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[PODCAST] US Open Rundown 8th November 2019

  • Major European bourses are cautious as the US/China trade front positivity abates slightly
  • In FX, DXY is firmer above 98.000, AUD subdued by SOMP, PBoC set USD/CNY fix below 7.00
  • Iranian Air Defences have reportedly shot down a drone on the edge of Persian Gulf, US defence Official said no reports of a US drone being shot down
  • Looking ahead, highlights include Labour Market Report; US University of Michigan Sentiment, Baker Hughes Rig Count; Fed’s Bostic, Williams, Daly, Brainard, Moody’s on UK

ASIA-PAC

Asian equities traded mixed as the region failed to sustain the momentum from the record levels on Wall St. where sentiment was initially boosted after US and China were said to have agreed to cancel existing tariffs in different phases, although some of the gains were later reversed on reports of fierce internal opposition from the US regarding the tariff rollbacks. ASX 200 (Unch.) and Nikkei 225 (+0.3%) were both lifted at the open although the sentiment in Australia gradually deteriorated amid hefty losses for gold miners and a growth forecast downgrade by the RBA, while Tokyo stocks also reversed course as a choppy currency overshadowed confirmation of an economic package and higher than expected Household Spending. Elsewhere, Hang Seng (-0.7%) and Shanghai Comp. (-0.5%) were mixed as participants digested the latest trade figures which were better than expected but continued to show a contraction in both USD-denominated Exports and Imports, with the mainland bourses slightly favoured after MSCI raised China A-shares weighting in its Emerging Market Index to 4.10% from 2.55%. Finally, 10yr JGBs were lower amid spillover selling from USTs and with prices reeling from the recent rise in yields, while weaker results in the 10yr inflation-indexed auction added to the uninspiring tone.

PBoC skipped open market operations and were net neutral on the week vs. Prev. CNY 590bln drain last week. (Newswires) PBoC set CNY mid-point at 6.9945 vs. Exp. 6.9947 (Prev. 7.0008)

A Hong Kong student who fell from a car park while police and protesters were clashing last weekend passed away according to hospital officials, which reports suggested could likely further escalate tensions. (AFP)

Chinese Trade Balance (CNY)(Oct) 301.3B vs. Exp. 283.3B (Prev. 275.15B). (Newswires)

Chinese Exports (CNY)(Oct) Y/Y +2.1% vs. Exp. -1.4% (Prev. -0.7%)

Chinese Imports (CNY)(Oct) Y/Y -3.5% vs. Exp. -5.4% (Prev. -6.2%)

Chinese Trade Balance (USD)(Oct) 42.81B vs. Exp. 40.83B (Prev. 39.65B). (Newswires)

Chinese Exports (USD)(Oct) Y/Y -0.9% vs. Exp. -3.9% (Prev. -3.2%)

Chinese Imports (USD)(Oct) Y/Y-6.4% vs. Exp. -8.9% (Prev. -8.5%)

US 

Fed's Bostic (Non-Voter, Dovish) said the US economy is on solid footing and that monetary policy is accommodative, while he added further adjustments will be data dependent and that he is comfortable with standing pat to weigh economic data over the upcoming months. Furthermore, Bostic said he expects economic data released before end of the quarter to boost GDP growth and that he would not have supported the last rate cut if he had a vote on the policy committee. (Newswires)

US House Committees subpoenaed acting White House Chief of Staff Mulvaney in Trump impeachment inquiry. (Newswires)

UK/EU

SNP's Sturgeon if there is a hung parliamenrt, would seek to form a progressive alliance to block the Conservative party from Government. (Newswires)

ECB's Vasle says the ECB is determined to continue with its current policy until conditions improve. (Newswires)

US Secretary of State of Pomepo says the US wants more trade with Europe. (Newswires)

GEOPOLITICS

Iranian Air Defences have reportedly shot down drone over the port of Mahshahr, on the edge of Persian Gulf, reports Iranian Media according to Elint News. (Newswires)

US Defense Official says they have received no reports of a US drone being shot down, according to Elint News. (Newswires)

EQUITIES

Major European bourses are cautious, as optimism regarding an imminent breakthrough on the US/China trade front abates slightly amid mixed reports. European indices, remain just off recent highs, following a strong start to the month of November. In terms of sector performance; defensives are on the front foot, with Utilities (+0.3%) and Telecoms (+0.1%) the only sectors in the green. Meanwhile, the more risk sensitive Tech (-0.6%), Consumer Discretionary (-0.8%) and Materials (-0.9%) sectors are the laggards. Financials (-0.6%) are also lower, with underperformance seen in Credit Agricole (-3.3%) and Natixis (-5.5%) following earnings. In terms of other notable individual movers; Richemont (-5.1%) were hit on an underwhelming earnings report, in which performance in Hong Kong was a dark spot; other luxury names were also pressured, including LVMH (-0.2%) and Kering (-0.7%). Elsewhere in earnings, a weak report from Fincantieri (-6.0%) saw its share price under pressure, while strong earnings from Leonardo (+0.5%) saw its shares advance. Delivery Hero (+0.8%) were boosted after being reiterated with a buy at Goldman Sachs.

FX

AUD/NZD/CAD - All on the back foot, but to varying degrees and not the weakest G10 links as the Greenback remains firm across the board. However, the Aussie has pulled back a bit further from 0.6900 in wake of the RBA’s latest Statement of Monetary Policy that revealed more detailed discussions on unconventional easing measures given that rates are relatively low and a GDP downgrade. The Kiwi is only holding up marginally better, but sub-0.6350 as the Aud/Nzd cross retains 1.0800+ statust, while the Loonie is on the defensive near 1.3200 against the backdrop of weaker oil prices and ahead of Canadian jobs and housing data.

SEK/NOK - The Scandi Crowns are on the retreat after posting decent gains on Thursday and threatening or testing key resistance levels vs the Euro, but failing to breach or sustain momentum. Eur/Sek is back above 10.6500 and Eur/Nok over 10.1000, with the Swedish Krona not gleaning any support from solid household consumption or news that former SEB Chief Economist Bremen will become a Riksbank Deputy Governor and likely back a December repo rate hike.

GBP/EUR/CHF/JPY - Narrowly mixed vs the Dollar, as the DXY inches a tad further above 98.000 to notch a fractional new post-FOMC high (98.246), but extremely or even excruciatingly rangebound amidst a paucity of independent factors/drivers. Indeed, Cable is trapped within a 1.2825-1.2796 band awaiting Moody’s UK ratings review after hours and Eur/Usd is meandering between 1.3037-28, while Usd/Chf and Usd/Jpy pivot 0.9950 and 109.25 respectively.

EM - The Rand remains on a roller-coaster, but still hampered by the ongoing Eskom power issues that is keeping Usd/Zar anchored around 14.8000, albeit with the broad Buck strength also impacting.

RBA Statement on Monetary Policy noted the board is prepared to ease policy further if required and that the pause in November allows time to assess effects of past easing and global events. RBA added the board is mindful rates are very low, that further cuts bring closer other policy options, and is aware more easing could convey overly negative view of the economy. Furthermore, RBA stated the Australian economy is gradually coming out of a soft patch and that global financial markets appear to have passed a trough of pessimism, while it lowered GDP growth forecast for December 2019 to 2.25% (Prev. 2.50%) but maintained December 2020 growth forecast at 2.75% and kept underlying inflation forecasts unchanged. (Newswires)

FIXED INCOME

Hardly any deviation beyond earlier ranges, but Gilts remain relatively depressed and just off a minor new Liffe low (131.05, -20 ticks vs +4 ticks at one stage) and Italian bonds are also underperforming Eurozone peers near the base of 141.60-142.56 parameters after the BTP exchange auction. However, Bunds and US Treasuries are still maintaining an underlying bid after Thursday’s rout and into the weekend that is 3 days long across the Atlantic due to Veterans Day, awaiting the preliminary Michigan sentiment survey for November, September wholesale inventories and sales plus more Fed speak.

COMMODITIES                                      

Energy markets remain subdued with WTI and Brent futures below the 56.50/bbl and 61.50/bbl marks respectively with lack of immediate fundamental catalysts at the time. In terms of technicals, Brent took out its 100 DMA to the downside (61.60/bbl) ahead of the 61.0/bbl psychological level with its 50 DMA seen at 60.93/bbl, whilst WTI sees support at 56/bbl which also coincides with its 100 DMA. Some cite recent downside in the complex to lower probably of deeper OPEC+ cuts in December given the seemingly improving US-China trade environment. Further, sources earlier in the week noted of hesitation from Saudi Arabia and Russia to reduce output. Participants may also eye geopolitical events after reports that Iranian Air Defences have shot down drone over the port of Mahshahr, on the edge of Persian Gulf, although it is not clear to whom the drone belongs to. Turning to metals, gold prices remain modestly subdued with markets on standby for the latest in the US-Sino saga with the yellow metal below its 100 DMA (1476.90/oz). Finally, Copper prices are drifting lower towards the 2.7/lb level amid the cautious risk sentiment, again on the lookout for the latest trade headlines.

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