• Asian equity markets began the week with hefty losses as the region followed suit to the stock sell-off last Friday on Wall St
• UK PM May has resisted pressure to set a date for her departure in return for support for her EU divorce deal after a threatened cabinet coup fizzled out
• US AG Barr’s summary of the Mueller Report stated that President Trump's campaign did not collude with Russia during the 2016 election but stopped short of exoneration
• Looking ahead, highlights include German IFO, NZ trade balance, ECB’s Coeure, Lautenschläger and Fed’s Harker

25th March 2019

ASIA-PAC

Asian equity markets began the week with hefty losses as the region followed suit to the stock sell-off last Friday on Wall St where disappointing PMI data from both sides of the Atlantic added to slowdown concerns, while curve inversion in which yields on US 3-month T-bills rose above 10yr yields for the first time since the GFC also stoked recession fears. ASX 200 (-1.1%) and Nikkei 225 (-3.1%) declined from the open in which Tech and Energy led the broad losses across the sectors in Australia, while selling in Tokyo was exacerbated by flows into JPY which dragged the local benchmark below the 21,000 level. Elsewhere, Hang Seng (-1.7%) and Shanghai Comp. (-1.0%) conformed to the negative tone as participants digested a slew of earnings and after PBoC inaction resulted to a CNY 60bln liquidity drain, with oil names among the worst hit following a recent slip in crude prices. Finally, 10yr JGBs were underpinned by safe-haven demand and as yields tracked the declines in global counterparts to push the 10yr JGB yield to its lowest since September 2016 and 30yr JGB yields to its lowest since November 2016. 

PBoC skipped open market operations for a net daily drain of CNY 60bln. (Newswires)

PBoC set CNY mid-point at 6.7098 (Prev. 6.6944)

US is said to note that China’s initial offer regarding digital trade was not sufficient, according to the FT. Elsewhere, there were separate reports that President Trump dispatched a US Envoy to Germany to keep the pressure on Huawei, while Chinese Vice Premier Liu He is to travel to Washington on April 3rd following a visit by US Treasury Secretary Mnuchin and Trade Representative Lighthizer to Beijing set for this week. (Newswires/FT)

UK/EU

Reports suggested on Sunday UK PM May could reportedly be ousted in days as her cabinet plot to replace her with Michael Gove as caretaker PM, while a senior Downing Street source stated PM May’s Chief Whip has advised her to set out her departure plans and some ministers are predicting she could be gone in 10 days. There were also reports that 11 Cabinet Ministers confirmed they want to replace PM May with her Deputy Liddington, while UK Chancellor Hammond commented the UK must find a way to leave the EU but replacing PM May will not help. (Daily Mail/The Sun) PM May was reportedly told at yesterday’s Chequers’ meeting that she must set out a timetable to leave her premiership in order to get her deal through Parliament; according to Buzzfeed reporter. (Buzzfeed) Late on Sunday, reports stated that May has resisted pressure to set a date for her departure in return for support for her EU divorce deal after a threatened cabinet coup fizzled out. The report stated that instead the PM will allow Parliament to move towards adopting a softer exit from the EU in order to force the hand of Brexiteers to support her deal. (Times)

UK PM May said on Friday it is possible the UK could request a new A50 extension if her deal is rejected, while she also suggested that she might not bring her MV3 back to parliament this week if it is likely to fail. In related news, PM May is expected to unveil plans to hold indicative votes and is considering offering votes regarding the Brexit deal, no-deal, 2nd referendum, revoking Article 50, FTA customs union and the single market according to Telegraph’s political reporter. (Newswires/BBC/Telegraph) Ministers have been invited to assess documents on the seven options for the potential indicative votes at 0900GMT today; according to Telegraph’s Deputy Political Editor Swinford (Twitter) PM May is expected to hold a cabinet meeting at 1000GMT to update ministers on her Brexit strategy. (BBC News)

The Sun newspaper editorial stated UK PM May should announce on Monday that she will stand down once her Brexit deal is approved and UK leaves the EU. (The Sun)

Minutes from a meeting of EU ambassadors and senior officials stated that European Commission Secretary General Selmayr asked colleagues to imagine scenarios featuring a new Brexit secretary or new Prime Minister in which the starting point in such a scenario must not be a renegotiation of the UK’s withdrawal from the EU, while Selmayr added that Article 50 has been agreed and the process is over. (The Observer)

ECB's Rehn said Brexit is the biggest threat to Euro zone in the short-term and that markets are underestimating the risks, while he added Euro zone growth has slowed significantly and that we must be concerned. (Newswires)

S&P affirmed Belgium at AA; Outlook Stable, affirmed Spain at A-; Outlook Stable and affirmed Norway at AAA; Outlook Stable. (Newswires)

FX

In FX markets, a lack of overnight data releases kept the DXY stable around last week’s best levels, while its major counterparts also struggled for direction with EUR/USD stuck around 1.1300 following the poor Euro zone PMIs and with GBP/USD cautious amid doubts to PM May’s survival in office. This saw GBP/USD give back some of Friday’s strength as well as the 1.3200 level, but with downside limited ahead of a large option expiry of USD 1.6bln at the aforementioned level for today’s New York cut. Elsewhere, USD/JPY slipped below 110.00 due to flows from the negative risk sentiment which also dampened high beta currencies AUD and CAD, although the moves were later faded, and NZD remained steady ahead of this week’s RBNZ meeting. In terms of EM, THB slightly strengthened ahead of the official results of the general elections in which the ruling military government is set to remain in power, while TRY was also boosted after Turkish President Erdogan warned about speculation against TRY.

Turkish President Erdogan said those in the finance sector that purchase foreign currencies on expectations a decline in TRY, will pay a very heavy price. (Newswires)

COMMODITIES

Commodities were mixed overnight with WTI crude futures the laggard as it extended on Friday’s retreat from above USD 60/bbl and its 4-month highs, as participants took the heightened growth concerns and subsequent sell-off across stocks, as a cue to book profits. Elsewhere, gold eked mild gains with the precious metal only marginally benefitting from its safe-haven properties, while copper was relatively flat as attempts to recover from a 1-month low were hampered by the widespread risk averse sentiment. 

Baker Hughes Rig Count (22/March): oil down 9 at 824, nat gas down 1 at 192, total down 10 at 1006. (Newswires) 

US Coast Guard announced Houston Ship Channel closure impacting a 2-mile span and didn’t provide a timeline for reopening. (Newswires)

US

The Tplex traded in a narrow range in the Asian session before a wave of buyers came into the market on the back of a risk off sentiment becoming catalysed by a big drop in German manufacturing, the lowest since 2012, the move was exacerbated by the US missing PMI expectations too. Friday also saw the 3-month/10-year yield curve inverting, triggering algos to rotate out of equities and into bonds, as well as catching traders’ attention, and stoking fears about the health of the US economy, since an inverted 3m/10yr curve usually portends recession, analysts said. However, FOMC arch dove Bullard – who has vigorously warned against inversions in the past – said that it would only be a real concern if the inversion was sustained. Into settlement, Treasuries came off their highs slightly, but the rally remained intact, with the yields of the belly falling by c. 10bps; the 2s/5s contracted by 1.1bps, whilst the 5s/30s steepened by 1.2bps. US T-note futures (M9) settled 21+ ticks higher at 124-01.

Fed's Bullard (voter, dove) said Q1 weakness will be transitory and sees no need for any rate moves, while he also commented that inversion is noticeable but needs to be sustained to have any economic importance. (WSJ)

Fed's Evans (voter, dove) said the US economy is in a strong position and that it is a good time to pause and be cautious, while he added that US monetary policy is currently neither accommodative or restrictive. Evans also commented they will take action if inflation undershoots, while he wants to see more inflation and does not expect a rate hike till H2 next year. (Newswires)

Fed board nominee Moore said he is unsure if the Fed should be cutting rates now, while he added that sound monetary policy with stable prices can lead to strong growth and that he considers himself a growth hawk. Moore also commented that the Fed's move in December was a very substantial mistake which thankfully they have reversed course on, while he added deflation can be as harmful for an economy as inflation and that raising rates would create deflation. (Newswires)

Attorney General William Barr submitted to Congress his summary of the main conclusions from special counsel Mueller’s investigation in which it found that President Trump's campaign did not collude with Russia during the 2016 election. Furthermore, the report summary did not draw a conclusion as to whether President Trump illegally obstructed justice but also did not exonerate him, while House Speaker Pelosi and Senate Minority Leader Schumer suggested that William Barr is not a neutral observer of the Mueller report and said Congress require full Mueller report and underlying documents. (Newswires)