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[PODCAST] US Open Rundown 10th January 2019

  • Major European equities are in the red [Euro Stoxx 50 -0.4%] following on from the mixed performance seen in Asia on the lack of US-China trade clarity
  • DXY is on a firmer footing above 95.250 ahead of a plethora of key Fed speakers
  • Looking ahead, highlights include, US Initial Jobless Claims, Fed's Powell, Bullard, Evans & Clarida and ECB's de Galhau

ASIA

Asian stocks were mixed as the equity rally somewhat stalled overnight which momentarily saw all regional bourses in negative territory, despite the gains in US where a dovish tone from the FOMC Minutes and several Fed speakers underpinned the US majors to their longest winning streak since September. ASX 200 (+0.3%) and Nikkei 225 (-1.3%) were subdued after sentiment in the region soured with BHP shares hit in Australia as it traded ex-dividend, while the Japanese benchmark underperformed as exporters took the brunt of detrimental currency moves. Hang Seng (+0.2%) and Shanghai Comp. (-0.4%) initially weakened as trade-related momentum began to wane, with sentiment also dampened after the PBoC drained another CNY 70bln from the interbank market and after soft Chinese inflation data added to the despondent tone. However, Chinese stocks then staged a gradual recovery throughout the session, while in terms of trade news, both US and China have issued separate statements in the aftermath of the trade discussions, although the sides refrained from a joint statement and there was also no mention of a timeline moving forward. Finally, 10yr JGBs were underpinned by the initial safe-haven demand which coincided with gains in T-notes in the wake of the Fed dovishness, although prices are off best levels as risk sentiment in the region began to recover, while mixed results at today’s 30yr JGB auction proved to be inconclusive for prices.

PBoC skipped open market operations for a net daily drain of CNY 70bln. (Newswires)
PBoC set CNY mid-point at 6.8160 (Prev. 6.8526)

Chinese CPI (Dec) Y/Y 1.9% vs. Exp. 2.1% (Prev. 2.2%). (Newswires)
Chinese PPI (Dec) Y/Y 0.9% vs. Exp. 1.6% (Prev. 2.7%)

China Mofcom issued a statement on trade talks with US in which it stated that China and US agree to continue close communication on trade and that sides had broad, deep and detailed communication. Furthermore, Mofcom said that talks promoted mutual understanding and established a foundation for resolution of each other’s concerns, while both sides agreed to maintain close contact. (Newswires)

China Industry Minister Wei says that China may adopt more tax cuts for the manufacturing sector; according to CCTV. (Newswire)

Japanese government owes tens of billions of JPY worth of unemployment benefit due to years of the Monthly Labor Survey being improperly conducted; according to Nikkei. (Nikkei)

US

US House voted to approve bill to reopen Treasury Department and several other agencies without border wall money, although the White House had previously threatened to veto the bill. Elsewhere, there were reports that US Republican Senators are said to be planning on courting Democrat senators to reach a deal on border wall. (Newswires)
 

US Senate Finance Committee Chairman Grassley said Congress will not grant President Trump greater powers regarding tariffs or other trade solutions. (Newswires)
 

Goldman Sachs views the risk of a US recession is fairly low, around 15% over the next year, while noting the absence of two key historical recession risk factors including overheating inflation and financial imbalances. (Newswires)

UK/EU

UK PM May is said to be mulling supporting an amendment that would keep EU regulations regarding pay and conditions, health and safety as well as environmental standards in an effort to garner support for her Brexit deal. (Sky) UK PM May spokesperson later stated that the PM is attempting get further assurances from the EU on her Brexit deal before the conclusion of the debate in Parliament. Spokesperson added that PM is to consider backing Labour MP’s Brexit worker-rights plan. (Newswires)

UK PM May’s Brexit approach is seen as being in tatters after Conservative Rebels opened discussions with Labour regarding an alternative to her deal. (Times)

UK Labour Leader Corbyn states that a general election should be the priority before a 2nd Brexit referendum and added "Labour will table a motion of no confidence in the government at the moment we judge it to have the best chance of success". (Newswires)

UK PM May spokesperson states that the PM is attempting get further assurances from the EU on her Brexit deal before the conclusion of the debate in Parliament. (Newswires)

UK House of Commons leader Leadsom says the Government will accept the Parliament's demand to set out an alternate Brexit plan within three days in PM May's deal is rejected. (Newswires)

Telegraph reports "Downing St reckons the motion resulting from the Grieve amendment to set out a Brexit Plan B could only be amended ONCE by MPs. Amendment has been billed as a moment when MPs will be able to set out diff options to vote on, Govt reckons not. BUT: Speaker decides."

Daily Mirror Political Editor Crerar tweeted "Senior Tories fear up to five Cabinet ministers could walk if it looks like Government heading towards a no deal Brexit. Not everybody will be sorry to see them go." (Twitter)

GEOPOLITICAL

South Korean President Moon said he expects a 2nd Trump-Kim summit soon, However, there were also comments from the South Korea Ambassador to US that US-North Korea nuclear talks have slowed and that it could take years to realize goals in North Korea. (Newswires)

EQUITIES

Major European equities are in the red [Euro Stoxx 50 -0.4%] following on from the mixed performance seen in Asia on the lack of US-China trade clarity. Some underperformance is seen in the CAC (-0.8%), weighed on by Safran (-3.6%) who were downgraded at JP Morgan Chase, and Airbus (-1.7%) in the red after posting fewer net orders than Boeing for the first time in 5 years. Sectors are similarly in the red, with slight outperformance seen in utility names. Other notable movers include Sodexo (+1.8%) who are up after posting an increase in Q1 revenue. Separately, Tesco (+1.0%) are positive after the Co say that they remain on track to deliver their FY outlook, similarly Marks and Spencer (+1.5%) are in the green after the Co saying their FY guidance remains unchanged; despite UK BRC retail sales for December missing with -0.7% vs. Exp. -0.3%.

FX

DXY – On a firmer footing in early EU trade despite yesterday’s dovish Fed speakers and FOMC Minutes which stated that many policymakers said the Fed could be patient about further tightening amid muted inflationary pressures. Additionally, policymakers stated that it was appropriate to hike rates in Dec 2018, though some members favoured no change. Furthermore, due to the recent stock rout, volatility in markets and global growth concerns, the extent and time of future policy tightening is “less clean than earlier.” As such the DXY tested 95.000 to the downside during Asia-Pac hours in a continuation of USD weakness from Wall St., though the index rebounded off the psychological level and marches closer towards 95.500 (intra-day high of 95.381) ahead of a plethora of Fed speakers including Chair Powell, Vice Chair Clarida and 2019 voters Bullard and Evans. It is also worth bearing in mind that US President Trump is to participate in a roundtable meeting on border security around 18:00 GMT as the government shutdown reaches its 20th day.

AUD – The G10 outperformer, albeit marginally after the Aussie was dented by the release of disappointing Chinese December inflation figures which briefly pressured the currency during the Asia-Pac session. An overnight rebound in copper prices however underpinned AUD/USD north of 0.7150, just below its 50 DMA at 0.7190 with options scattered around 0.7190-0.7220 (1.1bln).

NOK, CAD – Firmer than expected Norwegian CPI gave the Crown impetus to extend gains below 9.80 vs. the EUR, thought EUR/NOK saw volatile trade shortly post-release amid negative price action in the oil complex. Ultimately, the NOK regained composure as EUR/NOK sits below its 50 HMA at 9.7750 ahead of its 50 DMA at 9.7290. Meanwhile the Loonie bears the brunt of declining oil as USD/CAD trades just below its 50 HMA at 1.3250.

EUR,GBP – Both victimised by the firmer greenback, though the single currency was unfazed by dismal French industrial production numbers ahead of the ECB Minutes later today (full preview available on the Research Suite). EUR/USD is subsequently only marginally above 1.1500 with the next level to the downside at its 50 HMA (1.1490) ahead of its 100 DMA (1.1478). Large option expiries may cap upside in the pair with 1bln on the money at 1.1515-25 and 1.3bln around the psychological 1.1500. Moving on, Sterling suffers a similar fate as the strengthening buck sent cable further below 1.2800 to breach 1.2750 and test 1.2730. In terms of the latest, Opposition leader Corbyn is again call for a general election today amid the Brexit deadlock, if PM May’s deal does not pass the meaningful vote on January 15th. In light of this, the Premier is reportedly considering supporting an amendment in an attempt to court some Labour MPs into supporting her deal. Cable sits around the middle of a 1.2750-2800 range with its 100 DMA at 1.2746.

JPY – Marginally softer following overnight upside from the dovish Fed and FOMC minutes as the buck eased and the Yen appreciated on safe-haven demand. As the greenback gained traction in EU trade, USD/JPY reclaimed the 108.00 handle to the upside with the pair’s 100 and 50 DMA at 108.46 and 108.50 respectively with 800mln in option expiries around 108-40-50.

FIXED INCOME

Core EU fixed income kicked off the European session with a gap higher on the open but since has tempered its upside slightly, with Gilts now essentially unchanged for the day vs. yesterday’s close of 123.41, and Bunds trading marginally in the positive and just above the 164.00 handle. This comes following European supply out of France in their EUR 8-9bln 2028, 2034 and 2048 auction, and further down the line more direction may be set by ECB speak from Villeroy and minutes from the ECB’s December meeting. On a technical standpoint Bunds are capped by the 3rd of Jan low as resistance of 164.38. In the periphery, BTPs are underperforming their European peers, albeit marginally, with the Italian benchmark trading within a thin 50 tick range.

Elsewhere, USTs are seeing some upside across the curve with most of the action in the long end but off overnight highs after the Presidents “waste of time” tantrum extending the Government shutdown. The border wall battle in the US overshadowed some dovish FOMC minutes, with participants looking for dovish reaffirmation by Powell later in the day, with Barkin, Bullard, Evans and Kashkari also set to speak. On the supply side, USD 16bln will be rolling off at the 30yr auction later in the day after yesterday’s well received 10yr auction, with saw a large proportion of directs and a stop through of 0.8bps.

COMMODITIES 

Brent (-0.7%) and WTI (-0.7%) are in the red, though the benchmarks reclaimed USD 61/bbl and USD 52/bbl respectively in EU trade with no attributed fundamentals to the recent price action. Previous sessions EIA showed a smaller than expected draw in crude oil inventories of -1.68mln vs. Exp. -2.7mln. Elsewhere, Saudi Energy Minister Al Falih comments that he would not rule out additional OPEC+ action at some point in the future.

Gold (Unch) was initial buoyed by the dovish FOMC minutes, although the yellow metal is now trading towards the bottom of today’s USD 6/oz range as the dollar modestly firms. Elsewhere, according to reports US Treasury Secretary Mnuchin is to meet Democrats today to discuss plans to end sanctions against Rusal; of note Democrats have asked for the removal of these sanctions to be delayed. In a vote on January 16th, EU countries are expected to approve a scheme limiting imports of steel into the bloc; placing a cap on steel imports for 3 years.

Australia December Port Hedland iron ore shipments to China 37.4mln tons vs. Prev. 32.9mln tons. (Newswires)

Norway’s preliminary 2018 oil production was 86.2mln cubic meters vs. 90.2mln cubic meters forecast. NPD forecasts Norway’s 2019 oil production at 82.2mln cubic meters vs. 82.7 prior forecast. (Newswires)

Iranian Oil Minister said the destination of oil exports and volumes will not be discussed while Iran is under US sanctions; adding that Iran will not comply with the US sanctions are they are "fully illegal". (Newswires)

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Dominic Raab = The Turnip in Brussels via @Telegraph https://t.co/lf6JLRb6Pg