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[PODCAST] US Open Rundown 8th August 2018

  • Sterling continues its slide and returns to multi-month lows vs. USD and JPY
  • FTSE outperforming on GBP weakness
  • Looking ahead highlights include, US DoEs, RBNZ rate decision and supply from the US

ASIA

Asian stock markets traded mostly positive as they sustained the momentum from the US where the majors eked modest gains with the DJIA led by strength in energy and industrials, while the S&P 500 inched closer towards all-time highs. ASX 200 (+0.3%) was led higher by miners and surprisingly financials despite weaker earnings from Australia’s largest lender CBA and scandal-ridden AMP. Elsewhere, Nikkei 225 (-0.1%) was initially supported throughout most the day by earnings and a weaker currency but then pared gains in late trade, while Hang Seng (+0.4%) and Shanghai Comp. (-1.3%) were mixed with underperformance in the mainland amid increased trade tensions after the US finalized the 2nd tranche of tariffs in which it will impose 25% tariffs on USD 16bln of Chinese goods from August 23rd. Finally, 10yr JGBs were higher for most the session despite as prices rebounded from this week’s pressure and support near the 150.00 level, while the BoJ were also in the market for nearly JPY 1tln of government bonds concentrated in 1yr-10yr maturities.

China NDRC said they will use monetary policy including targeted RRR reductions to support debt-to-equity swaps, while it added it will require banks to be stricter in limiting corporate debt and restrict high leverage firms from borrowing too much. (Newswires)

Chinese Trade Balance (CNY)(Jul) 176.9B vs. Exp. 227.1B (Prev. 261.9B). (Newswires)
Chinese Exports (CNY)(Jul) Y/Y 6.0% vs. Exp. 5.6% (Prev. 3.1%)
Chinese Imports (CNY)(Jul) Y/Y 20.9% vs. Exp. 12.5% (Prev. 6.0%)

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.8313 (Prev. 6.8431)

BoJ Summary of Opinions from July 30th-31st meeting stated it is necessary to persistently continue with the current powerful monetary easing as the momentum toward 2 percent inflation is maintained. There was also the opinion that it will likely take more time than expected to achieve 2% inflation and that is time for BoJ to strengthen commitment to reaching price target due to weak price moves. Furthermore, it was suggested that the BoJ should permit long-term rates to move around -0.25% to 0.25% and should expand monetary stimulus and adopt forward guidance to spur demand and inflation expectations. (Newswires)

EU/UK/US

Italian Economy Minister Tria says he sees no flight from Italian bonds, and the position of Italy in the Euro is not being questioned. (Il Sole 24)

EQUITIES

European equites have largely opened the day mixed, as the focus remains on large cap earnings. Uninspiring earnings from both Munich Re (-3.5%) and E.ON (-1.8%) have hit the DAX, which alongside the SMI are both in the red. The healthcare sector is the underperforming sector after Novo Nordisk reported a miss on both EBIT and revenue expectations.

Earnings for AEX heavyweights ABN AMRO (+3.3%) and Ahold Delhaize (-2.0%) were also released, with the Ahold missing on net profit expectations.

Southern Co (SO) Q2 EPS loss USD 0.15 vs. Exp. USD 0.69 (may not compare), revenue USD 5.62bln vs. Exp. USD 5.3bln

FIXED INCOME

After opening mark-ups and early retracements a period of even choppier price action has seen debt futures extend both sides of their trading ranges in rather erratic, but typically Summer fashion. Bunds appeared to spark or lead the more frantic moves with a dip through 162.00 to 161.96 (-5 ticks on the day), but then a sharper rebound to 162.23 (+22 ticks), with Gilts tagging along, but not quite as volatile. The 10 year UK benchmark has posted a marginal new Liffe trough at 122.65 (-3 ticks), though no fresh top, with DMO issuance to absorb. On that note, the GBP 2.5bln auction saw decent demand but at a higher yield and came with a slightly longer tail. Elsewhere, US Treasuries are just off overnight session peaks, but only fractionally firmer from Tuesday’s CBOT closes with supply also in mind.

FX

JPY - Stops and another rebound in the YUAN have prompted all round Jpy buying and a break in the hitherto tight Usd/Jpy range to the downside through 111.00. This, after resistance above the big figure held on several attempts to rally towards heavy offers at 111.50, but the headline pair may not decline much further from circa 110.85 so far given multiple option expiries running off on Thursday and starting from 111.00-05 (1.4 bn) through 111.50-55 (1.9 bn) all the way up to 111.90, 112.00 and then 112.10-20.

NZD - Another relative G10 outperformer vs the Greenback, but the Kiwi is still struggling to take flight above 0.6750 ahead of the RBNZ policy meeting that is widely expected to keep the status quo going in terms of unchanged rates and on hold guidance going. Firmer 2 year NZ inflation expectations overnight have given the Nzd a modest lift, but unlikely to alter the Central Bank’s rate decision or guidance.

GBP/CAD - The Pound continues to languish amidst ongoing Brexit uncertainty and benign BoE policy intentions after only a second hike since the GFC last week, with Cable slipping to a fresh ytd sub-1.2900 and Eur/Gbp crossing 0.9000 to the upside, but the Loonie has also extended its retreat after weaker Canadian PMI prints yesterday, as Usd/Cad grinds higher towards 1.3100 supply.

CHF/AUD/EUR - All narrowly mixed and holding up relatively well vs the Dollar as the Franc continues to straddle 0.9950 and Aud retains 0.7400+ status between 0.7450 and the 55 DMA (0.7448), with support seen from 0.7410-15 ahead of the aforementioned big figure. However, the single currency is back below 1.1600 following offers at 1.1620 and with a Fib plus daily/weekly cloud resistance also capping the upside (1.1629, 1.1653 and 1.1632 respectively).

EM - It could be a watershed mid-week session for regional currencies after turnaround Tuesday for many that staged decent recovery rebounds vs the Usd, especially the Lira as US-Turkey talks resume to try and resolve the current dispute, while the Cny/Cnh will be eyeing further tariff developments after the US finalised the next $16 bn Chinese imports to be taxed from August 23.

COMMODITIES

The oil market is currently uneventful with WTI consolidating around its 100DMA of USD 74.53/BBL as news flow has been light for the fossil fuel after yesterday’s larger than expected draw in crude stockpiles in the weekly API report alongside a surprise build in gasoline.

US API Weekly Crude Stocks (03 Aug) -6.00M vs. Exp. -3.30M (Prev. 5.59M). (Newswires)

US API Weekly Gasoline Stocks (03 Aug) +3.10mln vs. Exp. -1.70mln (Prev. -0.791mln)

China's President Xi has instructed Chinese state oil companies to lift production, according to CNOOC

In the metals sector gold (-0.1%) is up slightly, currently trading around the USD 1215/OZ level. London copper is also up on the day, and has set the scene for base metals, with all of nickel (+1.5%), zinc (+0.5%), lead (+2.6%) and aluminium (+0.2%) up on an improved risk sentiment

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