• Asian equity markets were negative across board on spill-over selling from their global peers after the ECB's latest policy announcement and disappointing Chinese trade data
• UK PM May will urge the EU to help get her Brexit deal through House of Commons by agreeing to legally binding changes to the backstop
• Sources reported that the ECB is said to doubt 2019 outlook was cut by enough and that President Draghi is said to have pushed for ECB stimulus package
• Looking ahead, highlights include German Industrial Orders, US & Canadian Jobs Report, ECB's Nowotny & Mersch Speaking

8th March 2019

ASIA-PAC

Asian equity markets were negative across board on spill-over selling from their global peers after the ECB's latest policy announcement, while sentiment further deteriorated on disappointing Chinese trade data. ASX 200 (-1.0%) and Nikkei 225 (-2.1%) were lower with the top-weighted financials sector front-running the broad-based declines in Australia, while Japanese sentiment was dragged by a stronger currency with Kawasaki Kisen the worst hit after it widened its FY net loss guidance by fivefold to JPY 100bln. Hang Seng (-1.6%) and Shanghai Comp. (-3.5%) slumped with underperformance seen in the mainland in which the CSI 300 slipped by the most so far this year of more than 3% in early trade, as concern regarding global growth took its toll and with selling exacerbated after Chinese trade data showed the steepest decline in exports for 3 years. Finally, 10yr JGBs tracked the gains in T-notes amid declining yields in the aftermath of the dovish ECB, while the widespread risk averse tone and BoJ presence in the market in the short-end also contributed to the support for government bonds.

PBoC skipped open market operations for a net weekly drain of CNY 220bln vs. last week's CNY 160bln net injection. (Newswires) PBoC set CNY mid-point at 6.7235 (Prev. 6.7110)

Chinese Trade Balance (USD)(Feb) 4.1B vs. Exp. 26.4B (Prev. 39.2B); lowest since March 2018. (Newswires) Chinese Exports (USD)(Feb) Y/Y -20.7% vs. Exp. -4.8% (Prev. 9.1%); largest decline since February 2016. Chinese Imports (USD)(Feb) Y/Y -5.2% vs. Exp. -1.4% (Prev. -1.5%)

China Senior Diplomat Wang Yi said China will protect rights of its people and companies, while he added that justice will have its day regarding Huawei and that US-China disputes at this stage do not represent a long-term trend in bilateral relations. Furthermore, Wang commented that it is normal for there to be competition between the 2 nations and hopes US drops zero-sum thinking and meets China halfway. (Newswires)

Chinese officials are said to be wary of reaching a quick trade deal with officials said not to share US President Trump’s optimism, while they are also reportedly wary final terms might be less favourable given Trump’s propensity for last minute changes. (NYT)

Japanese GDP (Q4 F) Q/Q 0.5% vs. Exp. 0.4% (Prev. 0.3%). (Newswires) Japanese GDP (Q4 F) Y/Y 1.9% vs. Exp. 1.8% (Prev. 1.4%)

UK/EU

UK PM May will urge the EU to help get her Brexit deal through House of Commons by agreeing to legally binding changes to the backstop. (BBC)

UK PM May is reportedly being warned by Cabinet 'remainers' that she will lose control of Brexit next week unless she holds a series of humiliating votes regarding alternatives to her deal if it fails to get parliament approval for a 2nd time. (The Times)

UK opposition Labour Party will not support a new referendum on Brexit in all circumstances, according to reports which added the party will only support final say vote on PM May's deal and could back a softer Brexit without giving public a say. (Independent)

EU's Brexit offer was said to fall short of UK demands and the EU is said to make a new offer to the UK on Brexit backstop. (Newswires)

BoE's Tenreyro sees slight softening in core inflation measures and doesn't see a rush to hike rates. (Herald Scotland)

ECB sources stated the ECB opted for more radical easing measures only after growth projections appeared to be a bigger than feared slowdown, while it was also noted that hawks gave little resistance and conceded that delaying decisions until April was non-sensical. In related news, sources reported that the ECB is said to doubt 2019 outlook was cut by enough and that President Draghi is said to have pushed for ECB stimulus package, while the ECB is not going to be rushing for TLTRO details as soon as April and is mulling TLTRO rate at a premium over benchmark. (Newswires) 

FX

In FX markets, the DXY remained firmly above the 97.00 level and was the main benefactor following the ECB’s dovish triple whammy. This saw EUR/USD decline by more than 2 points to below 1.1200 and GBP/USD relinquished the 1.3100 handle to the downside amid Brexit-related pessimism with only limited progress reportedly made in discussions with the EU, which seemingly provided Morgan Stanley a more favourable entrance as it took a long GBP/USD position at the NY close with a target at 1.3650 and a stop at 1.2850. Elsewhere, USD/JPY and JPY-crosses were pressured by the risk-averse tone and due to flows into the JPY following better than expected GDP and Current Account figures from Japan, while antipodeans’ attempts to nurse losses were negated by the poor Chinese trade data with AUD/USD also hampered by a large option expiry of 1.5bln at the 0.7000 level for today’s New York cut and as NAB joined the growing list of banks calling for 2 rate cuts from the RBA this year.

BoC Deputy Governor Patterson said need more data to know if the weakness in Q4 2018 is temporary or will be more persistent and that bank staff are looking to see if the neutral rate range needs to change, while Patterson added that the economic 'detour' predicted at the end of 2018 may be longer than expected. (Newswires)

COMMODITIES

Commodities were subdued with demand hampered by the widespread risk-averse tone in which WTIcrude futures further retreated from resistance near the USD 57.00/bbl level, with the recent pressure attributed to the global growth fears. Elsewhere, gold prices were flat as the USD held firm post-dovish ECB and with participants tentative heading into the latest NFP jobs data, while copper marginally extended on losses after underperformance in its largest buyer China in the wake of abysmal trade data.

China February YTD crude oil imports rose 12.5% Y/Y, while iron ore imports declined 5.5% Y/Y and copper products imports fell 0.6% Y/Y. (Newswires)

Various Chinese ports have implemented stricter clearance procedures for Australian cargoes which is further pressuring demand for Australian thermal coal, according to reports citing market sources. (Hellenic Shipping News) 

GEOPOLITICS

North Korean long-range missile site appears operational according to recent satellite images, while there were also reports of a magnitude 2.1 tremor in North Korea. In related news, US President Trump said he is disappointed by reported rebuilding of North Korea’s missile site, while a US official separately commented that they need to see meaningful and verifiable action regarding denuclearization from North Korea soon but added that the magnitude 2.1 tremor in North Korea is not causing alarm. (Newswires/Yonhap/Korea Times)

US

The Treasury complex took its cue from European govvies, after the ECB over-delivered, pushing back its timeline to lift rates and announcing another round of liquidity measures. Yields were lower by between 4bps and 6bps, at settlement, led by the belly. A bout of profit-taking after the European close did little to halt the march higher, which was further aided by the slide in US stocks. The stock slide seemed to stabilise around half an hour before the cash close, which lent some negative ticks to the T-Note. Friday's payrolls is now the next major catalyst for the complex. US T-note futures (M9) settled 16 ticks higher at 122-21.

Fed's Brainard (voter, dove) said increases in risk warrant downward revision of the rate path even if economic outlook stays the same, while she added that it is clear the potential US economic growth rate is lower than before and that she does not want to prejudge what sort of rate moves would be appropriate late in the year. Furthermore, Brainard commented that policymakers are carefully monitoring leveraged loans and bonds vulnerable to downgrade, as well as funds that hold these assets. (Newswires)