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[PODCAST] US Open Rundown 10th September 2018

  • BTPs strengthening on increased Italian budget confidence
  • European equities marginally higher with FTSE MIB outperforming; FX majors seeing choppy trade
  • Looking ahead the highlight is Fed’s Bostic

ASIA

Asian equity markets began the week mostly subdued following the lacklustre performance on Wall St last Friday where sentiment was dampened after Trump doubled-down on his tariff threats against China, while participants also digested a slew of key data including US NFP, Chinese Trade Data and Japanese GDP. ASX 200 (Unch.) was flat as strength in tech and healthcare was counterbalanced by weakness in financials heading into a fresh round of grilling by the banking royal commission, while Nikkei 225 (+0.2%) was choppy amid similar indecision in the local currency and with mild support seen following a stronger than expected upward revision in the Final Annualized Q2 GDP data. Elsewhere, Hang Seng (-0.9%) and Shanghai Comp. (-0.6%) underperformed after further tariff threats from US President Trump and as participants digested mixed trade data in which Trade Balance and Exports missed expectations. Finally, 10yr JGBs were flat with price action subdued despite the indecisive risk tone and BoJ’s presence in the market for JPY 1.1tln in 1yr-10yr JGBs.

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.8389 (Prev. 6.8212)


Chinese Trade Balance (USD)(Aug) 27.91B vs. Exp. 31.79B (Prev. 28.05B). (Newswires)
Chinese Exports (Aug) Y/Y 9.8% vs. Exp. 10.1% (Prev. 12.2%)

Chinese Imports (Aug) Y/Y 20% vs. Exp. 18.7% (Prev. 27.3%)

Chinese Foreign Reserves (USD)(Aug) 3.110T vs. Exp. 3.115T (Prev. 3.118T)

Chinese CPI (Jul) Y/Y 2.3% vs. Exp. 2.2% (Prev. 2.1%). (Newswires)

Chinese PPI (Jul) Y/Y 4.1% vs. Exp. 4.0% (Prev. 4.6%)

Japanese GDP (Q2 F) Q/Q 0.7% vs. Exp. 0.7% (Prev. 0.5%). (Newswires)

Japanese GDP Annualised (Q2 F) 3.0% vs. Exp. 2.6% (Prev. 1.9%)

EU/UK/US

UK GDP Estimate YY (Jul) 1.6% vs. Exp. 1.4% (Prev. 1.3%)

UK GDP Estimate MM (Jul) 0.3% vs. Exp. 0.2% (Prev. 0.1%)

UK GDP Est 3M/3M (Jul) 0.6% vs. Exp. 0.5% (Prev. 0.4%)

EU are reportedly preparing to give instructions to EU Chief Brexit Negotiator Barnier to help achieve a Brexit deal. (FT)

A draft Brexit plan proposed by Eurosceptics in the Conservative party includes significant tax cuts, a new military expeditionary and a domestic-built missile defence system, according to leaked documents, thus confirming expectations for the proposal of a Canada-style trade deal. This would go against the proposals made in the Chequer’s agreement, with the article suggesting that if the new proposals were rejected, Eurosecptics would prefer to leave with EU without a deal, on WTO terms. As a guide, Jacob Rees-Mogg is due to speak on Tuesday. (Guardian)

Former UK Foreign Secretary Johnson attacked UK PM May's Chequers plan, which he described as the PM "wrapped a suicide vest" around the British constitution and "handed the detonator" to Brussels. (BBC) Allies of Johnson have accused Downing Street of a smear campaign to discredit him. (Times)

Sweden election early results showed the governing Social Democrats and its centre-left bloc with 40.6% of votes vs. the centre-right alliance with 40.1% of votes, while the Sweden Democrats which are the nationalist anti-immigration party were seen to receive 17.8% of votes. Sweden Democrat leader Akesson commented he is prepared to talk with all other parties especially with centre-right leader Kristersson, while the leader of the Sweden Liberal Party (part of centre-right bloc) said they want an alliance government but it will not happen by cooperating with the Sweden Democrats. There were also comments from Swedish PM and Social Democrat party leader Lofven that nothing would be determined by the election night and that he will continue to work as PM until parliament vote, while he also stated this should be the end for bloc politics regardless of the final outcome. (Newswires)

GEOPOLITICAL

US officials stated Syrian President Assad has approved gas attack in Idlib, while reports added that Trump has not decided whether to target Iranian or Russian forces aiding Assad. (WSJ)

North Korea held a military parade for the 70th anniversary of its Foundation Day in which no ICBMs were displayed and North Korean Leader Kim refrained from delivering a speech. (Newswires)

CENTRAL BANKS

Fed's Rosengren (non-voter, hawk) says strengthening economy will likely need mildly restrictive policy and he would not be surprised if Fed forecasts for neutral rate and rate path shift upwards, adds no need to quicken pace of hikes & inflation justifies continued hikes. (Newswires)

EQUITIES

European equities are marginally higher (Eurostoxx 50 +0.4%) with Italy’s FTSE MIB outperforming its peers as the Italian banks benefit from recent BTP price action. Mediobanca (+7.0%), Banco BPM (+5.6%) and Intesa Sanpaolo (+5.0%) all stand at the top of the index. In terms of sectors, utility names outperform while underperformance is seen across material names due to the weaker base metal prices. In terms of individual stocks, Swiss listed Richemont (+1.4%) appointed a new Chief Executive after the company ran without a CEO for almost two years. Richemont also reported 5-month sale figures which dragged up rival watchmaker Swatch (+1.1%) in sympathy.  Over in Italy, Leonardo (+4.7%) shares are higher after reports the company is in talks with other buyers for the remaining ATR planes tied in a EUR 1bln deal with Iran (which cannot be delivered due to sanctions)

FX

DXY - Volatile price action in the index and broad Dollar, between 95.570-297 parameters, as an early EU advance was quickly reversed amidst buy/sell orders in some pairings ahead of major technical levels, data and positioning for potentially pivotal events.

AUD/GBP/EUR - Relatively firm within the G10 community, or to be precise all recovering well from bouts of downside pressure with the Aud finding support overnight around 0.7100, Cable bouncing firmly from circa 1.2900 and the single currency finding traction after reports of heavy buying at 1.1525 (just above 1.1518 technical support and stops said to be in place below 1.1520). Note also, a very big option expiry at the 1.1500 strike (2.1 bn) may have impacted price action as the headline pair rebounds towards 1.1600.

CHF - The marked underperformer, and possibly due to official intervention following rallies through 0.9700 vs the Greenback and 1.1200 against the Eur.

NOK/SEK - Firmer than forecast Norwegian inflation data has boosted the Nok to test resistance vs the Eur around 9.7000 and not far from chart support at 9.6950, while the Sek is holding up well in wake of Sunday’s Swedish election that looks set to leave the main parties short of enough votes to form a Government, but the far right SD not claiming as much as many anticipated – hence, Eur/Sek pivoting around 10.4500 and somewhat relieved.

NZD/CAD/JPY - All narrowly mixed vs the Usd, with the Kiwi hovering above 0.6500 after mixed NZ manufacturing data overnight, the Loonie keeping its head just above 1.3200 amidst more mainly positive NAFTA negotiation updates (but still no sign of timing on a deal) and Jpy probing either side of 111.00 in wake of upgrades to Japanese Q2 GDP.

EM - Contrasting fortunes for regional currencies, with the Lira and Rand at opposite ends of the spectrum after Turkish Q2 GDP slowed sharply and reports circulated that Lula could be behind an ANC plot to oust current SA President Ramaphosa. Usd/Try is off recent lows and almost hit 6.5000 again, even though expectations are running high for aggressive CBRT action on Thursday, while Usd/Zar has retreated from 15.3000+ in contrast. Elsewhere, Usd/Rub is holding just below 70.0000 in the run up to Friday’s CBR policy meeting with markets also looking for a hike.

FIXED INCOME

The 10-year UK benchmark has bounced off 121.80 lows in wake of the domestic deluge of releases that pretty much offset in terms of actuals vs consensus, though with a net skew to the downside if anything. However, regaining 122.00 looks a stretch too far given ongoing weakness in Bunds vs BTP strength with fresh intraday troughs and peaks posted recently at 159.52 and 125.80 respectively, and the former only just breached in above technical support at 159.59, with no technical levels to the downside until 159.00 the figure. Elsewhere, US Treasuries are essentially flat and side-lined after last Friday’s jobs data declines and a relatively sparse calendar ahead.

COMMODITIES

WTI and Brent futures continue to edge higher in European trade with the former eyeing USD 68.50/bbl to the upside with recent gains in the complex attributed to ongoing hurricane season. NHC reported Florence continues to strengthen rapidly and is expected to become a major hurricane soon, the hurricane is expected to remain an extremely dangerous major hurricane as it is expected to hit land on Thursday. Traders will be also mindful of events in Libya where there has been a shooting incident at the NOC headquarters in Tripoli. Over in the North Sea, the Buzzard oilfield did not restart operations as planned over the weekend, operations should restart on Monday.

Elsewhere, gold marginally nurses post-NFP losses as the greenback eases off highs, while copper is kept lacklustre by the ongoing trade concerns and underperformance in China.

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