17th September 2018

• US President Trump ramps up tariff talk on China, ready to go ahead with USD 200bln in tariffs, as according to source reports
• Asian equities negative and European equities choppy as the tone sours; FX markets stable
• Looking ahead, the highlight is US NY Fed Manufacturing

TRADE

US President Trump was said to want to go ahead with USD 200bln in China tariffs despite talks and told advisers to proceed with the tariffs according to reports on Friday which cited people familiar with the matter. Furthermore, separate reports over the weekend stated that the tariffs will go into effect within weeks and that an announcement could be made within days, while the tariffs are said to likely be set at about 10% but could be raised to 25% if China does not appear willing to comply to US trade demands at proposed meetings in Washington on September 27th-28th. Additionally US President Trump tweeted "Tariffs have put the U.S. in a very strong bargaining position" and "If countries will not make fair deals they will be “Tariffed!"" (Newswires)

China reportedly may not participate in planned trade discussions with the US if the Trump administration goes ahead with additional tariffs. (WSJ)

G-20 ministers issued statement which noted that they discussed ways to improve the WTO and that said there is urgent need to improve the WTO, while it also noted that they stepped up dialogue on international trade. G20 ministers also stated the EU-Mercosur free trade deal involving Argentina, Brazil, Paraguay, Uruguay and Venezuela is 'in the final stages' of negotiation. (Newswires)

ASIA

Asian equity markets began the week with a subdued tone amid the absence of Japanese participants due to public holiday and with sentiment dampened by trade concerns after US President Trump reportedly told advisers to proceed with tariffs on a further USD 200bln of Chinese goods which could be announced as early as today. Furthermore, reports noted the tariffs could be set at about 10% and raised to 25% if China shows an unwillingness to adhere to US demands at proposed meetings later this month, while China was said to consider abandoning discussions if the US proceeds with the tariffs. This pressured both ASX 200 (+0.3%) and KOSPI (-0.7%) from the open with healthcare the underperformer in Australia as the sector faces scrutiny from a royal commission inquiry, although the index later recovered amid strength in utilities, tech and financials. Elsewhere, Hang Seng (-1.3%) and Shanghai Comp. (-1.1%) were negative and took the brunt of the Trump tariff threats, while gambling stocks saw heavy losses after Macau shut down its casinos and floods hit the territory due to Typhoon Mangkhut.

PBoC skipped reverse repos and instead injected CNY 265bln via 1yr Medium-term Lending Facility. (Newswires)
PBoC set CNY mid-point at 6.8509 (Prev. 6.8362)

Chinese House Prices (Aug) Y/Y 7.0% (Prev. 5.8%). (Newswires)

EU/UK/US

The EU is secretly preparing to accept a frictionless Irish border after Brexit in a move that raises the prospect of PM May striking a deal by the end of the year, according to Confidential diplomatic notes seen by The Times. In a concession to British concerns, EU negotiators intend to use technological solutions to minimise customs checks between Northern Ireland and the Irish Republic (Times) Further to this, the FT reported that the EU are in discussions with Brussels over allowing British officials (as opposed to EU ones), to check goods bound for Northern Ireland, in a bid to unlock stalled talks on the “backstop” plan for the Irish border. (FT)

Former UK Foreign Minister Johnson has continued to criticise UK PM May’s Chequers proposal by stating that May was leading the nation towards a ‘spectacular political car crash’. (Newswires)

Spain are reportedly to seek concessions concerning Gibraltar in Brexit accord, according to sources. (Newswires)

London Mayor Kahn has called for a second EU referendum, criticising the government's handling of Brexit negotiations with the EU. (BBC)

UK Environment Secretary Gove has stated that MPs could undo the Chequers deal once the UK has left the EU, adding that the PM’s proposal was the “right one for now”. (Guardian)

Italy's League are looking at proposals that would give tax breaks for Italians who purchase government bonds. (Newswires)

Riksbank minutes state a majority of the Executive Board supported the picture of the economic outlook and inflation prospects described in draft Monetary Policy Report. (Newswires)

CENTRAL BANKS

ECB's Makuch said he could consider leaving position early to ensure a smooth transition prior to the next election. Furthermore, Makuch stated we’re not underestimating the risks and based on what we know now, the development is stable and risks are balanced with some downside risks to GDP growth, while he added we don’t see any reason to spread a gloomy mood or panic. (Newswires)

ECB's Coeure said "Looking ahead, should economic conditions warrant, there might be a case for the Governing Council to go beyond the timing to lift-off in further clarifying the pace at which it expects to remove policy accommodation". (Newswires)

EQUITIES

European equites started the day negative as the negative tone driven by US-China trade concerns in Asia extended into European trade. Stocks directionless now, however, and the IBEX is outperforming, with the DAX the underperformer. The German index is being weighed on by falling Linde shares, as more divestments by Praxair may be necessary to satisfy regulatory requirements ahead of their possible tie-up.

FX

DXY - The index and broad Usd have lost some ground in early EU trade amidst a general upturn in risk sentiment/appetite, on more positive Italian fiscal vibes and latest reports about the EU looking at ways to resolve differences over the Irish border that could pave the way for a Brexit deal with the UK, or at least raise prospects of an accord. The DXY has drifted back from just a fraction below 95.000 overnight towards 94.725 after extending post-US data gains on Friday with the added impetus of President Trump upping the ante on $200 bn Chinese import tariffs.

NZD/AUD/CHF/EUR/GBP  - All firmer vs the Greenback and marginally outperforming other majors, bar the Scandi crowns that are benefiting from relative Norges Bank and Riksbank policy outlooks vs the ECB especially, but for the former also against the Fed in the very near term given overwhelming expectations for a 25 bp hike this Thursday. The Kiwi has reclaimed 0.6550+ status, the Aud is back over 0.7150 and the Franc has rebounded through 0.9650, while the single currency has bounced firmly off 10 and 21 DMAs circa 1.1616 to test offers/resistance around 1.1650 and Cable is looking at 1.3100 again. Back to the Nok and Sek, both have extended gains vs the Eur to trade around 9.5750 and 10.4750 respectively, and with the latter seemingly latching on to the more hawkish elements of latest policy meeting minutes.

JPY/CAD - Lagging G10 peers on renewed global trade jitters, with Usd/Jpy straddling 112.00 and the Loonie meandering between 1.3050-17 on no further progress towards a NAFTA deal following the latest round of talks.

EM - The Try has been back in the spotlight and renewed pressure after last week’s massive CBRT boost, with a retreat to almost 6.3000 before some losses were clawed back with the aid of better than forecast Turkish ip data.

FIXED INCOME

Ranges remain relatively tight at the core, but in rather choppy markets there are a few clearer patterns evident and perhaps becoming more pronounced. Bunds have succumbed to more downside, albeit gradually, and have now breached near term chart support around 159.12 to test underlying buying interest around 159.00 at 158.97 (-20 ticks), while Italian BTPs look a bit more comfortable above 126.00 and climbed to 126.26 at best (+106 ticks). Gilts stretched their Liffe parameters to the upside earlier, reaching 121.61 (+13 ticks vs -8 ticks at the low) for no obvious reason at the time, but have retreated since to re-test the lows, while US Treasuries have slipped to fresh overnight session lows with the 10 year yield nudging 3% again.

COMMODITIES

The oil sector is marginally positive as the USD is easing slightly, with  WTI finding some support from its 100DMA at USD 68.89, currently trading around the USD 69.50 level. Traders remain mindful of the impact of Tropical Depression Florence, as ports remain shut in North Carolina due to flooding.

Saudi Arabia Energy Minister Al-Falih and Russian counterpart Novak met over the weekend in which they pledged to continue working on cooperation.

Russian Energy Minister Novak says that Russia is ready to discuss cooperation with the US to balance the oil market, but isn't holding these discussions at the moment

In the metals scope, gold is currently benefitting from a softer dollar and US-China trade tensions, with the yellow metal lagging at the USD 1195/oz level. Base metals have dropped on increased trade concerns, with both copper and nickel both down over 1.5%.