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[PODCAST] US Open Rundown 3rd January 2019

European equities are in the red with tech names dragged down by a Apple guidance cut

FX markets are in focus after the JPY ‘flash crash’

Looking ahead, highlights include US ADP, weekly jobs, construction spending, ISM manufacturing.

ASIA

Asia-Pac equities were mixed following the slide in US equity futures after tech-giant Apple fell in excess of 8% after-market following a cut to its Q1 2019 revenue guidance to USD 84.0bln, from previous guidance in the range of USD 89.0-93.0bln. ASX 200 (+1.4%) was lifted by the energy names and gold miners amid yesterday’s spike higher in oil and the Apple-triggered bid in the yellow metal, meanwhile Nikkei 225 was closed again due to a public holiday. Elsewhere, Hang Seng (-0.3%) and Shanghai Comp. (unch) swung between gains and losses with the former weighed on by tech names as Apple suppliers ACC Technologies and Sunny Optical slumped over 5% after Apple’s guidance cut. Meanwhile the Mainland was underpinned by financial names after reports that the PBoC may lower the RRR for banks that lend to small businesses. Of note: China CICC Research stated that the PBoC’s RRR criteria easing could release up to CNY 400bln in liquidity.

PBoC set CNY mid-point at 6.8631 (Prev. 6.6842) (Newswires)
PBoC drained a net CNY 90bln

China is said to be considering a new package of measures to boost consumption. (Newswires)     

US

US President Trump has asked congressional leaders to return for talks on Friday regarding government funding and border security; according to US Republican Representative McCarthy. (Newswires)

US Senate Republican Leader McConnell said Senate will not consider the legislation that is expected to be presented by Democrats to end the government shutdown. (Newswires)

US House Democratic Leader Pelosi said they are not willing to give any money for US President Trump's border wall. (Newswires)

Apple (AAPL) cut its Q1 revenue guidance to USD 84.0bln vs. Exp. USD 91.3bln (Prev. guidance USD 89.0-93.0bln); citing weak China sales, emerging market challenges, and lower anticipated iPhone revenue. (Newswires)

UK/EU

UK PM May has been urged to delay the meaningful vote on her Brexit deal for a second time as government whips failed to persuade enough MPs to back it over the Christmas. (The Telegraph) As a reminder, the vote is currently scheduled for January 14th.

UK PM May is to press EU leaders for Brexit concessions starting from today with the aim of gaining legally binding assurances that a so-called backstop plan will be time-limited. (FT)

UK Brexit Minister Barclay says that the prospect of a "no deal" EU exit is far more likely if parliament rejects PM May's deal. (Newswires)

UK Markit/CIPS Cons PMI (Dec) 52.8 vs. Exp. 52.9 (Prev. 53.4)

GEOPOLITICAL

US President Trump said he received a great letter from North Korea Leader Kim Jong Un; he added he has established a good relationship with him and never emphasized speed of denuclearisation. (Newswires)

China said the two Canadian citizens are still detained and under probe for violating Chinese law. (Newswires)

EQUITIES

Major European equities are predominantly in the red [Euro Stoxx 50 -1.1%] with the SMI (+0.1%) outperforming its pears after returning from a market holiday. SMI index heavyweight UBS (+0.5%) are in the green following comments from their Chairman that now is not the right time for a merger; additionally, he expects to remain in office until 2022. The technology sector (-2.8%) is the underperforming sector with the likes of Dialog Semiconductor (-9.0%), STMicroelectronics (-9.4%), ASML (-5.1%) and Infineon (-5.4%) at the bottom of the Stoxx 600 following Apple cutting their Q1 revenue guidance. Other notable stories include Next (+5.2%) in the green after reporting their expected full year price sales growth of +3.2%, which is in line with September’s guidance and thus avoids a profit warning for the Co. Adecco (-4.8%) are down after being downgraded at Credit Suisse. In addition, luxury names are in the red with the likes of Burberry (-4.8%) and Kering (-4.5%) weighed on by growth concerns in China exacerbated by the aforementioned Apple guidance cut.

FX

Price action in the FX space remains a key focus for investor sentiment amid the wild swings seen during Asia-Pac hours. To recap events, FX markets were rattled amid a surge in the JPY which saw the currency gain circa 8% vs. the AUD and 10% vs. TRY with analysts attributing the move to a multitude of factors including thin markets (Japan away from market again), Apple-inspired risk aversion (following revenue guidance cut) and Japanese retail investors liquidating offside positions.

In terms of price action at the time, AUD/JPY plummeted from around 75.50 to a low print of 70.50, tripping several stops along the way. Shortly after the stops were taken-out, AUD/JPY pared back a bulk of the move and now trades in close proximity to the 75.00 handle. Elsewhere, at the time, USD/JPY slid sharply below 109.00 to briefly breach 105.00 before recovering to the mid 107.00’s (note, given the velocity of the moves, various platforms have registered differing moves). AUD/USD declined further below 0.7000 to touch levels last seen a decade ago with a session low of 0.6743 before eventually recouping a 0.6900 handle.

Aussie and Yen crosses reacted in tandem with the sharp swing, the Pound was hit as GBP/JPY fell through 137.00 to levels just shy of 131.50 and as such, Cable lost the 1.2600 handle and briefly clipped 1.2450 to reach 21-month lows before reclaiming 1.2550 with Lloyds noting pivotal resistance between 1.2590-1.2615 and suggesting that a move through this level would allow for “a stronger recovery in the range under 1.2810-50”. From a fundamental perspective, Brexit-related commentary has begun to pick-up as Mrs May returns to work ahead of Parliament reconvening on the 7th; latest reports suggest that the UK PM has been urged to delay the meaningful vote on her Brexit deal for a second time as government whips failed to persuade enough MPs to back it over the Christmas break. 

EUR has been slightly more resilient than some of its peers despite a blip lower in EUR/JPY which led EUR/USD to a session low of 1.1310 with the multi-bloc currency thereafter able to benefit from touted short-covering and a broadly softer USD (DXY currently trades just above 96.50 with losses of circa 0.2%). As such, EUR/USD now trades just above of 1.1350 after running out of steam at 1.1384.

FIXED INCOME

Core EU debt has reversed course since the risk-averse open to slowly but steadily creep into negative territory for the day as the market consolidates on little to no new catalysts. This comes after 10-year bund yields failed to break the over 2-year low of 0.148% in the early morning, with yield returning to trade above the 0.175% mark as of recent trade. Gilt traders derived little direction from the disappointing Construction PMI figures, with 10-year futures now well below the 124.00 key level, with a fresh Liffe base printed of 123.63.

BTPs are the laggards in Europe and are further in negative territory for the day, with the Italian benchmark breaching the 127.41 Dec 28th low hitting a fresh session bottom of 127.07 and remain around this level.

In the US we’re seeing similar price action, with the majority of the moves once again in the long end post-Apple and a failed effort to stop the shutdown yesterday, with the next meeting scheduled for Friday. 10-years hit a session and contract pinnacle of 122-23 at the open before losing steam and consolidating around 122-13. Traders will now be looking out for further direction from tier-1 data releases later in the day in the form of Initial Jobless Claims, ADP and ISM’s Manufacturing PMI alongside the 3, 10 and 30yr announcement.

COMMODITIES 

Brent (unch.) and WTI (-0.2%) prices remain anchored as concerns over global growth and an oversupplied market continue to prevail; ahead of today’s rescheduled API’s (with EIA’s tomorrow). Saudi Arabia are expected to cut February heavy crude prices for crude sold to Asia because of weaker fuel oil margins; as according to a Reuters survey. Elsewhere, Libya’s NOC have said that the Sharara oil field was breached on Tuesday and output will be cut by 8.5k after operations restart for the main system.

Gold (+0.2%) is in the green due to safe haven demand from the Apple-stemmed growth fears; with the yellow metal passing 6-month highs earlier in the session, although prices are around USD 4/oz off of the USD 1292/oz session highs. Elsewhere, copper prices are down succumbing to the negative risk sentiment.

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