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[PODCAST] US Open Rundown 11th January 2019

  • Major European indices are mixed [Euro Stoxx 50 Unch], having pared back some of the initial gains from the open
  • DXY on the backfoot further below 95.500 as the Fed signalled a more patient approach ahead of the US CPI release
  • GBP spiked higher on reports of possible Brexit date, though these reports were later dismissed by a PM May spokesperson
  • Looking ahead, highlights include US CPI, Real Weekly Earnings, Baker Hughes rig count

ASIA

Asian equity markets traded mostly higher following the 5th consecutive session of gains on Wall Street as global sentiment remained underpined by perceptions of a more patient Fed approach. ASX 200 (-0.3%) and Nikkei 225 (+1.0%) were mixed with the initial upside in Australia clouded by weakness in the key financials and mining related sectors, while the Japanese benchmark outperformed as it coat-tailed on the recent USD/JPY moves. Elsewhere, Shanghai Comp. (+0.7%) and Hang Seng (+0.5%) conformed to the overall positive risk tone following the recent trade-related optimism with Vice Premier Liu He said to possibly visit the US later this month and amid hopes of further supportive measures as China may adopt more tax cuts for the manufacturing sector. Finally, 10yr JGBs were lacklustre on profit taking following recent gains and with demand also limited by the upside in riskier assets.

China is reportedly to set a lower 2019 GDP growth target of between 6.0%-6.5%. (Newswires)

PBoC skipped open market operations for a net weekly drain of CNY 410bln vs. CNY 320bln drain last week. (Newswires)
PBoC set CNY mid-point at 6.7909 (Prev. 6.8106)

US Treasury Secretary Mnuchin said there is a plan for Chinese Vice Premier Liu He to visit later this month, while reports later noted that trade talks on January 30th-31st although sources added that the US government shutdown could delay the scheduled visit. (Newswires)

US

US President Trump said he will most likely declare an emergency if there is no border deal but added should be able to make a deal with Congress, while there were earlier reports that US President Trump had been briefed regarding plan to use Army Corps of Engineers funding to border wall construction. Also commented that he has the absolute right to declare a national emergency and is not doing it yet but will do if shutdown carries on. (Newswires/NBC/Twitter)

Fed's Vice Chair Clarida (voter, neutral) said Fed can be patient assessing how to adjust policy as data evolves this year and that monetary policy is not on a preset course, while he added they will not hesitate to make changes to strategy of shedding assets. (Newswires)
 

UK/EU

Brexit is looking increasingly likely to be delayed beyond March 29th amid a backlog of essential bills, according to Cabinet Ministers cited by the Evening Standard. (Evening Standard) However, this has been dismissed by a UK PM May spokesperson. (Newswires)

UK PM May launched an appeal to Britain’s biggest unions last night in an attempt to win Labour support for her Brexit deal. (Times)

Leading Brexiteer and former Brexit Minister Steve Baker is planning to publish a new Brexit deal proposal which intends to take a tougher line with Brussels. Another former minister told the newspaper that serving ministers may stand down to vote against the PM’s Brexit deal. (The Guardian)

UK Works and Pensions Minister Rudd says a no-deal Brexit will not be good for the UK and she will work with colleagues to avoid it; adding that she is committed to alternatives. (Newswires)

EU Commission President Juncker still hopes a deal can be done on Brexit, as a no deal would be a disaster. (Newswires)

BBC's Katya Adler tweets, there is talk of a Juncker/Tusk letter by Monday setting out the reassurances on the backstop, although this is not confirmed. (Twitter)

ECB's Nowotny (Hawk) says EZ growth rates will be slower but will stay in positive territory, adding that Germany will likely have a very low growth rate in Q4. (Newswires)

UK GDP Estimate MM (Nov) 0.2% vs. Exp. 0.10% (Prev. 0.10%)

UK GDP Estimate YY (Nov) 1.4% vs. Exp. 1.30% (Prev. 1.50%)

UK GDP Est 3M/3M (Nov) 0.3% vs. Exp. 0.30% (Prev. 0.40%)

Japanese PM Abe, after talks with UK PM May, has stated that the whole world wants to avoid a no-deal Brexit and has offered his deepest respect for the work she has done with the EU. (Newswires)

Confederation of British Industry expects a no-deal Brexit to shrink UK GDP by as much as 8%. (Newswires)

German Economy Minister Altmaier said the economy is not heading towards recession and that the government mulling additional fiscal measures to support growth. (Newswires)

GEOPOLITICAL

Russian Foreign Ministry says it has the impression that the US would like to remain in Syria despite withdrawing troops. (Newswires)

EQUITIES

Major European indices are mixed [Euro Stoxx 50 Unch], having pared back some of the initial gains from the open. Some initial outperformance was seen in the FTSE 100 (+0.1%) which is lead by strong performances in UK housing names after the sector was upgraded by BAML, with Persimmon (+4.4%), Taylor Wimpey (+4.8%) and Barratt Development (+2.6%) at the top of the index, however, the index was later pressured on currency effects as Sterling whipsawed on Brexit developments. Sectors are similarly in the green with some slight outperformance seen in energy names. Other notable movers include, Richemont (+2.3%) after the Co’s Q3 revenue of EUR 3.92bln was in line with the expected EUR 3.93bln and posting a 5% rise in constant currency sales for the October-December period. Meanwhile, Suez (-3.1%), Veolia (-2.6%) and Sage Group (-2.6%) are all in the red after being downgraded.

FX

DXY – Choppy session for the index but ultimately on the backfoot after losing the 95.500 level in early Asia-Pac trade as the Fed signalled a more patient approach ahead of the US CPI release later today. Both Fed Chair Powell and Vice Chair Clarida noted the Central Bank has the ability to be patient and flexible on rates given the State-side inflation data. As such the DXY fell to an overnight session low of 95.322 (vs. high of 95.508) and currently hovers around the middle of the range with US CPI in sight. Lloyds notes that the sharp decline in energy will likely weight on the headline CPI as they forecast a fall to 1.9% from 2.2%, though they expect the core figure to remain steady at 2.2%.

AUD,NZD, CNY, CAD – The marked outperformers and major beneficiaries as the USD/CNY is poised for its best week since 2005 with aid from the dovish Fed and a sub-6.80 PBoC fix. AUD/USD currently resides north of 0.7200 (vs. low of 0.7183) and reached levels last seen mid-December as optimistic Australian retail sales also underpinned the Aussie currency. Meanwhile, the Kiwi stands at the G10 leader as tailwind from its antipodean counterpart boosted the NZD/USD above its 50 and 200 DMA at 0.6786 and 0.6799 respectively to test 0.6840 to the upside, with the DMAs also set to form a golden cross. Finally, the Loonie is on the front foot as it reaps its reward from the declining greenback and the rising oil price with USD/CAD now below 1.3200 (vs. high of 1.3245) ahead of its 100 DMA at 1.3169.

GBP,EUR, JPY – All taking advantage of the receding dollar with the Pound spiking higher on reports by the Evening Standard that the Brexit date is to be delayed beyond March 29th amid a backlog of essential bills, though this was later dismissed by a PM May spokesperson. As such Cable briefly reclaimed the 1.2800 handle before hitting psychological resistance at 1.2850 ahead of its 100 DMA at 1.2892, this move was then paired back to sub-1.2800 levels as the pair stabilised around 1.2780. Subsequently EUR/GBP fell through 0.9000 past its 50, 100 and 200 HMAs before touching support at 0.8980, this move was short-lived due to the denial from the spokesperson with the pair now hovering on either side of 0.9000. Before the Evening Standard report, the Pound was largely unmoved by the in-line monthly GDP figures and mixed output data as traders remain cautious of political developments with the meaningful vote taking place on January 15th, though there were unconfirmed reports that EU’s Tusk and Juncker may send PM May a letter of assurances regarding the NI backstop by Monday. Elsewhere, EUR/USD reclaimed the 1.1500 handle and resides close to its 50 HMA at 1.1522. Option expiries for the single currency are in focus today with 3bln of strikes rolling off at 1.1500-10 and 1bln at 1.1550. It is also worth noting that the Bank of France maintained the country’s Q4 GDP forecast at 0.2% despite the domestic turmoil from the Yellow Vest protests. Meanwhile the Yen is relatively docile in regards to risk-flow and largely dominated by the buck with USD/JPY trades within a tight 108.24-47 range.

FIXED INCOME

EU Fixed income assets have kicked off the session in the green ahead of upcoming key risk events. Gilts were essentially unreactive to GDP data that came in essentially in line with expectations, whilst the output data was mixed, and remain mindful of developments in Westminster ahead of next week’s meaningful vote. The UK benchmark is hanging around the high print of the day at 123.51 with traders eying yesterday’s high print of 123.70 as the next level of resistance. 10-year Bund futures are probing the 164.50 level to the upside and 2s10s are seeing some bull flattening. BTPs are the days outperformer and trading with gains of over 30-ticks as the Italian benchmark finds a firm footing above the 126.80 level.

UST futures are also higher across the curve with the majority of the action in the belly of the curve after yesterday’s dovish Fed commentary from Fed’s Clarida alongside President Trump’s comments that he would declare an emergency should no border wall deal emerge and ahead of US CPI later in the day. On the supply side, yesterday’s 30yr auction had a poor showing with the b/c printing 2.19x vs. 2.31 prev. 

COMMODITIES 

Brent (+0.6%) and WTI (+0.8%) prices are in the green benefiting from the positive sentiment seen across US and Asian sessions after dovish comments from multiple Fed speakers. Russian oil output for January 1st-10th has dropped to 11.38mln BPD from 11.45mln BPD in December; additionally, Russian Energy Minister Novak is reportedly planning to attend the upcoming January 22nd-25th Davos summit.

Gold (+0.5%) prices are just shy of USD 1295.2/oz, the sessions high, following dovish comments from the Fed applying downward pressure to the dollar. Copper prices are similarly higher on the positive market sentiment, in particular that Chinese Vice Premier He is to visit the US later on in the month. Elsewhere, India’s steel ministry is refusing to back down on tougher import rules on steel, pressuring automakers into using local steel instead.

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