RANsquawk Daily European Opening News – 7th November 2018

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Democrats are projected to take control of the House after having gained an estimated 26 seats, while the Republicans are projected to have picked up a net 4 seats at the Senate A strong start for the Democrats initially weighed on US equity futures, although stock futures then recovered after further results and projections trickled in which suggested the unlikelihood of a Blue Tsunami EUR/USD and GBP/USD whipsawed overnight but head into the European session with mild gains at the expense of a softer greenback Looking ahead, highlights include German industrial production, DoEs, RBNZ rate decision, supply from Germany and the US US MID-TERMS

Democrats are projected to take control of the House after having gained an estimated 26 seats, while the Republicans are projected to have picked up a net 4 seats at the Senate. (Newswires) Note, the outcome of Democrats taking control of the house and Republicans of the Senate was the market consensus. See below for market moves and implications.

ASIA

Asian equity markets traded cautious as all focus centred on the US mid-term election results in which the Democrats took control of the House and Republicans retained the Senate which was the consensus heading into the election. A strong start for the Democrats weighed on US equity futures in early trade, although stock futures then recovered after further results and projections trickled in which suggested the unlikelihood of a Blue Tsunami (Democrat-controlled House and Senate) as the Republicans won in key Senate battlegrounds such as Indiana and tightly-contested Texas. As such, there was a non-committal tone in most Asia bourses with ASX 200 (+0.4%) and Shanghai Comp. (-0.4%) rangebound, while Nikkei 225 (+0.4%) was bolstered by recent favourable currency moves and the Hang Seng (-0.1%) briefly outperformed amid a tech-led surge, before slipping into the red. Finally, price action in 10yr JGBs reflected the non-committal risk tone as participants second-guessed the election results and amid jittery trade in T-notes.

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.9065 (Prev. 6.9075)

China is planning new tax-cut measures. (Economic Information Daily)

UK/EU

UK PM May reportedly advised her senior ministers to plan for an emergency cabinet meeting within days after she won partial backing for a compromise proposal on Ireland. (The Times) Further reports suggested that the UK cabinet is said to be close to agreement on Irish border with ministers said to be on standby for 2nd cabinet meeting to sign off on details. (Newswires)

EU’s Chief Negotiator Barnier said he had a good meeting with the UK PM May, citing strong commitment to work for orderly withdrawal that must contain all-weather Irish backstop, but added they are not there yet. (Newswires)

BBC’s Laura Kuenssberg tweeted Michael Gove and other Brexiteers are demanding full government legal advice on backstop rather than just a summary, while she also noted there is no extension of the Customs Union which the ERG will be able to accept. (Newswires)

There were reports of a leaked plan which would see May strike a secret Brexit deal behind the backs of her cabinet and also provide a detailed blueprint of how Number 10 and the government hope to sell a deal to Parliament and to the public, with an almost day-by-day, blow-by-blow guide (Telegraph). However, a government spokesman described some of the note as “childish” and denied that it was an official document. (Newswires)

UK PM May has created five new business councils to advise on how to create the best business conditions in the UK after Brexit. (BBC)

FX

FX markets mostly traded choppy in which the greenback fluctuated at the whim of the US mid-term election results. As such, EUR/USD and GBP/USD whipsawed overnight but head into the European session with mild gains at the expense of a softer greenback, while antipodeans were also higher as AUD mirrored the swings in risk sentiment and with NZD buoyed by strong jobs data in which the Unemployment Rate unexpectedly declined to 3.9% from 4.5%.

New Zealand HLFS Job Growth QQ* Q3 1.1% vs. Exp. 0.5% (Prev. 0.5%). (Newswires)
New Zealand HLFS Unemployment Rate* Q3 3.9% vs. Exp. 4.5% (Prev. 4.5%)
New Zealand HLFS Participation Rate* Q3 71.1% vs. Exp. 70.9% (Prev. 70.9%)

COMMODITIES

Commodities were uneventful overnight as attention centred on other asset classes amid the US mid-term election results, in which WTI crude futures languished below the USD 62/bbl level after the prior day’s continued weakness and a larger than expected build in headline API crude stockpiles. Elsewhere, gold prices were choppy alongside turbulence in the greenback, while copper partially nursed losses as some market fears were alleviated by the GOP’s retention of the Senate.

US API Weekly Crude Stocks (Nov 2) +7.8mln vs. Exp. +2.4mln (Prev. +5.69mln). (Newswires)

US

Treasuries finished Tuesday’s session lower ahead of mid-term election results due overnight; Informa notes ‘if Republican gain more than a slim majority, we could see higher yields even under a divided Congress’.  Most of the actions was in the front end and belly of the curve were yields were higher by c.2bps whilst longer dated yield were higher by c.1bps at settlement.  2s30s and 10s30s narrowed by c.2bps.The US Treasury sold USD 27bln in 10yr notes stopping through by 1.2bps at a high yield of 3.209%. Demand was average for the auction as indicated by the bid-to-cover which posted at 2.54x. Direct bidders took the smallest share since February 2011, while indirects were awarded a record share of 10yr notes; finally dealers took a portion slightly below recent averages. The US Treasury will sell USD 19bln in 30yr bonds on Wednesday. us T-note futures (Z8) settled 4+ ticks lower at 118-00.

(RANsquawk)