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[PODCAST] US Open Rundown 2nd January 2019

  • European Indices in the red following on from Asia, as the risk-off tone prevails
  • USD has climbed ahead despite beginning the session negatively, although still underperforms JPY
  • Looking ahead highlights include Canadian Manufacturing PMI and US Manufacturing PMI.

ASIA

Shanghai Composite (-1.2%), Hang Seng (-2.7%), ASX 200 (-1.6%), Nikkei 225 (closed)

Chinese Caixin Manufacturing PMI (Dec) 49.7 vs. Exp. 50.2 (Prev. 50.2)

PBOC sets USD/CNY reference rate at 6.6842 (prev. 6.8632)


The EU is looking to increase scrutiny of potential security risks with Chinese tech companies in the wake of mounting concerns over cyber theft. (FT)

UK/EU

75% of Labour supporters want Jeremy Corbyn to back a second referendum. according to the latest polling by YouGov. (Times) 

UK Markit/CIPS Manufacturing PMI (Dec) 54.2 vs. Exp. 52.5 (Prev. 53.1)

EU Markit Manufacturing Final PMI (Dec) 51.4 vs. Exp. 51.4 (Prev. 51.4)

US

US President Trump has invited congressional leaders to a briefing this afternoon on the border wall at the White House, according to three congressional sources familiar with the invitation. (Politico) This came after reports on Monday that US House Democrats are to introduce a bill later this week with USD 1.3bln for border security to fund the Department of Homeland Security through Feb 8th. (Newswires)

North Korean leader Kim Jong Un has stated that he is willing to meet US President Trump at any time but would take an alternative path if the US keeps sanctions on the nation. (Newswires)

EQUITIES

Major European Indices [Euro Stoxx 50 -0.4%] are in the red following on from the poor performance seen in Aisa. (Of note the SMI remains closed due to Berchtold’s day). The CAC (-1.4%) is underperforming its peers with index heavyweight Renault (-3.2%) towards the bottom of the index as the Co’s Renault-Samsung Motors division reported a significant decrease in year-on-year sales for December; in addition, the political situation remains fraught in France. Sectors are also in the red, with some underperformance seen in materials and energy names due to Chinese Manufacturing PMI showing a contraction, and oil prices in the red due to continued oversupply concerns respectively.

FX

DXY entered the EU session on the backfoot with losses of around 0.3% and below the 96.00 level with JPY out-muscling the greenback during Asia-Pac trade as USD/JPY hit a 7-month low. JPY strength was largely driven by the broader risk environment as disappointing Chinese data overnight and the ongoing US government shutdown remain a key focus for investors. As the European session progressed, USD made a resurgence against its peers (ex-JPY) as losses in European equities accelerated following the cash open; DXY reclaimed 96.00 to the upside and trades relatively unchanged. EUR/USD eventually fell victim to the recovery in the USD (after testing 1.1500 to the upside during Asia-Pac trade) as the pair slipped below 1.1450 with some analysts also suggesting EUR/JPY selling as a potential catalyst for the move. As such, the pair has drifted towards 675mln of option expiries between 1.1452-30 with this morning’s PMI metrics from the Eurozone unable to spur much in the way of noteworthy price action with core readings unrevised from their prior’s. For GBP/USD, the pair began the session on the backfoot and slipped back below 1.2700 despite a high print of 1.2774 seen during Asia-Pac hours. Brexit-related commentary has been relatively light thus far with Parliament not returning from their winter break until 7th Jan. As such, the most interesting development for UK assets today has been the latest manufacturing PMI print which came in at 54.2 vs. Exp. 52.5 (Prev. 53.1). Cable briefly reclaimed 1.2700 to the upside before reversing gains with a pick-up in new orders largely attributed to stock-piling ahead of Brexit. Elsewhere, AUD/USD fell victim to the disappointing Chinese data overnight which saw Caixin mfg PMI slip into contractionary territory for the first time in 19 months. Losses were also spurred on by the aforementioned pick-up in USD, however, the pair maintains its status on a 0.7000 handle with option-related bids ahead of the key level said to have stopped the rot in the pair.

FIXED INCOME

Core EU debt has derived little inspiration from the raft of European Manufacturing PMI data and continues to trade with a risk-off tone with both Gilt and Bunds continue the rise seen at the open, albeit marginally. Gilts have pushed on to trade in close proximity to session highs of 123.91, with traders eyeing the big figure ahead of Dec. 12th highs of 124.28. The marginal lift in Bunds has seen 10-yr yields fall below 0.18% (first time since 2017) with the German benchmark trading just over the 164.50 level with eyes set at the resistance level of 165.10 next.

US debt futures have also kicked of the new year a touch higher, with the long end outperforming and 10 years topping out at 122-07.5, as focus in the US remains on the Government shutdown ahead of a congressional meeting today on border security. Note, this shutdown means multiple data releases will not go ahead as originally scheduled.

COMMODITIES 

Brent (-1.0%) and WTI (-1.0%) prices are down due to oversupply concerns as US output continues to increase, with US output reaching an all-time high of 11.5mln BPD in October and Russia’s December production of 11.45mln BPD vs. Prev. 11.37mln BPD. Prices are additionally weighed on by signs of a economic slowdown in China, with a Reuters survey of analysts forecasting 2019 average Brent prices at just over USD 69 a barrel; a drop of over USD 5 compared with the previous projection. UAE Energy Minister Mazrouei says that in light of the agreed OPEC+ production cut he is optimistic that oil market balance can be achieved in the first quarter of 2019.

Gold (+0.4%) is in the green due to dollar weakness albeit just off of USD 1287.39/oz a 6-month high which was reached earlier in the session. Elsewhere, copper prices have moved lower as Chinese Manufacturing PMI has fallen into a contraction for the first time in 19 months.

Iraqi oil exports averaged 3.726mln BPD in Dec. as according to the oil ministry; Sothern Port Exports averaged 3.627mln BPD. (Newswires)

Nigeria's NNPC says crude production was 2.09mln BPD in 2018 vs. prev.1.86mln BPD. (Newswires)

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