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[PODCAST] US Open Rundown 26th September 2019

·        Major European indices are firmer from a mixed Asia-Pac session on further positive US-China remarks

·        UK PM Johnson said he will not request a Brexit extension even if conditions of the Benn bill are met, while he also stated that changing the Irish backstop is under serious negotiation

·        Chinese Commerce Ministry says US and China are closely communicating and preparing for making trade talk progress in October, still discussing details with the US side

·        USD is firmer as EUR touches YTD lows while debt is little changed ahead of today’s speaker slate

·        Looking ahead, highlights include US GDP (Final) & Pending Home Sale, Fed’s Kaplan, Bullard, Clarida, Daly, Kashkari, Barkin, ECB’s Draghi, de Galhau, BoJ’s Kuroda & BoE’s Cunliffe, Banxico Rate Decision, supply from US.

ASIA-PAC

Asian equity markets traded somewhat mixed as the region struggled to maintain the momentum from the US where President Trump ignited trade hopes after he suggested a deal with China could happen 'sooner than you think', while the US and Japan also reached a first stage trade agreement. ASX 200 (-0.5%) and Nikkei 225 (+0.1%) were higher at the open although the optimism in Australia later faded amid losses in commodity related sectors especially gold miners after the precious metal slumped to test the USD 1500/oz level, while the Japanese benchmark was positive but with gains capped as participants reflected on the limited US-Japan trade pact which didn’t involve autos although the US was said to have agreed to not impose Section 232 tariffs on Japan while talks are underway. Hang Seng (+0.4%) and Shanghai Comp. (-0.9%) were both underpinned at the open following the encouraging trade rhetoric from US President Trump who also stated that China is making large agricultural purchases and that there is a good chance we'll make a trade deal with China which is getting closer and closer. However, the advances in the region later waned considering Trump’s tendency to flip flop on trade discussions and as US impeachment concerns lingered, while the PBoC’s open market operations also resulted to a considerable CNY 100bln net drain in liquidity. Finally, 10yr JGBs were lower following the bear steepening in the US and after the BoJ reduced its purchase amounts of 5yr-10yr JGBs for today’s Rinban operations.

PBoC injected a CNY 20bln via 14-day reverse repos for a net daily drain of CNY 100bln. (Newswires) PBoC set CNY mid-point at 7.0729 vs. Exp. 7.0947 (Prev. 7.0724)

Japanese PM Abe said US President Trump agreed the US won’t impose Section 232 tariffs on Japan while talks are underway, while Abe also believes the trade agreement with US will lead to further economic growth for Japan and contribute to the global economy. There were also comments from Japan Minister of Economy Trade and Industry Sugawara that he will negotiate firmly and get results in scrapping US tariffs on Japan autos. (Newswires)

Chinese Commerce Ministry says US and China are closely communicating and preparing for making trade talk progress in October, still discussing details with the US side. (Newswires)

 

US

 

Fed's Kaplan (non-voter, dove) said he feels current policy setting is on the margin of being a little accommodative, while he is agnostic on whether or not more cuts are required and is keeping an open mind. Furthermore, Kaplan said the odds of a recession within next 12 months are relatively low and that repo problems last week show a need for more liquidity but are not sign of broader stress. (Newswires)

An adviser to Ukraine's President said President Trump's insistence for the two leaders to discuss a possible investigation into Joe Biden was a precondition for their July 25 phone call, while it was also reported the Whistleblower's complaint against US President Trump has been declassified and could be releases as early as Thursday morning according to sources. (ABC News/CNN)

GEOPOLITICS

Ukrainian Opposition Lawmakers have sent a official request to the President's office for a full transcript of the call with US President Trump., (Ifax)

UK/EU

UK PM Johnson said he will not request a Brexit extension even if conditions of the Benn bill are met, while he also stated that changing the Irish backstop is under serious negotiation and replied yes when asked if he thinks the EU will move on the Irish backstop. (Newswires/ITV)

UK House of Commons Leader Rees-Mogg said Parliament will be asked on Thursday to approve adjournment motion next week for the Tory Party Conference and that the government will then hold general debate on principles of democracy. (Newswires) Subsequently, Government sources are already conceding defeat on this afternoon's conference recess motion, according to The Times' Swinford. (Twitter)

Chances of the UK and EU agreeing on a deal being described as nil by sources in the EU, according to BBC's Adler. (Twitter)

EQUITIES

 

Major European Indices (Euro Stoxx 50 +0.5%) are higher, following a more mixed AsiaPac lead, as the market digests the latest trade developments; China’s MOFCOM sounded constructive, saying the two sides are “closely communicating and preparing for making trade talk progress in October” (reminder; US President Trump yesterday hinted that a deal could come sooner than we think). Moreover, a stumbling block for the potential US/Japan trade deal seems to have been averted; USTR Lighthizer said it is not the intention of the US to put tariffs on Japanese auto exports. However, on the EU/US front, the WTO look set to rule that the US can sanction up to USD 8bln worth of EU goods over Airbus (AIR FP) aid, sources said. It is also worth noting that Eurozone broad money supply increased more than forecast. ING note that it considered one of the best leading indicators for the eurozone economy, and as such, could be lending some support to sentiment (though EURUSD is just off YTD lows). Sectors are mostly higher, lead by Tech (+1.3%), and Energy (+1.3%), with Telecoms and Financials (+0.2) the laggards for now. In terms of stock specific movers; ABN Amro (-10.0%) shares took a tumble, as the company joined the ranks of other notable European banks in that it is now being investigated by public prosecutors over potential money laundering violations. Imperial Brands (-10.6%) issued negative outlook, expressing concerns over its next generation of products. British American Tobacco (-1.3%) moved lower in sympathy, and US tobacco names may not escape the session unscathed, not least given Imperial Brands specifically names US action on vaping products as resulting in a notable slowdown of vapour product growth. Pearson (-18.1%) sunk after the co. provided disappointing guidance. Wirecard (+2.3%) was bid premarket, after SocGen initiated the company at a Buy premarket. Ericsson (-0.7%) managed to reverse the majority of what was initially substantial losses as the broader market advanced, on the co. provided guidance for Q3 provisions in relation to investigations State-side, and sees costs at SEK 12bln. Finally, airlines were under pressure after IAG (-3.5%) issued a profit warning.

Airbus (AIR FP) has reportedly been hit by a series of cyber attacks on its suppliers, with hackers searching for technical secrets, security sources say; a link to China is suspected. (AFP)

 

Beyond Meat (BYMD)McDonalds (MCD) are to test the Co’s new plant-based burger in Canada. Beyond Meat are around 10% higher in pre-market trade. (Newswires)

 

Apple (AAPL) – Co. are reportedly considering investing USD 186mln in Japan display. (WSJ)

 

FX

 

DXY - Marginally firmer on the day thus far with the index topping yesterday’s high (99.06) in a continuation of recent strength, whilst an optimistic tone from China’s MOFCOM regarding October trade talks in Washington did little to stem the Buck’s rise. DXY has breached its 12 Sept high at 99.10 with its YTD high at 99.37. Next up on the docket State-side, the final metrics US GDP and PCE prices, weekly initial jobless claims and a slew of Fed speaks including Kaplan (non-voter), Bullard (voter, dissenter), Calrida (voter), Daly (non-voter), Kashkari (non-voter) and Barkin (non-voter). In terms of US politics, participants will also be eyeing the potential release of the whistleblower’s complaint against US President Trump in regard to the controversial phone call between Trump and his Ukrainian counterpart, which some members of congress described as “troubling”.

 

NZD, AUD - All firmer, with outperformance in the Kiwi following comments from RBNZ Governor Orr who struck an optimistic tone on the domestic economy whilst highlighting that unconventional policy tools are not currently necessary. NZD/USD reached a 0.63+ status overnight, albeit remains off highs (0.6310) at around 0.6290 after kicking the session off at 0.6270. Meanwhile, its Aussie counterpart remains buoyed by the optimistic US/China trade tone after the US President said a deal with China could happen “sooner than you think”, whilst rhetoric from China was remained constructive ahead of trade talks in Washington next month. AUD/USD trades north of 0.6750 with little by way of immediate technical levels in play.

 

GBP, EUR - Both softer on the day with Cable the underperformer amid a firmer Buck coupled with Brexit angst as the UK PM remains resilient to a Brexit extension, whilst rhetoric from the EU is also less optimistic as most diplomats believe another delay will only increase the chances of No Deal down the line, according to Sun's Nick Gutteridge. GBP/USD has tested 1.2300 to the downside after breaching a barrage of support levels between 1.2346-50 with the next level to the downside touted at 1.2233 (9th Sept low). The Euro is marginally softer, down from highs of 1.0965 due to a firmer Dollar as the pair moves closer to its YTD low of 1.0924. In terms of levels to the downside, below the psychological 1.0900 mark, the pair sees a strong Fib level at 1.0864 ahead of support at 1.0850. Note: EUR/USD sees large option expiries at today’s NY cut with 2bln between 1.0925-50 and 6bln at 1.1000. On the docket, ECB’s de Guindos, and Villeroy are set to speak later in the session.

 

JPY, CHF - Discrepancies seen in the safe-haven currencies, albeit marginal with USD/JPY within a narrow intraday parameter of 107.60-80 ahead of a slew of Fed speakers. CHF meanwhile remains modestly softer with USD/CHF at session highs of around 0.9940 ahead of its 50 WMA and 200 DMA both at 0.9948.

 

Notable FX Option Expiries – NY Cut:

- EUR/USD: 1.0925 (1BLN), 1.0950 (1BLN), 1.1000 (6BLN), 1.10455-50 (1.2BLN) 

- GBP/USD: 1.2300 (730M), 1.2400 (520M), 1.2430-50 (850M), 1.2500 (1.8BLN) 

- AUD/USD: 0.6770-75 (1.1BLN), 0.6800 (1.3BLN) 

- USD/JPY: 107.25 (830M), 107.50 (1.1BLN), 107.70 (360M), 107.90-108.00 (2BLN) 

- EUR/JPY: 117.00 (400M), 117.70-75 (800M), 119.00 (1.4BLN) 

 

RBNZ Governor Orr said New Zealand is in a sound position to seize the opportunities and manage challenges related to global low interest rate environment, while he added the current view is we are unlikely to require unconventional monetary policy tools and is confident rates will remain low for a number of years providing a great environment for investment. (Newswires)

 

FIXED

European fixed income, when compared to stocks and oil, has had a quiet morning, with the Bunds largely unchanged at present although they did slip a tad, along with the rest of the debt complex, on this mornings China comments. The China comments in question don’t really change the narrative and as there has been no notable data, aside from German GfK which printed marginally firmer, bonds are fairly lacklustre ahead of this afternoon’s packed speaker slate and US data. On the UK side, after yesterday’s return of Parliament, Gilts are awaiting further clarity on the next steps for UK Politics; recess for Tory Conference, Benn Bill, no-confidence votes and elections all potential announcement to watch out for. While comments out of the EU have been negative with one source describing the chances of achieving a deal as zero. As such, UK debt is a touch firmer and just shy of its session high at 133.93; in yield terms, if the upside continues then 0.493% (yesterday’s low) may come into play. Stateside, a number of notable speakers including Bullard and Clarida scheduled for just after the day’s main data release of GDP (Final), PCE Prices and Jobless Claims amongst other metrics. USTs are slightly stronger though not especially so as trade remains tentative moving into US hours as the declassification of the Whistle Blower report and indications that the impeachment proceedings has the necessary majority of 218 within the House. In terms of the curve, it is experiencing some mild bear flattening this morning with the 2/10 spread a touch narrower.

COMMODITIES

Crude is trading flat, albeit seeing some upside in recent trade alongside European equities, amid a lack of notable fresh supply side/geopolitical developments. OPEC Secretary General Barkindo said that Saudi Arabia has almost restored the bulk of its oil supply, in line with recent commentary from the Saudis. Barkindo added that OPEC will continue to do whatever it takes to insulate oil market from politics but took an extraordinary OPEC+ meeting off the table. Elsewhere, the Kazaks said that had no plans to up crude production in wake of the recent Saudi attacks. ING note the fall in crude prices that occurred yesterday, on reports that Saudi Aramco is ahead of schedule by about a week in bringing capacity back. However, “it still seems that the market is being complacent,” the bank says, “with less than a US$3/bbl risk premium priced into the market, despite the heightened geopolitical risk in the region”. WTI Nov’ 19 and Brent Nov’ 19 futures currently sit near the USD 56.50/bbl and USD 62.50/bbl levels respectively. Elsewhere, Gold prices are slightly higher, but have been coming off somewhat during the European session, as the precious metal consolidates following yesterday’s declines in which it lost the USD 1520/oz handle again. Elsewhere in the metal complex, Copper prices are similarly lacklustre.

 

OPEC Secretary General Barkindo said the oil market has been struck by uncertainty over past few months but added we expect robust long-term oil demand growth; adds that, Saudi Arabia has almost restored the bulk of its oil supply, adds will continue to do whatever it takes to insulate oil market from politics, extraordinary OPEC+ meeting is not on the table (Newswires)

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