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[PODCAST] US Open Rundown 23rd September 2019

  • Major European bourses are softer as risk sentiment slips on PMI prints
  • China’s agricultural delegation cancelled their farm trip at the US’ request, not due to trade talk difficulty
  • Saudi Arabia's Khuraris and Abqaiaq facilities are to fully restore oil production early next week; currently producing around 4.3mln BPD., according to sources
  • However, WSJ reports indicate that some experts believe it could take 8-months to restore Saudi production
  • EUR/USD is lower and core debt has been boosted on poor European Flash PMI metrics; as such the DXY is firmer
  • Looking ahead, highlights include ECB’s Draghi & Lane, Fed’s Williams, Bullard & Daly

ASIA-PAC

Asian equity markets were mixed following the negative close last Friday on Wall St. amid temperamental US-China trade headlines, while the absence of Japanese markets also contributed to the lacklustre tone. ASX 200 (+0.3%) was positive with the index led higher by the commodity related stocks after gold advanced above the USD 1500/oz level and with oil underpinned by reports it could take 8 months for Saudi output to return to normal, while India’s NIFTY (+2.9%) outperformed again after the recent corporate tax cut announcement. Conversely, weakness in Hang Seng (-0.8%) and Shanghai Comp. (-0.8%) dampened sentiment in the region with underperformance in the mainland as ongoing trade uncertainty overshadowed the liquidity efforts by the PBoC. This followed conflicting reports in which US President Trump stated Chinese agricultural purchases will not be enough and reiterated that he does not need a deal before the 2020 election although it was also reported the US granted temporary tariff exemptions on over 400 types of Chinese products, while China’s delegation cancelled its US farm visit but this was later attributed to concerns it could turn into a media circus or may be misconceived as meddling and was not due to a breakdown in trade talks.

PBoC injected CNY 20bln via 7-day reverse repos and CNY 80bln via 14-day reverse repos. (Newswires) PBoC set CNY mid-point at 7.0734 vs. Exp. 7.0828 (Prev. 7.0730)

Reports over the weekend stated the delegation of Chinese agriculture officials didn’t cancel the trip to US farms because of any new difficulty in the trade talks, but instead cancelled amid concerns it could turn into a media circus and to avoid misimpression China was trying to meddle in US domestic politics, while it was also said that the cancellation was done at the request of the US. (Newswires)

US and China deputy level talks were said to be constructive and the sides agreed to continue discussions on relevant issues, according to Chinese state media. (Newswires)

South Korea Sep. 1st-20th Trade Balance at surplus of USD 1.65bln, Exports fell 21.8% Y/Y and Imports fell 11.1% Y/Y. (Newswires)

GEOPOLITICS

US Secretary of State Pompeo said the US is still seeking to avoid war with Iran but added that additional troops being deployed to the region are for deterrence and defence. In related news, US positioned the USS Nitze destroyer armed with surface to air missiles, off the northeast coast of Saudi Arabia to cover the gap in Saudi Air Defences. (CBS)

Iran's Foreign Minister Zarif said US President Trump is determined not to get military involved but others around him are trying to drag him into it. (Axios)

Reports that Yemen's Houthi rebels said the Saudi-led coalition strike on Omran province killed 5 civilians, while Yemen have warned foreign diplomats Iran is preparing a follow-up strike to the missile and drone attack on Saudi’s oil facilities. (Al Masirah/WSJ)

Iranian Government spokesman says the legal steps are finished regarding the Stena Impero's release, though is not aware of the timing for its release., according to a report. (Newswires)

UK/EU

Legal experts expect the Supreme Court to rule against PM Johnson who would then be forced to recall MPs to Parliament. (Newswires) UK Foreign Secretary Raab has refused to rule out proroguing parliament for a second time if the Supreme Court rules in favour of PM Johnson's decision to suspend parliament. (BBC)

Unison (the UK's largest trade union) will push UK Opposition Leader Corbyn to back remain, rather than taking a neutral stance on Brexit. (Twitter)

ECB's Vasle said economic conditions are very complicated and there is likely a need for further ECB action. (Newswires)

 

EU Markit Manufacturing Flash PMI (Sep) 45.6 vs. Exp. 47.3 (Prev. 47)

- EU Markit Services Flash PMI (Sep) 52 vs. Exp. 53.3 (Prev. 53.5)

- EU Markit Comp Flash PMI (Sep) 50.4 vs. Exp. 51.9 (Prev. 51.9)

German Markit Manufacturing Flash PMI (Sep) 41.4 vs. Exp. 44 (Prev. 43.5)

- German Markit Services Flash PMI (Sep) 52.5 vs. Exp. 54.3 (Prev. 54.8)

- German Markit Comp Flash PMI (Sep) 49.1 vs. Exp. 51.5 (Prev. 51.7)

French Markit Manufacturing Flash PMI (Sep) 50.3 vs. Exp. 51.2 (Prev. 51.1)

- French Markit Services Flash PMI (Sep) 51.6 vs. Exp. 53.2 (Prev. 53.4)

- French Markit Comp Flash PMI (Sep) 51.3 vs. Exp. 52.7 (Prev. 52.9)

Germany's VDMA forecast production drop of 2% for the engineering sector this year, with a further 2% decline next year amid trade tensions and increasing protectionism; does not expect an improvement soon. (Newswires)

EQUITIES

Major European bourses are lower (Euro Stoxx 50 -1.0%), after disappointing PMI data stoked further concerns about the slowdown in Eurozone growth. The DAX (-1.2%) is the notable underperformer, slipping briefly below last week’s low and recent support at 12300, after German manufacturing PMI data pointed to the sector falling further into contractionary territory. Amid the risk off sentiment, utilities (+0.1%), consumer staples (+0.2%) and health care (unch.) sectors are supported, while materials (-1.6%), financials (-1.7%) and tech (-1.4%) are softer. Bucking the general risk tone are European airlines, including TUI (+7.5%), Ryanair (+1.1%) and easyJet (+3.5%), who are higher after rival Thomas Cook ceased trading activities and filed for bankruptcy. In terms of individual movers; William Hill (-4.0%) reversed early gains, despite premarket news that the Co. is looking for US broadcaster deals in an attempt to promote its brand. Elsewhere, K+S (-5.7%) sunk after being downgraded at Pareto Securities. Ocado (+0.2%) managed to reverse losses on triggered by news that the Co’s Chairman stated they “will go to any length” to protect their intellectual property, amid a court battle with a co-founder. Finally, ABN AMRO (-3.5%) is under pressure after being downgraded at Santander.

FX

EUR, USD - Further concerns about the European economy have weighed on the Euro in early trade as the latest flash PMIs out of the region deteriorated significantly vs. expectations. Germany’s release took EUR/USD below the 1.100 level with IHS noting that on its current trajectory, Germany may not see any growth before year-end, whilst VDMA added further pessimism to the German economic outlook. Further, the EZ release did little to immediately sway asset classes as participants anticipated a softer pan-release, but IHS highlighted that Q3 EZ GDP growth looks set to rise just 0.1%. Analysts at CapEco highlighted concerns regarding manufacturing contagion on the services sector whilst noting that a continuation in the employment component could lead to further easing in wages. Thus, the analysts believe that "there is little reason to think that GDP growth will pick up as the ECB and the consensus forecasts assume". EUR/USD took out Friday’s low and a Fib level around 1.0995-97 to print a base at 1.0967 ahead of support at 1.0966 and 1.0950 (YTD low at 1.0924). Next up, participants will be eyeing ECB President Draghi’s final testimony to the European Parliament at 1400BST. Meanwhile, the Buck has derived support in light of a weaker Single Currency as DXY extends its gains above 98.50 to a high of 98.84 and ahead of the psychological 99.00 and resistance at 99.10. On the docket State-side, traders will be on the lookout for a few Fed speaks including Williams (voter, neutral) at the US Treasury Market Conference at 1450BST, Bullard (voter, dove, dissenter) on monetary policy at 1800BST and Daly (non-voter, neutral) on supporting US economy in urban & rural communities.

GBP, CAD - Weaker on the day, albeit more on the back of a firmer USD with Brexit-watchers still on the lookout for the Supreme Court’s decision on PM Johnson’s parliament prorogation. If ruled against (as legal experts expect), then the PM could be forced to recall MPs back to parliament. Cable remains marginally softer below the 1.2450 level (vs. high of 1.2490) after finding a base at 1.2424, which marks the lowest since 17th September (although that day saw a low of 1.2393). The Loonie also takes a spot as a G10 laggard, but mostly pressured by a retreat in oil prices as the post-PMI sentiment seeped into the energy complex. USD/CAD hovers around the 1.3300 handle (vs. low of 1.3257) with resistance seen to the upside at 1.3305 (200 DMA), 1.3346 and the psychological 1.3350 levels.

CHF, JPY - Marginally firmer amid a weakening EUR and flights to safety post-EZ PMI with USD/JPY back below the 107.50 level to a low of 107.30 ahead of support at 107.10, whilst EUR/CHF trades flat on the day but fell from an intra-day high of 1.0930 (50 DMA) to a base just above 1.0850 (with support and YTD low at 1.0809). Attention remains on the 1.08 level amid the recent rise in SNB total sights deposits with TD noting that the data suggests the SNB may be defending the level.

AUD, NZD - The antipodeans remain above water with the Kiwi outperforming its Tasman-peer ahead of this week’s RBNZ Monetary Policy Decision amid consensus for an unchanged Cash Rate at 1.00%, following its unexpected rate cut at its prior meeting, whilst the Shadow Board also recommends no change in policy. The currencies seem to have also derived some support from the US-China trade saga with Chinese state media noting that talks are constructive, and that the cancelled China visit to US farms was not a sign of deteriorating talks. NZD/USD hovers near intra-day highs (0.6277) after finding a base at 0.6250 whilst its Aussie counterpart remains above 0.6750, albeit off highs (0.6780).

Israel Joint List party are to back center-left’s Benny Gantz to form a new government. (Newswires)

FIXED

An upbeat start to the week for the debt complex, with Bunds leading the charge having touched a high of 174.52 at best thus far equating to over a full point in upside, in wake of an abysmal slate of PMIs out of Europe. The bulk of the price action occurred on the poor German prints, which saw Manufacturing drop further into contractionary territory, Composite move under the 50 mark and services ever closer to this figure at 52.5. As is typical there was fairly limited reaction to the EZ wide metric as price action had already moved in anticipation of a softer flash prints. Moving to Gilts which are bid in sympathy with their EZ counterparts firmly above Friday’s high of 132.81 having reached 132.55 at best; price action for Gilts may derive some impetus from BoE’s Tenreyro speaking on Inflation but given the BoE’s hands remain tied until the conclusion of Brexit this may not be too instrumental. Moving across the pond to USTs which are also bid following European price action, a very quiet data slate ahead with only Flash PMIs of note (manufacturing Exp. in-line at 50.3; services firmer than Prev. at 51.5) similarly to the UK focus turns to Central Bank speak with Fed’s Williams and Bullard the highlights; prior to this, USTs currently just off of session highs at 130.08+ (+16 ticks).

COMMODITIES

Oil prices continued to come off its earlier highs, as focus shifted from the prospect of a more protracted disruption to Saudi Aramco supply than expected (which helped prices over the weekend) to concern over global growth, after more abysmal Eurozone PMI data triggered a bout of selling in the complex. Downside was exacerbated soon thereafter on source reports that Saudi Arabia's Khuraris and Abqaiaq facilities are to fully restore oil production early next week (form current production levels of around 4.3mln BPD), contrary to WSJ reports over the weekend that repairs could take up to 8 months. WTI Nov’ 19 futures slumped through last week’s lows around the USD 58/bbl handle, before finding a base at USD 57.40/bbl, while Brent Nov’ 19 fell below the USD 64/bbl handle, although last week’s USD 63.06 low is still some way off. Gold prices are higher, despite opening on the back foot (on weekend reports that Chinese agriculture officials didn’t end their US trip early due to trade talk difficulties) and a firmer buck, with negative risk sentiment exacerbated by the aforementioned Eurozone PMIs helping to lift the precious metal; spot gold continues to climb from its recent USD 1500/oz base. On the flip side, global demand concerns are keeping copper prices under pressure.

Saudi Arabia's Khuraris and Abqaiaq facilities are to fully restore oil production early next week; currently producing around 4.3mln BPD., according to sources. (Newswires)

Aramco is in emergency discussions with contractors and are offering premium rates for parts and repair work in an effort to resume output quickly amid concerns repairs may last many months instead of the maximum 10 weeks that was promised. Some ARAMCO board members were said to be horrified Co. communicated such optimistic assessments on returning output to normal, while technical experts shared the view with some Saudi officials that it could take 8 months. (WSJ/Newswires)

Saudi Aramco notified Japan's top oil distributor JXTG Nippon Oil & Energy regarding a potential change in shipments in which it wants to change the oil grade it supplies from light to heavy and medium beginning next month which reports suggest indicates ARAMCO is having a hard time restoring its production as quickly as it has promised. (Nikkei)

Total Port Arthur Texas refinery is raising production after storm Imelda, while Valero Port Arthur Texas refinery has resumed production of its crude unit and Exxon also restarted its Beaumont Texas Refinery large crude unit. (Newswires)

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