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[PODCAST] EU Open Rundown 15th January 2020

  • Asian equity markets followed suit to the cautious performance on Wall St amid trade-related headwinds
  • Tariffs on China will remain until after the US election despite a Phase 1 deal, according to sources
  • US Treasury Secretary Mnuchin stated that tariffs will stay in place until there is a Phase 2 agreement with China
  • OPEC+ is mulling the delay of its March meeting to June and could extend output cuts until then if so, according to reports citing sources
  • Looking ahead, highlights include Swedish & UK CPI, NY Fed Manufacturing, US PPI, DoEs, US & China Phase One Deal Signing, OPEC Monthly Report, ECB’s Holzman, BoE’s Saunders, Cunliffe, Fed’s Harker, Saunders, German supply
  • Earnings: Goldman Sachs, Blackrock, UnitedHealth, US Bancorp

ASIA-PAC

Asian equity markets followed suit to the cautious performance on Wall St where there was a bias to the downside for most major indices on trade-related headwinds after US officials confirmed that China tariffs are to remain until after the US election despite the Phase 1 deal, although the DJIA remained afloat helped by banking names including JPMorgan at the start of earnings season. ASX 200 (+0.5%) extended on record highs and edged closer to the 7000 landmark amid mild gains in financials and as gold miners outperformed after a rebound in the precious metal, while Nikkei 225 (-0.5%) was lacklustre following the recent pullback from the 24k level and near its yearly high. Hang Seng (-0.7%) and Shanghai Comp. (-0.7%) also traded subdued on disappointment that the Phase 1 deal will not include a tariff rollback, which overshadowed the liquidity efforts by the PBoC that had announced CNY 300bln in MLF lending and to inject CNY 100bln through 14-day reverse repos ahead of the Lunar New Year scheduled next week. Finally, 10yr JGBs oscillated beneath the 152.00 level with participants sidelined ahead of a 5yr JGB auction and after BoJ Governor Kuroda failed to provide any fresh insights regarding monetary policy ahead of next week’s meeting, although prices later recovered as all metrics pointed to a stronger 5yr auction.

PBoC injected CNY 100bln via 14-day reverse repos and CNY 300bln through 1yr MLF at 3.25% vs. Prev. 3.25%. (Newswires) PBoC set USD/CNY mid-point at 6.8845 vs. Exp. 6.8832 (Prev. 6.8954)

China tariffs will remain until after the US election despite a Phase 1 deal and US officials denied there was a plan to cut China duties further according to people familiar with the matter, while USTR Lighthizer and Treasury Secretary Mnuchin later confirmed there is no planned China tariff relief schedule going forward and that all details of the Phase 1 deal will be published today apart from the confidential annex with detailed purchase amounts. Furthermore, Mnuchin stated that tariffs will stay in place until there is a Phase 2 agreement with China and suggested that structural reforms under a Phase 2 deal could lead to additional Chinese purchases. (Newswires)

US Senate introduced legislation aiming to create a Western competitor to Huawei and reduce China’s dominance in global 5G networks. In related news, the US government is reportedly close to publishing a new rule that would increase its power to block sales of foreign-made goods to Huawei, while a separate article also noted that the ongoing tech issues is likely to keep US-China relations on edge despite the Phase 1 deal. (SCMP/WSJ)

UK/EU

RTE's Connelly tweeted that the European Commission believes large British firms with subsidiaries in Northern Ireland will be subject to Irish Protocol rules if there is no free trade agreement by the end of the year. (Twitter) 

FX

DXY traded rangebound and at a sharp contrast to the prior day’s whipsawing with the lack of tariff rollbacks contributing to the intraday pullback for USD, while its major counterparts were also uneventful as EUR/USD kept to within a 10-pip range near a cluster of DMA levels and GBP/USD rested on its laurels after having retraced some of the dovish BoE-induced losses to reclaim the 1.3000 handle. Elsewhere, USD/JPY and JPY-crosses were indecisive amid the cautious risk tone and as a rehash of the all-too-familiar BoJ rhetoric by Governor Kuroda failed to spur prices, in which he reiterated they will not hesitate to ease further if risks grow that momentum to reaching the price target is lost. Antipodeans traded relatively unchanged amid a lack of pertinent data, and after the bout of pressure as USD/CNH flirted with the 6.9000 handle, proved to be short-lived due to another firmer reference rate setting by the PBoC.

COMMODITIES

Commodities were mixed in which WTI crude futures were choppy in which prices retraced recent gains as sentiment soured on the lack of tariff rollbacks despite the US-China Phase 1 deal and with prices also pressured by a cut in the world oil demand growth forecast by the EIA and following a surprise build in headline crude stockpiles in the latest private sector inventory report. However, downside was stemmed as the USD 58.00/bbl level provided and there had also been recent reports that suggested OPEC+ were considering postponing the March meeting to June as well as an extension of the output cuts till then. Elsewhere, gold prices extended on its rebound through the USD 1550/oz level as the predominantly risk-averse tone spurred demand for the safe haven, while copper underperformed and pulled back from 8-month highs.

US Private Inventory Crude Stocks (w/e 10th Jan) +1.1mln (exp. -0.5mln, prev. -5.9mln). (Newswires)

OPEC+ is mulling the delay of its March meeting to June and could extend output cuts till then if so, according to reports citing sources. (Tass)

US EIA STEO cut 2020 world oil demand growth forecast by 80k BPD to 1.34mln BPD; and initiated 2021 world oil demand growth forecast at 1.38mln BPD, while it sees 2020 US crude output to rise 1.06mln BPD to 13.30mln BPD (prev. rise of 913k BPD to 13.18mln BPD) and 2021 output to rise 410k BPD to 13.71mln BPD. (Newswires)

GEOPOLITICS

US Senator Kaine said he's secured a majority of support needed for a revised war powers resolution which would require US President Trump to get approval from Congress prior to taking further military action against Iran. (Newswires)

US Envoy Hook said the US is supportive of Europe's initiation of the dispute resolution mechanism in the JCPOA deal, although would like it to collaborate with the US on diplomatic isolation

Libya's General Haftar reportedly accepted an invitation to Berlin for talks surrounding the cease fire agreement in Libya, although there were later comments from the pro-Haftar, Tobruk-based House of Representatives Speaker Aguila Saleh who declared an end to the cease fire and that the war will continue. (Newswires/Daily Sabah)

US 

The Treasury curve bull-flattened on Tuesday amid lacklustre US CPI and China trade disappointment. The bids occurred not long after Bunds started trading, and then the T-Note extended the move after the M/M US CPI figures came in a tad weak, with rates falling even further on a risk-off move following reports the US would not be considering further tariff removals for China until after the US election. By settlement, 2s10s was 2bps narrower at 24bps, with the 10-year yield falling more than 3bps, the most pronounced on the curve. US T-note futures (H0) settled 7 ticks higher at 129-04+.

Fed's George (Non-Voter, Hawk) said keeping rates on hold for now is appropriate and that she continues to forecast strong consumer spending, as well as continued weakness in manufacturing and business investment this year. (Newswires)

NY Fed will continue overnight operations of at least USD 120bln (unchanged) as well as a series of term repo-operations until February 13th 2020, and maintained US T-bill purchases at USD 60bln a month. (Newswires)

US GOP aide said the Senate will likely hold a floor vote on the USMCA by the end of the week. (Twitter/CNBC)

The Trump administration are looking at plans to impose new procedures surrounding the release of market-sensitive data that will prevent new organisations from preparing stories on data events under embargo, according to sources. (Newswires)

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