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[PODCAST] US Open Rundown 3rd August 2018

  • Dollar holds firm footing above 95.000 while GBP extends post-BoE declines
  • European equities rebound from yesterday’s losses as earnings remain in focus
  • Looking ahead, highlights include, US employment report, trade balance, ISM non-Mfg, Baker Hughes rig count

ASIA

Asian equity markets traded mixed as the momentum from US, where most majors gained and tech outperformed as Apple became the first ever to reach USD 1tln in market cap, was eventually dampened ahead of today’s NFP jobs figures and a further PMI miss from China. ASX 200 (-0.1%) and Nikkei 225 (+0.1%) both opened higher in which tech names in Australia revelled in the strength of their US peers and Apple’s historical feat, while Tokyo trade remained earnings-oriented. Sentiment then slightly deteriorated as China entered the fray and Caixin Services PMI missed estimates to add to the nation’s streak of disappointing PMI releases for July. The weak data and ongoing trade concerns weighed on Hang Seng (-0.2%) and Shanghai Comp. (+0.1%) from the open, although the latter recovered to trade relatively flat. Finally, 10yr JGBs were flat in the first signs of stability after the BoJ’s more flexible policy approach earlier this week, while the Rinban announcement also failed to spur price action as the BoJ kept purchases of 5yr-10yr JGBs inline with yesterday’s unscheduled announcement.

PBoC skipped open market operations for a net weekly drain of CNY 210bln vs. last week's CNY 370bln net drain. (Newswires)

PBoC set CNY mid-point at 6.8322 (Prev. 6.7942)

Chinese Caixin Services PMI Jul 52.8 vs. Exp. 53.5 (Prev. 53.9). (Newswires)

Chinese Caixin Composite PMI (Jul) 52.3 (Prev. 53.0)

BoJ minutes from June 14th-15th meeting stated momentum to achieving price target was being maintained and that most members viewed BoJ would continue with QQE with Yield Curve Control aiming to achieve the price stability target of 2% as long as it was necessary for maintaining that target in a stable manner. In addition, some members said must continue to carefully assess effects of low rates on banks, while one member suggested they must scrutinize positive and negative side effects of policy considering that it will take a while to reach inflation goal. (Newswires)

Chinese Diplomat Wang Yi said that he did not talk too specifically about trade with US Secretary of State Pompeo, but added he is willing on a principle of equal footing to resolve their differences with the US. (Newswires)

Major State-Owned Chinese banks were seen selling USD in Yuan spot market at around 6.9 USDCNH. (Newswires)

EU/UK/US

BoE Governor Carney said market expectations for rates moving to 1.5% over the next few years is not a bad rule of thumb and they are not raising rates to give a cushion to cut again, adds possibility of a no-deal Brexit is uncomfortably high, adding that that they need a long Brexit transition. (Newswires)

The Institute of Directions has called on the UK government to speed up guidance on what companies should expect in the event of a no-deal Brexit. A survey of 800 business leaders showed less than a third made any Brexit contingency plans. (BBC)

EU Markit Services Final PMI (Jul) 54.2 vs. Exp. 54.4 (Prev. 54.4)

EQUITIES

European equity markets have opened the day higher as the focus remains on earnings. The AEX (+0.5%) is the outperforming bourse buoyed by the news of Heineken’s (+2.3%) USD 3.1bln tie-up with China Resource Beer. The DAX (+0.5%) is also performing well after a positive earnings report from Allianz (+0.7%), but the bourse is finding resistance at its 100DMA of 12,573.54.

RBS (+3.0) is up after news within their positive earnings report that they are set to pay their first dividend in over a decade. William Hill are down over 7% after the betting co. reported a pre-tax loss for H1 as a result of the new laws on betting terminals.

FIXED INCOME

Gilts corrected higher in line with pre-Liffe open indications, and after a brief wobble from an initial 122.47 print vs Thursday’s 122.19 close, the 10 year benchmark climbed to 122.62 for a 43 tick gain on the day, while Bunds inched closer to 162.00 at 161.99 (+73 ticks) before topping out as BTPs continue to try and find a base (123.30 latest, -217 ticks). No real reaction to a considerably weaker than expected UK services PMI, with yesterday’s BoE tightening somewhat overshadowing the release and Governor Carney underscoring again the ‘gradual and limited’ outlook for rates by validating market pricing for a 1.5% peak. Accordingly, Short Sterling futures have nudged up a bit further along the curve. Elsewhere, US Treasuries are mildly firmer but off overnight highs and the curve is gently steeper ahead of NFP followed by the services PMI and ISM, with average earnings and price components more market moving than the headline prints for the next major move in yields as the 10-year retreats below 3% again.

FX

GBP - The Pound has extended its post-BoE declines as Governor Carney underlined benign if not outright dovish policy guidance during a BBC radio interview and also expressed discomfort about growing risk of a no deal Brexit. Cable dropped below 1.3000 in response and was hardly helped by a relatively big UK services PMI miss, but stopped just short of the 2018 base around 1.2960 at 1.2975.

NZD - The other G10 laggard or underperformer with the Kiwi unable to resist overall Usd strength (DXY ‘comfortably’ above 95.000 ahead of the US jobs data and not far from its 95.656 ytd peak at 95.372 before easing back amidst reports of Usd/Cnh intervention at 6.9000). Nzd/Usd has breached 0.6750 to test bids at 0.6725.

CAD/CHF/AUD - All holding up relatively well again vs the Greenback as the Loonie latches on to positive NAFTA vibes, even if not directly involved in negotiations between the US and Mexico, and contains losses ahead of 1.3050, while the Franc meanders within a very tight 0.9965-50 range after broadly in line with consensus Swiss CPI data and the Aud also derives some support from firmer than forecast Aussie retail sales overnight to keep its head above 0.7350.

EUR/JPY - The single currency has also relinquished another big figure level vs the Usd and has seriously tested a key 1.1575 Fib after mostly softer than expected Eurozone services PMIs and retail sales. For the record, 1.1510 is the low so far this year. Usd/Jpy extremely restrained between 111.80-60 and flanked by hefty option expiries at 112.00 (1.8 bn) and 110.90-111.00 (1.3 bn), plus 1 bn from 111.40-50.

TRY - The Lira slumped to fresh all time lows vs the Usd yet again (5.1125) before gleaning a degree of comfort from not so inflated CPI readings and reports that a meet between US Secretary of State Pompeo and Turkey’s Foreign Minister was constructive – Usd/Try currently around 5.0800.

USD - As noted above, the Dollar remains in the ascendency, albeit off best levels, but NFP will likely determine the next big move, and especially wages after Wednesday’s broadly upbeat assessments of the economy.

COMMODITIES

Both WTI and Brent are seeing mild profit taking ahead of the weeks end, with WTI breaking through its 50DMA to the downside in early European trade, currently trading at USD 68.59, with news that China's Unipec is suspending imports of US crude oil on growing trade tensions between Beijing and Washington failing to offer support.

In the metals scope, Gold is essentially flat, with traders holding off ahead of the US employment report later in the day, but is languishing around a 1 year low, with the yellow metal heading for its 4th weekly loss. Silver is also heading for its 8th weekly decline amid trade tensions, and set for its longest consecutive decline since late 2000.

OPEC July crude output up 340k BPD at 32.66mln BPD, compliance is at 105%, Saudi Arabian output near an all-time high, Kuwaiti, UAE and Iraqi output at its highest since December 2016, Iran at its lowest since January 2017, as according to Platts.

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