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[PODCAST] US Open Rundown 20th November 2018

  • FAANG stocks down 1.3-2.0% premarket, while EU technology sector hits yearly lows
  • DXY and broad Dollar saved from steeper declines as jitters over Brexit alongside the Italian budget are in focus
  • Looking ahead, highlights include US building permits & housing starts, BoC’s Wilkins & Lane and weekly API crude inventory data

ASIA

Asian stock markets were lower across the board as the risk averse tone rolled over from Wall St, where the tech sector led the sell-off as Apple shares dropped nearly 4% on reports it had reduced production orders and with all FAANG stocks now in bear market territory. As such, the tech sector underperformed in the ASX 200 (-0.4%) and Nikkei 225 (-1.1%) was also pressured with Mitsubishi Motors and Nissan among the worst hit after their Chairman Ghosn was arrested on financial misconduct allegations. Shanghai Comp. (-2.1%) and Hang Seng (-2.0%) were heavily pressured after the PBoC continued to snub liquidity operations and as China’s blue-chip tech names conformed to the global rout in the sector, while JD.com earnings added to the glum as China’s 2nd largest e-commerce firm posted its weakest revenue growth since turning public. Finally, 10yr JGBs were weaker amid profit taking after futures recently hit their highest in around a year and following mixed results at today’s 20yr auction.

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.9280 (Prev. 6.9245)

BoJ Governor Kuroda said there is currently no need to ease further, while he added that there was a need for bold monetary policy in 2013 and now we need to persistently continue with policy. Furthermore, Kuroda suggested that the chance of reaching the 2% inflation target during FY2020 is low. (Newswires)

Japanese PM Abe says the next initial budget is to have measures to address sales tax. (Newswires)

India's Finance Ministry sources expect that the RBI will stand pat on rates at its meeting next month. (Newswires)

RBA Governor Lowe states that steady policy is to be maintained for 'a while yet' and it is likely that rates will increase at some point if the economy progresses as expected. (Newswires)

UK/EU

UK PM May is reportedly drawing up secret plans to drop the Irish border backstop and win support from angry Brexiteers, while reports added PM May has received agreement from the EU to drop the backstop plan if both sides can agree on alternative arrangements to keep the border open. (The Sun)

Brexiteers reportedly still lack the sufficient number of signatures required to trigger a no-confidence vote against UK PM May. (FT) In related news, Brexit rebels reportedly admitted attempts to oust PM May has stalled as Eurosceptic MPs turned on each other. (Telegraph) The Telegraph reports that the confidence vote now appears to be on hold until after Parliament votes in December on Mrs May's Brexit deal. (Telegraph)

The UK government are to publish new analysis before the MPs’ meaningful vote on the Withdrawal Agreement comparing the “costs and benefits” of Brexit. The impact of three scenarios will be measured; no Brexit, no deal, and leaving with the government's draft deal and a free trade agreement. (Sky News)

The UK's chief trade negotiator Crawford Falconer has privately expressed frustration with the Brexit withdrawal deal amid rumours that he is on the verge of quitting his role. (Business Insider)

The UK Supreme Court has declined the British Government's application to appeal case over whether Article 50 can be unilaterally reversed. (Newswires)

BBC's Adler states that any hope PM May had of last-minute lobbying on the EU-U.K. post-Brexit relationship this week is out the proverbial window as EU officials suggest the text will be signed off EU internally before she meets Juncker. (Twitter)

Spanish PM Sanchez says Spain are to vote against the Brexit deal if the text is not amended. Whilst BBC's Katya Adler tweeted that "Germany and Barnier do not support the last-minute lobbying by EU countries eg. France and Spain to harden Brexit conditions on the U.K. at this late stage" (Newswires)

EU Austrian Presidency said no deal on EU budget can be announced at this time and EU Budget Commissioner Oettinger said they plan to deliver a new EU budget proposal in a few days. (Newswires)

The UK Supreme Court has declined the British Government's application to appeal case over whether Article 50 can be unilaterally reversed. (Newswires)

Italy Deputy PM Di Maio says the EU is acting like a wall towards Italy, whilst adding a budget solution can be found with the EU if dialogue is open, but without getting rid of its main measures. (Newswires)

Eurogroup Head Centeno tweets "On Italy: The revised budget plan did not improve the situation in terms of debt funding costs, it did not dispel concerns regarding the Italian budget strategy. We are now waiting for the EU Commission" (Twitter)

CENTRAL BANKS

BoE's Governor Carney (Neutral) says they have emphasized the importance of having some Brexit transition deal, and that they have no intention of providing an analysis of a no-Brexit scenario, adding that BoE analysis will focus on policy horizon time-frame rather than long term forecasts. (Parliament TV)

BoE's Chief Economist Haldane (Hawkish) says that there are signs of a no-deal Brexit affecting business investment. (Parliament TV)

BoE's Saunders (Hawk) says it seems likely that economic growth in Q4 and maybe Q1 2019 will slow from the strong gain in Q3. Adding that the MPC may see different trade off between prospects for inflation and spare capacity than after the EU referendum in the event of a no-deal Brexit. (Parliament TV)

BoE's Cunliffe (Dove) would expect gradual tightening of momentary policy over the forecast horizon to be appropriate, adding the need for resistance in policy reaction has diminished over the year and he expects it will diminish further; stating that household confidence has held up more but is not pointing to strong consumption growth. (Parliament TV)

ECB Nowotny (Hawk) says that Italy has no threat in the short term to the Euro system, but on the long term it has significant refinancing needs. (Newswires)

US

Sources stated that Ivanka Trump used her personal email to send government business emails last year with many said to be in violation of federal records rules. (Washington Post)

EQUITIES

Major European indices are largely in the red, with the SMI outperforming (+0.1%) which is being bolstered by Novartis (+1.0%) following their announcement of a joint digital treatment with Pear Therapeutics for substance abuse disorder. The DAX (-0.7%) is lagging its peers, weighed on by Wirecard (-5.0%) following a disappointing change to guidance forecasting as well as weak sentiment across IT names after the FAANG stocks entered bear market territory on Wall St. In particular, the Stoxx 600 Technology sector (-1.9%), dropped to its lowest level since Feb 2017. Meanwhile, Deutsche Bank (-2.5%) are in the red due to reports that the Co processed payments for Danske Bank in Estonia.

FX

DXY - The index remains technically prone to further downside pressure having closed below another Fib support level yesterday and testing the next bearish chart area around 96.050-10 ahead of 96.000 even. However, a more concerted bout of risk-off trade/positioning saved the DXY and broad Dollar from steeper declines as the tech-induced sell-off in stocks intensified, and jitters over Brexit alongside the Italian budget returned to the fore.

NZD/AUD - The Kiwi is bucking the overall trend and outperforming in contrast to this time on Monday, with Nzd/Usd rebounding firmly to 0.6850+ levels and Aud/Nzd retreating through 1.0650 to just south of 1.0600 following overnight data showing a hefty 6.5% y/y rise in NZ milk collections for October. Conversely, the Aud/Usd has slipped back under 0.7300 again, and close to 0.7250 in wake of RBA minutes underscoring no rush to hike rates and subsequent affirmation of wait-and-see guidance from Governor Lowe. In fact, he asserts that the jobless rate could decline to 4.5% vs 5% at present without inducing wage inflation, while also underlining concerns about the supply of credit.

JPY/CHF - Both benefiting from their more intrinsic allure during periods of pronounced risk aversion and investor angst, as Usd/Jpy probes a bit deeper below 112.50 and a key Fib at 112.46 that could be pivotal on a closing basis with potential to expose daily chart support circa 112.16 ahead of 112.00. Meanwhile, the Franc has inched closer to 0.9900 and over 1.1350 vs the Eur that remains burdened with the aforementioned Italian fiscal concerns.

GBP/EUR - Almost a case of déjà vu for Sterling and the single currency as early attempts to the upside vs the Greenback saw Cable and Eur/Usd revisit recent peaks around 1.2880 and 1.1470 respectively, but a combination of chart resistance and bearish fundamentals forced both back down to circa 1.2825 and 1.1425. In terms of precise technical/psychological levels, 1.2897 and 1.1445 represent Fib retracements, ahead of 1.2900 and 1.1500, while the Pound has remained relatively unchanged and unresponsive to largely on the fence pending Brexit rhetoric from the BoE in testimony to the TSC on November’s QIR.

NOK/SEK - On top of broad risk-on/off impulses, oil prices and technical, cross-flows also impacting the Scandi crowns, like Aud/Nzd, amidst reports of a big unwind of a long position yesterday. However, some consolidation since as Eur/Nok holds around 9.7050 and Eur/Sek pivots 10.3100.

CAD - The Loonie has maintained modest recovery gains vs its US counterparts from circa 1.3200 on Monday even though the rebound in crude has waned again, with potential for some independent impetus later tonight via comments from BoC’s Wilkins and/or Lane.

COMMODITIES

Gold has stayed within a USD 5/oz range and traded relatively flat throughout the session moving with the steady dollar ahead of US Thanksgiving. Similarly, copper traded lacklustre breaking a 5-day rally because of a subdued risk sentiment stemming from ongoing US-China trade tensions; with Shanghai rebar adversely affected from these factors.

Brent (-0.1%) and WTI (+0.2%) are mixed following a relatively quiet overnight session, while recent upticks in the complex resulted in WTI reclaiming the USD 57/bbl and Brent edging closer to USD 67/bbl. This follows comments from IEA Chief Birol that Iranian oil exports declined by almost 1mln BPD from summer peaks. Looking ahead, traders will be keeping the weekly API crude inventory data which is expected to print a build of 8.79mln barrels.

CME raised nat gas futures margin to USD 4700 per contract from USD 3700. (Newswires)

IEA Chief Birol says Iranian exports are down by close to 1mln BPD from summer peak; and added that US sanctions have provided relief to oil markets, but the global economy is still very fragile. (Newswires)

FIXED INCOME

Some consolidation across the board, but notably Bunds and French OATs retain an underlying bid vs ongoing weakness/underperformance in BTPs (albeit considerably less pronounced) ahead of Wednesday’s EU judgement on the Italian budget that will now coincide with another Brexit event, as UK PM May is due to meet EC President Juncker. Meanwhile, Gilts have slipped back below parity and 123.00 and also lagging firmer/flatter US Treasuries amidst the ongoing pre-Thanksgiving holiday retreat in global equities and a non-committal stance from the BoE pending the UK’s withdrawal from the EU and impact on the economy. Ahead, US housing data and T-bill auctions.

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