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[PODCAST] EU Open Rundown 12th August 2019

  • Asian equity markets began the week with a cautious tone, Japan, India and Singapore were away on holiday
  • In FX markets, the DXY was flat, EUR and GBP received some mild reprieve and USD/JPY revisited Friday’s lows
  • China Global Times Editor tweeted that as long as US forces a deal on China through maximum pressure, there will never be a deal
  • UK MPs are reportedly drawing up plans to force PM Johnson to request a Brexit extension, while Labour MPs have been told to cancel travel plans for next month as the party leader prepares to table a no-confidence motion
  • Looking ahead, highlights include Italian Senate to set a date for a no-confidence vote, RBA’s Kent and a lack of Tier 1 data

ASIA-PAC

Asian equity markets began the week with a cautious tone amid several market closures and after last Friday’s losses on Wall St. due to ongoing trade uncertainty. ASX 200 (-0.2%)was lower with the index weighed by weakness in commodity names including profit taking in gold miners and as iron ore prices resumed an aggressive pullback from last month’s record levels, although the losses in the index were stemmed due to resilience in the top weighted financials and as JB Hi-Fi led the outperformance in the Consumer Discretionary sector post-earnings. Elsewhere, Hang Seng (Unch.) kept afloat and Shanghai Comp. (+0.7%) was underpinned after the PBoC set a firmer than expected reference rate and injected liquidity through reverse repos for the 1st time in 2 weeks. In addition, strength was seen in brokerages after China instructed a revision to margin financing and margin trading regulations, although trade concerns lingered following President Trump’s recent suggestion that talks with China may be cancelled. As a reminder, Japan, Singapore and India were among the numerous holiday closures across the region and Middle East.

PBoC injected CNY 30bln via 7-day reverse repos. (Newswires)

PBoC set CNY mid-point at 7.0211 vs. Exp. 7.0331 (Prev. 7.0136) 

China chartered its first US crude cargo since the most recent tariff threat from US President Trump, according to sources. (Newswires)

US President Trump reiterate that China may be hoping for a Democrat to win the 2020 elections so China could continue to “rip off America”. China Global Times Editor Hu Xijin replied by stating that China wants a deal, but as long as US forces a deal on China through maximum pressure, “there will never be a deal no matter how long you are US President”. (Twitter)

South Korea's Industry Ministry is to remove Japan from the 'White List', with the creation of a new category for Japan to take effect in September. (Newswires) 

 

UK/EU

A leaked paper showed MPs are drawing up plans to force PM Johnson to request a Brexit extension. Under the proposals set out in the document, 1) MPs plan to block any attempt by the PM to call an election before Brexit day unless the PM agrees to a Brexit extension for the poll to the place, and 2) use a vote of confidence in the runup to October 31st to take control of the parliamentary timetable and change the law to force the PM to request for an Article 50 extension. (The Times)

UK opposition Labour MPs have been told to cancel travel plans for next month as party leader Corbyn prepares to table a no-confidence motion. (Telegraph)

UK MPs attempting block a no-deal Brexit may have run out of time and options to prevent an October 31st exit from the EU, according to The Institute for Government. (Telegraph)

UK PM Johnson has accepted an offer from Irish PM Varadkar to meet to try break the Brexit deadlock, dates for the bilateral meeting are now being discussed, according to sources. (Telegraph)

UK PM Johnson was said to be developing plans for a bailout fund to support businesses at risk of collapsing from a no-deal Brexit. (Politics Home)

Fitch affirmed Italy at 'BBB'; Outlook Negative and raised Russia to 'BBB'; Outlook Stable. (Newswires) 

 

FX

In FX markets, the DXY was flat at the 97.50 level with price action contained within the tight range seen for most of last week, despite renewed jawboning by President Trump in which he wants the Fed to lower rates by 1 percentage point and reiterated that a strong USD is hurting manufacturers. The lacklustre trade in the greenback marginally benefitted its major counterparts with EUR/USD above 1.1200 although upside was restricted amid the breakdown in Italy’s ruling coalition and with a potential no-confidence vote looming, while GBP/USD also received some mild reprieve from the recent losses triggered by weak GDP numbers which showed the first quarterly contraction since 2012. Furthermore, the latest reports stated MPs are drawing up plans to force PM Johnson to request a Brexit extension, and opposition Labour MPs have been told to cancel travel plans for next month as party leader Corbyn prepares to table a no-confidence motion. Elsewhere, USD/JPY and JPY-crosses revisited Friday’s lows amid a lack of participants in Japan, while antipodeans were initially weighed by the declines in iron ore prices, early cautiousness and after a New Zealand Treasury paper suggested the OCR could decline to -0.35% in a crisis, although the pairs gradually recovered as risk sentiment began to improve and CNH strengthened after a firmer than expected PBoC fix.

New Zealand Treasury paper stated RBNZ could reduce OCR to -0.35% (currently 1.0%) in a crisis and sees asset purchases as a less appealing tool, while there were also comments from New Zealand PM Ardern that the domestic economy is in good shape and that the government is constantly looking at whatever stimulus it can do. (Newswires) 

 

COMMODITIES

Commodities mostly traded sideways in which WTI crude futures plateaued above the USD 54.00/bbl level after the technical-driven gains on Friday and reports that China chartered its first US crude cargo since the most recent tariff threat from US President Trump. Nonetheless, price action in the complex was muted overnight amid the cautious tone in the region and with mass closures in Asia and Middle East for public holidays. Elsewhere, goldprices were also lacklustre amid similar humdrum trade in the greenback with the pressure metal meandering around the USD 1500/oz level, while copper reflected the cautious gains in stocks with prices restricted amid weakness in Chinese commodity prices in which Dalianiron prices slipped a further 4% in early trade.

Baker Hughes Rig Count (9/Aug): Oil rigs -6 at 764, gas rigs -2 at 169, total rigs -8 at 934. (Newswires)

 

GEOPOLITICS

North Korea fired another 2 projectiles into the East China Sea on Saturday, while it threatened to freeze any future talks with South Korea and only hold them with the US in retaliation to US-South Korea military drills. (Newswires)

US President Trump tweeted that he received a letter from North Korean Leader Kim Jong Un in which the North Korean Leader said he would like to meet and start negotiations as soon as the joint US/South Korean military exercises are over. Trump also stated that the letter was a small apology for testing short range missile and that testing will stop when the joint exercises end. (Twitter)

 

US

Treasuries were positive in early trade, on the familiar concerns of slowing global growth, and the reintroduction of political risk in Europe courtesy of Italy, while UK growth contracting in Q2 did little to help. However, in later trade, yields moved higher, leaving the curve slightly steeper, with major curve spreads modestly wider to the tune of 1-2bps at settlement; the afternoon bounce was due to the White House ‘clarifying’ comments President Trump made on Huawei. On the week, the curve has bull flattened (on the week: 2s -9bps, 5s -11bps, 10s -12bps, and 30s -14bps). US T-note futures settled 7+ ticks lower at 129-22.

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Busy week ahead, via Danske: https://t.co/AN4oC6jgiD