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[PODCAST] US Open Rundown 1st October 2019

  • European equities are subdued this morning in-spite of a firmer open on a strong Asia-Pac lead
  • Fed's Evans (Voter, Dove) says after the rate cuts, the Fed should leave policy on hold for some time, says there is a limit to what Monetary Policy can achieve
  • In Hong Kong a protestor has reportedly been shot in the chest as the situation continues to escalate
  • PM Johnson says we are going to make a very good offer but are not going to produce the proposals now that will be made in Brussels
  • RBA cut rates by 25bp as expected; while USD is firmer as antipodeans and Scandi’s lead the downside
  • Looking ahead highlights include Canadian GDP, Markit Mfg PMI, US Markit Mfg PMI, Construction Spending and ISM Mfg PMI, SARB Monetary Policy Review, ECB President Draghi, Clarida, Bullard and Bowman

ASIA-PAC

Asian equities traded higher across the board after Wall Street wrapped up the third quarter with a session in the green ahead of principle-level US-Sino trade talks in Washington next week. In terms of Q3 performance, the S&P and DJIA both advanced for a third consecutive quarter, rising in excess of 1% each, whilst the Nasdaq dipped 0.1% Q/Q. Upside in the ASX 200 (+0.8%) was capped as base and precious metal miners bore the brunt of softer prices, whilst Nikkei 225 (+0.6%) cheered favourable currency moves and largely side-lined the planned sales tax hike which came into effect today. Elsewhere, the KOSPI (+0.5%) conformed to the risk appetite despite South Korean exports declining for the tenth straight month and semi-conductor exports slumping 31.5% Y/Y, albeit inflation metrics fell short of forecasts. As a reminder, Mainland China and Hong Kong markets were closed today due to National Day Holiday, although protests were underway in Hong Kong whilst China celebrated the 70th anniversary of the People’s Republic with a military parade. Finally, 10yr JGB futures were softer amid the risk-sentiment, however downside was more pronounced after the Japanese 10yr auction was received poorly as results showed a bid-to-cover at multi-year lows, which pressured UST and Bund futures in sympathy, Japan Securities Clearing Corporation then said an emergency margin call has been triggered on JGB futures.

Chinese President Xi said no force can stop the Chinese people and the Chinese nation forging ahead, must uphold path of peaceful developments. Xi added that the central government would “maintain long-term prosperity and stability of Hong Kong and Macao.” (Newswires/CNBC)

South Korea has urged Japan to re-examine its position on export curbs, added that the export curbs on three key materials for chips and display remain in place, not a single export approved for liquid hydrogen fluoride for chips since July 4th. (Newswires)

Japan’s sales tax increase to 10% from 8% went into effect today. (Newswires)

Japanese Tankan Big Manufacturing Index (Q3) 5 vs. Exp. 2.0 (Prev. 7.0) - Third consecutive decline, lowest since 2013. (Newswires) Japanese Tankan Big Non- Manufacturing Index (Q3) 21 vs. Exp. 20.0 (Prev. 23.0)

US

Fed's Evans (Voter, Dove) says after the rate cuts, the Fed should leave policy on hold for some time, says there is a limit to what Monetary Policy can achieve; Fed needs to have a whatever it takes approach to achieving the mandate particularly the 2% inflation target. Monetary policy needed some repositioning to align against risks. Sees the FFR inching up a little bit over the forecast period; says a strong dollar usually puts downwards pressure on inflation, and that is something to take into account (Newswires)

US President Trump is said to have pushed Australian PM Morrison for information to discredit the Mueller probe, NYT reports citing sources. (NYT) Additionally, US Democrats have demanded records from the US President Trump's personal lawyer Giuliani regarding the impeachment inquiry, reports stated. (Newswires) US Secretary of State Pompeo is reported to have been a part in the phone call with US President Trump and the Ukraine President. (WSJ)

GEOPOLITICS

Iran's Court has sentenced one person to death for spying for the US, according to a Judiciary spokesperson, not clear who it is. (Newswires)

Hong Kong Riots: Government has issued an order for all personnel to immediately evacuate the legislative complex, Riot Police are now stationed within Beijing's representative office in Hong Kong as the protests escalate and a Hong Kong protestor has been shot in the chest with a live round, according to SCMP. (Newswires/SCMP)

North Korea has agreed to hold working level talks with the US on 5 October, as according to KCNA. (Newswires)

UK/EU

UK PM Johnson says we are going to make a very good offer but are not going to produce the proposals now that will be made in Brussels; UK has already made a considerable offer and are offering a single territory for agriculture and argifoods.. (Newswires)

UK PM Johnson is said to release his Final Brexit plan to EU leaders within 24 hours, Telegraph reported. The proposal is expected to be based on the creation of an all-Ireland “economic zone” which would allow agricultural and food products to move between Ulster and the republic without checks at the border. Further reports stated that Britain is set to present a text to the EU on Thursday, whist the Telegraph noted that the formal text will be delivered after the Tory Party conference on Wednesday (echoes the report by ITV’s Peston yesterday). (Telegraph/Newswires) Furthermore, UK PM Johnson will reportedly ask the EU to rule out further Brexit extensions as part of a new deal. (Times) Daily Mirror's Crerar tweeted that there is "speculation among Tory MPs that PM could end up bringing back May’s deal with fig leaf after all". (Twitter) UK Cabinet members are divided on whether PM Johnson could delay his Brexit promise and delay the 31st October deadline, according to BuzzFeed citing sources (BuzzFeed)

Reports that a string of ‘customs clearance centres’ were proposed have been rebuffed by Sky News sources which stated that the UK has proposed a customs ‘mechanism’ whereby customs processes conducted at origin or destination of goods. The sources added that when inspections need to be conducted, it could be at the destination or at a dedicated premise away from border. There will not a "string of customs clearance centres". Furthermore, Irish Foreign Minister Coveney tweeted that the non-paper (leaked by RTE) is a non-starter, it is time the EU had a serious proposal from the UK government if a Brexit deal is to be reached this month. (Twitter)

UK Senior judges are said to be drawing up plans for an emergency legal challenge if the UK PM Johnson fails to seek a delay to the October 31st Brexit deadline. (Times)

EU HICP Flash YY (Sep) 0.9% vs. Exp. 1.0% (Prev. 1.0%)

- EU HICP-X F&E Flash YY (Sep) 1.2% vs. Exp. 1.1% (Prev. 1.1%)

- EU HICP-X F,E,A&T Flash YY (Sep) 1.0% vs. Exp. 1.0% (Prev. 0.9%)

EU Markit Manufacturing Final PMI (Sep) 45.7 vs. Exp. 45.6 (Prev. 45.6)

- German Markit/BME Manufacturing PMI (Sep) 41.7 vs. Exp. 41.4 (Prev. 41.4)

- French Markit Manufacturing PMI (Sep) 50.1 vs. Exp. 50.3 (Prev. 50.3)

UK Markit/CIPS Manufacturing PMI (Sep) 48.3 vs. Exp. 47.0 (Prev. 47.4)

EQUITIES

Major European bourses (Euro Stoxx 50 -0.1%) pared initial gains, following a positive AsiaPac lead, where stocks took impetus from a solid Wall Street session and better than expected Japanese Tankan manufacturing data. The FTSE 100 (-0.3%) is a marginal laggard, amid Sterling strength on renewed Brexit deal hopes and after the second reading of September’s Manufacturing PMI data proved not as grim as expected, while Switzerland’s SMI (-0.4%) is also lower amid weakness in some of its heavyweights. Negative ticks were seen across European bourses (although most pronounced in the DAX [-0.1%]) after the second reading of Germay’s Manufacturing PMI data, which although coming in better than expected, confirmed a deterioration in the sector in the month of September. Amid the initially firmer risk tone, defensives (Utilities (-0.3%), Health Care (-0.6%) and Consumer Staples (-0.9%)) are on the back foot while Tech (+0.3%) is in the lead. In terms of individual movers; MediaSet (+1.3%) was buoyed after posting decent earnings. PostNL (-2.7%) sunk on the news that the Co. is to combine its network with Sandd, in a deal worth EUR 105mln. ASML (+1.8%) advanced after the Co. was reiterated buy at UBS. Ryanair (+3.1%) and Air France (+2.7%) both moved higher after the Co’s were upgraded to buy at BAML. Atlantia (-2.3%) after Italy PM Conte said the process to revoke highway concessions is underway.

Amazon (AMZN), Facebook (FB) and Alphabet (GOOG) are reportedly to undertake another house inquiry. (Newswires)

Comcast (CMCSA) has reportedly told a US Senator that Alphabet's (GOOG) actions regarding advertising technology are anti-competitive., according to sources. (Newswires)

FX

AUD/NZD/SEK/NOK - A lively start to the new month and Q4 amidst ongoing Greenback strength, but with independent weights exacerbating declines and underperformance. The Aussie rebounded initially after the RBA cut rates by a further 25 bp and inserted a relatively upbeat line in the accompanying statement about a gentle turning point in the economy, but with guidance for further easing retained recovery gains were short-lived and Aud/Usd subsequently slipped below 0.6700, while Aud/Nzd retreated from another test of resistance around 1.0800 even though the Kiwi eventually succumbed to contagion and Nzd/Usd reversed through 0.6250 again to a 0.6220 low following another downbeat NZ business sentiment survey overnight. Meanwhile, the Swedish Krona slumped in wake of a significantly weaker than forecast sub-50 manufacturing PMI that was compounded by a downward revision to the previous month, and its Scandinavian counterpart has fallen in sympathy as Norway’s manufacturing sector only just escaped contraction and decelerated sharply from almost 54.0 in August. Eur/Sek has tested 10.8000 following a breach of technical resistance circa 10.7742 and Eur/Nok rallied beyond 9.9550 from lows of around 9.9080 and just below 9.8850 at one stage on Monday.

USD - The Dollar continues to prosper, partly at the expense of others, but also as US Treasury yields rebound and curves re-steepen with some extra impetus via Fed’s Evans advocating a policy pause after the 2 insurance cuts administered in July and September. Accordingly, the DXY has forged a fresh ytd high and breached 99.500 in the process, at 99.590, eyeing the Markit PMI, ISM and more Fed speakers for further direction.

CHF/CAD/JPY - The Franc has also bowed to disappointing Swiss macro news in the form of retail sales and deeper manufacturing PMI recession, with Usd/Chf up through parity and Eur/Chf crossing 1.0900 even though the single currency is struggling to cope with the aforementioned broad Buck advance and its own frailties. Elsewhere, the Loonie is still pivoting 1.3250 and awaiting Canadian GDP and/or Markit’s manufacturing PMI for extra inspiration, while the Yen appears more attuned to the latest gains in UST yields rather than a post-auction plunge in JGB futures that triggered emergency Japanese SCC margin calls. Indeed, Usd/Jpy has extended gains above 108.00 towards 108.50, with upside chart levels at 108.43 (Fib) and 108.48 (September’s peak) proving tough to break convincingly, thus far.

GBP/EUR - Relative G10 outperformers, or at least putting up a fight against the Greenback with the aid of an unexpected bounce in the UK manufacturing PMI and a steady pan Eurozone final print thanks to a German upgrade from the dire preliminary reading. However, Cable is still not making much headway beyond 1.2300 and Eur/Usd has waned just above 1.0900, with the former down through the 55 DMA (1.2279), Fib support (1.2271) and a late September base before the Brexit re-stocking PMI recovery and latter having another close look at bids at 1.0880 that are protecting a deeper retracement to 1.0864 (strong Fib support).

EM - Blanket losses vs the Greenback, and with sub-50 manufacturing PMIs across the region, bar Turkey, not helping, as the Lira loses more ground amidst rebounding oil prices and further investor disenchantment with the Finance Minister’s latest grand economic plan.

The RBA cut its cash rate by 25bps to 0.75% as expected. RBA reiterated that it is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target. RBA added “A gentle turning point, however, appears to have been reached”. The Central Bank noted the low level of interest rates, recent tax cuts, ongoing spending on infrastructure, signs of stabilisation in some established housing markets and a brighter outlook for the resources sector should all support growth, but repeated that the Board will continue to monitor developments, including in the labour market, and is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time. (Newswires)

RBA's Lowe says risks to the global economy are clearly on the downside. Expecting to return approx. trend growth over the next year, progress on employment and inflation goals is slower than the RBA would like it to be, today's cut will help, Adds that low rates, tax cuts, infra spending and housing stabilisation and resources outlooks the basis for the expected improvement in growth. (Newswires)

Herald Sun's McCrann writes that the RBA are likely to cut rates further. (Herald Sun) New Zealand NZIER Adj. Business Confidence (Q3) -35 (Prev. -34), Non-adjusted -40 (Prev. -34) (Newswires)

FIXED

Bonds have pared worst losses, but remain weak after a distinctly negative start to October and the final 3 months of 2019, with only scant traction coming from manufacturing PMIs that remain bleak on balance, even allowing for certain mitigating circumstances or factors that prompted headline beats vs consensus or flash readings. In short, Bunds are holding off a 173.31 low with the -50 bp 10 year cash yield offering some resistance/support, Gilts have rebounded from 133.30 amidst the ongoing UK political/Brexit unknowns and US Treasuries are keeping an eye on 130-00 as the benchmark eyes 1.75% for some psychological protection

COMMODITIES

The crude complex is consolidating, with both benchmarks having found support around their 12 September lows around USD 54.00/bbl for WTI and USD 59.00/bbl for Brent respectively, following yesterday’s steep declines which were exacerbated by bearish supply signals re. Saudi Aramco’s recovery to full output. News flow on the Middle Eastern geopolitical front has been light, although reports that Iran has sentenced one person to death for spying for the US could be providing some support to the complex. However, further details regarding who the person is and what the wider implications, if any, may be are scant. Elsewhere, amid continued constructive risk tone and possible technical selling after it convincingly lost its grip on the USD 1500/oz handle yesterday, Gold continues to move lower. The fall in Gold prices comes despite continued escalations in protestor/police tensions in Hong Kong, as markets more broadly remain seemingly unperturbed by developments for now. Meanwhile, Copper futures remain unable to derive support from the more constructive risk tone, and have extended on their overnight declines after broking below short-term resistance around USD 2.572/lbs.

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