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[PODCAST] US Open Rundown 19th December 2018

  • Dollar continues to underperform major counterpart ahead of todays FOMC decision
  • US-China tensions have reportedly resurfaced at the WTO meeting
  • Looking ahead, highlights include Canadian CPI, US Existing Home Sales, DoEs, FOMC rate decision and press conference

ASIA

Asian equities were mostly lower amid cautious trade ahead of the FOMC rate decision, and after the attempted rebound on Wall St. where the S&P closed little above its 2018 low, while the Dow Jones was supported by gains in Goldman Sachs. ASX 200 (-0.2%) was pressured by oil names following the mass decline in the complex, while Nikkei 225 (-0.7%) initially traded with no firm direction amid a choppy JPY before digging deeper into losses and giving up the 21,000 handle. Sentiment across the region was also reflected by the 10% plunge in Softbank’s mobile business in its USD 24bln market debut. Elsewhere, Hang Seng (+0.2%) and Shanghai Comp. (-0.5%) were mixed as the former was supported by financial names with the four large banks in positive territory. Meanwhile, Mainland gains in real estates and utilities were offset by the decline in the energy and healthcare sectors. Finally, JGB futures posted the biggest intraday gain since 2016 on growing concerns over the global economy health, while futures purchases were also exacerbated after BoJ kept 5-10yr purchases steady at JPY 430bln.

China Commerce Ministry says China and US discussed trade and the economy on a Vice Minister level on Dec 19th. (Newswires)

China purchased an unspecified amount of US soybeans; according to traders. (Newswires)

PBoC set CNY mid-point at 6.8869 (Prev. 6.8854) (Newswires)
PBoC injected CNY 40bln via 7-day reverse repos and CNY 20bln via 14-day reverse repos; Net CNY 60bln.

Japanese Trade Balance Total Yen Nov -737.3B vs. Exp. -600.3B (Prev. -449.3B, Rev. -450.1B) (Newswires)
Japanese Imports YY Nov 12.5% vs. Exp. 11.5% (Prev. 19.9%)
Japanese Exports YY Nov 0.1% vs. Exp. 1.8% (Prev. 8.2%)

TRADE

US and China have clashed at WTO meeting, accusing each other of undermining multilateral trading system, US trade ambassador saying that China is seeking to steal technology in strategic industries 'this is not acceptable'; according to speeches seen by journalists. China envoy says that 'reckless actions' by the US are the cause of the current trading system crisis. (Newswires)

UK/EU

UK’s SNP, Liberal Democrats, Plaid Cymru and Greens have tabled a vote of no-confidence in the government. SNP’s Blackford is hopeful that they will be granted time by the government to debate the matter before the Christmas recess. (The Independent)

Business Insider's Political Reporter Payne tweeted "Labour source says the party's position is unchanged. It'll table its own confidence motion after the meaningful vote when the moment is right." (Twitter)

Sky's Beth Rigby tweets "Cabinet source also told me y’day on the matter of immigration & Brexit, May will not pivot to Norway-style deal because she is adamant that Brexit must mean ending of FoM". (Twitter)

UK CPI YY Nov 2.3% vs. Exp. 2.3% (Prev. 2.4%)

UK Core CPI YY Nov 1.8% vs. Exp. 1.8% (Prev. 1.9%)

UK Core CPI MM Nov 0.3% vs. Exp. 0.1%

Belgium PM Charles Michel has resigned after no confidence vote. (Newswires)

EU's Dombrovskis says the commission has reached a deal with the EU over the budget, allows the avoidance of EDP. (Newswires)

US

US President Trump is said to have given the executive order for a Federal government shutdown on December 24th. (Washington Post)

GEOPOLITICAL

US Special Envoy for North Korea will visit South Korea this week to coordinated efforts to push North Korea to denuclearise. (Yonhap)

Canada's National Post reports that a third Canadian has been detained in China; Chinese Foreign Affairs Ministry state they are not aware of this. (Newswires)

EQUITIES

Major European indices are in the green [Euro Stoxx 50 +0.4%], with some outperformance seen in the FTSE MIB (+1.6%) with banking names such as UBI Banca (+4.0%) and Intesa Sanpaolo (+3.7%) benefitting from reports that the EU commission has accepted Italy’s 2019 budget deficit at 2.04%. Sectors are mixed with some outperformance seen in the telecom and consumer discretionary sector.

Other notable movers include GlaxoSmithKline (+6.6%) in the green as they are to create a new healthcare joint venture with Pfizer estimated combined sales of GBP 9.bln. With Fresenius SE (+3.0%) following an upgraded to buy at Goldman Sachs. Whilst Natixis (-6.5%) are at the bottom of the Stoxx 600 after reporting Q4 revenue will be 10% lower than the previous year. Whilst postal names such as Royal Mail (-2.6%) and Deutsche Post (-4.5%)  are down after FedEx cut their guidance.

FX

DXY - The Dollar remains depressed in the run-up to the FOMC in anticipation of a dovish hike if not quite one more and done as a growing number of pundits look for the accompanying statement and guidance to be tweaked via the dot plots and/or removal of further gradual tightening. The index has duly retreated from another 97.000+ test and is holding just above recent lows ahead of 96.500, with the December base so far around 96.360 and ytd peak circa 97.710-715 the obvious bearish and bullish targets depending on the tone of the Fed.

EUR/AUD/NZD - All vying for top G10 spot and biggest gainer vs the flagging Greenback, but with the single getting an extra lift or rather relief bid on the back of Italy and EU agreement on the 2019 budget that is likely to be officially announced by Italian PM Conte shortly. Eur/Usd has subsequently revisited 1.1400+ terrain, albeit just, while Aud/Usd has had another go at 0.7200 and the Kiwi is pivoting 0.6850 even though NZ current account data for Q3 was somewhat disappointing overnight. Note, decent option expiry interest may act as a drag on Eur/Usd with 1 bn at 1.1375 and the same amount between 1.1355-60 rolling off, while there is strong chart resistance ahead of 1.1450 at 1.1442 (earlier December peak) and 1.1445 (Fib).

JPY/GBP - Also firmer vs the Usd, with the former just off a marginal new mtd high, but perhaps restricted to an extent by option related flow as 1.2 bn resides between 112.00-05 and 1.5 bn sits from 112.40-50, while for the Yen there is also the BoJ’s final policy meeting of 2018 to consider just after tonight’s FOMC. Meanwhile, Brexit continues to put a brake on the Pound, or at least temper Sterling gains as Cable crests 1.2650 and Eur/Gbp hovers around 0.9000 with little reaction to broadly in line UK inflation data or a modest beat on CBI trends that seems to have been released early.

CAD/CHF - The marginal underperformers, with the Loonie still blighted by crude’s slump and diplomatic strains with China, but just off new ytd lows a fraction above 1.3500 ahead of Canadian CPI data, while the Franc meanders between 0.9910-35 and around 1.1300 vs the Eur.

SEK - The Swedish Krona is on the back foot below 10.3000 vs the Eur after more soft Swedish macro releases in the form of industrial and consumer sentiment that will put another dent in the case for hawks at Thursday’s Riksbank policy meeting.

FIXED INCOME

It’s a bit premature given several potential market movers from now until the Fed, but debt futures may have already marked out ranges with Bunds still lagging on the squeeze in BTPs, though off worst levels having slipped to a marginal new 163.24 Eurex low (-10 ticks vs +27 ticks at one stage). Meanwhile, Gilts and US Treasuries are ramped and camped, albeit down from their highs awaiting the final throw of the dice from the US Central Bank for 2018, and assuming some level of toning down or dialling back on policy normalisation beyond the widely anticipated ¼ point hike that has been flagged in this year’s 4 dot plots and not taken off the table.

COMMODITIES 

Brent (+0.1%) and WTI (+0.1%) remain in close proximity to recent lows, as global equity markets have begun stabilising, following on from yesterdays significant losses where WTI dropped by 7.3%. Prices were mostly unreactive to the surprise 3.5mln barrel build in API crude inventories, where consensus has been for a draw of over 2mln barrels. Markets will be looking to see if EIA data later in the session confirms this build or if the crude stocks consensus of -2.475mln barrels is correct; if the build is confirmed it will be the first in 3 weeks and may generate new downward price pressure.

Gold is trading relatively flat after reaching a 5-month high of USD 1251.43/oz earlier in the session, with the yellow metal continuing to benefit from a softer dollar ahead of the FOMC decision. Elsewhere, profit margins at Chinese steel mills has significantly narrowed in November as the Chinese government has removed overall winter production restriction, now allowing cities and provinces to decide output curbs based on their emissions levels.

Saudi Finance Minister says the 2019 budget allocation to the energy industry, mining and logistics is over 3 times higher than in the previous budget. (Newswires)

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