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[PODCAST] US Open Rundown 7th November 2019

  • European bourses are higher as risk sentiment derives support from the trade flow in early hours
  • China and US have agreed to cancel existing tariffs in different phases, MOFCOM said; noting the magnitude of tariff cancellations for Phase 1 can be negotiated if a deal is reached
  • Debt complex is significantly subdued on the risk-on tone, USD/CNH drops further below the 7.0 mark
  • Looking ahead, highlights include, US Initial Jobless Claims and Consumer Credit, BoE Rate Decision, MPR & Press Conference with Governor Carney, Riksbank’s Skingsley, Fed’s Kaplan, ECB’s Lagarde, supply from the US
  • Earnings: Walt Disney, Booking Holdings, Zoetis, Air Products and Chemical, Activision Blizzard, Johnson Controls International, Monster Beverage, Fox Corp

TRADE

China and US have agreed to cancel existing tariffs in different phases, China's Commerce Ministry says, adds that the magnitude of tariff cancellations for Phase 1 deal can be negotiated, If a Phase 1 trade deal is reached, both sides must cancel tariffs at the same time with the proportion based on agreement. (Newswires)

A senior Chinese diplomat said a presidential meeting appeared “extremely important” for US President Trump but Beijing did not see it as critical, according to a source cited by an updated SCMP article, "The Chinese diplomat also said Beijing felt that Trump was fixated on a “phase one” deal for domestic political purposes, according to the source.". (SCMP)

ASIA-PAC

Asian equity markets traded indecisively as they initially took their cue from the similar performance of their US peers; though strengthened on the later optimistic trade reports regarding the cancellation of tariffs. ASX 200 (+1.0%) was underpinned by outperformance in tech and the top-weighted financials sector with shares in NAB lifted despite a decline in full year profits, as the big 4 bank maintained its dividend unchanged from the interim and also announced top level executives will not receive short-term bonuses this year. Conversely, Nikkei 225 (+0.1%) was pressured by a firmer currency and amid a slew of earnings including SoftBank which posted its first quarterly operating loss in 14 years due to the WeWork fiasco, while Hang Seng (+0.6%) and Shanghai Comp. (U/C) were choppy amid a lack of clarity on the timing and location for the signing of the US-China phase 1 trade deal and after the PBoC skipped liquidity operations again, with gaming stocks also pressured after Galaxy Entertainment and Wynn Macau posted softer revenue figures. Finally, 10yr JGBs were slightly subdued following the recent downturn in prices and amid the lack of BoJ buying today, but with downside stemmed by the inconclusive risk tone and support ahead of the 153.00 level.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 7.0008 vs. Exp. 7.0044 (Prev. 7.0080)

Falling corporate profits in China are said to flash a warning sign of a deepening economic slowdown and easier credit can only do so much to support growth as bad loans have already reached alarming level at some lenders, according to an article. (Nikkei)

China reportedly to consider a wave of bank mergers, in order to bolster stability; Problematic banks with under USD 14bln in assets would reportely be urged to merge/restructure under a potential plan being determined by financial regulators, accordin to sources. (Newswires)

GEOPOLITICS

South Korea and the US are reportedly to undertake joint air exercises this month as scheduled, in-spite of complaints via North Korea., Yonhap citing sources. (Yonhap)

Rate of uranium enrichment at Iran's Fordow facility is almost at pre-nuclear levels, Arab News. (Twitter)

EQUITIES

Major European Bourses (Euro Stoxx 50 +0.3%) are modestly firmer following positive trade developments on the US/China trade front, with headlines suggesting that China and the US had agreed to cancel existing tariffs in different phases, if they reach a Phase One deal, although further details are for now scant. “as for how much will be eliminated, we will consider the agreement reached in Phase One”, China’s MOFCOM stated. Looking at indices, Germany’s DAX moved as high as 13290, its best levels since early February 2018, while Euro Stoxx 50 came within a whisker of its 2017 high at 3710. Sectors performance is reflective of the markets risk-on feel; defensives lag (Utilities -0.5%, Health Care unch., Staples -0.3%) while the more risk sensitive Tech (+0.3%), Consumer Discretionary (+1.0%), Industrials and Materials (+0.6%) lead the pack. Meanwhile, the Energy (-0.4%) sector has struggled to take advantage of the market rally, weighed on by crude prices which fell substantially yesterday, albeit the sector and energy complex have recoiled off lows amid the aforementioned trade headlines. In terms of individual movers, things are still very much dominated by earnings: Vestas Wind systems (+11.6%) post-earnings and in light of the announcement of a EUR 200mln buyback programme. Lufthansa (+8.1%) rose to the top of its index despite strike threats after earnings topped analyst forecasts with heavy-weight Siemens (+4.6%) a close second following encouraging earnings coupled with a EUR 0.10/shr dividend raise. Other post-earning movers include: UniCredit (+5.9%), ProsiebentSat1 (-5.0%), Scout24 (-4.3%), Commerzbank (+0.3%) and Deutsche Telekom (-2.9%)

UniCredit (UCG IM) CEO says the ECB is also open to giving green light to further buy backs if banks have strong enough capital. (Newswires)

UK/EU

Liberal Democrats, Plaid Cymru and the Green Party have formed an electoral pact, details to be announced Thursday; reports indicate the pact will cover between 60-70 constituencies, specifically, 49 seats in England and 11 in Wales. (BBC/Guardian)

European Commission Economic Forecasts: cuts 2019 EZ GDP growth forecast to 1.1% (Prev. 1.2%) and 2020 GDP growth forecast to 1.2% (Prev. 1.4%)

- German 2019 GDP cut to 0.4% (prev 0.5%); 2020 1.0% (prev 1.4%)

- Italy 2019 GDP cut to 0.1% (prev 0.1%); 2020 0.4% (prev 0.7%)

- Expects Frances budget deficit to rise to 3.1%, above the EU ceiling, sees drop to 2.2% in 2020

- Expects German budget surplus at 1.2% this year and 0.6% in 2020

ECB's Holzmann (Hawk) says negative rates currently send the wrong signal, ECB should get rid of them as soon as possible. (Newswires)

FX

YUAN - The Cnh and Cny have both been boosted by latest comments from China’s MOFCOM claiming that Beijing and Washington have now agreed to lift tit-for-tat import levies in tandem and step-by-step once Phase 1 of the overall deal is agreed. The offshore and onshore Yuan are back above the psychological 7.0000 mark and extending gains towards key technical resistance around 6.9625 for the former vs the Usd after retreating on Wednesday and pulling back further when reports about a delay to December from this month for the Trump-Xi meeting to sign part one of the pact broke.

AUD/NZD - The main beneficiaries of the more positive China-US trade talk, with the Aussie back on the 0.6900 handle and Aud/Usd also boosted by much wider Australian trade surplus, while the Kiwi has bounced firmly from circa 0.6350 towards 0.6400 vs the Greenback, but lagging its Antipodean peer as the Aud/Nzd cross rebounds from around 1.0800 to 1.0825+.

EUR/CAD/GBP - Also firmer against the Buck, as the DXY dips a bit further from another 98.000+ venture that topped out just short of Fib resistance again, with the single currency also spurred on by hawkish ECB rhetoric via Holzmann and back above a key chart support level within a 1.1055-92 range. The Loonie has pared post-Canadian Ivey PMI declines from almost 1.3200 to probe bids/support ahead of 1.3150 and Cable has bounced off the 21 DMA (1.2839) through 1.2850 and not far from the 10 DMA (1.2881) in the run up to the BoE from high noon.

CHF/JPY - Narrowly mixed and hampered by another reversal in sentiment/positioning in favour riskier currencies and assets, as the Franc retreats below 0.9900 vs the Dollar and Yen reverses from 108.66 to 109.19.

SEK/NOK/EM - In stark contrast to the above, renewed risk appetite has propelled the Scandi Crowns to revisit recent and/or register fresh peaks, with Eur/Sek having another look under 10.6500 and Eur/Nok breaching 10.1000 to expose the next major downside chart level at 10.0610 following stronger than forecast Norwegian manufacturing output. Elsewhere, most Emerging Market currencies are getting carried by the revived US-China trade narrative, but the Lira is lagging on deteriorating US-Turkish relations and increasingly dovish CBRT expectations.

Australian Trade Balance G&S (AUD)(Sep) 7.2B vs. Exp. 5.0B (Prev. 5.9B, Rev. 6.6B). (Newswires) Australian Exports (Sep) 3% (Prev. -3.0%) Australian Imports (Sep) 3% (Prev. 0.0%)

FIXED INCOME

Although Chinese contentions appearing to confirm conditional agreement on the removal of tariffs have not been corroborated by the US, debt markets seem to be taking silence or the lack of any denial as validation on the basis that no news may well be good. Indeed, Bunds have now taken out Wednesday’s Eurex low, 170.00 and support just below the bog figure on the way down to 169.83, while Gilts have nudged nearer to 131.00 at 131.15 and the 10 year T-note hit 128-22+, with the yield up through recent peaks and well over yesterday’s auction level. Ahead, jobless claims and the long bond sale that comes with an even bigger concession.

COMMODITIES

Crude markets are staging a recovery, with positive developments on the US/China trade front (US & China agreeing to roll back existing tariffs) acting as a tailwind. However, WTI Dec’ 19 and Brent Jan’ 2020 futures are still well off of yesterday’s USD 57.83/bbl and USD 63.30/bbl highs, after the complex was hit by a bearish EIA crude inventory report and concerns about a delay to the signing of the US/China Phase 1 trade deal - WTI is now consolidating just shy of the USD 57.00/bbl handle, Brent just beneath yesterday’s pre-EIA Inventory data lows at USD 62.39/bbl, which is acting as resistance. In terms of the metals; Gold price were hit by haven outflows on the back of positive trade related developments, falling to lows of USD 1486/oz from above USD 1490/oz. Copper, meanwhile, was buoyed and managed to reclaim the USD 2.700/lbs level.

Saudi Aramco signs 2020 crude oil supply at China's largest trade fair; agreements made with five customers, increasing total volume by 151k BPD compared to 2019 supply contracts, according to a statement. (Newswires)

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