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[PODCAST] US Open Rundown 7th August 2018

  • European equities trade optimistically with all major bourses firmly in the green
  • AUD the major beneficiary of Yuan/EM recovery
  • Looking ahead, highlights include US APIs, US 3yr note auction, BoE’s McCafferty and further large-cap earnings

ASIA

Asian equity markets traded mostly higher following the positive performance in their US counterparts where the Nasdaq led the advances and the S&P 500 notched a 3rd consecutive gain to move to within 22 points from all-time highs. Nikkei 225 (+0.6%) was higher as focus remained on earnings with SoftBank and Rakuten among the top gainers in the index after both reported solid profit growth, while ASX 200 (-0.3%) lagged its regional peers with the index dragged by weakness in telecoms and miners. Elsewhere, Hang Seng (+1.5%) and Shanghai Comp. (+2.7%) were positive with property developers underpinned by strong guidance including Country Garden and Evergrande Real Estate, although price action was far from smooth with a bout of intraday volatility in Chinese bourses after the PBoC continued to withhold from liquidity operations and amid lingering trade uncertainty. Finally, 10yr JGBs were little changed with only minimal losses seen amid gains in stocks and as the Japanese 10yr yield remained above 0.11%, while participants the 10yr inflation-indexed bond auction also failed to spur demand as b/c and lowest accepted price declined from prior.

PBoC skipped open market operations and are net neutral on the day. (Newswires)

PBoC set CNY mid-point at 6.8431 (Prev. 6.8513).

China is to soon adopt policies to boost credit and investment, according to Chinese press reports. (Newswires)

RBA kept Cash Rate Target unchanged at record low 1.50% as expected and reiterated that it judged steady policy was consistent with growth and inflation targets, while it RBA repeated that low rates are supporting the economy. RBA also stated that wage growth remains subdued which is likely to continue for a while and that it sees headline CPI to be lower than expected this year. (Newswires)

China's FX Regulator says cross-border capital flows and FX reserve levels will remain stable overall; adding that financial assets price fluctuations and changes in non-dollar currencies led to the rise in FX reserves in July, adding the fluctuation of the Yuan has increased significantly. (Newswires)

EU/UK/US

Discussions suggested PM May is losing support due to her Chequers plan and some see her departure as essential to salvaging the Brexit, according to Twitter reports which cited Conservative Party activists. (BuzzFeed/Twitter)

UK PM May has been blamed for the disorganised preparations for a no-deal Brexit as businesses need to be advised on how to get ready for the possibility. Civil servants have been ordered to compile 70 “technical notices” by month-end to explain to businesses how to prepare for no-deal scenario. (Telegraph)

UK is said to see Brexit deal deadline pushing back to November as UK PM May resists the EU’s timetable for Brexit talks while she believes US President Trump may help her. (Newswires)

UK BRC Sales Like-For-Like (Jul) Y/Y 0.5% vs. Exp. 1.5% (Prev. 1.1%). (Newswires)

UK Barclaycard Consumer Spending in July rose 5.0% Y/Y (Prev. 5.1%)

GEOPOLITICAL

US and Turkey are said to have reached a pre-agreement on certain issues and a delegation of Turkish officials are planning to visit US in 2 days. (Newswires)

EQUITIES

European equities trade firmly in the green (Eurostoxx 50 +0.8%), mimicking the performance seen on Wall St. and the Asia-Pac session. Broad-based gains are seen across all sectors while the energy sector outperforms on oil price action. In terms of notable European earnings, Commerzbank (-2.0%) shares are lower post-results as the bank slightly adjusted their outlook due to “intense competition”, while Denmark’s Pandora (-16.5%) rests at the bottom of the Stoxx 600 following a guidance cut. US earnings to look out for today include Emerson Electric (06:30 EDT), PPL Corp (07:40 EDT) and Walt Disney (16:05 EDT)

FX

AUD - The clear G10 front-runner on several supportive factors, as Aud/Usd regains a firmer foothold above 0.7400 to print a marginal new August high (0.7437) having held in above chart support in the interim, and the Aud/Nzd cross trades above 1.1000 to expose 1.1025 resistance again. No lasting drag on the Aud from the latest RBA policy meeting and statement that was essentially a repeat of the previous version and several before that, with the ongoing mantra that rates are appropriate at current levels and are likely to remain apt for some time to come given the slow evolution of inflation and wage growth.

CAD/EUR - The Loonie is next best major performer vs the Usd, albeit only just eclipsing the single currency and Kiwi as the Greenback loses some momentum across the board (DXY around 95.200 vs 95.500+ yesterday) EMs also off recent lows). Usd/Cad is back below 1.3000 and eyeing strong support at 1.2961 (100 DMA) before 1.2950, while Eur/Usd has bounced a bit further from Monday’s 1.1530 multi-week base towards 1.1600, but not quite testing the big figure, yet.

GBP/CHF/JPY - All marginally firmer vs the Dollar, with Cable back above 1.2950 having hit new lows for 2018 on Monday circa 1.2915, but the Pound not faring so well vs the Eur (0.8930+) amidst yet more Conservative Party rebellion against UK PM May and her Chequers White Paper. Usd/Chf remains above 0.9950, but easing back from near parity, while Usd/Jpy is still rangebound just under 111.50 between 111.45-20 after reports that the BoJ talked about tightening rates twice before the end of the year, according to people supposedly in the know.

EM - As noted, some respite for regional currencies after a dip in the Cny mid-point fixing and more efforts by Turkey to arrest the Lira’s slide alongside reports that mediation with the US has been successful to a degree. Usd/Try around 5.2400 vs 5.4250 at the new/latest all time low).

FIXED INCOME

A relatively abrupt and pronounced turnaround for Bunds and Gilts, as EU stocks rebound amidst less angst in EMs and no further escalation in US-China trade wars. The core 10 year debt futures are just off new session lows on Eurex and Liffe at 162.11 and 122.84 respectively for losses on the day of 24 and 15 ticks vs gains of 4 and 11 ticks at the other end of the spectrum. As mentioned earlier, thin holiday and seasonal trading conditions are impacting price volatility and chart levels are also exerting some directional influence with Bunds and Gilts both conscious of strong resistance (162.47 and 123.39). Elsewhere, US Treasuries are slipping alongside their EU equivalents, but also in preparation by way of some concession for this week’s supply that kicks off with $34 bn 3 year notes and cumulatively represents a larger net issuance total than the previous auctions of 3, 10 and 30 year paper.

COMMODITIES

WTI and Brent are showing mild gains as the futures hold onto the USD 69.00/bbl and USD 74.00/bbl handles respectively. US re-imposed the first round of sanctions against Iran which will cover the auto sector, gold and key metals, while crude sanctions are not expected until November. Oil traders will be looking out for the latest API Inventory numbers released later today.

In the metals complex, spot gold is prints fresh highs for the day, moving in-step with USD action, while London copper edged higher amid ongoing concerns revolving around Chile’s Escondida mine, the world’s largest copper mine. In the latest developments, BHP is said to seek a 5-day mediation by Chile’s government in contract discussions to avoid a strike at the copper mine, while there were also reports the union at the copper mine was preparing a strike contingency plan as it awaited the final response from the company. Of note: on Monday, Escondida copper workers union said half of members have voted in which around 80% voted to reject the final contract offer.

Kuwait stopped operations at Shuwaikh and Shuaiba ports while also stopping navigation at the Doha port due to bad weather. (Newswires)

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