16th November 2018

Gove, Fox, Grayling, Mourdant and Leadsom all decide to stay as UK political resignations abate

ERG sources suggest 48 letters need for no confidence vote have all been handed in to Brady

Looking ahead, highlights include US Industrial Production, ECB’s Weidmann and Lane, Fed’s Evans

 ASIA

Asia-Pac stocks traded indecisively as the region lacked fresh catalysts and as uncertainty regarding Brexit and US-China trade played on investor’s minds. ASX 200 (-0.1%) and Nikkei 225 (-0.6%) were choppy with outperformance of tech and mining names in Australia overshadowed by a lacklustre broader market, while the Japanese benchmark was subdued by mild flows into the JPY and after China Mofcom began an investigation into alleged dumping of machine tools by Japanese firms. Elsewhere, Hang Seng (+0.3%) and Shanghai Comp. (+0.4%) swung between gains and losses after continued liquidity inaction by the PBoC which skipped OMOs for a 16th consecutive occasion, while participants were also tentative amid ongoing trade uncertainty after conflicting reports regarding the next round of China tariffs being placed on hold which USTR Lighthizer later denied. Finally, 10yr JGBs were mildly higher with prices underpinned amid an indecisive tone seen in stocks and with the BoJ also present in the market for JPY 680bln of JGBs in the belly to super-long end.

PBoC skipped open market operations and were net neutral for a 2nd consecutive week. (Newswires)
PBoC set CNY mid-point at 6.9377 (Prev. 6.9392)

PBoC said overall lending has kept to stable growth and that financing conditions of private and small firms improved. PBoC also commented that financial institutions should take steps to reasonably manage pace and intensity of credit supply, while they should also make full use of incentive measures for lending to private and small firms. (Newswires)

BREXIT

Ministerial Positions:

UK PM May said she has not appointed a new Brexit Minister yet, but she will do so in the coming days. (Newswires)

James Forsyth, Sun Columnist, confirmed that Michael Gove is staying. Times suggests that he will remain as Environment Secretary. (Twitter)

Fox, Grayling, Mourdant and Leadsom have all agreed to stay, as according to Sunday Times. (Newswires)

No Confidence:

Beth Rigby Sky Deputy Political Editor tweets, “Have this confirmed by a source close to the whips office. They are heading back to SW1. Source tells me it must now be likely that confidence vote happening. “Got to be close if not there already”. (Newswires)

Business Insider correspondent Adam Payne tweets, The ERG believes Graham Brady now has 48 letters, an ERG source tells me. (Newswires)

Scheduling:

Jennifer Rankin of the Guardian tweets "EU Brexit schedule now agreed. Sunday: special Brexit meeting EU27 ambassadors. Monday: special Brexit EU27 Europe ministers Wheels in motion for Sunday 25 November summit". (Newswires)

Northern Ireland:

DUP Deputy Leader said have to wait and see how things in the conservative party play out especially its leadership, while there were later reports in the Telegraph that suggested the UK Conservative Party power sharing alliance with DUP is said to be over unless PM May is replaced. (Newswires/Telegraph)

EU/UK/US

EU HICP Final YY Oct 2.2% vs. Exp. 2.2% (Prev. 2.2%)

EU HICP-X F&E Final YY Oct 1.2% (Prev. 1.3%)

EU HICP-X F,E,A&T Final YY Oct 1.1% vs. Exp. 1.1% (Prev. 1.1%)

TRADE

China's Ambassador to the US said the US is one of China's most important partners and that China will not stop reform and opening up. China’s Ambassador also commented that China is prepared to work with US and that accusations against China are based on alternative facts. (Newswires)

GEOPOLITICS

US Republican and Democrat Senators file bipartisan bill seeking to suspend arms sales to Saudi Arabia in response to war in Yemen and killing of journalist. (Newswires)

North Korean Leader Kim inspected test of new high-tech tactical weapons, according to Yonhap citing North Korean state media. (Yonhap)

EQUITIES

European equities trade relatively flat (Eurostoxx 50 +0.2%) in the wake of mixed trade headlines overnight for the US and China. Performance across European indices is relatively equal whilst focus once again falls on the FTSE 100 (U/C) which remains at the whim of Brexit-inspired fluctuations in the GBP. Once again, potential upside for the index is being capped by losses in domestically focused banking names (RBS -3.0%, Lloyds -2.1%) as Brexit uncertainty continues to dampen investor sentiment.

In terms of sector specifics, most sectors are trading higher with mild outperformance seen in telecom names. Utilities started the session lower in the wake of yesterday’s ECJ decision which deemed the UK’s scheme for ensuring power supplies during the winter months as a violation of state aid rules. Other individual movers include Vivendi (+4.2%) sit at the top of the Stoxx 600 after posting impressive Q3 sales metrics and announcing a potential sale of part of their Universal Music Group division. Elsewhere, AstraZeneca (-2.3%) and Shire (-1.3%) have been seen lower throughout the session after both posting disappointing drug updates.

FX

GBP - The Pound is not the biggest net mover for a change, but still one of the most volatile and vulnerable as Cable pivots 1.2800 and Eur/Gbp trades between 0.8850-80. The fall-out from Wednesday’s Cabinet meeting continues as UK PM May strives to sell the Brexit draft, but facing a rising rebellion within the Conservative Party that appears to have reached the critical mass required to trigger a no confidence vote. However, some positive news with a key Minister deciding not to follow others out of the Government, as Gove opts to stay rather than go. In terms of technical impulses, Cable is holding above yesterday’s 1.2725 low, ahead of chart support around 1.2710-00 that protects mtd and ytd troughs at 1.2696 and 1.2662 respectively, while near term resistance is seen around 1.2836 before 1.2850, but 1 bn option expiries at 1.2800 could well exert more influence into the NY cut. For Eur/Gbp, several MAs form support blow 0.8850 and the 100 DMA at 0.8910 may hamper further gains if 0.8900 is breached.

NZD/AUD - Not quite zeroes from heroes, but the antipodean Dollars have pulled back from recent peaks amidst latest US-China trade headlines/reports that seem somewhat less constructive on the prospect of progress towards a deal that would prevent the next round of tariffs and reciprocal protection measures. The Kiwi has drifted back towards 0.6800 and Aud from another 0.7300 test to circa 0.7250, but with big option expiries in close proximity likely to keep the latter contained (2.4 bn at 0.7225 vs 1 bn at 0.7275).

JPY - Maintaining a firm underlying safe-haven bid as broad risk sentiment remains fragile and China is reportedly investigating machine dumping by Japan – Usd/Jpy near the bottom of a 113.20-65 range.

EUR/CAD/CHF - All narrowly mixed vs the Greenback, with the single currency keeping afloat of 1.1300 and eyeing a Fib at 1.1358, while the Loonie is holding recent recovery gains through 1.3200 as oil prices continue their rebound and the Franc meanders between 1.0075-50 vs 1.1000+ earlier this week when the broad Dollar and DXY were in the ascendency (index well above 97.000 vs just below the figure presently).

EM - The Lira is off best levels, but still relatively bid after reports that the US could Turkish cleric Gulen in an attempt to assuage President Erdogan to adopt a less aggressive stance against Saudi Arabia over the Khashoggi killing. Usd/Try now near the middle of a 5.3240-3940 band.

COMMODITIES

Gold (+0.2%) is trading relatively flat after hitting new weekly highs of USD 1218.39/oz earlier in the session; following uneventful overnight trade. Elsewhere, Shanghai Zinc prices have risen due to London Metal Exchange stockpiles falling to decade-low levels.

Brent (+1.3%) and WTI (+1.1%) are both in the green and continuing their rebound seen yesterday with WTI hovering around USD 57.00bbl. Energy newsflow remains light, post-yesterday's DoE report, however, Iraq’s North Oil Co. have announced that they have resumed Kiruk oil exports heading towards the Turkish port of Ceyhan. Looking ahead, the main highlight on the calendar will be the Baker Hughes rig count. Elsewhere, natural gas futures are relatively steady after their 19% decline yesterday which came in the wake of a 20% increase the day before.

FIXED INCOME

Relatively small extension to the downside in Gilts, to a fresh 122.82 Liffe low (-36 ticks on the day) as the Whitehall walkout ends, or at least abates, and PM May continues to staunchly defend the UK-EU withdrawal draft amidst a rising leadership challenge that seems on track to culminate in a confidence vote next Tuesday. Meanwhile, Bunds actually eked out a slender 1 tick gain, or rather marginal new Eurex top at 160.73 to inch a bit closer towards parity and Thursday’s close, and US Treasuries are now flat after some overnight undulations amidst choppy trade across Asia-Pac bourses. Ahead, ip data and more Fed speak, but broader risk sentiment continues to dominate and pre-weekend positioning will also be a factor as this US holiday-shortened, but still long week draws to an end.