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[PODCAST] US Open Rundown 15th January 2019

  • Major European indices are relatively flat [Euro Stoxx 50 +0.1%] as equity markets gave up initial gains post German FY GDP
  • Choppy session for the Pound thus far as traders eye the long-awaited House of Commons meaningful vote scheduled for later today (full schedule available on the headline feed)
  • Looking ahead, highlights include US NY Fed Manufacturing & Final PPI, Fed Discount Minutes, UK Parliament vote on the Brexit deal, ECB's Draghi, Fed's Kashkari, Kaplan & George
  • Earnings: JP Morgan, Wells Fargo, Charles Schwab, Delta Air Lines & Kinder Morgan

ASIA

Asian equity markets were mostly higher as sentiment in the region recovered from the recent China-triggered weakness that had been due to disappointing trade data which dragged the US major indices to their first consecutive loss of the year. Nonetheless, risk appetite improved overnight with both ASX 200 (+0.7%) and Nikkei 225 (+0.9%) positive, in which the latter recovered from early selling pressure as it initially tracked the prior day’s losses on return from its long weekend. Elsewhere, Shanghai Comp. (+1.4%) and Hang Seng (+2.0%) were underpinned amid a deluge of comments from Chinese agencies including the Finance Ministry which stated that China will implement larger tax and fee cuts, while the NDRC said China will continue implementing proactive fiscal policies. In addition, the PBoC conducted a respectable liquidity injection of CNY 180bln but expects a rapid decline of banking liquidity in the approaching days, while there were also hopes for an improvement in the trade environment after reports that super tankers carrying 6mln bbls of crude left the Texas coast and are likely heading to China. Finally, 10yr JGBs were subdued as the gains in stocks sapped demand for safe-havens and following the recent similar pressure in T-notes, but with losses stemmed amid the BoJ’s presence for JPY 1tln of JGBs with maturities spread across the curve.

PBoC injected CNY 80bln via 7-day and CNY 100bln via 28-day reverse repos, for a net daily injection of CNY 180bln. (Newswires)
PBoC set CNY mid-point at 6.7542 (Prev. 6.7560)

PBoC said it will make monetary policy more forward-looking, flexible and targeted, while it added that it will not make monetary policy too tight nor too loose and that it expects banking liquidity to decline rapidly in approaching days. Furthermore, PBoC Deputy Governor Zhu said prudent policies does not mean there will be no changes and that prudent policies should remain in line with economic conditions, while Zhu also commented they will encourage banks to lend more to small firms. (Newswires)

China Finance Ministry said will implement larger tax and fee reductions, while it added the government will reduce general expenditures by over 5%. There were also comments from Vice Finance Minister Xu that detailed tax cuts will be included in government work report or budget plan. (Newswires)

NDRC said China will strengthen counter-cyclical adjustments in its macro policies, while it will also implement larger tax and fee cuts this year, as well as ease funding difficulties for small and private firms. Furthermore, NDRC Vice Chairman Lian said China will speed up investment projects and local bond issuances but will not resort to flood-like stimulus. (Newswires)

Super tankers carrying 6mln bbls of crude left the Texas coast and are likely heading to China, according to sources. (Newswires)

US

White House has invited group of House Democrats for discussions on border security this week, while the White House also commented that certain lawmakers are to attend lunch with President Trump today. (Newswires)

UK/EU

Chancellery have denied reports that German Chancellor Merket offered concessions to UK PM May; following reports that German Chancellor Merkel has offered PM May certain last-minute assistance, while reports also noted that PM May is considering a 2nd vote on Brexit deal if first one is rejected. (Newswires/Sun) German Foreign Minister Maas later said that if the current deal is rejected by UK parliament there could be new talks with the EU. (Newswires)

UK cabinet ministers suggested that PM May will be expected to stand down if she is heavily defeated in the Brexit vote, according to source report. (Telegraph)

UK Labour MP Benn has confirmed he has pulled amendment this morning as part of an effort by Labour party to table vote of no confidence this evening. The amendment, if passed, would reject the withdrawal agreement, convey a lack of support for no deal and pave the way for MPs to put forward alternative plans for Brexit. Opposition for the amendment comes from Labour leadership believing that it’s passage would offer PM May the opportunity to pull her deal, therefore sparing her a crushing defeat. (Twitter/Telegraph) Furthermore, Sky analysis believes that the UK Government are to lose the meaningful vote by 226 votes. (Sky)

A letter from 129 MEPs urges the UK to reconsider their decision to leave the European Union as they believe there is support for a second Brexit referendum. (Sky News)

Times' Deputy Political Editor Coates tweets "Very significant names behind the Murrison amendment with expiry date on backstop, Graham Brady, Damian Green, Simon Hart, Rob Halfon amongst most eye-catching". (Twitter)

DUP Leader Foster tweets “Tonight will be historic but for the wrong reasons. We will oppose the toxic backstop & vote against the WA. It’s time for a sensible deal which governs our exit from the EU & supports all parts of the UK” (Twitter)

Sky analysis believes that the UK Government are to lose the meaningful vote by 226 votes. (Newswires)

German Foreign Minister Maas says that if the current deal is rejected by UK parliament there could be new talks with the EU. (Newswires)

German Full Year GDP (2018) 1.50% vs. Exp. 1.50% (Prev. 2.20%); says domestic economy probably slightly grew in Q4 2018. #

EU Eurostat Trade NSA, Eur Nov 19.0B (Prev. 14.0B)

GEOPOLITICAL

US President Trump is said to have sent a letter to North Korea leader Kim and reports also noted North Korean official Kim Yong Chol may visit Washington D.C. this week regarding a 2nd Trump-Kim summit. Furthermore, it was also reported that US Secretary of State Pompeo may conduct talks this week with North Korea. (Newswires)

US President Trump tweeted that he spoke with Turkish President Erdogan in which topics discussed included economic development between US and Turkey, while he also suggested that there is great potential for a significant expansion. (Twitter)

China's Foreign Ministry says facts show China is safe and Canada has arbitrarily detained foreign citizen; adding that the Canadian side can abandon prejudices and quit making irresponsible remarks. Adding that it is clear the Huawei Executive Meng’s case is not normal and is an abuse of legal procedures. (Newswires)

EQUITIES

Major European indices are relatively flat [Euro Stoxx 50 +0.1%] as equity markets gave up initial gains post German FY GDP of +1.5%. Marginal underperformance is seen in the FTSE MIB (-0.2%) where banking names such as UBI Banca (-5.7%), Bper Banca (-4.3%) and Banco BPM (-3.8 %) are at the bottom of the index following the ECB asking Italian banks to set aside additional money to fully cover impaired loans by 2026. Sectors are similarly all in the green, with outperformance in materials and industrials. Other notable movers include gambling names after the US Justice Department stated that all online gambling is now illegal; as such William Hill (-1.6%) and Paddy Power (-1.8%) are in the red. At the bottom of the Stoxx 600 are Provident Financial (-18.0%) following the Co stating that they expect 2018 profits to report towards the lower end of market expectations.

FX

GBP – Choppy session for the Pound thus far as traders eye the long-awaited House of Commons meaningful vote scheduled for later today (full schedule available on the headline feed), as PM May attempts to accumulate MP backing to pass her deal. According to the Sun’s Political Editor, Senior Tories believe the Premier is poised for a 150-160 vote defeat tonight, though a list of amendments will be released at the start of the Parliamentary session around 12.45GMT with special focus on Murrison amendment (setting an expiry date of 31st December 2021 to the NI backstop) as a way of snatching a narrow defeat. Tory Brexiteers and the DUPs are known to not support a deal which includes a timeless backstop or a unilateral exit clause, Murrison’s amendment seeks to readdress this and if passed, may shore up some support from the rebels, DUP are said to have rejected this amendment in belief the EU will not be bound by the expiry date. Earlier in the day Hilary Benn’s amendment was pulled out amid the opposition leaders’ desire for PM May to suffer a crushing defeat (the amendment, if it was to be passed, would have rejected the withdrawal agreement, convey a lack of support for no deal and pave the way for MPs to put forward alternative plans for Brexit). As such, Cable pared back overnight gains and gave up the 1.2900 handle to test the psychological (and 50 HMA) at 1.2850 to the downside and currently resides at the bottom of a 1.2831-1.2915 intraday range. Meanwhile, Morgan Stanley assumes that Cable at current levels is pricing in a lot of uncertainty and assumes GBP/USD to reach 1.30 in around 6-month and 1.50 by year-end as Cable’s PPP fair value estimate stands at 1.40.

EUR, DXY – EUR largely on the backfoot amid a strengthening Dollar and following the release of German annual GDP which printed in-line with forecasts at 1.50% Y/Y, the weakest performance in five years with market participants noting that a German technical recession could have been narrowly missed (with the Q4 release scheduled on 14th Feb). EUR/USD sits around the bottom of a 1.1423-91 band ahead of a double-Draghi day, his first speech however provided little in way of monetary policy commentary. Back to the dollar, DXY received a wave of demand shortly after the German numbers with DXY spiking to highs of around 95.900 from overnight lows of 95.450 with State-side news flow on the light side.

JPY, CHF – Conforming more to the bout of dollar strength rather than an unwind in safe-haven positions with both USD/JPY and USD/CHF higher by around 0.4% on the day ahead of the Brexit meaningful vote. USD/JPY advances further above 108.00 after having reclaimed the handle during overnight trade and currently resides nearer to the top of a 108.15-75 range ahead of a Fib a 109.16 with little to report on the options expiry front. Similar action with the Franc as USD/CHF breached 0.9850 to the upside ahead of its 100 and 200 DMAs at 0.9878 and 0.9889 respectively.

AUD, NZD, CAD – High beta currencies also bear the brunt of a rising buck, though price action in the commodities complex have somewhat underpinned the antipodeans, though the Loonie feels the headwinds of easing oil prices. AUD/USD briefly reclaimed the 0.7200 handle after breaching the its 50 DMA and HMA at 0.7193 and 0.7203 to the upside while NZD/USD remains north of 0.6820 (just about) as its 50 and 200 DMAs are still poised to form a golden cross below just below 0.6800. Finally, USD/CAD trades above its 100 DMA at 1.3245 and in close proximity to its 50 HMA at 1.3223 as the pair trades near the middle of a 1.3244-85 range.

FIXED INCOME

EU fixed income trades tentatively and is marginally positive as Bunds are marginally outperforming their UK counterparts (+30 ticks) with the German benchmark gaining a little bit of steam after the country posted their worst annual GDP figures since 2013 (1.5% YY), whilst the stats office stated that Q4 posted a marginal gain. In the periphery, BTP futures have turned around a negative start and moved into positive territory (+2 ticks) following the announcement from the Italian Treasury that initial price guidance on their 2033 bond is at 20-22bps. European traders will now be looking ahead to two upcoming speeches by ECB head Draghi.

Ahead of the vote on UK PM May’s deal at 7pm Gilt futures are stable around the 123.00 mark and trade within a 31-tick range, with traders mindful of any more indications of backing or lambasting of the deal by MPs, with the DUP having given no indication of support yet. Rumblings of a Labour no-confidence vote have also picked up, with MP Benn pulling his amendment that paves the way for a no-confidence vote today. With expectations firmly set on a loss for the Prime Minister, lawmakers have suggested that should this be a heavy one, a resignation by the British PM should be anticipated.

Elsewhere, UST futures are in the green and seeing similar rangy price action with most of the action in the long of the curve. 10-yr futures are stable around the 122-00 mark after the first Fed comments of the week last night from Fed’s Clarida, who reaffirmed that the Fed can be “very patient”. Further Fed speak can be expected today from Kashkari, Kaplan and George after the start of big US bank earnings kicked off by JPM, with traders mindful of the ongoing Government shutdown with lawmakers set to meet with President Trump today.

COMMODITIES 

Brent (+1.7%) and WTI (+1.6%) are higher as the risk tone improves from the Chinese-trade sparked downturn seen in yesterday’s session, with prices just under the USD 60/bbl and USD 51/bbl respectively. Focus is on the API weekly release later in the day, where crude oil inventories are expected to have declined by 2.5mln/bbl; separately, the EIA are to release their Short-Term Energy Outlook today which contains their expanded forecast discussion. Saudi Energy Minister Al Falih says he sees oil demand growth for the foreseeable future, and that the 1.2mln BPD OPEC+ cut will have a strong impact which will take some time to be reflected within the market.

Gold (-0.1%) prices are down as the demand for safe havens has declined with the improvement in risk sentiment; with the yellow metal trading towards the bottom of its USD 5/oz range. Elsewhere, the US Senate are to begin voting today on a resolution which criticises the Trump administration’s decision to reduce sanctions on companies which are connected to Russian oligarch Deripaska; which includes aluminium company Rusal.

Saudi Energy Minister Al-Falih says he sees growth in oil demand for the foreseeable future. That there will be a strong impact from the 1.2mln BPD OPEC+ cut; adding that it will take time for the cuts to be reflected within the market. (Newswires)

All Libyan oil and non-oil ports have been shut due to bad weather conditions. (Newswires)

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Fitch Maintains the UK on Rating Watch Negative https://t.co/QuZXLMFNoR