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[PODCAST] US Open Rundown 4th September 2019

  • Major European bourses are firmer this morning (Euro Stoxx 50 +0.8%) as sentiment is lifted on a number of ongoing political & macro factors
  • Hong Kong Leader Lam has withdrawn the Extradition Bill, which has sparked some notable outperformance in the Hang Seng
  • Fed’s Bullard said a 50bp cut would align with expectations and aggressive action is needed, while Rosengren said no immediate Fed action is needed if data remains on track
  • Looking ahead, highlights include US Trade, Canadian Trade, BoC Rate Decision, Fed's Beige Book, BoE QIR Hearing, Fed's Williams, Kaplan, Bullard, Bowman, Kashkari & Evans, ECB's Lane, Mersch & de Guindos

ASIA-PAC

Asian equity markets eventually traded mostly higher as the headwinds from Wall St, where the S&P 500 and DJIA snapped a 3-day win streak due to ongoing trade uncertainty and weak ISM Manufacturing, was eventually counterbalanced as data from the region provided some encouragement. ASX 200 (-0.3%) and Nikkei 225 (+0.1%) were mixed with broad weakness seen across Australia’s sectors as participants digested GDP figures which showed growth slowed to its weakest since the GFC as expected and with a cut at next month’s RBA meeting seen as a coin flip. In terms of sectors, the top-weighted financial industry was among the laggards, although gold miners bucked the trend on recent strength in the precious metal. The Japanese benchmark was indecisive but pared opening losses as it found mild support from favourable currency moves, while Hang Seng (+3.9%) and Shanghai Comp. (+0.9%) were positive after Chinese Caixin Services PMI topped estimates to print a 3-month high with Hong Kong the outperformer after HK Chief Exeutive Carrie Lam withdrew the controversial Extradition Bill. However, gains in the mainland were restricted amid a continued PBoC liquidity drain and ongoing trade uncertainty after President Trump reiterated China will get a tougher deal if he wins the 2020 elections and was said to be angered by China's tariff retaliation that he wanted to double the tariffs but resorted to a 5% hike after consultations. Finally, 10yr JGBs were lacklustre amid the indecision in Japan and a lack of BoJ presence in the market, which saw prices retrace some of the recent gains.

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

PBoC set CNY mid-point at 7.0878 vs. Exp. 7.0998 (Prev. 7.0884)

Chinese Caixin Services PMI (Aug) 52.1 vs. Exp. 51.7 (Prev. 51.6); 3-month high. (Newswires) Chinese Caixin Composite PMI (Aug) 51.6 (Prev. 50.9)

US

Fed's Bullard (Voter, Dovish) said a 50bps cut would align the Fed with market expectations and that the policy rate is too high, while he suggested it is better to get to the right point now rather than in small steps and that aggressive action is needed given the fall in yields as well as trade impact. (Newswires)

Fed's Rosengren (Voter, Hawkish Dissenter) said no immediate Fed action is needed if data stays on track but added the Fed should cut rates aggressively if risks materialize. Rosengren also commented that US economic conditions are relatively benign and that trade disruption, as well as global economic weakness pose risks to US economy although he suggested that elevated risks have not become a reality and it is a good time to watch incoming data carefully. (Newswires)

GEOPOLITICS

Hong Kong Chief Executive Carrie Lam says the controversial Extradition Bill has been fully withdrawn, following on from prior reports that this was to occur today. (Newswires)

Before this, China said it has the power to declare a state of emergency in Hong Kong if unrest persists, according to WSJ. (WSJ)

Iran official confirmed it will return to nuclear deal only if it receives USD 15bln for oil sales in 4 months. Subsequently, Iran have reportedly rejected the USD 15bln offer from the EU to save the deal (Newswires)

UK/EU Link to Full Analysis piece, including today’s indicative schedule

UK Parliament voted to approve motion to seize control of Parliamentary time to try and block a no deal as expected with the motion passed by 328 votes in favour vs. 301 against. (Newswires)

UK PM Johnson reiterated he believes he will get a deal with Brussels and the UK will leave on Oct 31st without a deal if needed, while he added an election will be the only way to resolve this if lawmakers vote for Brexit delay. There were earlier reports that UK PM Johnson loyalists in the lords reportedly tabled 90 amendments to the opposition business motion for today. (Newswires)

The EU would most likely grant another Brexit extension if asked to do so by the UK Government,. BBC's Adler. (Twitter)

UK government sources confirmed 21 rebels will be kicked out of the party including former chancellor Hammond, while there were also reports that Tory rebel Bebb said he will vote against an election today along with other rebels, whilst the Tory party are set to break convention and will stand against Speaker Bercow in the next general election by lining up a ‘Brexiteer’ to take his seat. (Newswires/BBC/ITV/Telegraph)

UK opposition Labour leader Corbyn suggested they will not vote for a general election before an extension to leaving the EU. (Newswires) UK Labour leadership will reportedly try and block an election if it is at a time of Boris Johnson's choosing, (Newswires/Twitter)

Reports indicate that only 24 people are working with UK PM Johnson's top Brexit Official Frost on the renegotiation of the Brexit deal, which is significantly below the over 100 officials under former PM May’s government. (Sky News)

Ireland Finance Minister Donohoe said any future Brexit extension depends on rationale and would have to be a significant political reason. (Newswires)

Incoming ECB President Lagarde says she wants to reexamine the ECB's inflation mandate, reported via FT's Mehreen Khan. And that a review of the monetary framework is warranted. (Newswires/Twitter)

EU Markit Services Final PMI (Aug) 53.5 vs. Exp. 53.4 (Prev. 53.4)

- EU Markit Comp Final PMI (Aug) 51.9 vs. Exp. 51.8 (Prev. 51.8)

UK Markit/CIPS Services PMI (Aug) 50.6 vs. Exp. 51.0 (Prev. 51.4)

- UK Composite PMI (Aug) 50.2 (Prev. 50.7)

- PMI surveys are so far indicating a 0.1% contraction of GDP in the third quarter

EQUITIES

Major European bourses are higher across the board [Eurostoxx 50 +0.8%] as risk appetite was initially spurred amid source reports (later confirmed) that Hong Kong Chief Executive Carrie Lam is to formally withdraw the extradition bill today, which is responsible for the ongoing protests in the region. UK’s FTSE 100 (+0.3%) marginally lags its peers amid unfavourable Sterling action to exporters after the UK Parliament approved a motion to seize control of Parliamentary time in an attempt to block a no-deal Brexit. Meanwhile, Italy’s FTSE MIB (+1.5%) is led by constructive developments in Italian politics, after the 5SM’s online vote of grassroot members showed a backing for the formation of a 5SM/PD coalition, thus eliminating the risk of political limbo. Sectors are in a sea of green with substantial outperformance in consumer discretionary names as luxury stocks soar on optimistic Hong Kong news. Kering (+3.7%), Richemont (+3.5%), Swatch (+3.2%) all reside near the top of the Stoxx 600. In terms of individual movers, Thales (+6.4%) shares spiked higher at the open after posting an improvement in earnings, meanwhile Mediaset (+2.1%) shareholders approved the merger of its Italian and Spanish units to compete with the likes of Netflix. On the flip side, Barratt Developments (-1.4%) shares fell post-earnings, whilst Deutsche Telekom (-0.1%) is subdued amid reports that Illinois has joined the lawsuit aimed at blocked a merger between T-Mobile (of which Deutsche Telekom owns 63% of) and Sprint.

Apple (AAPL) plans to launch a lower-cost iPhone next spring to win customers in emerging markets and retake ground in China lost to Huawei Technologies and other rivals, according to Nikkei sources. (Nikkei)

FX

GBP - The Pound remains at the top of the G10 ranks after MPs voted in favour of a no Brexit deal blocking motion last night, with Cable breaching technical resistance in the form of the 21 DMA at 1.2144 and Eur/Gbp extending its reversal through 0.9100 and pivoting 0.9050. However, Sterling lost some momentum after the UK services PMI completed a set of misses vs consensus and IHS/Markit conjects that the slowdown in the sector combined with more pronounced contraction in manufacturing and construction indicates that GDP is likely to slip 0.1% q/q in Q3. If confirmed this would mean a technical recession and Cable is waning just ahead of 1.2200 having eclipsed Monday’s 1.2175 high and Fib resistance around the same level, or 1.2176 to be precise.

AUD/NZD/EUR/SEK - The next best majors and all benefiting from further Greenback weakness post yesterday’s sub-50 US manufacturing ISM (DXY down to 98.571) on top of a broad upturn in risk sentiment on the aforementioned positive Brexit developments, Italy’s 5-Star approving its tie-up with the PD party and Hong Kong’s CE Lam withdrawing the extradition bill. Aud/Usd just pulled up shy of the 0.6800 mark with the added impetus of China’s Caixin services/composite PMIs surpassing expectations and not too ruffled by Aussie GDP data confirming forecasts for a slowdown in growth to GFC levels. Nzd/Usd continues to lag around 0.6350 as the Aud/Nzd cross holds above 1.0650, but Eur/Usd is back on the 1.1000 handle following a run of firmer than expected Eurozone services PMIs and ahead of more ECB speakers. Nevertheless, the Swedish Krona is outperforming on the back of an even stronger services PMI print and not perturbed by Nordea revising its Riksbank rate outlook from unchanged through 2020 to a 25 bp ease in December this year on the eve of this month’s policy meeting, with Eur/Sek straddling 10.7500.

CAD/CHF - Also firmer vs the Greenback, but a bit more contained as the Loonie faces resistance around 1.3300 in the run up to Canadian trade data and the BoC, while the Franc is ever wary that too much appreciation will not be tolerated and is fading into 0.9840 with Eur/Chf meandering between 1.0825-60.

JPY - Safe-haven unwinding has undermined the Yen, to an extent, as Usd/Jpy rebounds from sub-106.00 yet again, but hefty option expiries layered from 106.30-40, through 106.50-60 to 106.75-85 (5.5 bn in total) could keep the headline pair in check from a high circa 106.30 so far.

EM - Broad gains vs the Greenback, with the Rand and Lira still leading the way, but perhaps some respite in store for the Ars in wake of an upgrade from Fitch to CC from RD for Argentina late on Tuesday.

Australian GDP (Q2) Q/Q 0.5% vs. Exp. 0.5% (Prev. 0.4%). (Newswires) Australian GDP (Q2) Y/Y 1.4% vs. Exp. 1.4% (Prev. 1.8%)

FIXED

Bunds, Gilts and US Treasuries have all retraced further from Tuesday’s pinnacles as risk assets consolidate recovery gains on a mixture of ostensibly positive factors that have offset latest sabre-rattling from Iran and Pakistan. The respective 10 year benchmarks are holding around psychological markers at 178.00, 134.00 and 132-00 after a round of stops and technical sales pushed prices to fresh intraday lows, and with the curves steepening after a relatively solid Bobl auction. Ahead, a decent NA data agenda and plenty of Central Bank speakers either side of the BoC policy meeting.

COMMODITIES

WTI and Brent futures are higher in early EU trade as risk sentiment was bolstered by the aforementioned developments in Hong Kong with the former back above the 54/bbl level and the latter hovering around 58.50/bbl. News-flow for the complex has been light, although UBS downgraded its global growth forecasts to 2.5% from 3.2% annualised, which coincided with downside in prices at the time. Elsewhere, with Hurricane Dorian drifting away from the Gulf of Mexico, eyes turned to Tropical Storm Fernand (formerly known as cyclone Seven) which is located around 130km SE of La Pesca, Mexico. NHC stated that the tropical storm is moving slowly Westward, and once inland, rapid weakening is expected before the storm dissipates on Thursday. As a reminder, API crude inventories will be released today due to Monday’s US Labour Day holiday. Turning to metals, gold has thus far failed to benefit from a weaker Buck as the current risk appetite spurred some outflow in safe-haven assets. The risk-on sentiment has also driven gains in copper prices as the red metal reclaimed 2.5/lb to the upside following three consecutive days of losses.

Russia Energy Minister Novak said recent changes to Saudi Arabia's oil management will not hurt cooperation between Russia and Saudi, adding he will still cooperate with Saudi Energy Minister Al Falih and will meet him in Saudi Arabia this month. Furthermore, Novak stated that Russia will continue cooperation with OPEC and is ready for gas talks with Ukraine and EU. (Newswires)

India gold imports fell to 30.0 tonnes in August vs. Prev. 111.5 tonnes Y/Y which represents the lowest in 3 years amid high domestic prices and import duty. (Newswires)

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