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[PODCAST] US Open Rundown 9th January 2019

  • Major European indices are in the green [Euro Stoxx 50 +0.8%] as market sentiment remains fixated around the recently concluded US-China trade talks
  • US-Sino trade talks are understood to have been positive and the two sides are to release a message at the same time Thursday morning Beijing time
  • The greenback eases further below 96.000 amid trade optimism with the third day of trade talks giving off somewhat of an upbeat vibe
  • Office for Management and Budget (OMB) is exploring if US President Trump can tap Pentagon to fund the wall; according to Axios
  • Looking ahead, highlights include, BoC rate decision, FOMC minutes, Fed's Evans & Rosengren, BoC's Poloz & Wilkins


Asian equity markets were higher across the board as sentiment remained underpinned by trade hopes after US-China discussions were extended into a 3rd day and with progress said to have been made on issues including purchases of US goods, while US President Trump also provided encouragement as he stated that talks were going well. As such, ASX 200 (+1.0%) and Nikkei 225 (+1.1%) were positive as they benefitted from the trade-related optimism which had inspired a 3rd consecutive gain amongst the US majors, with notable strength also seen in Australia’s energy names after WTI reclaimed the USD 50/bbl level to the upside. Hang Seng (+2.3%) and Shanghai Comp. (+0.7%) were also in the green as focus centred on trade while reports suggested that US President Trump wants a China trade deal soon to boost markets. Finally, 10yr JGBs tracked the downside in T-notes as the broad gains in stocks sapped safe-haven demand, while the BoJ’s Rinban announcement was also somewhat trivial with the central bank only in the market for around JPY 450bln concentrated in the belly.

PBoC skipped open market operations for a net daily drain of CNY 40bln. (Newswires)
PBoC set CNY mid-point at 6.8526 (Prev. 6.8402)

China is said to plan deficit target of 2.8% for this year vs. Exp. 2.6% for 2018. (Newswires)

PBoC Governor says will improve monetary policy transmission mechanism to increase support of the real economy; according to Xinhua. Adding that they will stick to structural de-leveraging, and will appropriately deal with external uncertainties for financial markets. (Newswires)

US President Trump is said to want a trade deal with China soon to boost markets, according to press reports. (Newswires)

US trade delegation will return to US on Wednesday evening and are currently wrapping up discussions with Chinese representatives, while a US trade delegation member said it has been a good one for us. (Newswires)


US President Trump delivered his first-ever prime-time address in which he said there is an increasing security crisis at the US southern border and that Americans are hurt by uncontrolled, illegal migration, while he also said they requested USD 5.7bln for a border wall which will be a steel barrier. Following the speech, US House Speaker Pelosi responded that President Trump is rejecting bipartisan deal to reopen government and has chosen fear over shutdown impasse, while Senate minority leader Schumer called for the government to reopen while debate over border continues. (Newswires)

Office for Management and Budget (OMB) is exploring if US President Trump can tap Pentagon to fund the wall; according to Axios. (Axios)

US President Trump is expected to call on Congress to pass legislation that would give him greater powers to raise tariffs if he deems other countries' tariffs are too restrictive, in State of The Union Address this month. (Newswires)

As according to a US official, US-China trade talks have concluded in Beijing. Subsequently, China’s foreign ministry says the longer than expected trade negotiations with the US indicate that we are very serious in talks. (Newswires)

Global Times Chief Editor tweets "China-US trade talks have ended. Based on what I know, the situation is quite positive. The two sides are still in consultation on the wording of the message, so the two versions can be coordinated.". (Twitter)

According to Fitch, the US debt ceiling is more relevant than the shutdown for US rating, adding that if the US debt ceiling becomes a problem would have to evaluate whether this is consistent with a Triple A rating. (Newswires)

Fed's Bullard (non-voter, dove) says that no more hikes are warranted and that they have done enough to pre-empt inflation rises, according to WSJ. Adding that he fears the US could fall into a recession if the Fed pushes ahead with more rate hikes. (Newswires)


A cross-party alliance of MPs told UK PM May that they will end the threat of a no-deal Brexit. Loyalist Sir Oliver Letwin suggests that he will continue to rebel against the government to prevent a no deal. (Guardian)

Sky News' Political Correspondent tweets "EXC Sammy Wilson, DUP Brexit spokesman, says he's seen the measures being announced by Government in a written statement today, and they are "fairly meaningless" and "don't go far enough"". (Twitter)

ITV's Peston tweets, If Labour votes with Tory rebels to vote down business motion, then parliament would take control of the meaningful vote debate from the government, and decide that the debate could be much longer or shorter than PM May wants. As analysis Peston goes on to say; It would be parliament taking back control from PM May, and would see her in office but not really in power. (Twitter)

UK Speaker Bercow has selected the Grieve amendment; according to Thu Guardian’s Political Editor. Follows comments from Times Coates that the government say they believe their motion is 'bomb proof', that it cannot be amended by things like the Grieve agreement. (Twitter) And that Speaker Bercow was being advised by the clerks of the House that the Grieve amendment should not be touched; according to the Telegraph’s Swinford. (Twiitter)

Riksbank Minutes:

-Majority of the executive board supported the picture of economic outlook and inflation prospects described in the draft monetary policy report

- Several members noted that even though the inflation forecast for the next few years has also been revised downwards slightly, the conditions are still good for inflation to remain close to the inflation target.

- Board members stressed that the risks regarding developments abroad remain since the last monetary policy meeting in October; also noting uncertainty over the strength of inflationary pressures in light of recent, lower-than-expected inflation outcomes.

- Floden was concerned that inflationary pressure has remained weak for a long time despite high levels of resource utilisation and expansionary monetary policy.        


China Foreign Ministry spokesperson Lu said China opposes US provocation in its territorial waters after a US ship sailed through waters of Xisha Islands on Monday. (Newswires)


Major European indices are in the green [Euro Stoxx 50 +0.8%] as market sentiment remains fixated around the recently concluded US-China trade talks, with China’s foreign ministry indicating that they are taking the talks very seriously. Germany’s DAX (+0.9%) is outperforming its peers, with auto names such as Volkswagen (+2.9%) and BMW (+1.5%) in the green on the aforementioned trade talk sentiment; Daimler (+3.7%) lead the German auto’s with Mercedes-Benz selling 2.31mln cars in 2018 likely to make them that year’s best-selling premium auto. Sectors are broadly in the green, with consumer discretionary the outperforming sector with luxury names such as Kering (+3.8%) and Burberry (+2.8%) up as US-China talks conclude. Other notable movers include Ted Baker (+11.3%) after announcing a 12% increase in retail sales for the 5 weeks to January 5th. Elsewhere, Taylor Wimpey (+6.9%) after Co report good trading performance, with 2018 total home completions +3%. At the bottom of the Stoxx 600 are ADP (-4.7%) after reports that the French government are considering delaying privatisation until 2020. 

Apple (AAPL) is decreasing its current production plan for new iPhones by around 10% for the next three months following its profit warning last week. (Nikkei)


DXY – The greenback eases further below 96.000 following a rangebound Asia-Pac session amid trade optimism with the third day of trade talks giving off somewhat of an upbeat vibe. China’s Foreign Ministry stated that the longer talks signified the country’s seriousness, while the China Global Times Editor also took note of the positive sentiment surrounding the dialogue. As such the DXY remains closer to the bottom of a 95.925-660 range ahead of the FOMC Minutes later today (full preview available on the Research Suite).

GBP, EUR – The Pound extended on gains before paring a bulk of the move with fears of a no-deal Brexit receding as the UK Government seems to be losing more power in Parliament. To recap recent events, the Government was defeated in a vote regarding the Finance Bill which limits the scope for tax changes in the event of a no-deal. Additionally, if Labour and Tory rebels vote down the business motion (due at around 1300GMT), then Parliament will take control of the timing of the meaningful vote debate from the Government, i.e. PM May will not have room to further delay it. Furthermore, Business Insider also reported that UK businesses will make urgent public interventions about the perils of a no-deal Brexit should MPs vote down the deal on the 15th. Subsequently, Cable retreated to near the bottom of a 1.2712-77 range with resistance seen at 1.2790 (yesterday’s high) and support at 1.2712 (7th Jan low). Meanwhile, the EUR is marginally firmer, mostly on the back of a softer USD as an EZ upbeat unemployment rate and wider-than-expected German trade surplus did little to budge the single currency as exports fell more-than-expected.

SEK,NOK – The Scandi Crowns are mixed with the SEK marginally softer following the release of the Riksbank Minutes from the December meeting which initially saw a firmer Crown as several Board Members noted that even though the inflation forecast for the next few years has also been revised downwards slightly, the conditions are still good for inflation to remain close to the 2% inflation target. Nordea notes that the release was marginally dovish given the risks surrounding the repo path downgrade. As Such EUR/SEK pared back the initial move lower to test 10.2400 to the upside (vs. low of 10.1967) ahead of its 200 HMA at 10.2428.

AUD, NZD, CAD – The non-US dollars are on the front foot amid commodity price action with the Kiwi leading the gains. AUD was briefly hampered by the release of disappointing Australian building approvals overnight while AMP Capital’s Chief Economist said he sees the RBA cutting rates to 1.00% this year (currently 1.50%) due to a fall in building approvals and negative wealth effects from declining house prices dragging on economic growth. In terms of technical, AUD/USD sees clean air to the downside until the psychological level at 0.7000, while NZD/USD is capped at its 50 DMA 0.6782 and trading just above its 20 DMA 0.6744. Meanwhile USD/CAD sits near the bottom of a 1.3223-79 range with the rise in oil supporting the Loonie ahead of the BoC interest rate decision (full preview available on the Research Suite), looking at technicals, the pair’s 50 HMA (to the upside) sits at 1.3284 with clean air seen to the downside until 1.3200 the figure.

JPY – The marked G10 underperformer as the safe-haven currency unwinds risks premium given the positivity around US-Sino trade talks with USD/JPY residing just below 109.00, having already tested the psychological level. On a technical front, past the 109.00 psychological level, 109.16 is a reported Fib level ahead of resistance at 109.73 (2nd Jan high).


A lacklustre start in the fixed income scope, with Core EU bonds starting the day marginally in the red and within tight ranges as positive US-China trade vibes are pressuring the sector. Bunds have spent the morning within a 29-tick range and outperform their British counterparts ahead of some key supply (EUR 4bln 2029 Bund Auction) with 10-year Gilt futures trading in an even tighter 18-tick range. On a technical standpoint 10-year Gilt traders are eying the 27th and 31st of December low of 122.80 to the downside and have seen some pressure offered by the 303 to 296 Government defeat on the Cooper amendment last night, which limits the possibility of a no-deal Brexit. In the European periphery, BTPs are also in the red as 10-year futures trade with losses a shade under 30 ticks.

USTs are conforming to the risk tone, with most of the action in the long end of the curve and some steepening being seen in the wake of China’s assertion that trade talks are “serious”, and ahead of both an expected statement from the Far-East Asians and some key supply in the form of the USD 24bln 10-year Note Auction. Traders will also be mindful of Fed speak, with voters Evans and Rosengren speaking after alternate voter Bostic.


Brent (+1.7%) and WTI (+1.9%) prices are higher, with WTI breaching the USD 50/bbl level to the upside, and approaching USD 51/bbl, on hopes that a resolution can be achieved between the US and China. Alongside Brent testing, and briefly crossing, USD 60.00/bbl. Prices garnered further support from yesterday’s API crude inventories, which showed a larger than expected draw of -6.127mln vs. Exp. -2.7mln. Markets will be looking ahead to EIA data later on in the session, where expectations for weekly crude stocks are for a -3.3mln draw. UAE Energy Minister Mazrouei stated that the volatility in oil prices last year was counterproductive, and OPEC have stopped chasing an illogical or impractical price. Elsewhere, Berenberg have cut their 2019 Brent price forecast from USD 82.5/bbl to USD 65/bbl; and Morgan Stanley have updated their Brent forecast to USD 61.00/bbl vs. Prev. USD 69.00/bbl.

Gold (-0.3%) prices have remained subdued by the positive risk sentiment from the US-China trade progress. Elsewhere, US plans to remove sanctions on Rusal, the Russian aluminium Co, are suggested to be of limited benefit to US consumers as aluminium import tariffs mean produces would require significantly greater prices in order to incentivise shipments.

UAE Energy Minister Mazrouei said oil price fluctuation and volatility last year was counterproductive and unacceptable, while he added that OPEC has stopped chasing price which is not logical or practical. Adds that an oil production curb of 1.2mln BPD is enough to balance markets (Newswires)

Berenberg have cut their 2019 Brent price forecast from USD 82.5/bbl to USD 65/bbl. (Newswires)

Saudi Arabia is expected to announce a rise in oil and gas reserves following an independent audit today; according to sources. (Newswires)

"Nice try, Beth" is now my new favourite phrase