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[PODCAST] US Open Rundown 25th October 2019

  • European bourses are mixed but overall slightly subdued in what has been a quiet session thus far
  • Chinese Foreign Ministry state they are extremely indignant about, and oppose, the speech by VP Pence
  • FX complex is little changed overall with the USD slightly mixed and GBP softer as election talk increases
  • Looking ahead, highlights include US Baker Hughes
  • Earnings: Verizon Communications, Phillips 66, Charter Communications, Royal Caribbean, Aon, Dow

ASIA-PAC

Asian equities traded mixed with a lack of conviction amid the absence of any firm macro drivers and as earnings releases remained centre stage. ASX 200 (+0.7%) outperformed led by gold miners after the precious metal reclaimed the psychological USD 1500/oz level and with broad gains seen across sectors amid recent currency weakness, while Nikkei 225 (+0.1%) was choppy and stalled after reaching its highest level in over a year with continued losses in SoftBank amid speculation of a USD 5bln write down to its Vision Fund. Hang Seng (-0.4%) and Shanghai Comp. (+0.4%) were subdued despite the PBoC’s liquidity efforts that resulted to a net injection of CNY 560bln this week, with weakness seen in financials and participants cautious as earnings season in the region began to pick up. There were also recent mixed comments from US Vice President Pence who suggested the US will continue to seek better relations with China and that if the sides can get an economic relationship right, they can make progress on other issues, although he noted the curtailing of rights and liberties in Hong Kong and criticized US businesses for kowtowing to Beijing. Finally, 10yr JGBs were choppy as they mirrored the indecisiveness in Japan and with demand subdued by a lack of BoJ buying in the market today.

PBoC injected CNY 30bln via 7-day reverse repos for a net weekly injection of CNY 560bln vs. Prev. CNY 30bln W/W. (Newswires) PBoC set CNY mid-point at 7.0749 vs. Exp. 7.0764 (Prev. 7.0727)

China Global Times Editor Hu tweeted that he believes Pence spoke mainly positive on improving relations, although the Global Times later suggested the delayed speech reflected White House chaos and mentioned few new topics. Subsequently, Chinese Foreign Ministry states that they are extremely indignant about US VP Pence's speech and resolutely oppose it (Twitter/Global Times)

China is said to ask US to remove tariffs for agricultural purchases; USTR Lighthizer and Chinese VP Liu He to speak via phone today. (Newswires)

GEOPOLITICS

Foreign firms reduced hiring in China by 25% in Q3 according to a study by China Institute of Economic Research, which reports suggest is a sign of decoupling. (Newswires)

UK/EU

EU Chief Brexit Negotiator Barnier says no decision on the Brexit extension at the EU27 Ambassadors meeting, discussions were excellent., Telegraph's Crisp. (Twitter)

German Ifo Business Climate New (Oct) 94.6 vs. Exp. 94.5 (Prev. 94.6), Curr Conditions New (Oct) 97.8 vs. Exp. 98.0 (Prev. 98.5), Expectations New (Oct) 91.5 vs. Exp. 91.0 (Prev. 90.8)

- Ifo says that the German economy appears to stabilising and they expect a slight Q4 expansion

German Finance Ministry look for 2019 tax revenues to be EUR 4bln above previous Exp. (Newswires)

EQUITIES

Major European Bourses (Euro Stoxx 50 -0.3%) are mostly lower amid a lack of fresh drivers, with most indices well within yesterday’s ranges. Dax and Euro Stoxx 50 (cash) both made fresh YTD highs this week; fears of a no deal Brexit have faded substantially and earnings, by and large, have not been as bad as feared. Sectors are mixed, with some divergence seen in the consumer sectors; Consumer Discretionary (+0.9%) outperforms after luxury apparel maker Kering’s (+9.9%) earnings topped expectations, while Consumer Staples (-1.0%) lags, with poor AB InBev () earnings weighing on beverage makers. In terms of other individual movers; Michelin (+3.5%), WPP (+5.8%), LafargeHolcim (+2.0%) and Moncler (+8.5%) were all buoyed by strong earnings. Moreover, Barclays (+0.9%) results were firm; the bank beat on top line expectations, including healthy CIB revenue, and adjusted pretax posted firm Q/Q gains. Despite a GBP 1.4bln provision for compensating customers caught up in the PPI mis-selling scandal, Barclay shares rose to the highest since November 2018. Conversely, Capgemini (-6.7%), Eni (-1.0%) and MTU Aero Engines (-1.5%) earnings were poor, seeing their stocks come under pressure.

FX

EUR - The single currency has extended its recovery from sub-1.1100 lows vs the Dollar in wake of October’s German Ifo readings that were broadly better anticipated and prompted the institute to conclude that the economy may be finding a base, with modest growth likely in Q4. However, Eur/Usd still looks leggy between decent option expiries (1.5 bn from 1.1090 to 1.1100 and 1 bn at 1.1150-55) and a broadly firm Greenback, as the DXY holds above 97.500 within a 97.573-712 range following Thursday’s encouraging US Markit PMIs.

AUD/NZD/NOK/SEK - The G10 outliers, with the Aussie outperforming vs US and NZ counterparts after holding above 0.6800 and reclaiming 1.0700+ status respectively, while the Kiwi has lost more momentum below 0.6400. Similarly, the Scandi Crowns are retreating further from best levels seen in the immediate aftermath of yesterday’s Riksbank policy declaration about a probable rate hike in December on the assumption that it will be one more and done akin to the Norges Bank after September’s 25 bp tightening. Eur/Nok is nudging 10.1900 and also being driven by the aforementioned incremental Euro incline, while Eur/Sek has been back above 10.7500 compared to just under 10.6500 at one stage on Thursday.

CHF/CAD/JPY/GBP - All narrowly mixed against the Buck, as the Franc pares some losses from 0.9930, but remains below 0.9900 and the Loonie meanders between 1.3060-75 ahead of Canadian budget balance updates for August due later. Meanwhile, the Yen is holding within 108.70-57 parameters and even the Pound is relatively restrained due to less Brexit buffeting (for now), as Cable pivots 1.2850 and Eur/Gbp straddles 0.8650.

EM - Central Bank vibes in play, as the Lira concedes more ground after the CBRT’s 250 bp rate cut and Turkish President Erdogan piles on the pressure for further aggressive easing via a single digit call for the benchmark 1 week repo vs 14% at present. Usd/Try has touched 5.7900 before paring back, but the Rouble seems to be taking a widely expected CBR cut in stride ahead of the 11.30BST decision even though weaker than forecast inflation opens the door to -1/2 point after 3 cuts of 25 bp in a row. Usd/Rub sub-64.0000.

Notable FX Expiries, NY Cut:

- EUR/USD: 1.1050 (865M) 1.1090-1.1100 (1.5BLN), 1.1150-55 (1BLN), 1.1165-75 (835M), 1.1200 (500M), 1.1225-30 (800M), 1.1240-50 (1.2BLN)

- USD/CAD: 1.3000-20 (1.7BLN), 1.3100 (425M), 1.3120 (366M), 1.3150-55 (750M)

FIXED INCOME

Debt futures have halted their post-Ifo declines, but remain depressed after hitting fresh intraday lows of 171.35 for Bunds, 132.29 for Gilts and 129-24+ for the 10 year US T-note at the end of a hectic week of Brexit, US-China/global trade and geopolitical headline-watching. Moreover, the supply pipeline has been heavy, albeit well received on the US-side especially and stocks have performed strongly, albeit not closely correlated with bonds in the traditional or classic inverse asset manner. Ahead, final Michigan sentiment is unlikely to rock the boat, but pre-weekend squaring may impact and at some stage fixed traders could begin to position for month end with a lengthy Eurozone extension for October.

COMMODITIES                                      

Crude futures are marginally lower in uninspired trade amid a lack of fresh fundamental developments and look set to end the week on a firmer footing; the key driver of Crude’s strong performance this week was a surprise draw in EIA inventories on Wednesday, slightly over 10mln bbls in total. Additionally, further disruptions to the North Sea Buzzard Oil field and a temporary shutdown to the Forties Pipeline System also lent support. WTI futures have made substantial strides from early October lows, with the Dec’ 19 future currently residing just shy of the USD 56.00/bbl mark, while Brent sits at the USD 61.50/bbl mark. The USD 50.50/bbl – USD 51.00/bbl region for WTI, a quadruple bottom for June, August and early October, remains impenetrable for now. Though demand side concerns continue to cap gains, as evidenced by crude’s inability to hold on to last month’s post Aramco attack related gains, geopolitical risk premia remains ever present, as does the prospect for further OPEC+ cuts (sources hinted at the latter earlier in the week, although Russia’s Novack played things down). Metals are similarly lacklustre; Gold yesterday reclaimed the USD 1500/oz mark and sits below USD 1510/oz. Copper, meanwhile, hold on to decent gains for the week, supported by unrest and strikers in Chile that has affected supply of the red metal.

US to deploy additional military assets to safeguard Syrian oil, according to Pentagon. (AFP)

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