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Starting the day: EU Morning call 21/11/19

Starting the day: EU Morning call 21/11/19

21st November 2019

• Asian equities are lower across the board after source reports noted the US-China phase one deal may not be completed this year

• US President Trump said he doesn’t think China is stepping up to the level he wants in trade talks

• US House has voted to pass the Hong Kong bill as expected and sent it to US President Trump for signature or veto

• FOMC minutes showed most policymakers judged that after the October 30th rate cut, the policy level would be appropriate barring material reassessment of the outlook

• Looking ahead, highlights include US Philadelphia Fed Business Index, Existing Home Sales, Japanese Core CPI Nationwide, ECB Minutes, SARB Rate Decision, ECB’s Mersch, de Guindos, Fed’s Mester, Kashkari, BoC’s Poloz, supply from France and Spain


– Most Fed policymakers judged that after the October 30th rate cut, the policy level would be appropriate barring material reassessment of the outlook, while most policymakers said the rate cut was appropriate and many said it was warranted due to global weakness as well as trade uncertainty.

– The minutes also noted that a couple of members said they supported the cut but it was a close call and a couple of policymakers also suggested the Fed should reinforce the statement with communications that another rate cut is unlikely without signs of a significant slowdown.

– Policymakers were divided on the inflation outlook as some favoured maintaining rates and stated the outlook was favourable with inflation expected to rise, while some thought it is temporary and a couple saw inflation above 2% in 2020 due to tariffs. Furthermore, policymakers said risks remained tilted to the downside and they all agreed negative rates are not an attractive tool but could reassess if need be.


Asian equity markets declined across the board with risk sentiment rattled by increased trade pessimism after source reports noted the US-China phase one deal may not be completed this year and US President Trump suggested China is not stepping up to the level he wants. In addition, the House passage of the Hong Kong rights bill which President Trump is expected to sign, added another front to the trade uncertainty. ASX 200 (-0.7%) and Nikkei 225 (-0.5) traded negatively with Australia dragged by underperformance in trade sensitive sectors such as tech, materials, and industrials, while Tokyo exporters suffered the ill-effects from safe-haven flows into the domestic currency. Hang Seng (-1.7%) and Shanghai Comp. (-0.4%) were also downbeat on the trade-related doubts and with China media outlets continuing to voice their backlash to the US ‘interference’, while the losses in Hong Kong initially snowballed as all components in its benchmark index briefly resided in the red, although there was mild relief following comments from Chinese Vice Premier Liu He who was cautiously optimistic about reaching an agreement and remained confident despite being confused regarding US demands. Finally, 10yr JGBs were underpinned by the early safe-haven demand although gains were later capped as advances in T-notes stalled around the 130.00 level and with the BoJ only in the market today for Treasury Discount bills.

PBoC skipped open market operations for a net neutral daily position. (Newswires)

PBoC set CNY mid-point at 7.0217 vs. Exp. 7.0209 (Prev. 7.0118)

Phase one US-China trade deal may not be completed this year, according to reports citing trade experts and people close to the White House. The reports added that US President Trump and US Trade Representative Lighthizer recognize that rolling back tariffs for a deal that fails to address core IP and technology transfer issues will not be seen as a good deal for the US. In addition, the People’s Daily noted Chinese President Xi’s trip to Brazil was the last international trip for him this year which suggested no international trade deal signing is scheduled. (Newswires)

US President Trump said he doesn’t think China is stepping up to the level he wants in trade talks and that China wants a trade deal more than he does. US President Trump had earlier stated the US continues to talk with China which wants a deal and suggested that the question is if he wants to make a deal, because he likes what’s happening right now with the US taking in billions and billions of dollars. (Newswires/Twitter)

Chinese Vice Premier Liu said he is cautiously optimistic about agreeing a phase one deal with US and that he remains confident but confused about US demands. In related news, a China state think tank economist also said it is still likely for a phase one deal with US to be reached this year if there is no disturbance, while the economist added a global financial crisis is not far off if US and China keep fighting. (Newswires)

US House has voted to pass the Hong Kong bill as expected and sent it to US President Trump for signature or veto, while source reports later noted President Trump is expected to sign the bill. (Newswires) Hong Kong Government said it strongly oppose US house passing Hong Kong bill which won’t help ease social unrest and sends the wrong signal to the violent protesters. (Newswires)

People’s Daily commentary stated the Hong Kong Human Rights and Democracy Act is a piece of wastepaper that interferes in China’s internal affairs, while China Global Times tweeted that the US Senate’s move on Hong Kong bill will hurt US investments in Hong Kong and may lead to retaliation citing an expert. Elsewhere, CNBC’s Yoon tweeted that China will double down on attacks of US Congress after the House passed legislation supporting Hong Kong protesters, while she suggested both China and the US will not want to link the Hong Kong bill to current trade talks and also tweeted the Chinese feel the US is the one that needs to make the next move with tariff rollbacks to show sincerity, make deal “balanced” and give Beijing face. (People’s Daily/Twitter)

Chinese Premier Li said China’s economy maintained stable performance this year and that China will keep macro policies stable, while it needs to use all possible means to lower real interest rates. Premier Li added China will stick to its reform agenda and that both foreign and domestic companies will be treated as equals regardless of ownership structure. (Newswires)


UK election Savanta/ComRes poll showed Conservatives 42% (+1), Labour 31% (-2), Lib Dems 15% (+1), Brexit Party 7% (Unch.) with the survey conducted November 18th-19th. (Telegraph) Europe Elects UK election seat projection: Conservatives at 354 seats (+56), Labour at 194 seats (-48), Lib Dems at 37 seats (+17). (Twitter)

FT Chief Political Correspondent Pickard tweeted that Labour leader Corbyn will vow to spend GBP 75bln on the biggest social housebuilding programme since the 1960s with a target of delivering 150K new government-supported homes a year by end of the next parliament. (Twitter)


DXY slightly softened amid the US-China trade uncertainty and following a pullback from resistance around 98.00, while the prior session’s FOMC Minutes provided little to sway the currency. The greenback’s major counterpart’s were relatively stable and held on to the prior day’s gains with EUR/USD eyeing a large option expiry for today’s New Yok cut at 1.1090, while GBP/USD lightly prodded yesterday’s highs. Elsewhere, USD/JPY was subdued by the risk appetite but found mild relief after the comments from China’s top trade negotiator, while antipodeans were lacklustre due to their high-beta statuses, China trade exposure and following a weaker CNY reference rate setting.


Commodities traded quiet overnight with WTI crude futures mildly pulling back below the USD 57.00/bbl level as it takes a breather from the prior day’s over 3% rally to recoup Tuesday’s hefty losses. Elsewhere, gold kept to within a relatively tight range and failed to benefit from a slightly weaker greenback, broad risk averse tone and a following an uneventful FOMC minutes release, and copper remained subdued as sentiment was further dampened by the increased US-China trade pessimism.


US Defence Secretary Esper said US does not regret taking high road on halting joint drills, while he added that North Korea’s response was not positive and that he hasn’t heard of reports to withdraw troops from South Korea. (Newswires)


The TPLEX was supported on Wednesday by sentiment on the likelihood of a US-China trade deal becoming more pessimistic. The haven asset was already on the front-foot throughout the Asia session, following the pro-democracy HK bill in the US, and then caught a second wind on reports the trade deal was unlikely to be signed this week. The curve continued to bull-flatten with the FOMC minutes confirming a Fed on pause, barring a material worsening of the outlook. The 2s30s flattened by 3bps, with the 30-year yield down 6bps. US T-note (Z9) futures settled 11+ ticks higher at 129-25+.



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