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[PODCAST] US Open Rundown 3rd July 2018

  • Wall Street gains and CDU/CSU immigration agreement leads EU stocks into the green
  • Riksbank leaves rates and rate path unchanged, but opposition from Floden and Ohlssen pushes SEK higher
  • Looking ahead, highlights include, US factory orders, APIs and ECB’s Praet

ASIA

Asian stocks traded mixed as the region failed to take full advantage of the tail wind from the tech-led recovery on Wall St and early bargain hunting following the prior day’s hefty declines. ASX 200 (+0.5%) and Nikkei 225 (-0.1%) both opened higher with defensive sectors leading the upside in Australia, although sentiment in Tokyo later deteriorated alongside flows into JPY as markets were startled by a continued currency devaluation by the PBoC. Shanghai Comp. (+0.4%) was initially negative after PBoC inaction resulted to a CNY 150bln drain from the interbank market, but went positive after the PBoC chief said they are to keep the Yuan basically stable. The Hang Seng (-1.4%) was the worst performer with intraday losses of over 3%, as it reacted to the prior day’s declines during its market closure in which the benchmark indices in Japan, mainland China and South Korea all slumped over 2%. In addition, money market rates in Hong Kong continued to surge and China Mobile was another fall-out from the ongoing US-China trade tensions with the Co. slipping after the US Commerce Department and NTIA recommended to deny the telco’s licence request to enter the US the market. Finally, 10yr JGBs were choppy alongside the flimsy risk sentiment in Japan, but with prices kept within a tight range amid a mixed 10yr auction.

PBoC skips open market operations for a net daily of CNY 150bln. (Newswires)
PBoC set CNY mid-point at 6.6497 (Prev. 6.6157); weakest fix since August 2017.

Major state-owned Chinese banks were seen to be exchanging CNY for USD in forwards and then immediately offloading them into the spot market to support the domestic currency, according to sources. (Newswires)

PBoC Chief said they are to keep the Yuan basically stable and at a reasonable level, they are keeping an eye on recent fluctuations in FX markets and that recent FX market fluctuations are due to a stronger USD and external uncertainties. (Newswires)

EU/UK/US

BoE's Saunders attributes soft Q1 GDP figures to temporary factors and adverse weather conditions. Said a lot of spare capacity in the UK economy has been used up and UK Wage growth is gradually picking up. Rates could rise further than expected by markets. (Newswires)

German Interior Minister/CSU leader Seehofer said he'll stay on in the role and that he has a clear agreement on migration with Chancellor Merkel. (Newswires)

US Secretary of State Pompeo is to visit North Korea on Thursday for nuclear discussions. (Newswires)

Swedish Riksbank Rate unchanged at -0.50% as expected. Riksbank's repo rate path is unchanged and slow repo rate rises will be initiated towards end of year. Ohlsson advocated for a rate hike, Floden and Ohlsson wanted a higher rate path. The executive board has decided to extend the mandate that facilitates rapid intervention on the foreign exchange market. Floden and Ohlsson had some reservations on this position.

EQUITIES

Equity bourses in Europe are higher (Euro Stoxx 50 +1.2%), following on from Wall St. with the risk tone also improved following Germany’s CSU/CDU policy agreement over immigration reduces worries of political upheaval in the country. FTSE 100 (+0.3%) underperforms amid a firmer GBP and weight being placed on Glencore (-10%) shares after being subpoena by the DoJ over their operations as of 2007 in Nigeria, DR Congo and Venezuela. UK banking names are also underperforming following FT reports that PPI expenditures could increase by “billions” after legislation passed overnight.

Commerzbank (+2.2%) has reached an agreement with SocGen to sell its Equity & Commodities business (EMC) to them. Terms were undisclosed, however, this division created a revenue of ~ EUR 380mln in 2017. 

Allianz (+2.9%) are up after the co. has announced a 41.5mln share buyback with a value of up to USD 1.16bln.

FX

YUAN/KRONA – Firm rebounds for the Cny and Cnh after further depreciation following another soft fix on a combination of support from Chinese banks and PBoC comments downplaying official devaluation speculation. The onshore unit still closed at multi-month lows vs the Usd, but offshore Yuan managed to reverse earlier losses back above 6.7000. Elsewhere, the Sek has strengthened across the board on hawkish dissent against rate guidance reiterating tightening around the end of 2018, as Floden and Ohlsson both preferred earlier hikes (and registered objections vs extending the direct FX intervention mandate as well). Eur/Sek has retreated to almost 10.3100 levels from close to 10.4400 at one stage.

GBP – Another mover on Central Bank impulses, as BoE hawk Saunders underscored his stance, but the Pound also supported by another more upbeat than anticipated UK PMI (construction above consensus like manufacturing on Monday). Cable is back near 1.3200 as a result.

AUD - Aud/Usd is retesting resistance around 0.7400 from fresh ytd lows overnight in wake of disappointing Aussie building approvals data and a still very neutral RBA amidst general Greenback weakness on the aforementioned PBoC-inspired Yuan recovery.

NZD - Trying to pare recent losses vs the Usd like its antipodean peer, but the Kiwi lagging behind ahead of the latest GDT auction, as the cross flirts with 1.1000 and Nzd/Usd is capped by offers circa 0.6750.

EUR - Firmer vs the Dollar having dipped below 1.1600 yesterday, as Germany’s CSU-CDU parties reach a compromise agreement on migration, but now encountering some technical headwinds around the 30 DMA (1.1666).

CAD/MXN - Both benefiting from the latest Usd downturn (DXY back under 95.000 and eyeing support above 94.500 again), with the Loonie rallying off 1.3200 lows and Peso recovering even more lost ground (Usd/Mxn retreating through 20.000) on positive initial exchanges between AMLO and US President Trump plus an advisor to the former suggesting renewed impetus for NAFTA talks.

JPY/CHF - Relatively flat, albeit also off worst levels vs the Usd within 110.75-111.15 and 0.9915-50 respective ranges amidst a more stable, though still volatile risk tone overall.

FIXED INCOME

Gilts consolidating around the 123.00 level after a decent DMO auction that drew stronger demand at a lower rate than the previous 2028 offering and came with a short tail, but still at the lower end of their extended Liffe trading boundaries of 122.90 to 123.23 amidst a broad recovery in risk sentiment. Similarly, Bunds have witnessed some range extension on Eurex and are back down nearer the foot of the 162.22-49 range after failing to clearly breach chart resistance around 162.45 on the earlier bounce. On that note, technical support is seen at the new intraday low, with a clean break exposing 162.04 before 162.00. Meanwhile, US Treasuries are hugging overnight lows in marginal bear-steepening mode ahead the holiday-shortened CBOT session and July 4 full closure.

COMMODITIES

WTI has broken above yesterday’s highs amid a softer USD and ongoing supply disruptions. WTI is currently trading at USD 74.61 and Brent is currently at USD 77.82. In a news thin morning the most significant news came from UAE’s ADNOC who said they have the ability to increase oil production by several hundred thousand barrels per day in coordination with OPEC and non-OPEC monitoring committee. This had no effect on oil prices, however.

NOTE: API’s are at the same time as usually scheduled today, despite early US market closures. 

Gold is up 0.2% on the day as a weaker USD leads the yellow metal into positive territory. Copper has rebounded from a seven month low as trade tensions are pushing the construction material higher on supply concerns. Platinum is languishing around a near 10 year low as demand is sliding for the metal on Auto tariff concerns. 

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Asia equity markets begin positive across the board following a similar performance on Wall St as global markets ta… https://t.co/aYnxZ7uoEc