resume trade talks with US colleagues. Cui also stated that US has changed its mind in trade talks more than once and China is still committed, while he added that China is ready to address trade imbalance with US and buy more US goods and services. (Newswires)

China Global Times Editor tweeted that Washington is resorting to dirty tricks with Huawei and the US will suffer comprehensive losses for it, while he also suggested the US is now picking on Chinese drone maker DJI and that these moves make Chinese wonder if US is in a rush to reach a trade deal so the conclusion of the Chinese is to drag it out. (Twitter)

PBoC is to streamline lending rate system to further lower borrowing costs for small and micro companies. (China Daily)

PBoC injected CNY 20bln via 7-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.8992 (Prev. 6.8990)


Japanese Trade Balance Total Yen (Apr) 60.4B vs. Exp. 203.2B (Prev. 527.8B). (Newswires) Japanese Exports (Apr) Y/Y -2.4% vs. Exp. -1.8% (Prev. -2.4%) Japanese Imports (Apr) Y/Y 6.4% vs. Exp. 4.8% (Prev. 1.2%) 

Japanese Machinery Orders (Mar) M/M 3.8% vs. Exp. -0.7% (Prev. 1.8%). (Newswires) Japanese Machinery Orders (Mar) Y/Y -0.7% vs. Exp. -3.4% (Prev. -5.5%)



UK PM May spokesperson says the vote on customs policy will happen ASAP if and when WAB passes first legislative hurdle, and that based on outcome of votes, they will seek changes to political declaration at the EU Council in June. (Newswires)

Tory Brexiteers and Labour Second Referendum supporters have rejected May's Brexit offer, including Dominic Raab, Jacob Rees-Mogg, according to BuzzFeed, while reports also noted there are currently 51 MPs saying they will vote against UK PM May's new WAB, including 17 Tory MPs who voted for the deal last time. Some desks noted Tory MP Andrew Percy will not back PM May's deal, which is significant if true given Percy heads the centrist conservative Brexit Delivery Group, who have been trying to support May's deal from the backbenches, while Sky's Beth Rigby tweeted that there is unanimous vote of rejection for UK PM May's Brexit bill by the Brexiteer ERG group. (Twitter/BuzzFeed/Sky) Across the aisle, UK opposition Labour leader Corbyn said Labour cannot support the new Brexit bill as it doesn't make any fundamental changes and he can't see how it will get through parliament as the PM May is leaving office, while he added that PM May is only offering a temporary customs union not the permanent one which Labour wants. (Newswires)

UK senior backbenchers in 1922 Committee Executive will make a fresh attempt to force a confidence vote on UK PM May with other reports suggest Conservative MPs are calling for MV4 to be scrapped. (Sun) Note, UK PM May will be meeting with the 1922 Committee today.

German monetary hawks are reportedly pushing for ECB's Weidmann to be the successor to ECB President Draghi. (FT)



DXY was lacklustre but remained around the 98.00 level with price action rangebound heading into the FOMC minutes, while its major counterparts were also uneventful in which EUR/USD flatlined and GBP/USD composed itself following yesterday’s volatility. As a reminder, GBP/USD initially surged above 1.2800 as PM May gave details of her new Brexit offer. However, the gains were short- lived as her offer sparked backlash from the Eurosceptics and the Labour party. Antipodeans were subdued after the recent hints from the RBA of a potential rate cut next month and after Construction Work data unexpectedly contracted which is one of the inputs for GDP, while USD/JPY held on to recent gains around 110.50 as the positive risk tone in Tokyo and continued contraction in Exports dampened appetite for the JPY.

Australian Construction Work Done (Q1) -1.9% vs. Exp. 0.1% (Prev. -3.1%). (Newswires)




Commodities were lacklustre overnight with WTI crude futures subdued below the USD 63.00/bbl level following another surprise build in headline API crude inventories and as the June WTI contract also expired yesterday. However, downside has been limited amid ongoing geopolitical tensions surrounding Iran as the US acknowledged the possibility Iran could be behind the sabotage of Gulf oil interests, and reports also suggested OPEC exports were at 4-year lows due to Iran and Venezuela sanctions. Elsewhere, gold prices were kept rangebound by an uneventful greenback and ahead of the FOMC minutes, while copper mirrored the overnight tentative risk tone.

API Crude inventories +2.4mln (exp. -0.6mln, Prev. 8.6mln). (Newswires)

OPEC exports are declining to their lowest levels in 4 years in May amid lower Iranian and Venezuelan shipments. (Seeking Alpha) 



US state Department said it is seeing signs Syria could be renewing its use of chemical weapons including alleged chlorine attack on May 19th, while it added that US and its allies will respond quickly and appropriately if Syria government uses chemical weapons. (Newswires)

Saudi Arabia Cabinet said the country will do what it can to avoid any war following the condemnation of Iranian actions in the region, while it affirmed commitment to achieving balance in oil market and working towards its stability. (Newswires) 


The curve bear-flattened on Tuesday, with the complex drifting lower overnight on news that Huawei sanctions will not be immediately implemented. There was some influence from the Gilt complex in the European day, heading lower on news that UK PM May would unveil a new deal to get Brexit legislation through Parliament. The complex continued to head lower into the late US morning, after which it has been going horizontal. Wednesday's FOMC meeting minutes are the next immediate focus. Additionally, it appears progress is being made on the US Budget front, with Republican and Democratic teams meeting today to negotiate budget caps, and a deal could be announced later on Tuesday, which may also include a deal on the debt ceiling too. At settlement, major curve spreads had come in by between 1-3bps. T-note futures (M9) settled 4+ ticks lower at 124-04+.

US President Trump urged Congress to pass USMCA deal before taking up the infrastructure bill in a letter to Democratic congressional leaders, while Trump President Trump outlined infrastructure priorities in which he said the package should include energy permitting reforms and energy-related infrastructure investments. (Newswires)

US President Trump tweeted that he is disappointed that Mexico is doing virtually nothing to prevent the flow of immigrants and suggested that Mexico's attitude is that people from other countries should have the right to flow into the US and that American taxpayers should be responsible for the costs associated with this. Trump blamed Democrats for Immigration laws being "totally flawed and broken", while he added that Mexico is wrong and he will give a response soon. (Newswires/Twitter)

US Trade Representative Lighthizer will meet with EU and Japanese trade officials on Thursday to address non-market-oriented policies of other countries. (Newswires)

Fed's Bullard (Voter, Dove) said tariffs will have to stay 6-months to impact fed policy and that farming communities are very worried about the trade war. Fed’s Bullard also reiterated that US rates are at a good place right now and if anything, they are a bit restrictive, while he added the Fed may have overdone it with the December hike. (Newswires)

Fed's Rosengren (Voter, Hawk) said there is no clear need to alter the current stance of monetary policy in the near-term, while he added that the balance sheet is very close to being normalised, at a much higher rate than before the 2008 crisis and we are getting much closer to where it might need to expand. Rosengren also commented he is not worried, like some of his colleagues, about undershooting the Fed's inflation target and that Dallas trimmed mean is providing a better indication of underlying inflation pressures. (Newswires)

Potential Fed nominee Judy Shelton "would seek shake up of interest rate policy". (WSJ)

Source: RANsquawk

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