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[PODCAST] US Open Rundown 15th November 2018

  • Sterling pounded amidst multiple cabinet resignations
  • Gilts hit contract high, ahead of possible no-confidence vote as UK PM in Dis-May
  • Looking ahead, highlights include US retail sales, US weekly jobs, NY Fed mfg, Philly Fed, DoEs, ECB’s Coeure, Praet and de Guindos, Fed’s Quarles, Powell and Bostic, earnings from Walmart

ASIA

Asian equity markets were eventually mostly higher after the region gradually shrugged off the cautious lead from the losses stateside, where weakness in tech and financials saw all US majors finish in the red. ASX 200 (+0.1%) and Nikkei 225 (-0.2%) were lower throughout most the session as financials lagged although the Australian benchmark staged a late rebound and just about turned positive at the close, while sentiment in Tokyo remained pressured by a firmer currency and as blue-chip banking stocks declined post-earnings. Elsewhere, Hang Seng (+1.7%) and Shanghai Comp. (+1.4%) weathered a choppy start as outperformance in tech kept Chinese markets afloat after a beat on earnings from Hong Kong index-giant and China’s largest tech firm Tencent Holdings. Finally, 10yr JGBs were flat with only minimal support seen despite the losses in Tokyo stocks and with price action also muted following mixed results in today’s 5yr JGB auction.

China's government is said to have sent a written response to the US concerning trade reforms, which reports noted offered insufficient concessions. (Newswires)

China House Prices YY Oct 8.6% (Prev. 7.9%). (Newswires)

PBoC skipped open market operations. (Newswires)
PBoC set CNY mid-point at 6.9392 (Prev. 6.9402)

Chinese Commerce Ministry says US and China have resumed high level talks on trade. (Newswires)

Australian Participation Rate Oct 65.6% vs. Exp. 65.5% (Prev. 65.4%, Rev. 65.5%)

Australian Employment Oct 32.8k vs. Exp. 20.0k (Prev. 5.6k, Rev. 7.8k)

Australian Unemployment Rate Oct 5.0% vs. Exp. 5.1% (Prev. 5.0%)

BREXIT

Resignations:

- UK Brexit Secretary Raab has resigned

- Secretary of State for Work and Pensions Esther McVey

- Parliamentary Under-Secretary of State for Exiting the European Union Suella Braverman

- Parliamentary Private Secretary in the Department of Education Anne-Marie Trevelyan

- James Rothwell Telegraph Brexit correspondent tweeted that “a plugged-in Tory source, not a Brexiteer, reckons 6 Cabinet resignations to follow Raab, three unknowns, the rest will back the deal. (Newswires)

Those who will not resign:

Steven Swinford of the Telegraph tweets "Jeremy Hunt and Sajid Javid are going nowhere, I'm told". (Newswires)

Steven Swinford Telegraph Deputy Political editor tweets that Gove isn't in the Commons because of a personal issue. He decided to stay because stakes so high - if he left it would have precipitated exodus. Now Raab's gone everything changes.. (Newswires)

Beth Rigby tweets "Understand that Leadsom is not resigning before business questions". (Newswires)

No confidence vote:

ITV's Peston says that Tory MP's tell him that 48 letters of no-confidence are to be lodged by lunchtime today. (Newswires)

Steven Swinford Telegraph Deputy Political Editor tweets Jacob Rees-Mogg just threatened to submit his letter of no confidence in the Chamber, which he later submitted. (Newswires)

Parliament Vote:

DUP MP Shannon says they feel betrayed and will "certainly" vote against May's Brexit deal. (Newswires)

Recent reports suggest that the Parliamentary meaningful vote on Brexit could take place on December 18th. (Newswires)

Additional info:

EU's Chief Negotiator Barnier says agreement with Britain on Brexit is fair and balanced; EC President Tusk confirms November 25th as the Brexit Summit. Barnier adds that work on the future relationship declaration will be intense. Tusk adds that the EU have secured the vital interests of the EU 27, who are set to assess the Brexit deal and give an update by Thursday next week. (Newswires)

UK/EU

UK Retail Sales MM Oct -0.5% vs. Exp. 0.2% (Prev. -0.8%, Rev. -0.4%)

UK Retail Sales YY Oct 2.2% vs. Exp. 3.0% (Prev. 3.0%, Rev. 3.3%)

US

Fed Chair Powell (Neutral) said having a press conference after every meeting means all meetings are live, while he added he is very happy about the state of the economy and that there is good reason to think economy will continue in a positive way. Fed Chair Powell also commented that the Fed is trying to avoid hiking too slowly or too fast and that challenges include how much further to hike and at what pace, while he further stated that trade dispute could mean slower growth and a little higher inflation if more products face tariffs. (Newswires)

EQUITIES

Major European indices are mixed, with the FTSE MIB (-0.5%) lagging alongside broad underperformance in Italian assets. Furthermore, Prysmian (-4.3%) have also weighed on the index after a guidance cut and STMicroelectronics (-2.5%) are lower in sympathy with AMS (-1.3%) who cut guidance pre-market. FTSE 100 (+0.1%) is bucking the trend as recent Brexit updates are weighing on Cable. However, upside for the index is being capped by losses in RBS (-7.3%) and Barclays (-6.0%) in the wake of the rate implications of today's Brexit turmoil. Elsewhere, Antofagasta (+2.1%) are lower following board approval of expansion to the Los Pelambres copper mine. In contrast Royal Mail (-5.2%) are in the red after reporting lower half year pre-tax profit.

FX

GBP - Post-UK Cabinet approval of the withdrawal draft has been extremely short-lived, as Brexit Minister Raab resigned due to reservations over the proposal, followed by McVey (Work and Pensions Secretary and other not as high profile (so far) Government officials. Significantly weaker than forecast retail sales data merely compounded the misery for Sterling, but probably won’t be the final straw amidst reports of more MPs and aides considering their position and an official leadership challenge against PM May. Cable collapsed from 1.3000+ through 1.2900 and the recent 1.2828 low to circa 1.2750 at one stage, with only the November base at 1.2696 protecting the ytd trough (1.2662) aside from any psychological or sentimental support at 1.2700. Meanwhile, Eur/Gbp rallied from around 0.8700 to 0.8845, breaching some interim chart resistance at 0.8766 on the way, and without much effort, before partially retracing.

EUR - Although the single currency is benefiting from the Gbp’s demise, it has lost ground vs the Usd after running into offers at 1.1350, but is holding in well above recent lows not far from 1.1200 and may be relatively contained by hefty option expiries at 1.1300 and 112.50-60 in 1.5 bn and 1.6 bn respectively.

AUD - The clear G10 outperformer and retaining the bulk of its overnight gains vs the Greenback on the back of an upbeat Aussie jobs report – Aud/Usd currently around 0.7260 within a 0.7300-0.7230 range, and with the Aud/NZD cross back above 1.0650 as the Kiwi pivots 0.6800 against the Usd.

DXY - The Dollar is mixed vs major counterparts and broadly weaker against EM currency, but the index has rebounded firmly above 97.000, largely due to the aforementioned Pound rout and knock-on effects.

COMMODITIES

Gold (+0.9%) prices have extended gains above USD 1200/oz as the dollar continues to fall from the 16-month highs that were reached at the start of the week. Separately, copper has been boosted following China sending a written response to US trade reforms, although it has been noted that it offers insufficient concessions.

Brent (-0.1%) and WTI (-0.2%) initially traded higher, and were mostly unaffected by the larger than expected build in API inventory. but have since reverted into negative territory following the dollar beginning to strengthen again. Of note reports that Russia have cut oil output to 11.38mln BPD for the first two weeks of November. Markets will be looking ahead to the EIA weekly data later today.

US API Weekly Crude Stocks (9 Nov) +8.79mln vs. Exp. +3.2mln (Prev. +7.8mln)

US API Cushing Number (9 Nov) +0.726mln (Prev. +3.073mln)

US API Weekly Gasoline Stocks (9 Nov) +0.188mln (Exp. -1.5mln, Prev. -1.2mln)

US API Weekly Distillate Stocks (9 Nov) -3.224mln (Exp. -1.7mln, Prev. -3.64mln)

FIXED INCOME

UK bond continue to hold a hefty advantage and political premium amidst all the post-Brexit draft resignations and recriminations, but did meet a band of offers/chart resistance at the 123.15 contract high (+133 ticks on the day), and then suffered a degree of supply indigestion as the DMO’s 2037 auction came with a very lengthy tail and was not that well covered. However, Gilts remained around one full point ahead vs Bunds now some 50 ticks up vs +74 ticks at best (160.88 Eurex high) and US Treasuries that are only partially maintaining a safe-haven bid having seen some big clip buying (40k lots in 10s for example) earlier. Ahead, a pretty packed US agenda including retail sales data, weekly claims and the Philly Fed, plus another raft of Fed speakers, with chair Powell slated again.

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