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[PODCAST] US Open Rundown 16th January 2019

  • Major European equities are mixed after trimming opening gains [Euro Stoxx 50 Unch] with outperformance seen in the Italian benchmark
  • DXY reclaimed the 96.000 handle while the Pound stabilises in the aftermath of May’s parliamentary defeat
  • Looking ahead, highlights include US Import & Export Prices, Fed's Kashkari, ECB's de Galhau, UK PM May’s vote of no confidence
  • Earnings: Goldman Sachs

ASIA

Asian equity markets traded mixed as the region struggled for firm direction after the tech-led gains on Wall St. and PM May’s Brexit deal defeat in parliament. ASX 200 (+0.4%) finished positive as gains in tech and financials eventually outweighed the weakness across the commodity-related sectors, while Nikkei 225 (-0.6%) suffered the fallout from a firmer currency. Hang Seng (+0.3%) and Shanghai Comp. (Unch.) conformed to the indecisive tone but with the mainland kept afloat for most the session after stronger than expected Loans and Aggregate Financing data, while the PBoC also conducted its largest ever daily net liquidity injection heading into next month’s Chinese New Year celebrations in which it cited rapidly falling liquidity due to tax payments. Finally, 10yr JGBs eked only minimal gains despite the underperformance of riskier assets in Japan and firmer results in the latest 5yr JGB auction.

PBoC injected CNY 350bln via 7-day and CNY 220bln via 28-day reverse repos for a CNY 560bln net daily injection. (Newswires)
PBoC set CNY mid-point at 6.7615 (Prev. 6.7542)

China Mofcom said will further boost consumption this year and that trade talks with US are among top priorities for this year, while there were also comments from Assistant Commerce Minister Ren that foreign trade faces increasing uncertainties this year but added that China will actively expand imports this year. (Newswires)

Australian Westpac Consumer Confidence (Jan) M/M -4.7% (Prev. 0.1%)

Chinese Vice Premier Liu He is to visit Washington to discuss trade dispute. (Newswires)

BoJ is expected to cut their inflation forecasts at the next interest rate meeting (Jan 22nd-23rd) and are likely to maintain the view that Japan's economy is to expand moderately; according to sources. (Newswires)

US

US Vice President Pence said President Trump is standing firm for border security and that Democrats are not negotiating. (Newswires)

UK/EU

Sky Deputy Political Editor said up to 100 Labour MPs will pivot towards a second referendum this morning. (Newswires)

UK Government minister told business leaders that there is a backbench motion being prepared to delay Article 50, also says no confidence motion will fail. (Newswires)

BBC's Political Correspondent tweets "Boris Johnson tells me May should ditch backstop, withhold at least half money till free trade deal done, accelerate no deal preparations. Says a new agreement can be reached before March 29.". (Twitter)

Talk Radio's Kempsell tweets, Shadow Chancellor John McDonnell tells me he is not ruling out repeated motions of no confidence contrary to suggestions earlier. (Newswires)

DUP Deputy Leader Dodds says an Article 50 extension is not inevitable and not necessary in his view. (Newswires)

EU's Chief Negotiator Barnier said it's too early to assess the consequences of the UK's rejection of the Withdrawal Agreement; he added that a backstop must remain and be credible in any Brexit deal. Barnier adds that if the UK is ready to change its red lines, then the EU will be ready to discuss this. (Newswires)

Germany Economy Minister Altmaier says the Brexit deal is not up for renegotiation and he is positive that the EU are united on Brexit "like never before" (Newswires)

Elysee source states that it would be wrong to assume that the EU side is febrile and weak on Brexit; the EU will not give in on principles. Extension of Article 50 is not a solution in itself, the UK needs to have a plan, and would be favourable to this extension if the UK proposed options that respect EU rules. Reiterates that the WA is not up for negotiation. (Newswires)

Austrian Chancellor Kurz says ready to discuss certain points with the UK regarding the future EU relationship, in order to prevent a hard Brexit. (Newswires)

BoE's Carney says the market view of Brexit vote is most clearly expressed in FX markets, adding that the sterling rebound appears to reflect some expectation that the process of resolution would be extended and the prospect of no-deal has diminished. (Newswires)

ECB's Mersch (Hawkish) says the EZ slowdown is broadly in-line with expectations and fundamentals remain unchanged. (Newswires)

ECB's Nowotny (Hawk) says Eurozone core inflation is stable but low. (Newswires)

ECB's Villeroy states that the 'Yellow Vest' protests will deliver "significant short-term consequences". (Newswires)

UK CPI YY Dec 2.1% vs. Exp. 2.1% (Prev. 2.3%)

UK CPI MM Dec 0.2% vs. Exp. 0.2% (Prev. 0.2%)

UK ONS House Price Index 2.8% vs. Exp. 3.0% (Prev. 2.7%)

UK Visa December consumer spending fell 1.0% Y/Y vs. 0.7% decline in November; largest drop since April. (Newswires)

German CPI Final YY* Dec 1.7% vs. Exp. 1.7% (Prev. 1.7%)

German CPI Final MM* Dec 0.1% vs. Exp. 0.1% (Prev. 0.1%)

Italian CPI (EU Norm) Final MM* Dec -0.1% vs. Exp. -0.1% (Prev. -0.1%)

Italian CPI (EU Norm) Final YY* Dec 1.2% vs. Exp. 1.2% (Prev. 1.2%)

Riksbank's Skingsley says Swedish inflation has come in roughly in line with forecasts; adding CPIF will dip slightly below forecasts but a slight deviation is not a problem. (Newswires)

EQUITIES

Major European equities are mixed after trimming opening gains [Euro Stoxx 50 -0.1%] with outperformance seen in the FTSE MIB (+0.5%) where banking names are up, in particular UniCredit (+2.6%) at the top of the index following the Co. stating they consider their NPE coverage to be fully adequate. Sectors are largely in the green, with financial names outperforming; in particular the Stoxx 600 Banking sector is up by over 1% as some are interpreting the governments Brexit defeat as reducing the likelihood of Britain crashing out of the EU. Other notable movers include Hammerson (+1.7%) after being upgraded at Deutsche Bank and Ryanair (+2.1%) who are up in sympathy following United Continental Holdings posting a beat on their top and bottom line overnight; were subsequently up 6% after-market. Elsewhere, Deutsche Bank (+1.7%) and Commerzbank (+1.5%) are up following reports that German officials have spoken to watchdogs regarding a potential deal between the two.

FX

DXY – Little changed following last night’s advances in which the index attempted, but failed to breach 96.000 to the upside, while it creeps closer to the top of a 95.850-96.080 range.  Impetus for the buck was initially provided following yesterday’s comments from US Senator Grassley who cited USTR Lighthizer as US-China talks showed little progress in key issues. The dollar then came off highs as Fed hawk (and voter) George noted that it might be a good time to pause on rate hikes. Subsequently DXY fell to around 95.850 amid the Fed member’s shift in stance before recouping losses. In terms of technical DXY eyes its 100 DMA at 96.03 to the upside, though looking ahead, US retail sales have been postponed amid the ongoing US government shutdown.

GBP - The calm after the storm as PM May’s deal was defeated by a historical 230 votes shortly before Labour leader Corbyn tabled a motion of no confidence (as expected), scheduled for 1900GMT today. The move higher came amid hopes that Article 50 will be extended past March 29th as PM May will attempt to conjure up a revised deal with the EU or face a hard-Brexit which is unfavoured by most UK MPs. However, the EU made it clear that renegotiations will not be open, while Commons leader Leadsom mentioned that the UK Government is not looking to postpone the Brexit date ahead of tonight’s vote of no confidence. The Pound was largely unreactive to Corbyn’s no confidence motion as the Conservative party and the DUP (alongside some Labour MPs) are likely to support the Government rather than amplify the chaos in Parliament. Moving on, on the data front, Sterling side-line the release of inflation figures which largely printed in-line with expectations. Cable currently resides just below 1.2900, just above its 100 HMA at 1.2857 after having tested the big figure to the upside on multiple occasions.

EUR, JPY- Meanwhile, the EUR is relatively flat against the buck as a lack of fresh catalysts (and all eyes on Brexit) largely shelved the single currency as it moves in tandem to the greenback. EUR/USD further extends losses below 1.1450 and fluctuates on either side of the 1.1400 level ahead of its 50 DMA at 1.1380. Of note, 950mln in options expiries are seen at strike 1.1380-1.1400. Similarly, with the Yen overnight safe-haven driven gains were largely neutralised by the strengthening dollar as USD/JPY rises to the top of a 108.38-73 range with almost 1.7bln in option expiries scattered between 108.75-109.00.

AUD, NZD – The marked underperformers amid a rising buck and a decline in base metal prices, Kiwi declines to a slightly greater extent compared to its antipodean counterpart as NZD/USD falls below its 50 and 200 DMA at 0.6795 before the pair found some support at its 200 HMA at 0.6780. Back to the Aussie, AUD/USD fell through the psychological 0.72000 and its 50 DMA at 0.7192 ahead of its 100 DMA at 0.7177.

TRY – The Turkish Central Bank left rates unchanged at with their main rate at 24.00% while largely reiterating its tight stance, stating that the CB are to further monetary policy tightening will be delivered if needed. As such USD/TRY fell from 5.4134 to an intraday low of 5.3800 before pairing back a third of the move.

FIXED INCOME

Core EU and UK debt has kicked off the day in the red and Gilts are bearing the brunt of the heaviest Governmental defeat in UK history over the Brexit deal, with 10-year UK futures leading losses in the fixed income scope as the perceived likelihood of no Brexit, or a softer exit, increase. The benchmark is languishing firmly under the 123.00 handle with the next hurdle to overcome the Parliamentary vote of no-confidence that was tabled by Labour leader Jeremy Corbyn last night. This is set to be voted on at 7:00pm GMT with expectations set on a loss for the Labour leader (due to DUP and members of the ERG have sounding out support for the Government) with all options, including a 2nd referendum, on the table should it fail.

The UK CPI release, which came in essentially in line with expectations, failed to have an impact on Gilts as focus remains firmly set on the political fallout of the meaningful vote and whether UK PM May can bring back a more “palatable” deal on Monday amidst assertions from the EU that they are not willing to negotiate further.

10-year Bund futures outperform their UK counterparts but are still comfortably in the red, with the German 10-year trading with losses of around 40 ticks after yesterday’s comments from ECB President Draghi (reiterating the ECB line that the region is slowing but not in a downturn). In the periphery, BTPs are outperforming their EU and UK counterparts with Italian 10-year futures firmly in the green and slowly tracking higher since the open. Futures remain in close proximity to session highs of 127.21, with the Jan 2nd low of 127.52 next up as resistance as traders look ahead for further potential comments from Villeroy (who said that the 'Yellow Vest' protests will deliver "significant short-term consequences") later in the day.

COMMODITIES 

Brent (-0.1%) and WTI (-0.5%) are drifting further into negative territory, with WTI losing the USD 52.00/bbl handle. As the positive market sentiment following yesterday’s 0.560mln draw in API crude inventories begins to fade; despite a 3% rally in the previous session on the back of this. Elsewhere, ARA region crude inventories rose 2.4mln/bbl to 51.3mln/bbl for the week ending January 11th. Markets will be looking ahead to today’s weekly EIA release, where crude stocks are expected to post a draw of 1.5mln.

Gold (-0.1%) is relatively flat, but towards the bottom of it’s slim USD 4/oz range; as the dollar remains relatively uneventful and FX market reaction to the Brexit vote defeat is largely positive as the prospect of a no-deal has lessened. Separately, the US Senate has voted to advance a resolution which criticises sanctions on companies tied to Oleg Deripaska, which includes Rusal.

Move to block Trump administration from lifting sanctions on Rusal (468 HK) and other companies linked to Deripaska has passed first hurdle in US Senate. (Newswires)

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