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[PODCAST] US Open Rundown 4th September 2018

  • European equities trade mostly lower (Eurostoxx 50 -0.8%), with the core bourses unwinding gains and plunging into the red following a positive open
  • A firm rebound in the DXY to almost 95.600 with ZAR hit even harder following an unexpected SA GDP contraction that means technical recession
  • Looking ahead, highlights include ISM manufacturing, BoE’s Carney, Haldane, Tenreyro and Saunders, ECB’s Nowotny

WEEKEND HEADLINES FOR US PARTICIPANTS

US President Trump tweeted over the weekend that a trilateral NAFTA deal with Canada is unnecessary and warned that Canada must accept new terms or US will terminate the agreement and revert to pre-NAFTA. (Twitter)

US and Canada NAFTA talks concluded on Friday without a breakthrough and are set to resume on Wednesday, while reports also noted that President Trump will notify Congress to proceed with a Mexico-only trade deal that will replace NAFTA. There were also comments from USTR Lighthizer that President Trump will sign a deal with Mexico, and Canada if it is willing, while he added that talks with Canada were constructive and made progress. (Newswires)

EU chief Brexit negotiator Barnier stated he strongly opposes UK PM May's Chequers Brexit trade proposals, while reports noted that negotiators will re-engage again this week. In addition, Barnier also commented that EU and UK do not need more time to reach an agreement and that political decisions are required. (Guardian)

UK PM May said she will refuse compromises on her Brexit plan that are not in the national interest and that she is confident the government can broker a good deal for Britain, while she added she will not succumb to those calling for a second referendum. PM May added that progress has been made in negotiations following the Chequers agreement and that the government has also been preparing for the event of a no-deal Brexit. (Sunday Telegraph)

ASIA

Asian equities were choppy with the region indecisive as trade-related concerns lingered and after a non-existent lead from the US which was shut for Labor Day holiday. ASX 200 (-0.3%) was negative and fell below the 6300 level as weakness in tech, energy and financials dragged, while Nikkei 225 (unch) swung between gains and losses amid currency fluctuations. Elsewhere, Hang Seng (+0.9%) and Shanghai Comp. (+1.1%) closed in the green after also see-sawed as participants contemplated over the potential fresh US tariffs this week and amid CNY price swings, as well as continued liquidity inaction by the PBoC. Finally, 10yr JGBs were marginally higher amid the indecisive trade in riskier assets. However, upside was also capped as participants digested the BoJ’s Rinban announcement in which it upped its purchases of JPY 1-5yr by a total JPY 100bln, which would suggest monthly purchases of those maturities are on track to be reduced to JPY 3.25tln from JPY 3.30tln M/M if the purchase amounts are maintained, considering the recently announced reduction in the number of buying operations for this month.

PBoC skipped open market operations for a net neutral daily position. (Newswires)

PBoC set CNY mid-point at 6.8183 (Prev. 6.8347)

RBA kept the Cash Rate Target unchanged at 1.50% as expected and reiterated that low rates are supporting the economy and that progress on inflation is expected to be gradual, but that it sees inflation higher in 2019. Furthermore, the RBA stated that the labour outlook remains positive and the economy seems to have grown above trend (Newswires)

EU/UK/US

Outgoing Mexican President Pena Nieto stated that they didn’t accept quotas or restrictions in the deal with US and that they will participate in trilateral discussions with NAFTA partners, while he added it is important for Canada to remain in NAFTA. (Newswires)

Jacob Rees-Mogg claims that he and the EU’s chief negotiator, Michel Barnier, bonded in a meeting in Brussels over their shared view that Theresa May’s Chequers plan is “complete rubbish”. (Guardian)

The majority of voters in the Conservatives' most marginal constituencies believe PM May's Chequers plan is "bad for Britain", a new poll has found, (Telegraph)

UK Chancellor Hammond could reportedly unveil the budget as soon as next month in order to avoid clashing with last stages of Brexit discussions. (Times) As a reminder, the Treasury has originally wanted to release the budget at the end of November

As a reminder, BoE Governor Carney will be questioned by MPs today over whether he plans to extend his term as governor of the BoE as concerns mount that the uncertainty is damaging its credibility. (Times)

GEOPOLITICAL

US President Trump warned Syrian President Assad to not recklessly strike the Idlib province in Syria, while Trump also said that Iran and Russia would be making a grave humanitarian error and that hundreds of thousands could be killed if they attack Idlib. Russia's Kremlin replied by saying US President Trump’s warning against Idlib is offensive and such warnings are not a comprehensive approach to the problem. (Twitter/Newswires)

CENTRAL BANKS

Russian Central Bank Governor said there are some factors in favour of a rate hike, while adding there are a lot of factors in favour of holding rates. Of note: the Turkish Central Bank interest rate decision is a day before on the 13th September.

EQUITIES

European equities trade mostly lower (Eurostoxx 50 -1.0%), with the core bourses unwinding gains and plunging into the red following a positive open. Italy’s FTSE MIB outperforming peers as the index is buoyed by Italian banks benefiting from BTP price action. Broad-based losses are experienced across European sectors, with energy names lifted by price action in the complex. The Eurostoxx 50 underwent a reshuffle with sources stating Deutsche Bank, E.on and St. Gobain due to leave the index whilst Linde, Amadeus and Kering are to ender the Stoxx 500. Elsewhere, SocGen (-0.2%) is expects to pay USD 1.4bln in fines over allegations of sanction violations, however the bank is expected to pay far less than rival BNP Paribas paid four years ago.

FX

DXY - A firm rebound in the index to almost 95.600 from lows only a fraction above 95.000 yesterday, and amidst broad gains vs G10 counterparts alongside further outperformance against flagging EMs. Technically, the DXY has near term resistance to aim for at 95.709, but will get further impetus and direction (one way or another) when US markets re-open after the long holiday weekend.

NZD/AUD - The major underperformers and victims of overall Usd strength/EM weakness and a downturn in risk sentiment, with the Kiwi diving to fresh 2018 and multi-year lows in the process, around 0.6540, and Aud only holding up a bit better on the back of not so dovish/more upbeat RBA rhetoric post-policy meeting overnight (which also offset disappointing current account data), and favourable cross winds. Aud/Usd back below 0.7200, but off circa 0.7160 lows, and Aud/Nzd above 1.0950, albeit just. Ahead, RBA’s Lowe to speak

EUR/CAD/CHF - All around 0.4-0.5% softer vs the Greenback, with the single currency well below 1.1600+ peaks and through a key Fib level (1.1569), but finding some traction ahead of 1.1500 and the 21 DMA (1.1544), while the Loonie has lost more ground ahead of the next round of NAFTA talks and BoC tomorrow, even though crude prices are bucking the weak commodity trend and in theory supportive. Usd/Cad is hovering just below 1.3150 with decent offers said to be sitting between 1.3160-70, while the Franc has retreated through 0.9700 and hardly flinched at in line Swiss CPI data.

JPY/GBP - Usd/Jpy is back above 111.00 and a tad more emphatically to test supply around 111.50, but also eyeing decent option expiries from 111.45-50 (1 bn) for the NY cut, while Cable is only just holding above 1.2800 having breached its 21 DMA (1.2849) and Monday’s base (1.2828) amidst stops and another bad UK PMI survey (or rather considerably worse than expected) in the form of construction. The Pound now looking towards the BoE testimony for more independent impetus.

EM - More pain for the likes of the Lira, Peso, Rouble and Rand, with the latter hit even harder following an unexpected SA GDP contraction that means technical recession to compound the misery of domestic political problems and US sanctions. Usd/Zar up over 15.2500, Usd/Try 6.7200+ at one stage, Usd/Rub above 68.3800 and not helped by a non-committal Central Bank Governor ahead of next Friday’s policy meet, while Usd/Mxn is approaching 19.4400 and Usd/Ars is awaiting reaction to tighter fiscal measures announced yesterday.

FIXED INCOME

Monday’s worse than anticipated manufacturing survey suggested a downside bias for the UK construction PMI, but the headline miss was even more pronounced this time and prompted a further rebound in UK debt to new, albeit marginal, Liffe intraday highs at 122.67 (+9 tick vs -1/4 point at worst). Moreover, Bunds have tagged along and are now revisiting 163.00, with another meltdown in EMs sparking a degree of safe-haven demand, along with a retreat across EU cash indices and headlines reporting the resumption of Russian airstrikes in Syria. However, it’s not risk-off in the classic or traditional sense with the Usd bid above all else rather than the Jpy or Chf, and Gold below $1200/oz, though bullion has long since lost that kind of allure.

COMMODITIES

WTI and Brent futures trade on the front foot with both benchmarks above USD 71/bbl and USD 79/bbl respectively. Price action is supported as investors and traders assess the potential threat to US production from tropical storm Gordon that is expected to hit the Gulf Coast (with hurricane warnings in place). Anadarko Petroleum evacuated workers and shut production at two Gulf of Mexico platforms as the storm nears. Elsewhere, due to yesterday’s US Labor Day holiday, the API weekly crude inventories have been delayed until tomorrow. In terms of metals, the complex is heavily pressured by the strengthening dollar with gold taking out USD 1200/oz to the downside.

Venezuelan President Maduro announced to begin charging under new gasoline pricing regime in border areas beginning today. (Newswires)

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Filer under special relationship.... Donald Trump berated Theresa May in a bad-tempered phone call in the aftermat… https://t.co/uYcGH3H8ee