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[PODCAST] US Open Rundown 27th July 2018

  • European equities are mostly higher (Eurostoxx 50 +0.4%) amid a slew of pre-market earnings. Amazon currently higher by 4.1% in pre-market trade
  • USD is trying to build on recovery gains back above 94.500 amid Trumped-up expectations for today’s GDP print
  • Looking ahead, highlights include US GDP, Uni. of Michigan Sentiment, the Baker Hughes rig count

ASIA

Asian equity markets traded slightly mixed after a similar varied performance on Wall St where focus remained on earnings season and Facebook’s historic market cap wipeout. ASX 200 (+0.9%) and Nikkei 225 (+0.6%) were both higher with the Australian benchmark the outperformer as it attempted to reclaim the 6300 level and approached to within a whisker of its highest in over a decade. BHP was among the biggest gainers after it announced the sale of its US onshore assets to BP for USD 10.8bln and return the net proceeds to shareholders, while Japanese stocks also gained and were driven by earnings although a firmer JPY capped upside. Conversely, China lagged its regional peers with both Hang Seng (+0.1%) and Shanghai Comp. (-0.3%) were subdued after the PBoC skipped open market operations all week which resulted to a net weekly drain of CNY 370bln, while China also signalled defiance on trade and were said to plan retaliating regardless of the amount of US tariffs. Finally, 10yr JGBs were lower as the 10yr yield rose to above 0.1% for a 2nd consecutive day amid firmer than expected Tokyo CPI data coupled with speculation of a BoJ policy adjustment next week. Pressure in JGBs was also exacerbated after the Rinban announcement in which the BoJ disappointed some calls for a special fixed-rate operation and instead stuck to its regular operation for 1yr-10yr JGBs. However, losses were pared heading into the EU open after the BoJ eventually announced an offer to buy unlimited amount of 5yr-10yr JGBs in fixed rate operation.

PBoC skipped open market operations for a net weekly drain of CNY 370bln vs. last week's CNY 540bln net injection. (Newswires)

PBoC set CNY mid-point at 6.7942 (Prev. 6.7662)

Chinese Industrial Profits (Jun) Y/Y 20.0% (Prev. 21.1%). (Newswires)

Tokyo CPI (Jul) Y/Y 0.9% vs. Exp. 0.7% (Prev. 0.6%). (Newswires)

Tokyo CPI Ex. Fresh Food (Jul) Y/Y 0.8% vs. Exp. 0.7% (Prev. 0.7%)

Tokyo CPI Ex. Fresh Food & Energy (Jul) Y/Y 0.5% vs. Exp. 0.4% (Prev. 0.4%)

EU/UK/US

The percentage of voters who favour a second Brexit referendum has overtaken those who do not for the first time, a YouGov poll for The Times shows. (Times)

Former Trump lawyer Cohen reportedly prepared to say that President Trump was aware of the meeting with Russians that were expected to offer dirt on Hillary Clinton. (CNN)

Senior White House official says US President Trump keeps leverage to place tariffs if EU and US cannot reach an agreement, while the official added that EU needs to open to more US auto exports. (Newswires)

EQUITIES

European equities are mostly higher (Eurostoxx 50 +0.4%) amid a slew of pre-market earnings. France’s CAC 40 underperforms on the back of Kering and L’Oreal (3rd and 4th largest index constituent, currently -7.2% and -3.6% respectively) weighing on the index post-earnings. Telecom names are the clear outperformers after BT’s (+3.8%) earnings boosted the sector, dragging up Italy’s Telecom Italia (+4.8%) and Germany’s Deutsche Telekom (also influenced by a broker move, +2.7%)

Other notable movers post-earnings: Carrefour (+11.5%), SES (+8.0%), Reckitt Benckiser (+7.8%), Capgemini (-2.8%) and Banco de Sabadell (-2.6%).

Stateside, Amazon shares currently trade higher by 4.1% pre-market after posting a record USD 2.5bln profit.

FIXED INCOME

Aside from, or as well as bullish US GDP aspirations, other macro/fundamental impulses and cross-asset flows, technicals appear to be impacting trade to a degree in the run up to Friday’s ‘big’ and headline data event. In fact, Bunds are adhering very closely to the script having topped out at 162.18, as a market contact flags this level as near term resistance that would prompt offers if not breached, targeting 161.99 support vs the 161.97 new intraday Eurex low. Meanwhile, Gilts faded at 123.21 and have subsequently retreated to 123.05 for a 12 tick loss on the day and US Treasuries are essentially flat awaiting the advance look at Q2 growth before the final read of July’s Michigan survey.

FX

DXY - The index is trying to build on recovery gains back above the 94.500 level and inch towards 94.900 amidst broad-based Dollar gains and lofty expectations for strong US growth in Q2 as forecasts range from 4 to 5% for the headline y/y annualised rate. However, an in line print could be deemed somewhat disappointing and risk a buy rumour/sell fact reaction, especially with at least one bank model flagging a ‘strong’ Usd sell signal for month end portfolio rebalancing.

CHF/NZD - The main victims of renewed Greenback buying even though weakness in other G10 currencies are indirectly responsible, and for specific reasons, with the Franc slipping a bit further from recent lows and now in a 0.9965-30 range and the Kiwi losing grip of 0.6800 after yesterday’s mega option expiry at the strike.

EUR/GBP - The single currency has retreated further from pre-ECB highs above 1.1700 vs the Usd and almost 1.1750 at one stage as dovish rate guidance continues undermine sentiment and highlight policy divergence vs the Fed. The headline pair failed to hold above a Fib around 1.1642 and is now testing key technical support at 1.1626, with a breach exposing 1.1600 ahead of another Fib down at 1.1575. The Pound, meanwhile, has been hit by negative Brexit news as EU chief negotiator Barnier dismissed the Chequers White Paper customs plan, and Cable is back below 1.3100 as a result.

JPY/CAD/AUD - Relative outperformers, or at least holding their own against the Usd, with the Jpy containing losses beyond the 111.00 mark ahead of next Tuesday’s BoJ meeting and a decent (near 1 bn) option expiry at 111.50 , the Loonie still bolstered by improved NAFTA deal prospects within 1.3050-80 parameters and the Aud resilient between 0.7370-95 even though the CNY and CNH are both on the ropes again (6.8000+) after a rebound in the PBoC’s mid-point fix.

SEK - Significantly weaker than forecast Swedish retail sales rattling the Krona, with Eur/Sek rallying towards 10.3000 vs Eur/NOK steady and sub-9.5500.

EM - More pain for the Lira following Thursday’s threat of additional sanctions by the US, as Usd/Try trades above 4.8500, but the Rouble and Rand are both keeping their heads above water, with Usd/Rub around 62.9800 and Usd/Zar just below 13.2500 ahead of the CBR rate decision (unchanged consensus) and after the SARB repeated a willingness to act if inflation exceeds target.

COMMODITIES

WTI (-0.3%) and Brent (-0.2%) trades lower on the day with both benchmarks just under USD 69.50/bbl and USD 74.50/bbl respectively. The Russian Energy Minister Novak emerged this morning to point out OPEC+ countries are not discussing options to boost production above 1mln BPD, adding Russia targets a 200K-250K BPD output hike from the 2016 quota. Traders will be eyeing any development in the Red Sea shipping lane (after reports yesterday that Saudi halted shipments amid rebel attacks) while the weekly Baker Hughes rig count is released later.

Spot gold (-0.2%) continues to be pressured by a firmer dollar. Meanwhile, global steel output (a gauge of economic health) jumped in the first half of the year after major producing countries ramped up production due to strong margins. 

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