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[PODCAST] US Open Rundown 6th September 2018

  • European equities trade mixed with outperformance in the FTSE MIB again
  • Markets gear up for an announcement as public consultation ends for USD 200bln worth of Chinese goods
  • SEK is the main G10 mover and loser as the Riksbank rolled back its rate hike path and ruled out October
  • Looking ahead, highlights include ADP Employment Change, Initial jobless claims, Durables revisions, ISM nonmfg PMI, DoEs, ECB’s Lautenschlaeger and Fed’s Williams

ASIA

Asian equity markets traded mostly lower after a similar lead from US where the Nasdaq underperformed and the tech sector saw its worst performance in over a month as social media executives testified at Congress. ASX 200 (-1.1%) and Nikkei 225 (-0.4%) were negative as Australia mirrored the tech rout stateside and with sentiment in Japan was dampened after the Hokkaido region was hit by a powerful earthquake which triggered large landslides and mass power outages. Elsewhere, Hang Seng (-1.0%) and Shanghai Comp. (-0.5%) both opened lower although the latter then found support just below the 2700 level after stock-supportive measures including a proposed regulatory revision to permit more stock repurchases and with interest income from loans to smaller firms to be VAT-exempted. Finally, 10yr JGBs were higher with prices underpinned by the predominantly risk-averse tone in the region and amid the BoJ’s presence in the market in which it upped its purchases of 5yr-10yr maturities.

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.8217 (Prev. 6.8266)

China’s securities regulator proposed revision to rules to widen circumstances for listed companies to conduct stock repurchases, while China Mofcom stated that financial institutions' interest income from loans to smaller firms will be VAT-exempted. (Newswires)

USGS reported a magnitude 7 quake striking 112km SSE of Sapporo, Japan at a depth of 66km. Furthermore, reports noted that some people were trapped in collapsed buildings and that there was a power outage in all of Japan's Hokkaido following the earthquake, while Japanese Trade Minister Seko said it will take a minimum of 1 week to restore all power in Hokkaido following the earthquake. (Newswires)

BoJ Board Member Kataoka sees low chances for Japan's economy momentum to reach price target being heightened under current framework, while Kataoka added the BoJ didn't need to allow more flexibility in long-term yields when it was reducing price forecasts and that permitting long-term yields to rise could delay reaching the price target. Furthermore, Kataoka stated the BoJ's new forward guidance only states the obvious and that the BoJ should expand stimulus to achieve price target quicker instead of taking measures to prolong period of easy policy. Kataoka also stated a July decision is neither an expansion nor a withdraw from stimulus; adding don't see any significant demerits emerging from BoJ's easy policy. (Newswires)

EU/UK/US

Jacob Rees-Mogg has accused Mark Carney of “demeaning” the BoE by extending his term as governor for a second time and insists that he should step down. (Times)

Italy's Finance Minister Tria said may accept 1.5% deficit in 2019, budget package seen at EUR 25-30bln. Italy's 5 Star seeks a 2019 deficit between 2%-2.5%. Of note: Deutsche Bank notes a 2-2.3% deficit of GDP may be consistent with a declining debt ration but would still imply a significant violation of EU rules while above 2.3% would likely prevent the debt ratio from declining. (Newswires)

CENTRAL BANKS

The Riksbank stood pat on their key policy rate at -0.50% as expected. The central bank sees repo rate averaging -0.5% in Q4 vs. Prev. forecast of -0.43%. The repo rate path suggests rate will be unchanged in October but raised by 25bps in either December or February. Deputy Governor Floden entered into a reservation against the repo rate path in the report and was in favour indicating a 25bps hike in October while Deputy Governor Ohlsson entered into a reservation against the repo rate path in the report and wanted a 25bps at today's meeting. Governor Ingves, at the press conference, said a rate hike smaller than 25bps is not meaningful in a monetary policy sense; he adds it is important to be clear about the timing of a rate hike.

EQUITIES

European equities trade mixed (Euro Stoxx 50 +0.1%) with Italy’s FTSE MIB (+0.4%) outperforming in a continuation of the trend observed in the past few days, while Spain’s IBEX (-0.6%) underperforms, weighed on by financial names with the IBEX 35 banking sector down over 1%. In terms of stock specifics, Safran (+6.1%) shares flew to the top of the Stoxx 600 following an impressive upgrade in guidance. Elsewhere, Sodexo (-4.4%) shares took a hit following uninspiring earnings. Also of note: Wirecard (+1.2%) is to take Commerzbank’s (-0.7%) spot in the DAX 30.

FX

SEK - The major G10 mover and loser in early EU trade, as the Riksbank rolled back its rate hike path and ruled out October as a live policy meeting in terms of any action vs December or February 2019 when it predicts a tightening move. There were 2 dissentions, and one particularly hawkish as Deputy Governor Ohlsson called for an immediate 25 bp rise in the repo, while Floden wanted to keep options open for next month. However, Eur/Sek took out some touted offers at 10.6000 before easing back a little, but remains well above circa 10.5230 lows, and from a technical perspective the 10 DMA is 10.6090. Post-meeting press conference looming.

AUD/NZD/CAD - Some respite for the non-US Dollar commodity currencies, partly on firmer underlying prices, plus chart dynamics and a broad Greenback downturn. Aud/Usd has bounced off lows around 0.7165 to retest offers/resistance around 0.7200 having fallen overnight on 2 more hikes in bank lending rates which offset or overshadowed decent Aussie trade data. Similarly, the Kiwi is attempting to revisit 0.6600 following another failure to sustain momentum above the big figure amidst ongoing global trade and diplomatic tensions, while the Loonie is looking a bit more stable off 1.3200+ lows vs its US counterparts on broadly positive NAFTA reports after the first day of fresh talks between Canada and the US. Ahead, building permits data and a speech from BoC’s Wilkins after yesterday’s largely unchanged policy statement/forward guidance.

JPY/CHF/GBP - All relative outperformers, and for different reasons, with Usd/Jpy back below 111.50 amidst earthquake-related repatriation flows, the Franc firming back through 0.9700 after stronger than expected Swiss GDP data, albeit belatedly, and the Pound still holding onto the bulk of Wednesday’s Brexit-inspired gains even though Germany has poured cold water on reports that it is willing to withdraw some demands for the future relationship between the EU and UK – Cable remaining above 1.2900 and Eur/Gbp encircling 0.9000.

EUR - The single currency is trying to former a firmer base above 1.1600, but aided by the aforementioned renewed Greenback weakness as the DXY hovers around 95.000 again, and looking to clear 1.1650 for an upside break from recent ranges. However, the upper end of a series of big option expiries (1.2 bn from 1.1625-35) could cap further upside.

EM - An all too rare and widespread recovery rebound across the region, the question is whether this is respite or a more meaningful retracement and platform for further unwinding of outperformance. Fundamentally, some positive news for the Rand as SA current account data was not as bad as feared, with Usd/Zar back below 15.3000 vs circa 15.6900 at one stage yesterday.

FIXED INCOME

Fresh intraday peaks, and for Gilts also a new Liffe session low before relatively stable trade around 20-25 ticks above par for the 10 year EU benchmarks. Rather mixed to soft auction results from France, Spain and the UK have not really impacted, but core bonds retain an underlying bid due to ongoing global risk events that are well documented and therefore not really necessary to spell out again. Bunds are just below the 161.16 high (+24 ticks vs -1 tick at one stage), with Gilts retreating a bit further from their best (122.33, +35 ticks), while US Treasuries are nudging minor new overnight session pinnacles amidst mild curve steepening ahead of a busy agenda of data (compressed due to Monday’s Labor Day holiday), Fed speak from Williams and issuance details for next week’s 3, 10 and 30 year auctions.

COMMODITIES

WTI and Brent futures trade marginally higher following yesterday’s retreat to below the USD 69.00/bbl and USD 77.50/bbl levels respectively (with the latter reclaiming the level in recent trade). The weekly API inventory report showed a smaller than expected draw in headline crude stockpiles with a muted reaction in the oil market. News flow has been light for the complex thus far. In terms of NHC updates, tropical depression Gordon continues to drift through Western Mississippi, threat of heavy rains and flooding will continue for several days, while Hurricane Olivia and Florence remain strong albeit still away from land. Traders will keeping an eye on the delayed weekly EIA crude inventory report due at 1600BST/1100EDT. The metals complex is broadly benefitting from the pullback in the dollar. Copper outperforms its peers amid upside in Chinese commodities.

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