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[PODCAST] US Open Rundown 27th November 2018

  • US President Trump said he still intends to go ahead with raising tariffs on China imports from 10% to 25% and that it was highly unlikely he would accept China’s request to refrain from the increase.
  • Italy's League economic advisor Siri says Italy are considering reducing the budget deficit to 2.2-2.3%
  • Senior UK lawmaker Fallon says it may be possible to delay the date the UK leaves the EU to negotiate a better deal.
  • Looking ahead, highlights include US API Weekly Data, Fed's Clarida, Bostic, George & Evans, ECB's Mersch, & Costa and Riksbank's Ohlsson.

ASIA

Asian equity markets were mostly positive as the region took impetus from the performance on Wall St, where all majors finished with firm gains on return from the Thanksgiving weekend and with retailers buoyed on the back of Black Friday and Cyber Monday sales. ASX 200 (+1.0%) and Nikkei 225 (+0.6%) were lifted from the open with Australia led higher by tech and financials, while a pullback in USD/JPY limited the upside for the Japanese benchmark. Elsewhere, Hang Seng (-0.2%) and Shanghai Comp. (+0.1%) were mixed with China somewhat dampened by Trump’s hardball tactics ahead of the meeting with Chinese President Xi at this week’s G20, in which he suggested an intention to proceed with raising tariffs on China imports from 10% to 25% and also warned to place tariffs on the remaining USD 267bln of Chinese imports if they fail to reach a favourable outcome for the US. Furthermore, a slowdown of Chinese Industrial Profit growth and concerns in the Hong Kong property sector also contributed the cautiousness in Chinese markets. Finally, 10yr JGBs were uneventful as prices took a breather from its extended but gradual uptrend and with today’s 40yr auction largely ignored despite increases in the b/c and accepted prices.

PBoC skipped open market operations for the 23rd consecutive occasion. (Newswires)
PBoC set CNY mid-point at 6.9463 (Prev. 6.9453)

Chinese Industrial Profits (Oct) Y/Y 3.6% (Prev. 4.1%). (Newswires)

UK/EU

UK PM May's spokesman said PM May still believes she can win the meaningful vote on Brexit and is focused on winning first time round, while the meaningful vote is expected on Tuesday 11th December and an official confirmed five days of debate between December 4th to December 11th. (Newswires)

Following comments from US President Trump, that as the Brexit deal stands it sounds like the UK may not be able to trade with thr US. a UK No. 10 spokesperson later said declaration signed with EU is clear that UK can sign trade deals with the US and that UK has already been laying the groundwork for an ambitious trade deal with the US. (Newswires)

Senior UK lawmaker Fallon says it may be possible to delay the date UK leaves the EU to negotiate a better deal. (Newswires)

Buzzfeed's Wickham tweets "Row brewing with No10 due to release Geoffrey Cox's legal advice on the deal. The advice on the backstop given to cabinet was "damning" and essentially said UK cannot get out, according to cabinet sources." (Newswires)

UK PM May's Spokesperson says that the Governments economic analysis of a range of different Brexit scenarios will be published tomorrow. Adding that the government will not revoke Article 50 Brexit notice, and PM May has no plans to meet with US President Trump at G20 summit (Newswires)

EU's Nowotny said a well communicated exit from QE may benefit financial health and poses little risk to financial stability, while he added very low rates for a long time may impair stability. (Newswires)

Italian PM Conte, following a meeting with Deputy PMs Salvini and Di Maio stated that the government will stick to its high-spending budget plans. (BBC) Later it was reported Italy’s 2019 deficit/GDP target is almost certain to be 2.2%, while PM Conte reportedly anticipates EUR 3.6bln of budget cuts according to reports in Messagerro. (Messagerro)

Head of Italian Finance Committee says there is neither a political nor economic reason to change the structure of 2019 budget. (Newswires)

EU’s Moscovici says the EU commission are still in dialogue with Italy regarding the budget, adding that the Italian budget will be discussed at G20 meeting. Moscovici says to the Italian government that he is open to seeking a solution on the budget; adding that he prefers encouragement to sanctions. (Newswires)

Italian Deputy PM Salvini says that no new documents are to go to the EU on the budget, (ANSA)

Italy's Lower House is looking to start the budget debate on December 3rd (ANSA)

Italy's League economic advisor Siri says Italy are considering reducing the budget deficit to 2.2-2.3%. Adding that the government won’t postpone key welfare and pension reforms, with welfare and pension decree to be approved by Christmas. (Newswires)

EU Trade Commissioner Malmstrom suggests constructive EU discussions with the US on reforms of the WTO. (Newswires)

EU are to promote positive trade agenda including reform of WTO at the G20 summit. (Newswires)

US

US President Trump said he still intends to go ahead with raising tariffs on China imports from 10% to 25% and that it was highly unlikely he would accept China’s request to refrain from the increase. Trump also suggested he would place tariffs on the rest of Chinese imports that are currently not subject to tariffs if the US doesn’t make a deal with China, while he added tariffs could be placed on Apple iPhones from China and that consumers could stand a 10% tariff on iPhones. (WSJ)

Chinese Foreign Ministry Spokesman Geng says US President Trump and Chinese President Xi have agreed to reach a mutually beneficial agreement. Was subsequently reported that Chinese Foreign Ministry Spokesman Geng was referring to a November 1st phone call.

US Special Counsel Mueller's office said former Trump campaign manager Manafort lied to FBI and Special Counsel in violation of plea agreement. (Newswires)

GEOPOLITICAL

US Secretary of State Pompeo said Russia actions in the Kersch Strait is a dangerous escalation and in violation of international law. (Newswires)

EQUITIES

European cash indices gave up initial gains (Eurostoxx 50 -0.1%) following a relatively flat open after pre-market gains in index futures were short-lived. Equity futures staged a pre-cash open rally after it was reported that a Chinese Foreign Ministry spokesman was quoted as stating that US President Xi and US President Trump had agreed to mutually beneficial agreements. However gains in futures markets were pared after it was later reported that this was in reference to a November 1st phone call and thus was viewed as stale by the market, particularly considering the hardball interview by Trump in the WSJ yesterday ahead of this week’s G20 summit. On an index basis, the SMI lags its peers (-0.5%) with Credit Suisse (-1.7%) lower following a broker downgrade at Credit Suisse.

In terms of sector specifics, performance is relatively mixed with slight underperformance in material names in-fitting with recent price action in the complex. To the upside, utility names modestly outperform, albeit the moves thus far across the board are relatively small in terms of magnitude.

Individual movers this morning include Dialog Semiconductor (-1.4%) amid Apple-inspired losses (post-Trump threat of potential tariffs on iPhones and laptops), Apple share are down 1.7% pre-market. Elsewhere, Rexel (+1.9%) are firmer following a broker upgrade at Credit Suisse, Thomas Cook (-24.5%) shares are notably underperforming following a disappointing trading update, dragging Tui (-4.2%) lower in sympathy.

FX

GBP – The standout underperformer vs. peers amid comments from UK Remain loyalist Fallon who said it may be possible to delay the date UK leaves the EU to renegotiate a better deal, inflicting a blow to UK PM May’s so-called “best deal”. As such Cable fell to a low print of 1.2734 ahead of the mid-November base at 1.2724, having already given up the 1.2800 handle following comments from US President Trump who noted that UK may not be able to trade with the US, in an interview last night. If the mid-November low (or Raab trough) is breached, the next levels to note are 1.2696 (October low) and 1.2662 (YTD low). However, looking further ahead Credit Suisse is more optimistic on the outlook for Sterling, with their Cable forecast at 1.4000 by end-2019.

DXY – Overall bid vs G10 counterparts with the aid of the GBP weakness due to the latest Brexit developments. Moreover, Citi’s rebalancing model points to modest USD buying vs. peers going into month end, while Nordea also notes tomorrow’s HIA which is the cut-off date if companies wish to convert foreign currency into USD along with SOMA that happens to fall on Friday as well. The index is currently hovering above 97.000 within a narrow range around the big figure.

EUR – Holding up well vs. the pound above 0.8850 but not quite challenging the 100DMA 0.8884, though the single currency is lower vs. the buck, with the pair tripping some stops at 1.1310. Obviously, 1.1300 is nearest support and if breached more stops are reported at 1.1290.

JPY – Reports from a Chinese Ministry spokesman noting US President Trump and Chinese President Xi have agreed to reach a mutually beneficial agreement saw the Japanese currency extend losses vs. the greenback through a Fib level at 113.48 and reaching highs of 113.66 (shy of the next Fib at 113.76), before pairing a bulk of the move as it quickly emerged that the comments were made initially in wake of a phone call between the two leader back on November 1st.

NZD,AUD – Notable, albeit marginal G10 outperformers vs. the buck, with the Kiwi staging another recovery following the weak data (trade overnight), and now looking ahead to the RBNZ semi-annual FSR tonight. NZD/USD hovering just below 0.6800 and AUD/USD near the middle of a 0.7270-15 band.

COMMODITIES

Brent (+0.2%) and WTI (Unch) are nursing initial losses as focus starts turning to the G20 summit over the weekend where markets may get initial hints of what to expect at the Dec 6th OPEC meeting in Vienna. The Saudi Crown Prince, Russian President and US President are to meet, possibly on the side-lines to decide the future of the global oil market. Talk around the market notes that Prince Mohammed Bin Salman may not able to defy US President Trump’s aim for lower oil prices after the White House stood behind the prince in regard to the killing of journalist Khashoggi. Nonetheless, traders will be watching the summit closely, while in the nearer-term, today will see the release of the weekly API where forecasts see headline crude stockpiles printing a drawdown of 0.6mln barrels.

Gold is trading relatively flat as the dollar holds steady following comments from Trump that overnight that he still intends to raise Chinese import tariffs to 25%; these comments come ahead of this week’s G20 summit. Additionally, US-China trade pessimism has caused copper prices to fall for the 3rd consecutive session due to demand concerns. Iron ore futures have dropped to their lowest level in over 4 months, dropping by 5% over concerns that steel prices are to remain pressured by slower demand.

Iraqi Oil Minster urges adopting a "balanced policy" in dealing with global oil market. (Newswires)

Kuwaiti Oil Minister says it is too early to talk about OPEC+ cuts. (Newswires)

FIXED INCOME

Gilts remain on the front foot on the back of latest Brexit deal rumblings and US-Sino tariff reports, with Trump upping the ante ahead the G20 Summit. UK 10 year futures are holding above 123.00 vs 123.23 at best, shrugging off significantly stronger than expected CBI trades, but losing some momentum alongside Bunds (just hovering below 161.00 vs 161.21 at the Eurex peak) and US Treasuries on a lack of follow-through buying in early trade. Elsewhere, Italian BTPs have traded up to 124.29 at one stage, before reverting to just below the 124.00 handle amidst yet more budget banter and short end supply. Ahead, more issuance to digest via the US 5 year auction, plus Fed’s Clarida after 2nd tier data.

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