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[PODCAST] US Open Rundown 29th August 2018

  • European equities trade on the backfoot (Eurostoxx 50 -0.5%) with underperformance in Spain’s IBEX (-1.0%)
  • The DXY and broad Dollar continue to consolidate off recent lows on the back of Monday’s upbeat US consumer confidence survey
  • UK and EU officials are said to view mid-November as the new Brexit deal deadline and are said to view an agreement by October as unlikely
  • Looking ahead, highlights include US GDP (2nd estimate), Pending Home Sales, DoEs, and supply from the US

ASIA-PAC

Asia-Pac stocks traded mixed following the unconvincing performance on Wall St whereby the majors somewhat flatlined in which the S&P 500 and Nasdaq Comp. just about eked fresh record highs. ASX 200 (+0.8%) and Nikkei 225 (+0.2%) were positive with Australia led higher by resilience in financials and as earnings dominated news flow, while the Japanese benchmark was supported by mild JPY weakness and briefly reclaimed the 22900 level. Conversely, Shanghai Comp. (-0.3%) was negative and Hang Seng (+0.2%) traded indecisive following continued PBoC liquidity inaction and amid a slew of earnings including 3 of China’s big 4 banks which all posted growth in profits. Finally, 10yr JGBs were lower amid the heightened risk appetite in Japan and following a relatively paltry Rinban announcement by the BoJ.

PBoC skipped open market operations and are net neutral on the day. (Newswires)
PBoC set CNY mid-point at 6.8072 (Prev. 6.8052)

Westpac (WBC AT) raised variable mortgage rates due to an increase in wholesale funding costs; loan rate raised by 14bps to 5.38%. (Newswires)

US

Canada is said to be prepared to make concessions on dairy for NAFTA. In separate news, US-Mexico trade deal provides a potential cap on Mexican cars shipped to the US and would allow the US to impose punitive tariffs of as much as 25% on auto-related imports that exceed certain volumes according to sources. (Globe and Mail/Newswires)

EU/UK

UK and EU officials are said to view mid-November as the new Brexit deal deadline and are said to view an agreement by October as unlikely. (Newswires)

UK's Brexit Secretary Raab has expressed his frustration over EU's Chief Negotiator Barnier's alleged failure to make himself available for face-to-face talks. (The Guardian)

UK PM May has announced she will defend herself against any potential leadership challenge from Boris Johnson and fully intends to lead the Conservatives into the next General election. (Newswires)

Remain-supporting Conservatives have reported an noticeable increase in applications to join their local parties, leading to fears that they are being targeted by Ukip supporters in a plot to unseat them and elect a Brexit-supporting PM to replace May. (Times)

TURKEY

Turkish Central Bank said it has doubled banks' borrowing limit for overnight transactions at the interbank money market. (Newswires)

EQUITIES

European equities trade on the backfoot (Eurostoxx 50 -0.5%) with underperformance in Spain’s IBEX (-1.0%) following a downgrade of its second largest constituents, Inditex (-4.6%), subsequently weighing on the consumer discretionary sector. Energy names underperform, dragging down the likes of oil names such as Shell (-1.3%), in turn weighing on the FTSE 100 (-0.8%), while industrial names benefit from the decline in oil and base metal prices. In terms of individual movers, RTL group (+5.0%) flew to the top of the Stoxx 600 after reporting strong earnings.

FX

AUD - Back down towards 0.7300 vs its US counterpart and 1.0900 on the NZD cross after a funding-related hike in mortgage rates by West Pac sparked all round selling on the premise that the squeeze on borrowers will crimp disposable income and hit spending, with the RBA even more inclined to maintain policy accommodation or even forced to cut rates as a result. 

DXY - The index and broad Dollar continue to consolidate off recent lows on the back of Monday’s upbeat US consumer confidence survey that sparked short covering, and ahead of today’s 2nd look at Q2 GDP that is expected to confirm strong growth. However, a wider than forecast advance trade balance for July could adversely impact, while at least one month end rebalancing model indicates a strong Usd sell signal. DXY currently nearer the upper end of a 94.890-685 range.

EUR - The single currency remains capped below 1.1700 vs the Greenback having relinquished big figure-plus status yesterday amidst offers between 1.1725-30 and with decent option expiry interest at the 1.1675 strike (1.4 bn) weighing.

SEK - Another G10 underperformer and on follow-through selling in wake of Tuesday’s dire Swedish retail sales data that could be acknowledged by the Riksbank next week in some shape or form, ie policy guidance and/or through the rate path. Eur/Sek up to 10.7000+ multi-year peaks, and looking at 10.7900 chart resistance above.

GBP/CAD/JPY/CHF/NZD - All narrowly mixed vs the Usd, with Cable hovering above 1.2850, but unable to retest 1.2900 due to ongoing Brexit uncertainty and Tory in-fighting as PM May and Chancellor Hammond cross swords over the budget. Meanwhile, the Loonie has lost some of its initial NAFTA momentum to slip back below 1.2900 against its US peer, even though reports suggest that Canada may we willing to offer dairy concessions. Usd/Jpy remains just over the 111.00 level and also close to option expiry interest (1 bn at 111.20), with the 55 DMA at 111.05 being eyed as pivotal from a technical perspective. The Kiwi is keeping tabs on 0.6700 and Franc holds the bulk of its recent gains within 0.9775-60 parameters, largely ignoring a sharp deterioration in Swiss ZEW investor sentiment, or rather heeding the bleak news.

EM - The Lira and Rand continue to bear the brunt of the currency run and capital flight for all the well know reasons, with Usd/Try up towards 6.4000 after only fleeting respite via the CBRT doubling the overnight lending limit for banks, while Usd/Zar has rebounded further to 14.4000 following the partial withdrawal or suspension for more consideration of the ANC land appropriation bill.

FIXED INCOME

Core debt futures still look somewhat reticent, but should have no issues on the supply front given a solid Bobl tap by all the usual metrics used to gauge the success of a cash offering. The 5 year contract is just off a new Eurex intraday base of 131.95, however, vs 132.06 at best and 132.01 at the previous close, with Bunds also nearer their 162.43 low (-9 ticks and 21 ticks off the high) and Gilts just recovering 123.00+ status from 122.95 (-6 ticks vs +18 ticks at the Liffe high). Elsewhere, US Treasuries are middling vs overnight ranges and the curve is a tad flatter in the run up to US GDP and pending home sales dat, anda before 2 year FRNs and 7 year notes go under the hammer.

COMMODITIES

Commodities trade higher, WTI futures breached its 100 DMA to the upside(at USD 68.69/bbl), while Brent reclaimed the USD 76/bbl level after it losing following a surprise build in API crude inventories last night. The recent gains in WTI and Brent followed comments from IEA's Executive Director Birol, he sees oil markets tightening towards end-year, while citing strong demand, Venezuela's falling output and unstable production including in the Middle East. Traders will be eyeing the EIA weekly crude stocks due later today, expected to print a draw of 686K barrels; according to a Reuters poll.

Elsewhere, gold is uneventful as the yellow metal tracks the USD, while Shanghai steel dropped for a sixth consecutive session following comments from Beijing’s state planner, warning the economy is facing increasing risks in the second half of the year. However, some analysts believe steel prices will be supported by production curbs as Beijing tries to limit pollution.

US API Weekly Crude Stocks +38k vs. Exp. -700k (Prev. -5.170mln). (Newswires)

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