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[PODCAST] US Open Rundown 5th September 2018

  • European equities trade on the backfoot (with the exception of the FTSE MIB) as the Eurostoxx 50 index falls over 1%
  • DXY remains firmly above recent near 95.000 lows and mainly towards the top of today’s range, with broad gains vs almost all rivals
  • Looking ahead, highlights include US & Canadian Trade, BoC rate decision, weekly API inventories, Fed’s Bullard, Kashkari, Bostic and Williams

ASIA

Asian equity markets traded lower across the board after the Labor Day hangover on Wall St amid ongoing trade uncertainty and ahead of the looming risk events, although the US majors finished off worst levels and Amazon briefly entered the USD 1tln club. ASX 200 (-1.0%) declined from the open with broad weakness across its sectors and with firm Q2 GDP data failing to underpin sentiment as the damage had already been done, while Nikkei 225 (-0.5%) was subdued following a destructive and deadly Typhoon which was the strongest to hit Japan in 25 years. Hang Seng (-2.6%) and Shanghai Comp. (-1.7%) were also negative on trade-related jitters as the deadline regarding potential US tariffs on USD 200bln of Chinese goods approaches and following disappointing Chinese Caixin Services and Composite PMI data in which the former posted a 10-month low. Finally, 10yr JGBs saw mild gains amid the backdrop of the widespread risk-averse tone, although price action was relatively muted and stuck within a tight range despite stronger results at this month’s 10yr JGB auction.

Chinese Caixin Services PMI (Aug) 51.5 vs. Exp. 52.6 (Prev. 52.8); 10-month low. (Newswires)

Chinese Caixin Composite PMI (Aug) 52.0 (Prev. 52.3)

Australian Real GDP (Q2) Q/Q 0.9% vs. Exp. 0.7% (Prev. 1.0%). (Newswires)

Australian Real GDP (Q2) Y/Y 3.4% vs. Exp. 2.8% (Prev. 3.1%)

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

PBoC set CNY mid-point at 6.8266 (Prev. 6.8183)

EU/UK/US

EU's Barnier reportedly deemed PM May's Chequers plan as unacceptable in a meeting with the Brexit select committee. Instead the EU has urged PM May to adopt a Canada-style deal favoured by former Foreign Minister Johnson. (Telegraph)

UK’s Cabinet Office Minister Lidington says the Irish border is the only outstanding Brexit issue; adding UK PM May is very committed to a Chequers deal. (Newswires)

Merkel’s CSU allies say in a draft document they want a close partnership with the UK post-Brexit; adding they reject a hard Brexit. (Newswires)

British Prosecutors say they have sufficient evidence to charge Alexander Petrov and Ruslan Boshirov with the attempted murder of the Skripals; while UK PM May is said to have some “very strong words” for Kremlin. (Newswires)

Italy’s Deputy PM Di Maio says budget will keep accounts in order but will be courageous, adding the government has every intention to last a long time. Di Maio added he cannot say if the 2019 budget deficit will be about 2% of GDP adding the deficit level is not part of today’s talks. (Newswires)

EU Markit Comp Final PMI (Aug) 54.5 vs. Exp. 54.4 (Prev. 54.4)

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

Special Counsel Mueller is said to accept written answers from US President Trump. (NYT)

CENTRAL BANKS

Fed's Kashkari (non-voter, dove) stated the Fed are hiking rates too aggressively. In other news, a Fed study noted there was little evidence that major US firms were using benefits from the tax reduction on capex and instead many were increasing their share repurchases. (Newswires)

Merkel's CSU allies say in a draft document that the ECB should end its QE programme ASAP, adding they want to end ECB's low interest rate policy. (Newswires)

EQUITIES

European equities trade on the backfoot (with the exception of the FTSE MIB) as the Euro stoxx 50 index falls over 1%. Sectors are mostly experiencing broad-based losses while financial names are outperforming its peers as Italian banks provide some support to the sector on the back of BTP price action (Italian Banking Index +2.6%). In terms of individual stocks, JC Decaux (+6.6%) rose to the top if the Stoxx 600 on the back of an upgrade, while heavyweight Bayer (-1.7%) pressures  Germany’s DAX 30 following uninspiring earnings.

FX

EM - Amidst more widespread depreciation across the region (and not just contained to currencies), the Zar continues to underperform and extend losses in wake of the ‘unexpected’ Q2 GDP contraction that consigned SA to a first half 2018 recession. Moreover, August’s PMI sank further below the 50.0 threshold to flag ongoing negative economic activity, and the Rand still has next month’s budget update to contend with. Usd/Zar has been just over 15.6900, but currently off worst levels around 15.6000, while the Rub, Mxn and Try also remain on the back foot, with the Cnh retreating as well after recent relative stability and no doubt eyeing the looming threat of additional US import tariffs.

GBP - The Pound is lagging G10 counterparts even though the UK services PMI broke the run of disappointing surveys with an unexpected beat vs consensus, with Cable down through 1.2800 again and Eur/Gbp firmly over 0.9000 to retest key chart resistance. The rationale, more reports that chief EU Brexit negotiator Barnier flatly rejects the Chequers White Paper that UK PM May and Raab are resolutely sticking to.

MAJORS - Sterling aside, the Dollar’s main currency rivals are holding up relatively well, and especially the Kiwi around 0.6550 having slipped to a fresh low overnight. The Aud has gleaned some support from better than expected GDP data, but remains unable to retain a firm or lasting grasp of 0.7200, while the Jpy is back near 111.50 having weakened a tad further to circa 111.70 and eyeing a daily cloud base (111.52) on a closing basis for near term direction. Eur/Usd has been choppy between 1.1540-1.1610 amidst broadly in line Eurozone services PMIs and also pivotal around a key tech level (30 DMA at 1.1568), while the Loonie awaits the restart of US-Canada NAFTA talks, trade data and the BoC policy meeting with Usd/Cad just below 1.3200.

DXY -The index remains firmly above recent near 95.000 lows and mainly towards the top of a 95.275-675 range, with broad gains vs almost all rivals, as noted above.

FIXED INCOME

Bunds have retreated to a fresh Eurex intraday base of 160.12 (-23 ticks), and seemingly unable to resist the ongoing revival in Italian debt, while relatively firm Eurozone services PMIs, with the odd exception are also weighing. Moreover, market participants and a long-standing client notes decent clips in the soon to expire Sep18 contracts where 10k lots were sold in the 10 year future vs a purchase in Bobls at 162.88 and 132.10 respectively, with the inference from price action that a steepener was implemented. Meanwhile, Gilts and Short Sterling have eased back from best levels on an above forecast UK services PMI, which is perhaps even more surprising given sub-consensus manufacturing and construction headlines yesterday and on Monday. Elsewhere, USTs remain firm albeit around the middle of overnight session ranges and slightly flatter following yesterday’s bear steepening but awaiting some independent direction from upcoming US data and after a slew of Fed speakers.

COMMODITIES

WTI and Brent futures retreated to below 69.00/bbl and USD 77.50/bbl levels respectively following yesterday’s bull run. The Gulf of Mexico has been very much in theme recently, in terms of the latest updates, the NHC stated Storm Gordan is moving farther inland but is likely to weaken to a tropical depression later this morning, as a result WTI and Brent may be unwinding some risk premium accumulated from the past couple of days. Hurricane Florance is a little stronger and moving over the open Atlantic, while Hurricane Olivia has weakened slightly, ableit remains a category 3 hurricane. OPEC Secretary General Barkindo emerged this morning, noting the world will attain 100mln BPD of consumption this later this year; adding this is “much sooner” than expected. Furthermore, Lukoil VP Fundun stated Russian oil production has nearly peaked. Traders will be keeping a close eye on any development at the Gulf of Mexico, also of note: the API crude inventories numbers are to be released later today. In the metals complex, gold has found mild reprieve after losing the USD 1200/oz level yesterday while copper is relatively uneventful. Elsewhere, according to the City Environmental Watchdog, China’s top steel-making city, Tangshan will extend summer output cuts across the steel, coke and power sectors into September.

Industry sources stated that Saudi Arabia is seeking to keep oil prices between USD 70/bbl-80/bbl and that Trump intervention forced Saudi to moderate its price target, while non-Gulf OPEC members were also said to target oil at USD 60/bbl-80/bbl. (Newswires)

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