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[PODCAST] US Open Rundown 30th November 2018

  • Italian QQ GDP contraction weighs on BTP’s as Bund-BTP spread retests 300bps
  • Double trouble for Deutsche bank as MS downgrades EU banking stocks and probe enters second day
  • EU equity indices largely in the red and core EU bonds in the green in skittish trade ahead of G20
  • Looking ahead, highlights include, Canadian GDP, Chicago PMI, ECB's Draghi, Mersch & Coeure, Fed's Williams Speaking

ASIA

Asian stocks traded mixed amid a cautious global risk tone ahead of the US-China showdown at the G20 and as participants digested disappointing Chinese PMI data. ASX 200 (-1.6%) and Nikkei 225 (+0.4%) initially followed suit to the lacklustre lead from their counterparts stateside with Australia the underperformer on broad weakness in which nearly all sectors declined, while Japanese exporters were hampered by recent flows into the JPY before staging a late recovery. Elsewhere, Hang Seng (+0.2%) and Shanghai Comp. (+0.8%) were initially indecisive due to trade uncertainty amid a ‘hot and cold’ stance by US President Trump who stated he is close to doing something on trade with China but is unsure if he wants to, while reports noted that White House Trade Adviser and ‘China hawk’ Navarro is back on the guest list for the Trump-Xi dinner tomorrow evening. Furthermore, the latest Chinese PMI data left much to be desired as both Official Manufacturing and Non-Manufacturing PMIs missed expectations with the former at its lowest since June 2016. The indices closed higher on the day, however. Finally, 10yr JGB traded lacklustre after having failed to benefit from the risk averse tone in Japan and BoJ’s presence in the bond market, as prices marginally pulled back from recent gains which had seen long-term yields hit their lowest levels since the beginning of August.

PBoC skipped open market operations. (Newswires)
PBoC set CNY mid-point at 6.9357 (Prev. 6.9353)

Chinese Manufacturing PMI (Nov) 50.0 vs. Exp. 50.2 (Prev. 50.2). (Newswires)
Chinese Non-Manufacturing PMI (Nov) 53.4 vs. Exp. 53.8 (Prev. 53.9)
Chinese Composite PMI (Nov) 52.8 (Prev. 53.1)

Japanese Tokyo CPI (Nov) Y/Y 0.8% vs. Exp. 1.1% (Prev. 1.5%). (Newswires)
Japanese Tokyo CPI Ex. Fresh Food (Nov) Y/Y 1.0% vs. Exp. 1.0% (Prev. 1.0%)
Japanese Industrial Production (Oct P) M/M 2.9% vs. Exp. 1.2% (Prev. -0.4%)
Japanese Industrial Production (Oct P) Y/Y 4.2% vs. Exp. 2.5% (Prev. -2.5%)

Bank of Korea hiked the &-Day Repo Rate by 25bps to 1.75% as expected, while it stated that sluggish employment eased somewhat and that exports will sustain favourable movements, but that it sees investments slowing. BoK Governor Lee said the rate decision was not unanimous as 2 board members voted to maintain rates, while Lee also commented that the policy rate is still not at neutral and that he is not worried much about capital outflows due to further Fed rate hikes.

UK/EU

UK PM May said Britain will be a more divided country if Parliament votes against her Brexit deal, while she also urged MPs to think about delivering on Brexit vote and answered that she is focused on December 11th vote when asked if she has a plan B if her deal is not approved by Parliament. (Newswires)

The number of Conservative MPs who have spoken out against Theresa May's Brexit deal hit 100 as critics said her two-week charm offensive is failing. (Telegraph)

UK GfK Consumer Confidence (Nov) -13 vs. Exp. -11 (Prev. -10). (Newswires)
UK Lloyds Business Barometer (Nov) 24 (Prev. 19)

Italian PM Conte and Economy Minister Tria are studying cutting the 2019 deficit/GDP target to around 2% in order to reach a deal with the EU; according to a paper. (Newswires)

Riksbank's Floden says data since the latest policy has been disappointing but it’s too early to say how the weak data will influence the rate decision; adding that even they hike in December, the economy will stay strong. Added that the Bank believes SEK is undervalued and it should strengthen 5-10% in the long-term (Newswires)

EU HICP Flash YY Nov 2.0% vs. Exp. 2.0% (Prev. 2.2%) (Newswires)

EU HICP-X F&E Flash YY Nov 1.1% vs. Exp. 1.3% (Prev. 1.2%)

EU HICP-X F,E,A&T Flash YY (Nov) 1.00% vs. Exp. 1.10% (Prev. 1.10%)

Italian GDP Final QQ Q3 -0.1% vs. Exp. 0.0% (Prev. 0.0%) (Newswires)

Italian GDP Final YY Q3 0.7% vs. Exp. 0.8% (Prev. 0.8%)

Italian CPI (EU Norm) Prelim YY Nov 1.7% vs. Exp. 1.6% (Prev. 1.7%)

Italian CPI (EU Norm) Prelim MM Nov -0.2% vs. Exp. -0.3% (Prev. 0.2%)

Italian Consumer Price Prelim YY Nov 1.7% (Prev. 1.6%)

Italian Consumer Price Prelim MM Nov -0.1%

French Producer Prices MM Oct 0.4% (Prev. 0.3%)

French CPI (EU Norm) Prelim YY Nov 2.2% vs. Exp. 2.2% (Prev. 2.5%)

GEOPOLITICAL

US President Trump said he is cancelling his meeting with Russia's Putin over the Ukraine crisis but looks forward to a meaningful summit once the crisis is over. (Newswires)

Ukraine are considering replicating Russian actions which led to the capturing of Ukrainian ships, according to a Ukrainian State Security Official. (Newswires)

EQUITIES

Major European indices are lower across the board (Eurostoxx 50 -0.3%) after the region gave up opening gains amid trade jitters heading the US-Sino showdown at the G20 Summit. UK’s FTSE 100 (-0.7%) underperforms peers as heavyweight miners are pressured by the price action in the base metals complex, while Germany’s DAX (-0.6%) feels the burden of falling auto names after Daimler (-2.7%) was downgraded to sell at HSBC, in turn moving the likes of Volkswagen (-1.1%) and BMW (-1.8%) lower in sympathy. Sector wise, consumer discretionary (weighed by auto names) lags, closely followed by financials as Morgan Stanley downgraded the EU banking sector, while Deutsche bank (-3.0%) shares hit an all time low as the bank feels the brunt of a double whammy from the aforementioned downgrade alongside a second day of raids amid the money laundering probe. In terms of stock specifics, Altice (+8.0%) rose to the top of the Stoxx 600 (-0.5%) after the company sold its 49.9% stake in SFR GTTH for EUR 1.8bln, while Faurecia (-7.1%) is the worst performer in Europe amid a downgrade.

FX

DXY - The Greenback remains off pre-Powell highs in wake of the latest FOMC minutes that effectively affirm a shift in the approach towards forward guidance that may start in December after a final rate hike this year, with less pre-set indications and more flexibility to take on board incoming data. However, the Buck is ahead vs all G10 counterparts bar the Kiwi that is benefiting from favourable cross-winds, with the index edging just over 97.000 again.

EUR - The single currency has been more volatile than most ahead of the looming G20 Summit and month end, with more spikes vs the Pound through 0.8900 around fixes due to ongoing/residual RHS interest, but another failure at 1.1400 vs the Usd on round number offers and option expiry flows as circa 1.6 bn roll off between the big figure and 1.1410 at the NY cut. Moreover, some Usd12.6 bn SOMA-related Dollar demand coincides with the final trading day of November, and this usually weighs most heavily on Eur/Usd vs potential bids at 1.1350 where another 1.6bn expiries reside.

AUD/CAD - Also underperforming vs the Greenback, with the Aud bearing the brunt of a weaker than forecast Chinese manufacturing PMI overnight ahead of the Trump-Xi meeting on Saturday, and struggling top keep hold of 0.7300 as the Aud/Nzd cross pivots 1.0650 and the Kiwi remains within striking distance of its 200 DMA (0.6870). Meanwhile, the Loonie is back below 1.3300 as crude prices resume their slide amidst reports from Russia suggesting that OPEC+ are content with current levels, which have also piled more pressure on the Rub for obvious reasons.

GBP - Sterling is feeling the weight of the aforementioned Eur cross demand for month end, and also vs the Usd as Cable continues to hit resistance at 1.2800.

SEK - The Swedish crown has extended losses made on the back of Thursday’s shock contraction in Swedish Q3 GDP, with Eur/Sek up towards 10.3500 at one stage and only marginally easing back on relatively hawkish/supportive Riksbank rhetoric (Floden seeing further upside in prices, a 5-10% rise in the currency from ‘undervalued’ levels and contending that the economy could withstand a December hike, but that is still up in the air pending more data before the policy meeting, ie CPI)

FIXED INCOME

Bund and BTP correlations have returned to the forefront as the Italian-German spread once again widens beyond 300bps as Bunds recently hit a fresh Eurex peak at 161.49 and BTP’s slipped to a Eurex base of 124.26. This came after initial positivity from Rome on the budget only provided a fleeting lift as month end positioning and technical factors came into play. On the fundamental side more poor data in the form of contracting QQ GDP and rising unemployment pushed the Italian 10 year to session lows.

Gilts remain marginally on the back foot but staged a slight comeback to break previous highs of 122.66 hitting a liffe high of 122.69 (+1 tick) before reverting to trade around the 122.60 area after suggestions that UK MP Mordant may resign over the Brexit deal. Traders will now be looking out for updates from the G20 summit.

The US fixed income market is seeing some further bull flattening as US 10 year yields continue to trade around the 3% area. This comes as investors await trade updates from the G20 summit and comments from Fed’s Williams after the Fed’s minutes noted multiple members believe base interest rates may be “near its neutral level”.

COMMODITIES 

WTI (-1.4%) and Brent (-1.0%) lost the USD 51/bbl and USD 60/bbl handles respectively with sentiment deteriorating as the G20 Summit goes underway, where participants will be looking out for leaks in regard to any potential supply change discussed by key policy makers. Meanwhile, ahead of the Dec 6th OPEC meeting, Russian Energy Ministry stated that OPEC and non-OPEC producers are comfortable with the current oil price, while the country’s Energy Minister Novak said Russia plans to maintain the average oil output level until year-end. Note: yesterday he said Russia proposes an output cut for next year.

In the metals complex, gold (-0.2%) erodes post-Powell gains and remains in the November range of USD 1200-1240/oz as the yellow metal mirrors the rising USD, with traders noting a clean break above the top of the range could result in further bullish action. Copper (-0.3%) trade lower amid the cautious risk tone ahead of the Trump-Xi G20 showdown, with moves to the downside exacerbated by the disappointing Chinese manufacturing PMIs overnight. Elsewhere, Shanghai aluminium prices declined to their lowest level in over two years to print their third consecutive monthly decline amid oversupply fused with downbeat Chinese PMIs

Iran and other oil producers are to press Saudi Arabia to bear the brunt of production cuts at the upcoming OPEC meeting; according to WSJ. (WSJ) Saudi Energy Minister Al-Falih previously said that Saudi will not and cannot reduce output on its own

Russian Energy Ministry says OPEC and non-OPEC producers are comfortable with the current oil prices; according to TASS (TASS)

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