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[PODCAST] US Open Rundown 1st August 2018

  • Trump administration plans to propose a higher tariff of 25% (Prev. 10%) on USD 200bln of imports from China with an announcement possible as soon as today, according to sources
  • European equities are marginally lower as focus once again remains on earnings. Apple higher by 3.5% in pre-market trade post-earnings
  • In FX, Greenback overall has rebounded further from Tuesday’s lows ahead of the latest FOMC decision
  • Looking ahead, highlights include US Mfg PMI, US ADP, Constructions Spending, ISM Mfg, DoEs, Quarterly Refunding Announcement and rate decisions from the US and Brazil

ASIA

Asian equity markets were mostly higher as region got a tailwind from US where all majors finished positive on trade optimism from initial reports that US and China are to seek a restart of talks, while earnings also remained in the spotlight with Apple beating on top and bottom lines. However, Asia-Pac bourses were far from solid ground and US equity futures also pared some of their gains after reports that the Trump administration is planning to propose an increase to 25% tariffs from 10% on USD 200bln of Chinese goods and as Caixin Manufacturing PMI added to the recent China PMI misses. As such, ASX 200 (-0.1%) and Nikkei 225 (+0.9%) were mixed throughout most the session with Australia dampened by weakness in financials and energy, while Tokyo trade was driven by a weaker currency and earnings deluge. Elsewhere, Apple suppliers were varied despite the tech giant’s earnings beat as they also digested softer than expected product sales, and Chinese markets (Hang Seng -0.9%; Shanghai Comp. -1.8%) opened positive but then gains later proved to be flimsy on the conflicting trade reports and disappointing data. Finally, 10yr JGBs fell around 80 ticks to break below 150.00 as the BoJ’s more flexible approach on yields continued to reverberate in the bond market, with the 10yr yield back above 0.1% and the 5yr yield at a 6-month high. Of note, it was reported that Japan Securities Clearing Corporation stated that emergency margin calls related to JGB futures were triggered.

Trump administration plans to propose a higher tariff of 25% (Prev. 10%) on USD 200bln of imports from China with an announcement possible as soon as today, according to sources. (Newswires)

Chinese Foreign Ministry says that China will retaliate if the US takes more action on trade, adding that US pressure will not work. (Newswires)

PBoC skipped open market operations for a net daily drain of CNY 20bln. (Newswires)

PBoC set CNY mid-point at 6.8293 (Prev. 6.8165); weakest fix since 31st May 2017.

Chinese Caixin Manufacturing PMI (Jul) 50.8 vs. Exp. 50.9 (Prev. 51.0). (Newswires)

New Zealand Unemployment Rate (Q2) 4.5% vs. Exp. 4.4% (Prev. 4.4%). (Newswires)

New Zealand HLFS Participation Rate (Q2) 70.9% vs. Exp. 70.8% (Prev. 70.8%

Indian Repo Rate (Aug) 6.5% vs. Exp. 6.5% (Prev. 6.25%)

Indian Reverse Repo Rate (Aug) 6.25% vs. Exp. 6.25% (Prev. 6.0%)

EU/UK/US

EU Markit Manufacturing Final PMI (Jul) 55.1 vs. Exp. 55.1 (Prev. 55.1)

German Markit/BME Manufacturing PMI (Jul) 56.9 vs. Exp. 57.3 (Prev. 57.3)

French Markit Manufacturing PMI (Jul) 53.3 vs. Exp. 53.1 (Prev. 53.1)

UK Markit/CIPS Manufacturing PMI (Jul) 54.0 vs. Exp. 54.2 (Prev. 54.4, Rev. 54.3)

UK PM May will cut short her summer holiday in an effort to persuade French President Macron to soften his stance on Brexit despite warnings that he is preparing to stand firm. (Times)

The EU is willing to “fudge” important Brexit negotiations and offer Britain a vague blueprint for future ties with the bloc if it helps UK PM May avoid a “no deal” outcome and win parliamentary backing for a withdrawal treaty. (FT)

EQUITIES

European equites are marginally lower as focus once again remains on earnings. The FTSE 100 is currently underperforming (-1.1%) on the back of softer mining names (i.e. Rio Tinto missing on expectations), as well as the retail sector sliding after Next posted uninspiring earnings. The CAC (flat) is currently outperforming off the back of ArcelorMittal posting strong earnings.

The IT sector is currently in the green and following in step with the positivity seen after Apple’s earnings last night, with the FAANG stock beating on both the top and bottom line; up 3.5% pre-market.

Dialog Semiconductor is leading the gains in the Stoxx 600 after strong financial results, and Volkswagen also reported positive earnings, beating on both revenue and profit expectations, but are struggling to hold on the early gains, currently down 1.8%.

Apple Inc (AAPL) Q3 EPS USD 2.34 vs. Exp. USD 2.18, revenue USD 53.27bln vs. Exp. USD 52.34bln. (Newswires)

Q3 iPhone sales 41.3mln vs. Exp. 42.05mln & average selling price USD 724 vs. Exp. USD 694.

Q3 iPad sales 11.6mln vs. Exp. 11.7mln.

Q3 Mac sales 3.6mln (exp. 4.3mln).

Sees Q4 revenue USD 60bln-62bln vs. Exp. USD 58.7bln.

FIXED INCOME

Hardly any reaction to the marginal UK manufacturing PMI miss or final pan Eurozone print that somehow managed to match the flash reading even though national readings were weak on balance. However, core bonds have regained a degree of composure, or at least stabilised off worst levels with Gilts just above their life low (circa 30 ticks adrift) and Bunds holding in above 161.00 having slipped to a deeper Eurex intraday base at 161.13 (-45 ticks on the day). Technically, both EU benchmarks have already breached some chart supports, but the 10 year UK debt future has another strong chart prop at 122.28, while its German counterpart may find a bit of traction around of the big figure at 161.11 following a mixed 2028 auction. Elsewhere, US Treasuries sitting near overnight lows and on a defensive footing ahead of data and the FOMC.

FX

DXY - The index and Greenback overall has rebounded further from Tuesday’s lows, the former back above 94.500 within a range up to 94.700 at best and the Buck up vs all G10 peers, plus many EMs again following yet another higher Usd/Cny setting by the PBoC (ongoing reaction to or precaution against US-China trade war risk). Ahead, several potentially key US data points ahead of the FOMC and NFP on Friday, but no real expectations of any major policy guidance changes from the Fed – see the Ransquawk Research Suite for a full preview.

NZD/AUD - The Kiwi is underperforming again and only just keeping tabs with big figure levels vs its US and antipodean rivals at 0.6800 and 1.0900 respectively in wake of disappointing NZ data overnight (unemployment rate weaker than forecast and bigger miss on wages). However, the Aud is also on the backfoot amidst heightened US tariff threats vs China and the aforementioned Yuan depreciation, with Aud/Usd retreating towards 0.7400 after yesterday’s post-Aussie building approvals boost.

EUR/GBP - Not much reaction from either to manufacturing PMIs, with the single currency trading in a tight range below 1.1700 and in the midst of mega option expiry interest (2.5 bn between 1.1670-85), while Cable is holding just above 1.3100 and eyeing BoE super Thursday with high expectations for a 25 bp rate hike.

JPY - Extending post-BoJ losses vs the Usd to 112.00+, but not quite testing Fib support around 112.18 and wary of huge option expiry hedging for tomorrow and Friday at the big figure strike (3.6 bn in total).

CAD - The Loonie has retreated from sub-1.3000 highs vs its US counterpart on the back of upbeat Canadian data, with weak oil prices and ongoing NAFTA neglect niggling ahead of the manufacturing PMI.

SCANDI - Mixed Swedish and Norwegian manufacturing PMIs sparked some diverse moves in Eur/Sek and Eur/Nok, but only knee-jerk given well known erratic readings due to seasonal factors (for the record the latter slumped below 50).

EM - The Rand is recovering after a slide beyond 13.3750 vs the Usd in wake of ANC action to alter SA’s constitution on land appropriation excluding financial compensation.

COMMODITIES

Oil prices are slipping with WTI and Brent both down ~1.0% in early European trade, and hovering around their 100DMA’s of USD 67.84 and USD 74.14 respectively. This comes after Brent declined more than  6% in July and WTI fell around 7% in the same period, with both benchmarks having the largest decline in over 2 years. Yesterday also saw API inventories showing a surprise build of 5.6mln BBL’s, vs. and expected draw of 2.8mln BBL’s. Oil traders are now looking ahead to EIA data later in the day.

In the metals scope, gold is holding steady ahead of the FOMC rate decision later on in the day. London copper has extended the losses that were seen in July (-5%) and is down 1% on the day as traders express worries on the US-China tariff threats. Zinc has fallen the most, currently down 2%, with nickel, lead and tin also slipping.

US API weekly crude stocks (27/Jul) 5.59mln (Exp. -2.8mln, Prev. -3.160mln). (Newswires)

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