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[PODCAST] US Open Rundown 7th September 2018

  • European equities trade slightly softer (Eurostoxx 50 -0.4%) following a negative lead from Asia
  • EMs continue their re-emergence ahead of key US NFP data
  • Looking ahead, highlights include, US & Canadian jobs reports, Baker Hughes rig count, Fed’s Rosengren, Mester, Kaplan and ECB’s de Guindos
  • ASIA

Asian equity markets traded negative following a lacklustre lead from Wall St where continued weakness in tech and underperformance in energy dragged most US majors lowers, while upcoming NFP jobs data and trade-related concerns added to the tentative tone. ASX 200 (-0.2%) and Nikkei 225 (-0.8%) were lower with nearly all sectors in Australia in the red and energy among the worst hit following the recent pullback in crude, while Tokyo stocks underperformed on a firmer currency and after US President Trump hinted that Japan could be next on the agenda. Conversely, Hang Seng (Unch) and Shanghai Comp. (+0.4%) initially outperformed despite the potential escalation in the trade dispute with the consultation period for the proposed tariffs on USD 200bln of Chinese imports now expired. Furthermore, China had declared it would retaliate against fresh tariffs and plans to take necessary countermeasures to support its companies, while the PBoC were also active today and injected CNY 176.5bln through its 1yr MLF. Chinese stocks then deteriorated heading into the tariff deadline to conform to the overall risk-averse tone and amid increases in money market rates which saw the Hong Kong overnight CNH HIBOR hit its highest level since late June. Finally, 10yr JGBs were marginally higher as they tracked the prior session’s gains in T-notes and with support seen amid the risk averse sentiment in the region, while today’s enhanced liquidity auction for 2yr-20yr JGBs also saw improved results across all metrics.

US President Trump reportedly hinted that a trade fight with Japan could be next as he stated that he has good relations with Japan which will end as he tells them how much they have to pay. In other news, US President Trump also stated he believes Canada will end up being part of new NAFTA, while he also commented that the US will get a great deal with China for farmers and stated that the US is in a little bit of a skirmish with China but is doing well. (WSJ/Newswires)

PBoC skipped reverse repos but injected CNY 176.5bln through 1yr MLF. (Newswires)

PBoC set CNY mid-point at 6.8212 (Prev. 6.8217)

EU/UK/US

Canadian Foreign Minister Freeland said they are making good progress in trade talks and plan to continue discussions on Friday, although a Canadian government official stated that NAFTA talks are unlikely to reach an agreement this week. (Newswires)

US President Trump is reportedly to say most he most likely won’t pursue a government shutdown over the border wall, while there were earlier comments from US House Speaker Ryan that he has a good understanding with Trump that they will keep the government funded. (Fox News/Newswires)

Trump Lawyer Giuliani stated US President Trump will not answer obstruction questions in potential interview with Special Counsel Mueller. (Newswires)

UK negotiators stated that PM May's Chequers plan does not give UK any competitive advantage over EU in an effort to sell the plan to Brussels, although reports noted that this has infuriated Tory Brexiteers who view the plan as a sell-out. (Independent)

EU Chief Brexit Negotiator Barnier was said to have been left furious in a meeting last month after UK Brexit Secretary Raab threatened that an Irish border may have to be reinstated in the event of a no-deal. (Telegraph)

The European Research Group has decided to pull back from publishing the first of its series of alternative proposals this weekend, according to CityAM. (CityAM)

Italy's budget package may reach or even exceed EUR 30bln. (La Stampa) This follows reports yesterday from Il Sole stating the budget package is seen at EUR 25-30bln.

GEOPOLITICAL

Russia, Iran and Turkey leaders will meet in Tehran on today to discuss path towards ending Syrian civil war. (Axios)

CENTRAL BANKS

Fed's Rosengren (Non-Voter, Hawk) said it is important to examine potential costs of long period of low rates as they could impact how policy reacts to a recession, while he added there should be more attention to creating policy buffers to mitigate future shocks. (Newswires)

EQUITIES

European equities trade slightly softer (Eurostoxx 50 -0.4%) following a negative lead from Asia with sentiment dampened on trade concerns and ahead of the upcoming NFP data, while UK’s FTSE 100 is pressured by miners on the back of softer base metal prices. Sector wise, telecom names outperform as French listed Iliad (+5.7%) shares jumped higher on rumours of going private. The company decline to comment.. In stock specific news, IAG (-2.9%) is under the hammer after subsidiary BA said at least 380,000 customers credit card details have been compromised in a data theft.

FX

AUD - The marked G10 underperformer and main victim of ‘pending’ $200 bn Chinese import tariffs by the US, alongside the threat that President Trump turns his trade offensive towards Japan next. Having failed yet again to clearly overcome resistance around 0.7200 vs the Usd, reported bids from exporters and short covering or profit taking demand at 0.7150 has been severely tested and briefly breached before a relatively firm bounce, albeit amidst broader Greenback weakness, as the Aud continues to lose ground against its NZD antipodean peer with the cross down under 1.0900 – Kiwi holding towards the upper end of a 0.6560-95 range vs the Usd and not really reacting to comments from RBNZ Governor Orr last night.

EUR - Conversely, the single currency is the major front-runner vs the Dollar and overcame a post-German data wobble in early EU trade to test offers around 1.1650, with some technical impetus derived as the headline pair held just above the 100 HMA (1.1607). Note also, more decent option expiry interest in the mix with 1 bn running off between 1.1635-50 at the NY cut.

GBP - Also doing fairly well ahead of US jobs data, with Cable able to keep its head above 1.2900 and some key chart levels like a 50% retracement (1.2914) and the 200 HMA (1.2921), although the latter was temporarily pierced at one stage. Meanwhile, the Pound is not losing out too much on the Eur cross that is hovering around 0.9000 amidst yet more Brexit-related UK political rancour.

CAD/CHF/JPY - All pretty flat against the Usd, but retaining the bulk of gains made on Wednesday as the Loonie benefited from positive NAFTA talk via the US President and reaffirmation of gradual rate hike guidance by BoC’s Wilkins. Usd/Cad currently circa 1.3130 and awaiting Canadian jobs data alongside US NFP. The Franc is also on the firmer side of recent ranges around 0.9650 and its safe-haven counterpart, Jpy trades around a new pivot of 110.50 and bang in the middle of 1 bn option expiries at the 110.00 and 111.00 strikes.

EM - So far so good, as regional currencies continue their comeback, led by the Try that has extended its rebound on renewed CBRT tightening expectations, with the Lira now over 6.5000 again vs the Usd. Similarly, the Rouble has been boosted by signals from the Central Bank that a rate hike could well be in the offing next Friday (just a day after the CBRT policy meeting) and Usd/Rub is back below 69.0000 in response, while Usd/Zar has retreated further towards 15.0000.

FIXED INCOME

It could simply be a case of defensive positioning ahead of NFP, but for Bunds at least there are technical and other factors behind the slow grind and further slippage, like elevated Italian bonds after the latest buy-back and ‘commitment’ to abide by the EU’s fiscal rules. Hence, the 10 year German debt future has now breached the next downside technical support/target for bears at 160.20 and tripped stops to 160.09 (-34 ticks) before finding some underlying bids ahead of the big figure. Gilts and US Treasuries largely following suit, but to a lesser extent with the former down to 122.23 (-26 ticks) at one stage and the latter now marginally below par and the curve steeper after Thursday’s bull-flattening.

COMMODITIES

WTI and Brent futures are marginally higher in early European trade thus far with the former hovering around the USD 68/bbl level. According to Reuters trade flow data, US imports of crude oil from Saudi Arabia in August and September are set to reach the highest 2-month level early of 2017, citing the relatively cheap prices as advantageous for US refiners. News flow remains light for the complex, however, next week will see the release of the EIA short-term energy outlook, OPEC’s monthly report and IEA’s oil market report. Elsewhere, spot gold trades flat as the yellow metal flirts with the USD 1200/oz level ahead of the release of key US jobs data later, while copper underperforms amid ongoing trade-related concerns

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