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[PODCAST] US Open Rundown 25th January 2019

  • Major European indices are in the green [Euro Stoxx 50 +1.1%] following on yesterday’s ECB release and a strong performance Asia
  • DXY has retraced a bulk of yesterday’s gains while the EUR stages a recovery
  • Looking ahead, highlights include US Baker Hughes
  • EARNINGS: Colgate-Palmolive, Nextera Energy, AbbVie

ASIA

A jubilant tone was observed across the Asia-Pac majors heading into the weekend, which followed the mostly positive performance of their global peers amid firmer US PMI data and a dovish tone from the ECB. ASX 200 (+0.7%) and Nikkei 225 (+1.0%) were buoyed by broad gains across the sectors and with Japanese exporters supported by favourable currency flows, although not all was rosy as healthcare lagged in Australia and steep losses in AMP Capital. Elsewhere, Hang Seng (+1.6%) and Shanghai Comp. (+0.4%) advanced as the 2nd phase of the PBoC’s RRR cut took effect and with outperformance seen in tech names including Tencent after regulators approved 2 of the Co.’s mobile phone games. However, gains in the mainland were initially capped after the PBoC‘s continued inaction resulted to a net weekly drain of CNY 770bln, in which it cited high liquidity levels due to the RRR cut. Finally, 10yr JGBs remained close to this week’s best levels after the prior day’s extended gains and with the BoJ also present in the market for government bonds with 5yr-10yr maturities, although prices have slightly eased with demand for bonds subdued by the risk appetite.

PBoC skipped open market operations for a weekly net drain of CNY 770bln vs. last week's net injection of CNY 1.16tln, while it commented that the liquidity level in the banking system is relatively high following the 2nd phase of the RRR cut. (Newswires)
PBoC set CNY mid-point at 6.7941 (Prev. 6.7802)

Japanese Tokyo CPI (Jan) Y/Y 0.4% vs. Exp. 0.2% (Prev. 0.3%). (Newswires)

Japanese Tokyo CPI Ex. Fresh Food (Jan) Y/Y 1.1% vs. Exp. 0.9% (Prev. 0.9%)
Japanese Tokyo CPI Ex. Fresh Food & Energy (Jan) Y/Y 0.7% vs. Exp. 0.6% (Prev. 0.6%)
 

US

US President Trump said he wants a prorated down payment on the wall in any short-term government funding bill and that if Senate Majority Leader McConnell and Minority Leader Schumer can reach an agreement on government funding, he would support it. However, US House Speaker Pelosi said the idea of including a down payment on wall is a non-starter and Democrats were said to not support any kind of border wall funds which was made clear to McConnell, while Pelosi was later reported to postpone a press conference concerning counter offer to President Trump. (Newswires)

Fed officials are reportedly weighing a earlier than anticipated end to bond portfolio runoff. (WSJ)

UK/EU

DUP party is said to have privately agreed they will back PM May's Brexit deal when she toughens it up in terms of the backstop being specifically time limited. (The Sun) Furthermore, Sun Political Editor Dunn tweeted that former UK Foreign Minister Boris Johnson is close to supporting PM May's deal with a backstop time limit following discussions with the chief whip on Wednesday. (Twitter)

Some EU countries are reportedly pushing for the EU to provide a more generous stance to the UK in the event of a no deal, with some countries wanting UK hauliers to be given the right to operate within EU and some also want British airliners to be able to offer connecting flights within EU. (BBC)

UK PM May is facing an open cabinet revolt over the prospect of a no-deal Brexit after two ministers said yesterday they could step down rather than let Britain crash out of the EU. (Times)

ITV’s Peston noted that six Tory MPs on the 1922 Committee hope and expect PM May to back the Murrison amendment (NI border to expire in 2021). (Facebook)

ECB’s Coeure (Dovish) says sees a lot of political uncertainty and that economic slowdown is a surprise to the ECB, adds jury still out on how persistent slowdown will be and that rate guidance may have to be adjusted at some point. While, ECB’s Villeroy (Dovish) stated they remain committed to keeping interest rates low and ECB will probably downgrade the GDP forecast in March. Finally ECB’s Vasiliauskas (Hawkish) stated that there is no reason to change ECB guidance at the moment. (Newswires)

ECB Survey of Professional Forecasters downgraded 2019 and 2020 CPI to 1.5% (Prev. 1.7%) and 1.6% (Prev. 1.7%) respectively, whilst also downgrading GDP to 1.5% (Prev. 1.8%) and 1.5% (Prev. 1.6%) for 2018 and 2019 respectively. (ECB)

German Ifo Business Climate New (Jan) 99.1 vs. Exp. 100.6 (Prev. 101) (Newswires)
German Ifo Current Conditions New (Jan) 104.3 vs. Exp. 104.2 (Prev. 104.7)
German Ifo Expectations New (Jan) 94.2 vs. Exp. 97 (Prev. 97.3)

GEOPOLITICAL

US State Department ordered non-emergency US government employees to leave Venezuela for security reasons, while there were also comments from US National Security Adviser Bolton that the Trump administration is focused on cutting off Venezuela's Maduro from revenue sources and that he doesn't think Maduro has backing of the military. (Newswires)

EQUITIES

Major European indices are in the green [Euro Stoxx 50 +1.1%], the FTSE 100 (+0.4%) is the underperforming index given the impact of yesterday’s dovish ECB, alongside overnight sterling strength following reports that the DUP may agree to PM may’s deal if the Irish backstop has a time limit. The index is also weighed on by poor performance in Vodafone (-2.2%) who missed on their Q3 service revenue. Sectors are in the green, with underperformance in telecom names given the aforementioned earnings from Vodafone. Other notable movers include Telia (-3.3%) who are at the bottom of the Stoxx 600 after the Co. missed on Q4 revenue and adjusted EBITDA. Similarly, Givaudan (-3.3%) are near the bottom of the Stoxx 600 following a miss on Q4 revenue and adjusted EBITA.

FX

DXY- The Dollar and overall index retraced some of yesterday’s trade and ECB-induced gains in which DXY reached highs just shy of 96.700. The index fell back below its 50 DMA at 96.549 and through the 96.500 level to currently hover nearer the bottom of a 96.300-530 range, with a 96.680 Fib also keeping the upside capped. Meanwhile, the US government shutdown is set to notch its 35th day after the US Senate blocked two competing proposals (although this was expected) and as a result today’s US building permits, durable goods and new home sales data will be postponed.

EUR – Staging a recovery from post-ECB lows, when EUR/USD briefly lost the 1.1300 handle. Back above the level now, the single currency was largely unreactive to unsurprising narratives from ECB’s Coeure and Villeroy, while the release of an overall downbeat German ifo survey and downgrades in the ECB SPF also did little to wobble the Euro. EUR/USD now close to the top of a 1.1300-50 range ahead of a Fib level at 1.1351. In terms of option expiries, the pair sees EUR 1.96bln scattered around 1.1300-25, EUR 1.5bln between 1.1350-60 and EUR 2.8bln between 1.1375-1.1400.

CAD – Rising oil prices and an easing buck sent USD/CAD back below its 50 DMA at 1.3350 to an intraday low of 1.3311 ahead of the psychological 1.3300 level with reported bids around the figure. A marginal pullback in energy sent USD/CAD back up to around the middle of a 1.3311-3361 band ahead of the Canadian budget balance release later today.

GBP –Tumultuous day for the Pound after a Sun article provided Cable with the fuel to sky rocket past the 1.3100 handle to a high just shy of 1.3140, well above the December low of 1.2477. The article reported that PM’s coalition party, the DUP, are willing to back her Brexit deal if the Premier can get an expiry date to the backstop, though is widely expected to be rejected by the EC. Nonetheless, the idea of unity in the government aided the Pound to set fresh yearly highs vs. the buck. However, Cable has pared back most of the overnight gains, albeit holding just above its 200 DMA (1.3055-60) and closer to the bottom of 1.3057-3139 parameters.

SEK – The marked G10 underperformer amid dismal Swedish retail sales data which dropped the most since 2010 as consumers dialled back on spending due to rising interest rates and falling global markets. This subsequently sent EUR/SEK higher to test 10.3000 at one point, with Informa noting that a spike through key resistance at 10.3400 will spur a further rally.

JPY – Choppy session thus far, but overall back on a decline amid the broad upturn in risk appetite around the market after USD/JPY rose above its 30 DMA at 109.79 to reach intraday highs of 109.91 (vs. low of 109.52) ahead of USD 1.2bln of option expiries at the 110.00 strike for the NY cut.

FIXED INCOME

EU and UK fixed income futures remain softer, with UK 10-year futures pivoting the 123.00 handle and languishing near session lows of 122.91. The slightly improved risk tone over night and reports that the DUP have agreed to support PM May’s deal (should the backstop be time-limited) has seen 10-year Gilt futures underperform their German counterparts by about 5 ticks heading into the weekend. 10-year Bund futures are trading a shade above session lows of 165.15 and are easing off 2019 pinnacles hit in yesterday’s session (165.50) amidst further confirmation of a down turning German economy by the IFO. On a technical standpoint, should 165.18 be broken more convincingly, the 165.01-07 area is next as support. Looking from a flow perspective some price action may be dictated by option expires today in the form in the Gilt, Bund, Bobl, Schatz and T-Note Feb’19 contracts.

Moving to the periphery, Italian 10-year futures are the EZ outperformer and have found a solid base above the 129.00 handle as market participants point to month-end rebalancing as the driver behind the outperformance in the periphery as a whole.

Elsewhere, UST futures are in the red across the curve with most of the action seen in the shorter end. This comes despite the US Senate rejection of 2 proposals aiming to end the Government shutdown and is likely due to updates from the US administration that they remain optimistic on trade talks and expect the jobs report to be up. This has seen 10-year futures slip just under 121-20 in a data-barren day, with participants looking out for further direction from trade updates and the government shutdown.

COMMODITIES 

Brent (-0.1%) and WTI (+0.2%) prices are mixed and off of session highs, just under USD 62/bbl and USD 54/bbl respectively; in spite of yesterday’s unexpected EIA crude inventory build of 7.97mln vs. Exp. -0.042mln draw. Elsewhere, Russia was China’s largest crude oil supplier for December and 2018; with Russia being the largest crude supplier to China for the third year in a row. Looking ahead we have the Baker Hughes rig count, where last week total rigs decreased by 25 to 1050.

Gold (+0.3%) is marginally higher on the weakness in dollar, in spite of the positive risk sentiment reducing safe haven demand for the yellow metal. Copper prices are benefiting from market sentiment, whilst palladium has lost over 8% since reaching a high of just under USD 1400/oz last week.

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