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[PODCAST] US Open Rundown 5th December 2018

  • European bourses (Eurostoxx -0.9%) have followed suit from their US and Asia-Pac counterparts as trade-inspired optimism continues to fade
  • Brexit legal advice states "backstop could mean the UK is subject to protracted and repeating rounds of negotiations"
  • Broad dollar and DXY have handed back some of Tuesday’s pronounced gains made amidst yesterday’s Wall St. selloff
  • Looking ahead, highlights include, BoC Rate Decision, ECB's Lautenschlager, Fed's Quarles, JMMC meeting, US Market Closures

US MARKET CLOSURES IN RESPECT TO THE PASSING OF PRESIDENT GEORGE H.W BUSH

**RANsquawk desk will operate as usual**

-  CME Globex trading hours for Interest rate products will close at their regular time on Tuesday Dec 4th and will not reopen until their regularly scheduled time on Wednesday Dec 5th 2300GMT/1700CST.

-  Both the open outcry and CME Globex trading session for FX products will have normal trading hours on Wednesday Dec 5th

-  CME Globex trading hours for CME Group U.S.-based equity products on Wednesday Dec 5th will include an abbreviated session, closing after overnight trading at 1430GMT/0830CST and reopening at their regularly scheduled time on Wednesday Dec 5th at 2300GMT/1700CST

- New York Stock Exchange, NYSE American, NYSE National, NYSE Arca and NASDAQ have announced that they will be closed for trade on Wednesday Dec 5th

- ICE Futures U.S is open for trading, Wednesday Dec 5th will be a regular ICE Clear US business day

TRADE

US President Trump tweeted that the US will either have a real deal with China or no deal at all and that the US will levy major tariffs against imports of Chinese products if a deal is not made with China. (Twitter)

There were initial reports that China was said to be puzzled and irritated by the Trump administration's triumph rhetoric after the trade ceasefire. However, Mofcom later stated that the US-China trade meeting was successful and is confident it can be implemented, while it added that both sides will proactively push ahead with negotiations within 90-day time frame and that China will implement specific items agreed at meeting ASAP. In addition, the NDRC said government agencies signed MOC for joint effort to toughen punishment for IP theft. (CNBC/Newswires)

White House Trade Adviser Navarro suggested to give talks a chance and that it is premature to lose faith in US-China discussions. (Fox)

China's UNIPEC is said to be planning to buy US crude oil in Q1 2019 following truce at G20 according to sources, while it was also reported that a Chinese official was told to prepare resuming US soy and LNG imports. (Newswires)

ASIA

Asian stock markets were pressured following the sell off on Wall St where doubts regarding a US-China trade deal saw all US majors drop over 3% in which the S&P 500 fell below its 200DMA and DJIA lost near 800 points on the day. This weighed heavily on the China-sensitive sectors in the US such as Industrials, Materials and Tech, while Financials took the biggest hit amid a slump in yields and ongoing yield-inversion. ASX 200 (-0.8%) was led lower by tech and financials with disappointing Q3 GDP adding to the downbeat tone, while Nikkei 225 (-0.5%) also finished negative albeit off worse levels as USD/JPY attempted to nurse losses. Elsewhere, Hang Seng (-1.6%) and Shanghai Comp. (-0.6%) conformed to the downbeat tone but with the declines in the region less drastic than the bloodbath observed stateside following stronger than expected Chinese Caixin Services PMI which jumped to a 5-month. Furthermore, there was a seemingly concerted effort by some officials to dispel the trade-related doubts in which White House Trade Adviser and ‘China hawk’ Navarro suggested to give talks a chance and that it is premature to lose faith in US-China discussions, while Mofcom also declared the US-China trade meeting was successful although Trump remained unrelenting and reiterated his threat of tariffs if they fail to reach a deal. Finally, 10yr JGBs initially rose to levels last seen over 2 years ago amid safe-haven demand and as they tracked the upside in T-notes. However, prices then pulled back to return flat after the BoJ’s bond buying operation in which it upped purchases in the 10yr-25yr maturities by JPY 20bln, as the bank is on course to reduce monthly purchases of superlong JGBs by JPY 150bln if it continues at the current pace given the previously announced reduction of operations for December.

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.8476 (Prev. 6.8939)

Chinese Caixin Services PMI (Nov) 53.8 vs. Exp. 50.7 (Prev. 50.8); 5-month high. (Newswires)
Chinese Caixin Composite PMI (Nov) 51.9 (Prev. 50.5)]

RBI Repo Rate N/A 6.5% vs. Exp. 6.5% (Prev. 6.5%); maintains 'calibrated tightening stance' RBI propose a 25bps reduction in the SLR each quarter until it reaches 18%; this will start in Q1 2019

UK/EU/US

Brexit legal advice has been published states "backstop could mean the UK is subject to protracted and repeating rounds of negotiations"; according to BuzzFeed. Adding that “these talks could still be taking place years later, and the UK would be breaking the law if it left the backstop without the EU’s agreement”.

Sky News reported that the UK does not need to pass legislation to revoke Article 50. (Sky News)

Telegraph's Rothwell Tweets "EU sources adamant that there can be no Withdrawal Agreement without a fully legally operational backstop...even if MPs reject the deal and/or May resigns". (Newswires)

UK Trade Secretary Fox states that in the wake of last night's vote in Parliament, there is a chance that there might not be a Brexit. (Newswires)

UK Markit/CIPS Services PMI (Nov) 50.4 vs. Exp. 52.5 (Prev. 52.2)
 

Italian Economy Minister Tria is reportedly more tempted to resign now than before; according to Corriere Della Sera. (Corriere Della Sera) This was later denied by Italian PM Conte. (Newswires)

Italian PM Conte says he is ready to reduce the impact of some economic measures in the 2019 budget. (Newswires)

Italian Deputy PM Di Maio states that the lower retirement age will be implemented in February/March with citizens income due at the end of March. (Newswires)

Italian Cabinet Official says the government will decide on pension reform and income support costs by next week; adding that they may be able to save close to EUR 4bln from pension and income support plans. (Newswires)

ECB debating ideas for gradual stimulus withdrawal in 2019 as according to sources. Some policy makers favor hiking only deposit rate at first. The door for TLTRO is seen open; suggestion to make it permanent and at floating rate

EU Markit Services Final PMI (Nov) 53.4 vs. Exp. 53.1

EU Markit Comp Final PMI (Nov) 52.7 vs. Exp. 52.4 (Prev. 52.4)

EU Retail Sales MM Oct 0.3% vs. Exp. 0.2% (Rev. -0.5%)

EU Retail Sales YY Oct 1.7% vs. Exp. 2.1% (Prev. 0.8%, Rev. 0.3%)

US Special Counsel office filed sentencing memo for former Trump National Security Adviser Flynn, in which Special Counsel Mueller recommended no jail time as Flynn was said to have provided substantial assistance. (Newswires)

GEOPOLITICAL

Russia Foreign Ministry spokeswoman when commenting on US allegations that Russia is violating a nuclear treaty says that Washington has provided no evidence, and Russia is ready to continue dialogue over the treaty. (Newswires)

Russia's President Putin says Russia will be forced to respond if US exits INF treaty. (Newswires)

EQUITIES

European bourses (Eurostoxx -0.9%) have followed suit from their US and Asia-Pac counterparts to trade lower across the board as the trade-inspired optimism seen at the start of the week continues to dissipate. China’s Mofcom declared the US-China trade meeting as successful, although were said to be puzzled and irritated by the Trump administration's triumphant rhetoric. This came after Trump yesterday branded himself as a ‘Tariff Man’ and also tweeted that the US will either have a real deal with China or no deal at all and that the US will levy major tariffs against imports of Chinese products if a deal is not made with China. In terms of sector specifics, all ten majors trade in the red with IT, materials and industrials lagging their peers. Downside in financial names has also been hampered by the current yield environment as markets continue to speculate over the Fed’s 2019 rate hike plans in lieu of recent comments from Fed Chair Powell and with the German 10yr yield briefly slipping below 0.25%. UK homebuilders have seen some reprieve this morning (Berkeley Group +8.1%, Taylor Wimpey +6.3%, Barratt Developments +6.5%) after Barclays highlighted the sector as a potential major beneficiary of a Brexit deal being passed in Parliament. Individual movers include Shire (+2.6%) who stand near the top of the Stoxx 600 after amid shareholder approval for their merger with Takeda Pharmaceutical. Elsewhere, broker downgrades have placed weight on names such as Hargreaves Lansdown (-3.3%), Saint Gobain (-3.2%) and Osram Licht (-1.7%).

FX

AUD,NZD – AUD the major G10 underperformer in light weaker-than-expected Q3 Aussie GDP (slowest pace of growth in two years, and well below consensus) which dragged AUD/USD to sub-0.7300 levels vs. highs of 0.7356 and not far from 0.7400 in recent sessions. Meanwhile, AUD/NZD slumped through 1.0600 to circa 1.0525, to the benefit of the Kiwi that managed to maintain 0.6900+ vs. the buck.

GBP – Choppy trade for the Pound amid ongoing Brexit pandemonium after UK PM May suffered a hat-trick of defeats, giving more power to Parliament if her deal is voted down in next week’s meaningful vote. Cable currently trying to recover having slumped to a new YTD low yesterday at 1.2659 (ahead of the psychological 1.2650), with a rebound through 1.2700 and 1.2750, albeit amidst a generally softer USD and despite a worryingly weak services PMI (headline just above 50). Similarly, Sterling has regained composure against the EUR, with the cross back down below 0.8900 even though the single currency has pared losses elsewhere amid ECB sourced talk about discussions over further policy normalisation next year. Indeed, EUR/USD is back above 1.1350 from close to 1.1300 at one stage.

CAD – USD/CAD is within striking distance of 1.3300 (vs. yesterday’s lows of 1.3160) as retreating oil prices weigh on the Canadian currency with traders also eyeing the BoC interest rate decision later today. No change in the policy is expected though focus will be on the tone of the statement given the recently battered energy complex. For a more detailed preview, refer to our research suite or headline feed.

SEK – An improvement in Swedish services PMI alongside encouraging production data (combining to allay concerns after the surprise contraction in Q3 GDP) has given the Crown some impetus with EUR/SEK briefly dipping under 10.2000 (vs. high of 10.2432). Nordea believes Q4 GDP will probably recover after the surprise contraction in Q3, though it may not be as strong as October production suggests.

EM – Lira trades around the middle of a 5.4518-.3345 range vs. the Greenback after the CBRT set their inflation target at 5% (vs. November CPI at 21.62%) and pledged to do more to bring consumer prices back down, cushioning the TRY from wider bearish and risk averse sentiment.

DXY – Given all the above, the broad Dollar and index have handed back some of Tuesday’s pronounced gains made amidst the Wall St. selloff, and ahead of today mark of respect day for passed President George H.W Bush. DXY pivoting 97.000 within a range 97.206-96.827.

FIXED INCOME

BTPs keep outperforming on the premise, or hope that Italy will present a more acceptable budget to the EU trading around 124.00 vs. +124.20 at best and eyeing 124.48 next. Meanwhile, 10 year Bund yields dipped below 0.25% and the Mar contract set a new high of 163.34 briefly as the flight to safety continues, with bearish signals increasing on the Brexit front (UK Government losing 3 key parliamentary votes), a flatter US yield curve (where 2s10s fell to single digit bps on Tuesday) and extended equity weakness have offered support to the German benchmark. It is now around the 163.20 area, and from a tech standpoint comfortably with support found at 162.50, with resistance at 163.67. This flight has seen participants exit UK assets, with Gilts firmly in the red as political uncertainty is seeing UK 10 years trading near session lows at 122.95 vs. 122.82 at worst (with additional negativity in the UK from poor service PMIs), as UK rate expectations are rising and Short-Sterling vs Eurodollar and Euribor contracts move to contract highs.

COMMODITIES 

WTI (-0.2%) and Brent (-0.3%) bounced off lows as the JMMC meeting goes underway, with the Omani Oil Minister hinting at a 3-6 month production cut ahead of tomorrow’s key OPEC meeting. Furthermore, The WSJ reports that OPEC delegates are concerned that Saudi and Russia are making output agreements without input from OPEC; it was also stated that the Russia-Saudi relationship was a key factor in Qatar’s withdrawal.

Markets will be looking ahead to the postponed EIA weekly data coming out tomorrow following the unexpected API build, alongside the OPEC meeting with emphasis on any decision to cut oil production that may arise. Reports today by RIA stating that OPEC wants Russia to reduce oil output by a minimum of 300k BPD. However, TASS has reported that Russia is only seeking a symbolic production cut which follows previous reports that they would only agree to a 140k BPD cut.

Elsewhere, Libya’s NOC stated that all port terminals are shut due to bad weather, with storage capacity at Zawiya (usual production of 120k BPD) affected and the 300k BPD Sharara oil field production to be cut by 50% tomorrow morning.

Gold has weakened from the 5-week high reached in the previous session, as the dollar is marginally firmer. The majority of base metals have fallen due to being weighed on by US-China trade tensions following US President Trump commenting that there will have a real deal or no deal at all with China. Separately, China’s construction steel rebar is up by over 4%, due to expectations of tighter production restrictions, bouncing back from a 7-month low in the previous session.

Kuwaiti Oil Minister says they have not discussed the proposal to cut oil supply. (Newswires)

Oman says that OPEC+ are discussing production cuts only for 3-6 months. (Newswires)

Russian Energy Minster Novak says OPEC+ has more talks ahead before deal and adds that he had a good meeting with Saudi Energy Minister Al Falih. (Newswires)

US API Weekly Crude Stocks (30 Nov) +5.36mln vs. Exp. -0.9mln (Prev. +3.453mln)

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