Morning Report

Stocks

Asia markets traded higher Friday morning despite fresh uncertainties emerging from the U.K. overnight after multiple important ministers resigned from Prime Minister Theresa May’s government.

Japan’s Nikkei 225 traded up 0.18 percent in early trade while the Topix index gained 0.23 percent. In South Korea, the Kospi gained 0.52 percent.

In Australia, the ASX 200 advanced 0.25 percent in morning trade, as the energy sector gained 0.48 percent and the heavily-weighted financial subindex rose 0.59 percent.

The mainland Chinese markets, which have been closely watched in relation to the ongoing trade spat between Washington and Beijing, are set to open at 9:30 a.m. HK/SIN.

*May defends draft Brexit plan*

The U.K. was thrust into political turmoil on Thursday following a spate of resignations from Prime Minister Theresa May’s government, including Brexit Secretary Dominic Raab, who said he couldn’t accept the deal after the promises the ruling Conservative Party made to the country in an election manifesto last year.

Speaking from inside 10 Downing Streeton Thursday evening, the prime minister said: “I want to honor the vote the of the referendum,” she said.

At least 16 members of her own Conservative Party have openly called for a vote of no confidence in May, citing dissatisfaction with her proposals to leave the European Union.

One strategist warned about the outlook of the Brexit deal.

“At this stage, it will be almost impossible for the deal to be approved by Parliament because the concerns raised by Raab are issues shared by many members of the government,” Kathy Lien, managing director of foreign exchange strategy at BK Asset Management, said in an overnight note.

“This is not only a major setback for Brexit, but (Member of Parliament) Rees-Mogg’s call for a no confidence vote could also spell the end of May’s role as Prime Minister,” she said, in reference to notable Euroskeptic lawmaker Jacob Rees-Mogg.

The British pound plunged to $1.2833 from about $1.2994 at around 9:00 a.m. London time on Thursday, following news of Raab’s resignation.The pound traded at about $1.2769 Friday morning during Asian hours.

*US-China trade hopes*

In overnight market action on Wall Street, the Dow Jones Industrial Averagegained 208.77 points to close at 25,289.27 and the S&P 500 advanced more than 1 percent to close at 2,730.2. The Nasdaq Composite also rose 1.7 percent to close at 7,259.03.

The positive sentiment for stocks stateside appeared to be driven by a report that the U.S. and China have doubled down on efforts to reach an agreement on trade ahead of the Group of 20 meeting later this month.

One person familiar with the situation told the Financial Times that U.S. Trade Representative Robert Lighthizer has already informed some industry executives the next wave of tariffs was already on hold.

However, stocks fell from their highs after a spokesman for the U.S. Trade Representative told CNBC “the plan for the tariffs as covered in the Federal Register Notice dated Sept. 21, 2018 has not changed at all. Any reports to the contrary are incorrect.”

*Currencies*

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 96.927 after falling from highs above 97.29 yesterday.

The Japanese yen, widely viewed as a safe-haven currency, was at 113.56 against the dollar after seeing highs around the 113.1 handle in the previous session. The Australian dollar traded at $0.7276 after touching lows around $0.725 yesterday.

The People’s Bank of China (PBOC) set the yuan reference rate at 6.9377 vs the previous day’s fix of 6.9392.

Oil

▪Oil prices rise for a second consecutive day, eking out further gains after crude futures lost about a quarter of their value in only six weeks.

▪U.S. commercial crude stockpiles rose by 10.3 million barrels in the week to Nov. 9, marking an eighth consecutive increase.

▪OPEC, led by Saudi Arabia, is considering a cut of up to 1.4 million barrels per day (bpd) next year to avoid a price-crushing build-up in global inventories.

Oil futures rose on Thursday, steadying after this week’s steep losses as fuel stockpile declines in the United States helped offset concerns about a potentially oversupplied market next year.

Prices have also been supported by OPEC signaling possible output cuts in 2019.

Brent crude oil futures rose 42 cents to $66.54 a barrel by 2:22 p.m. ET, while U.S. crude futures ended Thursday’s session 21 cents higher at $56.46.

Prices pared gains after data from the U.S. Energy Information Administration showed crude inventories jumped 10.3 million barrels in last week, the biggest weekly build since February 2017. Analysts in a Reuters poll had expected an increase of 3.2 million barrels.

Gasoline stocks fell 1.4 million barrels, while distillate stockpiles drew down by 3.6 million barrels, the EIA data showed.

“Product draws are helping to offset some of the bearish brunt of a double-digit build – both gasoline and distillate show a jump in implied demand,” said Matt Smith, director of commodity research at ClipperData.

OPEC, led by Saudi Arabia, is considering a cut of up to 1.4 million barrels per day (bpd) next year to avoid the kind of build in global inventories that prompted the oil price to crash between 2014 and 2016.

“Oil prices shrug the (EIA) data off so far,” Commerzbank commodities analyst Carsten Fritsch said. “One explanation could be that a substantial production cut by OPEC becomes more likely.”

Earlier in the day, two-high ranking Russian sources told Reuters that Russia wants to stay out of any oil-production cuts being touted by some of its partners in the OPEC-led supply pact.

“(A cut) helps, but based on my balances, I think we’ll need to see 1.5 million bpd at least for the first half of the year. Words aren’t going to work. The market is going to need to see action as well,” said ING commodities strategist Warren Patterson.

The International Energy Agency and OPEC this week warned of a sizeable surplus at least in the first half of 2019, and possibly beyond, given the pace of growth in non-OPEC production and slower demand in heavy consumers such as China and India.

The oil price has lost about a quarter of its value in only six weeks, pressured by a slowing global economy and soaring crude output led by the United States.

“Asian refiners and consumers we speak with are mentioning initial concerns of slowing demand,” said Mike Corley, president of Mercatus Energy Advisors.

U.S. bank Morgan Stanley said on Wednesday that China’s economic “conditions deteriorated materially” in the third quarter of 2018, while analysts at Capital Economics said China’s “near-term economic outlook still remains downbeat”.

China is the world’s biggest oil importer and the second-largest crude consumer.

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