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[PODCAST] US Open Rundown 25th September 2019

  • European indices are subdued as sentiment is impacted by a number of risk factors ahead
  • House Speaker Pelosi says the House is to open informal impeachment inquiry into President Trump
  • Saudi Aramco have reportedly restored oil production capacity to 11.3mln bpd, according to sources
  • Fixed is little changed, USD is bolstered by a softer Sterling and EUR while NZD is now unchanged following RBNZ leaving rates unchanged at 1.0%
  • Looking ahead, highlights include US New Home Sales, SNB Quarterly Bulletin, Fed’s Evans, George, Brainard, Kaplan, BoE’s Carney, Riksbank’s Floden. Supply from the US

ASIA-PAC

Asian equity markets tracked the losses seen across global peers amid headwinds from the US where sentiment was dragged by weak Consumer Confidence data, increasing impeachment concerns and after President Trump kept a hardline tone on China and Iran. ASX 200 (-0.6%) and Nikkei 225 (-0.4%) were lower with Australia pressured by losses in the mining-related sectors and after optimistic comments on the economy from Governor Lowe placed some doubts regarding a rate cut next week, while Japan trade was dampened by recent flows into its currency and ongoing uncertainty regarding a trade deal with the US. Hang Seng (-1.2%) and Shanghai Comp. (-1.0%) were also negative after US President Trump kept a hawkish tone on China during his UN speech in which he alleged China has not adopted promised reforms, uses heavy state subsidies, steals intellectual property and manipulates its currency. This was later followed by comments from China’s Foreign Minister Wang who responded with a more conciliatory tone in which he suggested the sides need to take their bilateral relationship forward with wisdom as well as conviction and that neither countries can move ahead without the other, although he also added the US should not try to change China and that trade negotiations cannot happen under threats. Finally, 10yr JGBs were higher amid the negative risk tone and as the pressure on yields resumed with the 10yr yield below -0.25% and the 5yr yield touched a record low which has spurred speculation BoJ may be forced to reduce is regular purchases, while weaker results at the 40yr JGB auction did little to dent the rally in Japanese bonds.

PBoC injected CNY 20bln via 14-day reverse repo for a net daily drain of CNY 10bln. (Newswires) PBoC set CNY mid-point at 7.0724 vs. Exp. 7.0748 (Prev. 7.0729)

China Foreign Minister Wang Yi said US and China need to take their bilateral relationship forward with wisdom and conviction, while he added that the relations have come to a crossroads and the trade war has inflicted losses on both sides. Wang further commented that neither US nor China can move ahead without the other and that opening up, as well as integration represent the way forward. However, Wang also stated US reverting to containment policy on China is a wrong idea which cannot possibly work, and that China will remain on its own path, while he added US should not try to change China and that trade negotiations cannot happen under threats. (Newswires)

China is reportedly to keep supporting pork and soybean purchases from the US and is said to have made enquiries regarding buying more US pork as trade talks revive. (Newswires/Xinhua) China Q3 Beige Book said China's economic performance during Q3 is the weakest so far for 2019. (Newswires)

US and Japan are each to open up to USD 7bln worth of markets in a trade deal., Jiji News

BoJ minutes from July 29th-30th meeting stated it is appropriate to continue easing persistently and that it would take time to reach 2% inflation goal. BoJ also reiterated that Japan's economy had been on a moderate expanding trend although exports had shown some weakness and industrial production had been more or less flat, while one member said should respond quickly if risks impact prices and that they need to act pre-emptively to downside risks. (Newswires)

US – A analysis piece on how impeachment proceedings occur is available on the RANsquawk newsfeed

US House Speaker Pelosi said the House is to open formal impeachment inquiry on President Trump, while she added that Trump’s actions have seriously violated the constitution and that he must be held accountable. Pelosi also commented that Trump's call with the Ukraine President marked breach of constitutional responsibilities and that the administration's effort to block release of whistle blower report was a violation of law.  Furthermore, the House will vote on Wednesday on Trump condemnation motion and there were also reports the US Senate approved resolution for whistle blower complaint to be submitted to Senate and House Intel Committees. (Newswires)

GEOPOLITICS

Iranian government spokesman says that President Rouhani will make important proposals in New York to build confidence and break the current deadlock, Limited amendments to nuclear deal could be accepted in exchange for Washington's return to the agreement and Tehran is ready to reassure everyone that it is not seeking a nuclear weapon. (AJA)

Iranian Foreign Minister says it the lifting of the detention of the UK tanker Stena Impero was finalised on Wednesday, but the ship still faces charges. (Newswires)

US Secretary of State Pompeo tweeted that Iran must not be allowed to continue its destructive behaviour and suggested for the sake of the Iranian people and the world, the UNSC has a vital role to play in ensuring the UN arms embargo on the world’s top sponsor of terrorism. (Twitter)

French President Macron said he believes conditions are there for a rapid return to negotiations between Iran, US and other, while he added the lifting of US sanctions is possible if there are commitments from Iran on nuclear and regional activities. (Newswires)

Japanese PM Abe said he is determined to meet with North Korea leader Kim without attaching any conditions and that Japan aims to normalize ties with North Korea by resolving issues such as abductions, nuclear and missiles. (Newswires)

Beijing is increasingly tapping private Chinese firms to acquire foreign technology for its military, according to officials and a new report, prompting calls by leaders in Washington to retool US national security policy., WSJ

UK/EU

UK Cabinet sources believe the PM will present an election vote on Thursday. (Telegraph)

UK Labour Leader Corbyn declines to say when he would put forward a no-confidence motion in PM Johnson; the earliest he would call a election would be October 17th after the PM has requested a Brexit extension. (Newswires/Twitter)

EQUITIES

Major European bourses (Euro Stoxx -1.3%) are lower, with sentiment weighed by a number of factors. Prior to the cash open, fresh concerns regarding US/EU trade relations were stoked; reportedly the US, in retaliation for illegal EU subsidies for Airbus (-0.5%) (as ruled recently by the US), is mulling hit EU imports with tariffs that randomly rotate, so as to hit as many industries as possible and create higher levels of uncertainty. 2) US President Trump impeachment. Additionally, the possibility of the impeachment of US President Trump adds further uncertainty to the macro backdrop. Further negative ticks were seen across equities (most pronounced in the DAX) on the reports that China is to accelerate the public listings of chip companies on Shanghai’s STAR stock market in the latest initiative by Beijing, as China counter US technology sanctions and speed the development of its semiconductor industry. Sectors are all in the red, with Tech (-2.0%) and Consumer Discretionary (-1.7%) leading the decline, while more defensive Utilities (-1.0%), Health Care (-1.1%) and Consumer Staples (-0.8) are lower but faring better. In terms of individual movers; Adidas (-0.8%) was higher at the open, in sympathy with Nike, who are higher in premarket trade after posting strong earnings, before succumbing to the broader market’s negative feel. Wirecard (-2.4%) is under pressure after a downgrade at UBS. EDF (-7.1%) sunk on the news of further delays to projects and a higher build up in associated costs that expected. Babcock (+4.3%) is higher, after posting a positive trading update.

China is accelerating the public listings of chip companies on Shanghai’s STAR stock market in the latest initiative by Beijing to counter U.S. technology sanctions and speed the development of its semiconductor industry, Nikkei

Nike (NKE) reported Q1 EPS USD 0.86 vs. Exp. USD 0.70. Revenue USD 10.7bln vs. Exp. 10.41bln. Gross margin rose 150bps to 45.7%, primarily due to higher average selling prices, and margin expansion in Nike Direct. China revenues in China USD 1.679bln Prev. USD 1.379bln. (Newswires) Co. shares rose 5.5% after-market.

FX

DXY - The broad Dollar and Index is staging a recovery following yesterday’s losses after DXY briefly dipped below 98.30 due to a combination of further Fed repo operations, downbeat US consumer sentiment and strength in G10 peers. DXY now treads water just above 98.50 ahead of yesterday’s high of around 98.70 with participants keeping an eye on events State-side as the House is to open a formal impeachment inquiry into US President Trump (analysis on the RANsquawk headline feed) whilst Fed’s Evans (Voter, Dove) is due to speak at 1400BST on the economy and policy.

GBP, EUR - Sterling is on the backfoot today ahead of Parliament’s return at 1130BST (analysis on the RANsquawk headlines) with initial downside in Cable coinciding with reiterations from Labour leader Corbyn, who stated that the earliest he would call a general election would be October 17th after the PM has requested a Brexit extension, although a firmer Buck somewhat influenced currency action. GBP/USD has reversed a bulk of yesterday’s gains with the pair back below the 1.2450 level after breaching its 10 DMA (1.2462) ahead of support between 1.2410-15. Meanwhile, EUR/USD remains around the 1.10 handle (where 740mln in options expire at today’s NY cut) , off its high of around 1.1023 (amid a firmer Buck) ahead of resistance and 1.1025, also where offers have been reported, whilst to the downside, EUR/USD sees resistance at 1.0980.

NZD, AUD - The Kiwi has given up most a bulk of its post-RBNZ gains in which the Committee agreed that developments since the August Statement had not significantly changed the outlook for monetary policy. The RBNZ reached a consensus to keep the OCR at 1% and that, if necessary, there remains scope for more fiscal and monetary stimulus. CB also maintained a neutral stance despite some calls for an easing bias to be reintroduced. NZD/USD resides around 0.6325, having visited a high of 0.6350 (on the decision) and vs. a pre-announcement low of 0.6305. Meanwhile, the Aussie has faded yesterday’s Lowe-induced gains with some potential pressure from weaker copper prices and as the AUD/NZD cross falls further below 1.0750 having earlier tested 1.0700 to the downside.

EM - The Lira continues to strengthen in European trade, this time amid comments from the CBRT Governor who reiterated the Central Bank’s “cautious” stance, in turn providing some relief to investors who fear that the Bank may be jumping the gun following two back-to-back deeper than forecast rate cuts. The Governor also acknowledged the continuing improvement in inflation whilst also noting an economic recovery in H2. USD/TRY is back below the 5.7000 level (low 5.6784) having declined from an intraday high of 5.7100.

RBNZ maintained the Official Cash Rate at 1.00% as expected, while it stated the committee agreed new information did not warrant significant change to the policy outlook and that a steady OCR is needed to ensure inflation increases to the mid-point of its target range. RBNZ added there remains scope for fiscal and monetary stimulus, that domestic rates can be expected to remain low for longer but also noted that low rates and government spending is expected to support demand in the coming years. (Newswires)

FIXED

A more mixed picture across the fixed income complex this morning with European debt posting tentative gains whereas their stateside counterpart is slightly subdued. In terms of European bonds, they are a tad firmer thus far moving in-line with risk sentiment although by a significantly smaller magnitude when compared to the downside we have seen in Dax Dec’19 futures which have lost over 150 points. Drivers in Europe are limited as we haven’t had any Tier 1 data or notable Central Bank remarks, as such Bunds are capped by the 175.0 level with little/no price action derived from today’s 10-year supply. Gilts are leading the way having surpassed the 134.0 mark and breached a few technical boundaries but remain capped by the psychological 134.50 figure thus far. UK assets may well see some additional volatility from 11:30 BST onwards as the House of Commons reopens following yesterday’s court ruling; with the PM due to address the Commons today. Turning to USTs, which are modestly softer though are little changed and somewhat tentative as impeachment talk ratchets up overnight with Speaker Pelosi having instigated formal proceedings; currently, the curve is little changed, though the 2/10 spread has widened a tad. For reference, a analysis piece on the process of impeachment is available on the RANsquawk headline feed. Looking ahead in the US session, aside from any updates to impeachment, we have a number of Central Bank speaker scheduled alongside the next wave of US supply in the form of a USD 41bln 5-year auction.

COMMODITIES

The crude complex is lower on Wednesday morning, seemingly in line with equities, although bearish supply side news doing the rounds is also likely a factor in the downside; reportedly, Saudi Aramco is recovering faster than expected form the recent attacks on its oil facilities, with total daily production capacity likely to be restored to over 11mln BPD roughly one week ahead of schedule. On the topic of bearish impulses; more reports focusing on the fact that the US drilled-but-uncompleted wells (DUCs) count is declining, possibly an indication that companies have started completing unfinished wells, which could foreshadow elevated US crude output, have been doing the rounds. Elsewhere, the complex has taken little impetus from geopolitics; Iranian President Rouhani has indicated a willingness to make some concession if the US eases sanctions (which remains a big if, especially given US President Trump’s slightly hawkish UNGA speech yesterday), and may unveil some proposals at the UN later today. WTI futures are again below the USD 56.50/bbl mark, consolidating for now around USD 56.50/bbl figure, meanwhile Brent remains near the USD 62/bbl level. Spot Gold futures are fairly flat, seemingly unable to take advantage of woes in the equity market, and is blanketed by support and resistance at USD 1520/oz and USD 1536/oz respectively. Elsewhere, copper is lower, in line with general sentiment.

API Crude Inventories: +1.4mln vs. Exp. -0.2mln (Prev. +0.6mln). (Newswires)

Saudi Aramco have restored oil production capacity to 11.3mln bpd, according to multiple sources. (Newswires)

- Production at the Khurais facility stands at 1.3mln bpd and Abqaiq at 4.92mln bpd.

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