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[PODCAST] US Open Rundown 25th July 2018

  • European equities are relatively mixed (Eurostoxx 50 -0.3%) as focus remains on earnings seasone
  • Limited movement in FX markets at DXY continues to pivot around the 94.500. AUD lags peers following domestic CPI data overnight
  • Looking ahead, highlights include US New Home Sales, DoEs, supply from the US, Juncker to meet with Trump and a slew of large cap earnings

ASIA

Asian stocks were mixed with macro drivers on the light side and after the region failed to sustain the momentum from the positive US close where earnings dominated focus. ASX 200 (-0.3%) was negative amid broad weakness across the index aside from the commodity-related sectors, while materials names and continued strength in Japanese banks kept the Nikkei 225 (+0.5%) afloat. Elsewhere, Hang Seng (+0.9%) and Shanghai Comp. (-0.1%) were varied as Hong Kong was led higher by oil names including Sinopec which expects its highest H1 profit since 2013 and with the mainland less decisive following a liquidity drain by the PBoC, while the KOSPI (-0.3%) was dampened on earnings including LG Display. Finally, 10yr JGBs gained overnight and broke above this week’s highs in a continuation of its recent rebound and with the BoJ present in the market for JPY 650bln of JGBs in the belly to super-long end, while reports also noted BoJ watchers viewed the central bank was unlikely to tighten policy before October and some even believed there were prospects of looser policy.

BoJ is seen by experts as unlikely to tighten monetary policy before October despite speculation the bank may act at its upcoming meeting due to the impact of its ultra-loose policy, while reports also noted that some believe further easing is on table to support inflation. (Nikkei)

Chinese state planner announces that China will provide policy support for workers affected by structural adjustment and trade frictions. (Newswires)

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

PBoC set CNY mid-point at 6.8040 (Prev. 6.7891); weakest fix since 28th June 2017.

Australian CPI (Q2) Q/Q 0.4% vs. Exp. 0.5% (Prev. 0.4%). (Newswires)

Australian CPI (Q2) Y/Y 2.1% vs. Exp. 2.2% (Prev. 1.9%)

Australian Trimmed Mean CPI (Q2) Q/Q 0.5% vs. Exp. 0.5% (Prev. 0.5%)

Australian Trimmed Mean CPI (Q2) Y/Y 1.9% vs. Exp. 1.9% (Prev. 1.9%)

New Zealand Trade Balance (NZD)(Jun) M/M -113M vs. Exp. 200M (Prev. 294M, Rev. 208.0M). (Newswires)

New Zealand Trade Balance (NZD)(Jun) Y/Y -4030M vs. Exp. -3681M (Prev. -3598M, Rev. -3680M)

New Zealand Exports (NZD)(Jun) 4.91B vs. Exp. 5.06B (Prev. 5.42B, Rev. 5.35B)

New Zealand Imports (NZD)(Jun) 5.02B vs. Exp. 4.92B (Prev. 5.12B, Rev. 5.15B)

EU/UK/US

US President Trump tweeted that the EU is coming to Washington to negotiate a trade deal and he has an idea for both US and EU to drop all tariffs, barriers and subsidies which would be called Free Market & Fair Trade, while Trump added he hopes they do it and the US is ready but thinks they won’t. (Twitter)

EU's Juncker says do not need fresh tariffs, but instead calm the situation. (Newswires)

EU's Malmstrom states that the EU is planning tariffs of USD 20bln on US goods, adding that the EU still hopes to find a solution with the US. (Newswires)

EU Budget Commissioner Oettinger says EU would respond in kind if US levies fresh tariffs but adds that the EU is ready to discuss tariff cuts for all products. (Newswires)

Mexico incoming Foreign Minister says believes NAFTA agreement is possible relatively soon, also comments that US President Trump stated in letter that the 2 countries should increase cooperation. (Newswires)

US President Trump can be heard on tape discussing with his attorney Michael Cohen how to acquire the rights to former Playboy model Karen McDougal’s story about her alleged affair with Trump, in a recording obtained by CNN. (Guardian)

German Ifo Business Climate New (Jul) 101.7 vs. Exp. 101.6 (Prev. 101.8)

German Ifo Expectations New (Jul) 98.2 vs. Exp. 98.1 (Prev. 98.6, Rev. 98.5)

German Ifo Current Conditions New (Jul) 105.3 vs. Exp. 104.8 (Prev. 105.1, Rev. 105.2)

EQUITIES

European equities are relatively mixed (Eurostoxx 50 -0.3%) as focus remain on earnings season. The Healthcare sector was lifted by GSK’s (+1.5%) earnings, while tech names underperform amid weak earnings from STMicroelectronics (-4.1%) who currently rest at the foot of the CAC 40. France’s LMVH (+1.7%) rose to the top of the index post-earnings, dragging up the likes of Kering (+2.6%). Ageas (4.2%) shares are lifted by reports Hong Kong’s Fosun is weighing a USD 10bln takeover of the company. A few US heavyweights are expected to report earnings today; Boeing (12.30 BST), UPS (12:45BST), Facebook, Visa and PayPal (21:05BST).

FX

DXY - Minimal movement in Dollar pairings, as the index continues to pivot around the 94.500 axis looking for more direction that might emanate from US-EU trade talks later rather than data in the form of new home sales. However, some signs of a shift in sentiment overnight and potential change in the recent trend of further Yuan depreciation post-PBoC Usd/Cny fixing, as both the on-shore and off-shore units hold above 6.8000.

AUD - The marginal G10 underperformer amidst another loss of momentum above 0.7400 vs its US counterpart and 1.0900 against the NZD on slightly softer than forecast Aussie Q2 inflation, albeit with headline y/y CPI back into the RBA’s 2-3% target range for the first time in almost 3 years. Conversely, the Kiwi has recovered from a sub-0.6800 dip following an unexpected June trade deficit, albeit only just.

CAD/CHF/GBP/EUR - All mildly firmer vs the Usd, but rangebound, with the Loonie sitting near the base of a 1.3165-25 band, Franc at the low end of 0.9945-10 parameters and Cable holding around 1.3150 after an uptick in UK mortgage apps, and ahead of CBI trades. Meanwhile, not a lot of reaction to slightly better than anticipated German Ifo survey readings or Eurozone money supply from the single currency that is probing 1.1700 again, and remains capped ahead of 0.8900 vs the Pound, with more focus on tomorrow’s ECB policy meeting and any further policy guidance (even though unlikely given QE and rate signals delivered only last month).

JPY - Usd/Jpy meandering between 111.05-40 and still delicately poised around a 111.25 Fib, while latest reports on the end of month BoJ meeting suggest no change in policy likely until October, and in stark contract to sources perhaps even more easing rather than any hawkish tweak (per so called ‘experts’).

EM - Aside from the aforementioned Cny and Cnh counter-moves, other EMs, including the Try, have recouped more losses vs the Greenback, with the Mxn aided by latest positive NAFTA noises to rebound further from 20.000 and through 19.000.

FIXED INCOME

A tepid Bobl launch based on all the usual metrics used to gauge the strength of an auction has undermined German bond futures, with the 5 year contract retesting lows just below parity and the 10 year Bund paring gains to single digits vs almost 20 ticks at best. Meanwhile, Gilts have slipped back into negative territory in wake of another better than expected UK CBI survey, and this time distributive trades to a marginal new LIFFE low of 123.20 (-11 ticks). Elsewhere, US Treasuries are back down from overnight peaks ahead of more supply ($36 bn 5 year notes and $18 bn 2 year FRNs) and some secondary data, but perhaps more importantly the Trump-Juncker tariff summit.  

COMMODITIES

WTI (-0.2%) trades marginally softer with Brent (+0.9%) higher after breaching USD 74.00/bbl to the upside. Last night’s API Crude inventories printed a larger than expected drawdown (-3.160M vs. Exp. -2.300M), tempering oversupply concerns that have weighed on markets recently. Of note, an IMF report commented on the steep inflation rise in Venezuela (while sanction risks remain), which has subsequently limited its ability to boost oil output. (Of note: Venezuelan oil production fell to a new 30-year low of 1.5mln BPD in June). Traders will be watching today’s DoE Crude inventories which are expected to show a draw of 2.331M barrels.

Gold (+0.5%) gradually crawls higher as USD strength eases. Copper is flat while traders are eyeing the latest developments at the world’s largest copper mine, BHP’s Escondida in Chile. The Anglo-Australian miner had made its final offer with the union regarding an increase in wages, markets await further updates.

US API weekly crude stocks (20 Jul) -3.160M vs. Exp. -2.300M (Prev. +0.629M). (Newswires)

Libya’s Zawia oil terminal is poised to exit its force majeure shortly and a shipment has been booked for later in the month. (Argus News)

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