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[PODCAST] US Open Rundown 13th September 2018

  • TRY vs. USD weakens over 3% after Turkish President Erdogan wants Interest Rate cut ahead of expected hike
  • Oil sliding as EIA says OPEC ramped up production to cover Iranian losses
  • Looking ahead, highlights include, BoE, ECB & CBRT rate decisions, US CPI, weekly jobs, supply for the US

ASIA

Asian equity markets were mostly positive with sentiment underpinned by hopes of a de-escalation of the trade dispute after the US invited China for trade talks which was seen to be an effort to get negotiations back on track. This lifted most the regional bourses with Nikkei 225 (+0.9%) also euphoric on better than expected Machine Orders which grew at the fastest pace since January 2016, while ASX 200 (-0.8%) bucked the trend as financials were dampened after further unscrupulous practices were revealed at banking royal commission. Elsewhere, Hang Seng (+2.5%) and Shanghai Comp. (+1.2%) were firmer with sentiment boosted by the more encouraging trade-related headlines and after the PBoC upped its liquidity efforts, while participants also digested lending data in which New Yuan Loans missed estimates although Aggregate Financing, which is the broadest measure for China’s credit growth, topped forecasts. Finally, JGBs were flat as focus centred on the region’s riskier assets, while stronger demand at today’s 5yr auction also failed to underpin prices of the 10yr. 

PBoC injected CNY 100bln via 7-day reverse repos and CNY 20bln via 14-day reverse repos, with the injection to counter factors related to tax payments and government bond issuance, as well as maintain ample liquidity in the banking system. (Newswires)
PBoC set CNY mid-point at 6.8488 (Prev. 6.8546)

Japanese Machinery Orders (Jul) M/M 11.0% vs. Exp. 5.7% (Prev. -8.8%). (Newswires)
Japanese Machinery Orders (Jul) Y/Y 13.9% vs. Exp. 4.7% (Prev. 0.3%)

EU/UK/US

UK PM May reportedly wants to announce strict immigration controls at the Conservative Party conference to give reassurance to Eurosceptics in the face of increasing revolt. (Times)

EU is said to expect a UK shift on the Irish issue from the after the Tory party conference and have reportedly begun redrafting an Irish Brexit protocol in order to appease the UK. (Newswires)

Rebels in UK Conservative Party said to set a 3-week deadline for PM May to drop the Chequers plan. (Newswires)

Sealing a Brexit deal between the UK and EU will not be held up by the squabbling over the future of Gibraltar, according to the Spanish Foreign Minister. (Newswires)

UK Brexit Secretary Raab warned that the UK will not pay divorce bill without a Brexit deal. (Telegraph)

UK Government is to publish no-deal Brexit papers on Thursday related to mobile roaming charges, environmental and vehicle guidelines. (Newswires)

Turkish President Erdogan says "we must lower interest rates", and that this is not a crisis this is a manipulation. (Newswires)

CENTRAL BANKS

Fed's Rosengren (Non-Voter, Hawk) said a recession has inevitably followed when employment falls to as low as current levels. (Newswires)

EQUITIES

Equities are mixed, with trading tentative ahead of the BoE, ECB and CRBT rate decisions later on in the day. Major moves have been confined to equity specific stories, with Michelin’s guidance reaffirmation leading the CAC to the top of the bourse pile.

Despite FTSE heavyweights RBS (announcement of a special dividend) and Glencore (base metal strength) outperforming, the FTSE is leading the losses in the index space, with SSE close to the foot of the bourse after a broker downgrade.

The IT sector is the marked sector outperformer with semiconductor names benefiting from AMD’s outperformance in the US session.

FX

DXY - The index and broad Dollar are softer post-US initiatives to resume formal trade discussions with China, but off lows and relatively side-lined ahead of US inflation data later. The DXY is attempting to nudge back up towards 95.000 from 94.767 at worst, as Usd/G10 pairings consolidate before Thursday’s headline events.

AUD - The major outperformer and beneficiary of planned mediation on tariffs between Washington and Beijing, but still labouring on approaches or rebounds to 0.7200, even with the extra incentive of upbeat Aussie data overnight (August payrolls easily exceeded consensus and largely due to full time jobs). Note also, Aud/Usd flanked by hefty option expiry interest at 0.7220-30 (1 bn) and 0.7140-50 (1.1 bn).

JPY - Back to the bottom of the G10 pile on the aforementioned de-escalation of global protectionism tensions, and significantly stronger than expected Japanese machinery orders, with reported domestic offers at 111.50 revisited ahead of larger supply said to be lurking between 111.60-70, plus large option expiries between 111.50-65 (2.1 bn) in the mix .

CHF/GBP/NZD/EUR/CAD - All narrowly mixed vs the Greenback and awaiting more impetus/direction, with the Franc pivoting 0.9700 and barely noting Swiss producer/import price data, while Cable attempts to build a firmer footing above 1.3000 on latest positive Brexit deal headlines (Raab anticipating ramped up UK-EU negotiations soon) rather than any real prospect of support or adverse impulse from the BoE at noon. However, option expiries could also exert some influence given decent NY cut run-offs at 1.3000-15 (1 bn) and 1.3060 (1.3 bn). The Kiwi has extended its recovery from near 0.6500 to just above 0.6550 ahead of NZ manufacturing PMI tonight, and the single currency looks more comfortable over 1.1600 following more Italian reports and denials about Finance Minister Tria on the verge of resigning over budget disagreements, but will be looking for further impetus/direction from ECB President Draghi later. Flow-wise, 1.1600 and 1.1625 expiries (in 2 bn and 1bn respectively) could cap gains, and for the Loonie that is straddling 1.3000 upcoming Canadian new house price data will likely pale vs any fresh NAFTA developments as more talks are scheduled today.

SEK/NOK - Both slightly firmer vs the Eur, and with the Swedish Krona not unduly dented by downward revisions to Q2 GDP growth given that the Riksbank has already leaned back on its rate hike path.  

EM - The Lira looks all set to grab the limelight at midday with anticipation/hype running rife for the CBRT rate decision amidst extremely wide-ranging estimates about the extent and manner of the flagged policy stance change. For the benchmark 1 week repo, forecasts span from unchanged to as much as +725 bp, while others suggest that the Bank may be more creative/subtle/restricted and tweak other official rates/corridors instead. Usd/Try poised around the middle of a 6.3385-3905 band in the run-up, while the Rand continues its impressive rebound towards 14.8000 vs the Usd on the softer Dollar overall, and with some independent encouragement from Moody’s downplaying the threat of an SA ratings downgrade.

FIXED INCOME

Bunds seem to have been under the influence of some technical sales when near term chart support was breached around 159.63-60 amidst latest Italian Government rebuttals of coalition divisions on the fiscal front and renewed pressure on Finance Minister Tria via the 5-Star faction. Indeed, light stops were tripped down to 159.55 and a gap filled before early Eurex peaks were retested in wake of rather sluggish BTP auctions. Meanwhile, Gilts actually carved out a marginal new Liffe high at 121.88 (flat vs -16 ticks at one stage) amidst more bemoaning the impact of high rates from Turkey’s President just hours before the CBRT is widely expected to tighten, and aggressively! Elsewhere, US Treasuries are mildly softer and steeper ahead of long bond supply and CPI data.

COMMODITIES

Oil is slipping after IEA’s monthly report which reported an increased level of production by OPEC to offset falling Iranian production, and weather premiums are being unwound as Florence has weakened abit more, but is still life-threatening storm surge and rainfall is still expected. Brent futures are now hovering above USD 79.00/bbl after breaking USD 80.00/bbl in Wednesday’s trade. This is discounting the potential support offered to the fossil fuel by the closure of  oil production facilities in the eastern part of the South China Sea before two typhoons hit the area.

In the metals scope, gold is essentially unmoved ahead of this Thursdays Central Bank flurry, with low volumes seen as investors hold off trading the yellow metal. Shanghai copper (+2.3%) has seen its largest one-day gain in 3 months off the back of restored US-China trade talks, with nickel (+2.6%) and zinc (+2.6%) also benefiting from the improved risk tone. 

IEA Monthly Report: maintains their global oil demand growth forecast for 2018 and 2019 at 1.4mln bpd and 1.5mln bpd respectively. Said that the global oil market is tightening up. The Brent price range of USD 70-80bbl seen since April could be tested. OPEC crude output stands at a 9-month high of 32.63mln bpd in August.

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