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[PODCAST] US Open Rundown 12th September 2018

  • Dark clouds clearing for UK PM May as ERG downplays overthrow but presents an alternate Brexit deal
  • Oil extends previous sessions gains post API’s as Hurricane Florence approaches the Carolinas
  • CAD extends overnight gains NAFTA nears a perfect storm on dairy access
  • Looking ahead, highlights include, DoEs, Fed’s Brainard & Bullard and supply from the US

ASIA

Asian equity markets were lower across the board after the region failed to sustain the early momentum from US, where the Nasdaq outperformed as Apple shares were lifted ahead of its special event and with energy names boosted by a rally in oil prices. ASX 200 (flat) was subdued as losses in telecoms and financials overshadowed the upside in energy stocks and with Myer shares hit after it reported a full-year loss, while Nikkei 225 (-0.3%) slipped amid a pullback in USD/JPY. Elsewhere, Hang Seng (-0.3%) delved deeper into bear market territory and Shanghai Comp. (-0.3%) also conformed to the downbeat tone despite the PBoC’s first open market operation after a 15-session hiatus, as trade uncertainty lingered and amid Chinese commodity losses. Finally, 10yr JGBs were flat with trade kept in a very tight range as prices failed to benefit despite the risk averse tone and BoJ’s presence in the market in the belly to super-long end. 

PBoC injected CNY 60bln via 7-day reverse repos. (Newswires)
PBoC set CNY mid-point at 6.8546(Prev. 6.8488)

BREXIT

A source report noted that Brexit deal summit said to be likely by mid-November, with UK and EU preparing for meeting with leaders to sign deal and that a plan will likely be announced at September 19th-20th meeting in Austria. (Newswires)

Downing Street is reportedly drawing up secret plans and has 2 escape options if the EU rejects PM May's Chequers proposal. The first option would see Chequers parked until talks resume after Brexit day for a loosely-worded fudge on the future relationship instead. The second, is to abandon it altogether and return to a more basic Canada style free trade agreement - but only if the EU gives way on its Irish border hardline. (The Sun)

Around 50 Conservative MPs opposed to PM May's Brexit plan have met to discuss how and when they could force her to stand down. At least 48 letters of no confidence need to be submitted to 1922 Committee chairman Sir Graham Brady to trigger a vote on her premiership, and Sky sources suggest it could arrive within just a few weeks. Former Junior Brexit Minister Steve Baker denied reports that he or any other officers of the ERG were plotting to remove UK PM May. (BBC/Sky)

EU official said UK is to definitely exit the EU in March but will never be an ordinary third country for the EU, while the official added that EU’s Juncker is to say the bloc will remain firm on its divorce demands but wants a close partnership with UK post-Brexit. (Newswires)

The ERG released their alternative for the NI-Irish border, where they promised technological solutions, trusted-trader schemes and equivalence of standards on agricultural products. (Newswires)

EU's Juncker welcomes UK PM May's close partnership proposal and agrees with Chequers proposal to start a close partnership on trade. (Newswires)

EU/UK/US

Source reports suggested that the ECB had lowered their projections for economic growth, and see downside risk to growth due to weaker external demand, but keep inflation outlook unchanged. (Newswires)

The Times’ shadow MPC believes the BoE should begin paving the way for more monetary tightening this week but leave interest rates unchanged to let August’s rate increase bed in. (Times)

Canada is ready to allow US dairy access in NAFTA talks and is reportedly to offer the US limited access to the Canadian dairy market in order to try and reach an agreement, according to sources. (Newswires)

CENTRAL BANKS

BoE Governor Carney warned against complacency in the 10th anniversary of the GFC, while he outlined risks to the UK economy including high levels of household debt, no-deal Brexit, high debt for China's economy and a catastrophic cyber-attack. (BBC)

EQUITIES

Core European bourses trade mostly higher (Euro Stoxx 50 +0.2%) despite the negative lead from Asia. UK’s FTSE 100 lags its peers as the index is weighed on by currency effects and weakness in utility names following a profit warning from SSE (-7.6%), dragging the sector (-1.0%) and fellow utility names such as Centrica (-3.7%) and National Grid (1.6%) in sympathy. In terms of individual movers, FTSE 100 heavyweight Rolls-Royce (-3.0%) rests near the foot of the index, while traders cite reports of an emergency landing made by an Iberian flight with Rolls-Royce XWB engines.

FX

GBP - More positive EU Brexit vibes, and this time from EC President Juncker have given Sterling another boost, with Cable back on the 1.3000 handle after a dip below on more reports about Tory plots against UK PM May, while EUR/Gbp slips back towards 0.8900 irrespective of the single currency’s rebound vs the Usd to retest 1.1600 before dipping again amidst ECB ‘source’ reports suggesting downgrades to staff GDP forecasts and downside risks to the growth outlook tomorrow.

JPY/CAD - Vying for best performer vs a flagging Greenback (DXY back down near 95.000 again vs just shy of 95.300 at best) honours with Usd/Jpy retreating to the 111.50 pivot and just under a daily chart cloud top that falls midway between decent option expiry interest from 111.50-65 (1.1 bn), while the Loonie is straddling 1.3050 against its US counterparts following reports that Canada may be willing to concede some dairy access to the US in the interests of reaching a NAFTA accord.

AUD/NZD - Narrowly mixed vs their US rival with the Aud recovering quite well from another 0.7100 downside probe given deteriorating Aussie consumer confidence overnight, and the Kiwi also keeping its head above a big figure (0.6500), albeit just.

CHF - The Franc remains relative rangebound and side-lined vs the Dollar and Euro within 0.9725-50 and 1.1305-1.1270 respective parameters, as the SNB’s next policy review comes a week after the ECB and is widely expected to maintain current policy alongside all the usual currency assessments and measures to curb excessive Chf strength/demand.

EM - Some comparative calm across the region ahead of what could well be another storm or at least volatile session on Thursday when the CBRT decides on policy and needs to deliver given aggressive/hawkish market expectations. However, reports about potential intervention from India have lifted the Rupee pre-emptively and to the benefit of others to a degree.

FIXED INCOME

Fresh peaks for bonds following dire Eurozone data and reports that the ECB staff forecasts will reflect weaker growth indicators and downside risks within the updates due alongside September’s policy meeting on Thursday. Bunds have now been as high as 159.65, +35 ticks, but not quite able to match or breach yesterday’s 159.67 Eurex session best, while Gilts extended gains to 19 ticks at 121.88 before fading ahead of resistance around 121.92. German long end supply before the 2nd of this week’s US Treasury auctions in the form of Usd23 bn 10 year notes was well received overall. In terms of upcoming data, weekly mortgage apps and PPI, while the Fed also in focus via speakers Bullard and Brainard who are both scheduled ahead of the Beige Book for this month’s FOMC. In the run-up, USTs hold a firmer and flatter line post-Tuesday’s 3 year supply.

COMMODITIES

WTI and Brent futures are taking a breather following yesterday’s rally amid hurricane concerns, the move was exacerbated by a larger than expected draw API crude inventories. Inventories showed a draw of 8.636mln barrels against the expected draw of 800k barrels. WTI futures retreated back below USD 70/bbl in recent trade. The latest from the NHC states Hurricane Florence heading towards the US East Coast and is expected to bring life-threatening storm surge and rainfall to portions of the Carolinas and mid-Atlantic states. While there are only a few refineries in Florence’s path, the hurricane poses problems in terms of cargo shipping. Laden energy cargos have not been heading towards the North/South Carolina region ahead of the hurricane. Elsewhere, gold is uneventful while copper outperforms following the recent decline in the red metal.

US API Weekly Crude Stocks (7 Sep) -8.636M vs. Exp. -0.800M (Prev. -1.200M). (Newswires)

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EU Mid-Session update: : Gove one of the loyal 5, but 48 remains the magic number https://t.co/xK5JqIoqbY