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[PODCAST] US Open Rundown 30th July 2018

  • European bourses mostly lower ahead of this week’s key risk events
  • Fixed Income losses have accelerated pretty sharply with big figure breaks triggering some stops
  • Looking ahead, highlights include national German CPI (following mixed state CPIs)

ASIA

Asian equity markets began the week lacklustre after the tech-led declines last Friday on Wall Street and amid cautiousness ahead of this week's slew of risk events, while further CNH weakness also dampened sentiment. ASX 200 (-0.4%) and Nikkei 225 (-0.7%) were in the red with the worst performing stocks pressured by corporate updates including Syrah Resources and Dainippon Sumitomo Pharma. Elsewhere, Hang Seng (-0.6%) and Shanghai Comp. (-0.2%) were initially choppy after the PBoC refrained from reverse repo operations for a 7th consecutive occasion but noted that month-end fiscal spending will increase bank liquidity, while further CNH weakness eventually weighed on sentiment and proved to be the deciding factor. Finally, 10yr JGBs were marginally lower in a continuation of the losses triggered by ongoing BoJ speculation ahead of tomorrow’s policy announcement, while T-notes were uneventful amid tentativeness ahead of the looming risk events. Heading into EU trade, the BoJ once again announced a fixed-rate JGB operation which was met with a muted reaction by the market.

PBoC skipped repo operations for a CNY 130bln net drain and said month-end fiscal spending will raise bank liquidity. (Newswires)

PBoC set CNY mid-point at 6.8131 (Prev. 6.7942)

Chinese Commerce Ministry drafts revised rules in regards to foreign strategic investment in Chinese listed companies. (Newswires)

EU/UK/US

UK government has reportedly agreed to give ECJ final say in arbitration regarding Brexit, divorce bill and potential Irish backstop in an effort to break the negotiation stalemate. (The Times)

UK PM May spokesman says technical notices during in August and September will set out sensible precautions in the event of a no-deal Brexit, this would also have consequences for the EU. (Newswires)

According to an investigation, a right-wing UK thinktank has offered ministerial access to potential US donors as it attempts to raise cash for research to support free-trade deals demanded by hardline Brexiteers. (The Guardian)

US President Trump threatened he would be willing to allow a government shutdown if the Democrats do not provide the votes for border security which includes building the wall. (Twitter).

U.S. Treasury Secretary Mnuchin said he believes the quickening pace of growth in the US economy in Q2 will persist for the next 4-5 years. (Newswires)

US NEC Director Kudlow stated that trade discussions with EU regarding energy and agriculture will begin immediately. (Newswires)

Canada, EU, Japan, Mexico and South Korea are reportedly to meet in Geneva on Tuesday to discuss response to US tariff threats on auto imports. (Newswires)

GEOPOLITICS

US President reportedly wants to set up an alliance with 6 Arab Gulf states to align against Iran. (Newswires)

EQUITIES

Major European equity bourses are largely lower, with the FTSE MIB (+0.2%) the only bourse in the green, breaking through its 50 DMA of 21,913. Equity specific news is supporting the FTSE MIB and IBEX with Mediaset (+3.0%) reporting positive earnings. The AEX (-0.4%) is currently the underperforming bourse as index heavy-weights Heineken (-4.1%) and Altice (-2.4%) are both in the red on the back of negatively revised guidance and a branch sale.

Taking a look at sectors, broad based losses are being seen with slight underperformance noted in the IT sector, following on from uninspiring performance in US counterparts on Friday.

GVC Holdings (+4.8%) has assured a USD 200mln tie-up with the MGM group.

Traders now look ahead to after-market earnings, with French energy provider EDF and Pharma group Sanofi set to report Q2 figures. In terms of US earnings, Dow Jones heavyweight Caterpillar is to report at 07:30EDT.

FX

NOK/SEK - Ahead this week’s main events (BoJ, Fed, BoE and NFP), Scandi data has sprung some surprises and sparked marked divergence between the Crowns, with Norwegian retail sales down sharply in June (and more than reversing the previous month’s gain even after an upward revision) in stark contrast to stellar Q2 Swedish GDP in both q/q and y/y terms. In response, Eur/Nok mostly firmer within a 9.5535-5320 range vs Eur/Sek down from around 10.3100 to just over 10.2300 and the cross declining to circa 1.0735. Note, however, a US bank has shorted Eur/Nok above 9.5400 and is looking for a pronounced fall/reversal to 9.4200.

GBP/JPY - Cable is back above 1.3100 and Eur/Gbp hovering around 0.8900 ahead of a widely expected BoE rate hike this Thursday, but with the Pound not really reacting to firmer than forecast UK data (on balance) in the form of BoE consumer credit, mortgage approvals and lending, Chart-wise, 1.3150-75 represents near term resistance, while at least one major house believes a 25 bp tightening move is already priced in and has now gone short for a 1.2810 profit target. Conversely, amidst ongoing speculation about hawkish BoJ policy tweaks, Usd/Jpy is pivoting 111.00 and another US bank is eyeing a short position if the headline hits 111.40 for 104.00. Note, a decent 1 bn expiry runs off at 111.00 today and 111.27 forms technical resistance.

EUR/NZD - The next best G10 performers, after the Sek, with the single currency at the upper end of a 1.1650-90 range vs the Dollar after German state CPI indicating a modest upside bias for the national reading vs 2.1% y/y consensus. Meanwhile, a still very short Kiwi market is re-positioning again as weekly CFTC data shows the bearish base close to record levels and the likes of the BNZ see potential for a squeeze. Nzd/Usd back on the 0.6800 handle in response.

CHF/CAD/AUD - All narrowly mixed and close to recent ranges vs the Greenback, with the Franc at the low end of 0.9920-55 parameters, Loonie meandering between 1.3050-80 and Aud attempting to recover 0.7400.

EM - The Yuan and Lira have picked up where they left off last week, on the back foot, with Usd/Cny, Usd/Cnh and Usd/Try all higher. The PBoC set the on-shore fix at 6.8121, while the Lira continues to suffer after last week’s shock CBRT decision to leave key rates unchanged, with the focus now switching to the latest Inflation Report on Tuesday.

FIXED INCOME

The reversal from early intraday highs has continued and losses have accelerated pretty sharply with big figure breaks triggering some stops and then more pronounced declines once previous mtd lows were tested or even breached. The rationale, a broad return to bear-steepening, caution ahead of BoJ and BoE policy meetings and concerns about US funding and the yield curve, along with technical that have obviously turned more negative. Looking at Eurex and Liffe in more detail, Bunds are down to 161.52, -55 ticks, Gilts at 122.66, -48 ticks and US Treasuries also at fresh troughs for the overnight session with the long bond circa ½ point adrift.

COMMODITIES

WTI (+1.1%) and Brent Crude (+0.2%) have recuperated losses (with the latter retesting USD 74.50/bbl to the upside) seen at the back end of last week following an uptick in the Baker Hughes rig count while Mexican President Obrador stated his administration will hike crude production by 600K BPD. Though news flow remains relatively light, a 12-hour strike is to start at Total’s UK offshore platforms at 12:00BST.

Metals trade mostly lower with spot gold marginally easing, yet still rangebound, moving with an uneventful greenback ahead of key risk events this week (FOMC interest rate decision on Wednesday, US jobs data on Friday). Copper continues to trade lower while reports stated that workers at the world’s largest copper mine, Escondida mine in Chile, have rejected the final contract offer over wages and are voting whether to go on strike.

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