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[PODCAST] US Open Rundown 29th November 2018

  • European equities (Eurostoxx 50 +0.1%) initially piggybacked on the optimism seen on Wall St and during the Asia-Pac session as perceived dovish rhetoric by Fed Chair Powell continues to guide markets.
  • Chinese President Xi is expected to offer greater market access and fewer subsidies to state firms when he meets with US President Trump at the G20
  • Looking ahead the highlights are, German National CPI, US PCE Price Index and Jobless data, FOMC Minutes, Japanese CPI and Unemployment rate, Fed's Powell, Evans, Mester and Kaplan

ASIA

Asian stocks traded mostly positive after risk appetite was ignited by Fed Chair Powell’s dovish comments which spurred hopes the Fed may begin to slow down on its hiking cycle and helped US stocks notch their biggest daily gain since March. ASX 200 (+0.6%) and Nikkei 225 (+0.4%) were underpinned from the open but with gains capped amid lingering trade uncertainty and inconclusive capex data for Australia, as well as mixed Japanese retail sales and a decline in USD/JPY. Hang Seng (-0.8%) and Shanghai Comp. (-1.3%) both initially conformed to the positive tone but then stalled amid tariff threats with Chinese President Xi’s offer of an olive branch to the US somewhat falling on deaf ears, as USTR Lighthizer said China has yet to offer meaningful proposals and suggested that the US are seeking to match China’s tariffs on autos. Finally, 10yr JGBs were marginally higher as they nursed the prior day’s losses after having found support around the 151.00 level and although today’s mixed 2yr auction results failed to spur a reaction, prices continued to gain as the strength in the regional stock markets moderated.

PBoC skipped open market operations for a 25th consecutive occasion. (Newswires)
PBoC sets CNY mid-point at 6.9353 (Prev. 6.9500)

Chinese President Xi is expected to offer greater market access and fewer subsidies to state firms when he meets with US President Trump at the G20. (SCMP)

USTR Lighthizer said China has yet to offer meaningful proposals and that Chinese policies on auto tariffs are egregious, while he added they will examine all tools to match US auto tariffs on Chinese vehicles to the levels imposed by China. (Newswires)

US Senators Marco Rubio and Chris Van Hollen to tell Trump administration ZTE (763 HK) circumvented sanctions as it used Dell hardware for Venezuela government surveillance system. (Newswires)

UK/EU/US

UK PM May is said to delay announcement related to NHS funding citing Brexit rebellion forces, while there were separate reports that the UK and US agreed to a new open skies arrangement. (Newswires)

UK Trade Secretary Fox has warned that Britain will not replicate all the European Union’s trade deals in time for a no-deal Brexit next March. (Times)

UK Leader of the House of Commons and key cabinet Brexiteer Andrea Leadsom said she is supporting PM May's Brexit plan. (Daily Mail)

UK PM May states that there are MPs that do not wish for the UK to leave the EU. If Parliament votes down the deal, there will be steps. (Newswires)

EU Chief Brexit Negotiator Barnier says Brexit deal on offer is the "only deal possible". Adds that negotiations on the UK Brexit deal are over, and it is now time for ratification over the final deal. (Newswires)

Italian PM Conte sees a cut to deficit target to 2.2%; according to La Stampa. Italian Deputy PM Salvini when asked about a potential 2.2% deficit/GDP target for 2019, he stated that this is not the case. (La Stampa/Newswires)

EU could give Italy more time before triggering the Excessive Deficit Procedure (EDP); according to La Repubblica. (La Repubblica)

EU Commissioner Oettinger expects US auto tariffs before Christmas; according to WiWo. (WiWo). Further to this the European Commission has denied that Oettinger said he expects US tariffs on cars before Christmas. (Newswires)

Swedish GDP QQ Q3 -0.2% vs. Exp. 0.3% (Prev. 0.8%, Rev. 0.5%). Riksbank’s Ohlsson keeps his stance on monetary policy, adding we need to be aware that GDP can be revised forward but can't draw too many conclusions. (Newswires)

US President Trump tweeted "General Motors is very counter to what other auto, and other, companies are doing. Big Steel is opening and renovating plants all over the country" (Twitter)

GEOPOLITICAL

US Secretary of State Pompeo said he is very hopeful for a new meeting with North Korean officials to discuss denuclearization, while there were separate reports that US requested that North Korea change its chief negotiator. (Newswires/Nikkei)

US Senate voted 63-37 to advance a bill that would end US participation in Saudi Arabia-backed war in Yemen which paves way for additional vote next week, although White House has previously noted it would veto the bill if passed. (Twitter)

Russia are to construct a missile early-warning radar station in Crimea in 2019, according to Interfax. (Newswires)

EQUITIES

European equities (Eurostoxx 50 +0.3%) piggybacked on the optimism seen on Wall St and during the Asia-Pac session as perceived dovish rhetoric by Fed Chair Powell continues to guide markets. Initial reports via WiWo that European Commissioner Oettinger expected US auto tariffs before Christmas resulted in downside to European equities, especially German autos, though DAX (+0.2%) saw a rebound after these comments were denied by the European Commission. Sectors are mixed with IT names the outperformer following gains seen yesterday during US hours which has prompted upside in chip-makers such as Wirecard (+3.3%), STMicrolectronics (+2.5%) and Infineon (+2.2%).

Material names are also seeing support this morning, in-fitting with price action in the metals scope with gains seen in Antofagasta (+4.9%), Glencore (+1.8%), Rio Tinto (+1.1%); upside in mining names and a softer GBP has pushed the FTSE 100 (+0.8%) towards the top of the leaderboard.

To the downside, energy names lag their peers with WTI and Brent crude unable to halt recent declines. In terms of stock specifics, once again, Deutsche Bank (-3.3%) have found themselves in the centre of further controversy with their offices raided earlier this morning in a money laundering probe involving two members of staff. Elsewhere, Intu Properties’ (-35%) shares have slumped to a record low this morning after reports that a consortium led by their Deputy Chairman has abandoned their plans to buy the Co.

FX

DXY – In the wake of Powell’s “dovish” comments that Fed Funds are “just below” estimates of the neutral rate (vs. “a long way” in October), hinting at a potential slowdown in the hiking cycle, the DXY gave up the 97.000 level and witnessed its steepest one-day percentage decline this month so far, to 96.622 at one stage. However, the USD has pared some losses with month-end  and SOMA demand still in play, while some rival currencies also suffer further weakness. Looking aheadd, FOMC Minutes are due to be published later today.

GBP,EUR – Major G10 underperformer with ongoing Brexit bickering and meaningful vote concerns driving Cable below 1.2800 with a low print of 1.2759 (vs. highs of 1.2850, with offers seen between 1.2855-65) , while Sterling also fell victim to cross positioning for month end as EUR/GBP climbed above the key psychological 0.8900 level, before the single currency came under renewed pressure on latest auto tariff headlines as  press reported that EU Commissioner Oettinger expects US auto tariffs before Christmas. This pushed EUR/USD to fresh session lows of 1.1350 and bringing into play options around 1.1340-50 (3.2bln) and 1.1360-65 (1.35bln). Note, the EUR did not really react to mixed German state CPIs but did respect a key fib just ahead of 1.1400 (1.1394). Looking ahead German national CPIs are due at 13.00GMT. 

SEK,CHF – Carbon copy for the Swedish Crown and Swiss Franc with both currencies undermined in the wake of surprise contractions in Q3 GDP of the same magnitude QQ. EUR/SEK flirts around the key technical level 10.3000 having briefly breached it to the upside. Nordea notes that domestic demand is weakening due to the set-back in the housing market while foreign demand is remains sluggish, but Nordea and SEB maintain their forecast for a Riksbank December hike, though the former stated that weak growth underlines that this is not set in stone. Meanwhile CHF rose to highs of 0.9962 vs. the buck (vs. a pre-GDP print of 0.9925).

AUD – In contrast the AUD has showed some resilience despite lower than expected capital expenditures with the antipodean staying afloat above 0.7300.

JPY – The major beneficiary of the post-Powell Dollar weakness as USD/JPY fell through 114.00, 113.50 and currently rests around 113.40. In terms of technicals, the next level to the downside is at 113.17 (tenkan line), looking ahead, Tokyo CPIs are due to be released later today.

TRY – The clear EM outperformer with the currency breaching 5.1500 (and temporarily rallying through a key fib at 5.1562) vs. the buck as the move was exacerbated by the drop below 5.2000 in the wake of a significan improvement in Turkish economic confidence index and falling oil prices (as Turkey is a large net importer).

COMMODITIES

Brent (-1.3%) and WTI (-1.0%) have moved lower recently, which may have been exacerbated by reports that 7k WTI contracts were dropped at the same time. Overnight oil prices had moved higher, despite a greater than expected build shown in EIA weekly crude stocks of 3.577mln vs. Exp. 0.769mln, with prices boosted by a stronger dollar in addition markets are looking optimistically to this weeks G20 meeting to improve global demand.

Gold has rebounded from two-week lows, as the dollar fell following comments from Fed Chairman Powell saying that the policy rate is just below the estimated neutral range. China’s steel prices have dropped following a two day gain largely due to ample supply and lean demand in markets, with iron ore now rising following Monday’s sell off. Additionally, spot Palladium has hit a record high of USD 1186.30/oz.

FIXED INCOME

EU Core bonds are still trading in the green after dovish comments from Chairman Powell in yesterday’s New York address. Bunds have pushed just in to a key technical chart area of 161.33-37 ahead of German national CPI figures post-mixed state figures, which if broken may have the German 10-year hit 161.50 and see yields to fall to 0.3%. Gilts are currently hanging around the 122.80 area (+41 ticks on the March 19 contact, which is not the front-month) vs. 122.92 at best on the open, with the UK benchmark deriving little direction from mixed UK data, where mortgage data was inspiring, but inflation expectations fell short of the previous. Market participants are pointing out the contract high of 123.22 as the next key level should the 123.00 level be broken. BTP’s are currently at session highs above 123.20 after a decent BTP and CCTEU auction Italian despite Deputy PM Salvini refuting a potential 2.2% deficit/GDP target for 2019.

US Treasuries are trading with gains of 2/3rd of a point as a dovish Powell has pushed the US benchmark towards a 3.0% yield, with participants looking forward to further comments from the Fed Chair later in the day alongside some key data points and FOMC minutes.

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