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[PODCAST] US Open Rundown 28th January 2019

  • Major European equities are in the red [Euro Stoxx 50 -0.5%] following on from a negative end to Asia ahead of key risk events
  • USD appears to have gleaned some traction in the run up to the FOMC, US-China trade talks and NFP, while GBP underperforms ahead of the Brexit “Plan B” vote
  • Looking ahead, highlights include US National Activity Index, ECB’s Draghi, BoE’s Carney, Fed’s Mester, US 2yr and 5yr Auction
  • EARNINGS: Caterpillar, T Rowe

ASIA

Asian equity markets initially began the week mostly higher as the region resumed the positive momentum seen on Friday in the US, where all majors gained and President Trump agreed with lawmakers to end the record-long government shutdown. This lifted sentiment across the Asia-Pac bourses in early trade with ASX 200 and Nikkei 225 (-0.7%) the exceptions as Australia remained closed for holiday and Japanese stocks were hampered by recent currency flows, with Japan Display among the worst hit after it flagged a severe situation regarding its FY net. Elsewhere, Hang Seng (U/C) and Shanghai Comp. (-0.2%) positive for most the session as corporate updates also provided a catalyst in which Sinopec were underpinned by an increase in preliminary FY net and revenue. However, the region later failed to hold on to early gains amid several factors including PBoC liquidity inaction, a consecutive monthly decline in Chinese Industrial Profits and looming risk events including US-China trade discussions. Finally, 10yr JGBs were relatively uneventful with only brief support despite the underperformance of Tokyo stocks and BoJ presence in the market for JPY 1tln of JGBs, while the BoJ minutes from the December meeting also failed to garner a reaction as it provided no surprises and considering there was also a more recent meeting held last week.

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.7472 (Prev. 6.7941)

Chinese Industrial Profits (Dec) Y/Y -1.9% (Prev. -1.8%). (Newswires)

WTO is expected to announce probe into whether US tariffs on China violate WTO rules. (Newswires)

Chinese Premier Li said China's economy has enough resilience, as well as potential and ample space for growth, while he added they are fully confident and able to keep growth within appropriate range despite multiple risks and challenges this year. (Xinhua)

US

US President Trump said he sees less than a 50% chance of reaching a deal by Feb 15th and he is open to declaring a national emergency if lawmakers fail to provide funding for border wall and was said to have told advisers that declaring a national emergency may now be his best option. Trump added that another shutdown is certainly an option and dismissed suggestions he would accept less than USD 5.7bln for the border wall. (WSJ/Washington Post)

GEOPOLITICS

US Senator Graham said President Trump spoke to him regarding possibility of using military force in Venezuela. (Axios)

Senior US Government official confirms progress with the Taliban, but adds that additional talks are required and unless there is a ceasefire a withdrawal cannot happen. This follows reports that US and Taliban officials in Doha, Qatar were reportedly finalizing a draft agreement that will end the 17-year-old war in Afghanistan. (Newswires)

UK/EU

Ireland said it will not accept changes to agreement aimed at avoiding a hard border and that the backstop was already a compromise drawn up to meet May's negotiating redlines, while the EU and Ireland were said to be united in the view it was not going to change, according to reports citing Deputy PM Coveney. (Newswires)

UK PM May reportedly told cabinet ministers privately she will not allow Britain to exit without a deal, although is said to not be ready to rule out a no-deal publicly as it would impact negotiations with Brussels. (The Sun)

Remain ministers stated during a secret conference call that UK PM May must commit to securing her Brussel deal within 2 weeks to avoid resignations regarding a no-deal Brexit. In related news, Conservative MPs loyal to PM May are reportedly threatening to abandon support for her Brexit deal and will push for a soft Brexit if Parliament passes Labour MP Cooper’s proposal which could delay the withdrawal date. (Telegraph/Times)

UK 1922 Committee Chairman Brady says that they are seeing some flexibility and creativity creeping in the EU regarding Brexit. (Newswires)

Conservative Lawmaker Boles says it is unlikely that there will be a free vote on his amendment; ‘Boles’ amendment states that if there is no deal by end of February the government must create a binding motion seeking an extension of Article 50. (Newswires)

ITV’s Brand tweets, "Conservative Brexiter tells me government whips are actively sounding them out about Murrison/Brady amendments. Almost to point of encouraging them to vote for them. Could govt be about to swing behind them?". (Twitter) Note: Murrison amendment insists the backstop will expire on 31st December 2021, while Brady’s requires the backstop to be replaced with alternative arrangements.

Telegraph’s Political Editor Swinford tweets "I'm told the ERG will only swing behind the Brady amendment if the PM gives a public statement committing to re-opening the EU withdrawal agreement and renegotiating the backstop." (Twitter)  For reference the Brady amendment requires the backstop to be replaced with alternative arrangements.

EQUITIES

Major European equities are in the red [Euro Stoxx 50 -0.5%] following on from a negative end to Asia ahead of key risk events US-China talks and the Brexit ‘Plan B’ vote. Sectors are similarly in the red, energy names are underperforming (amid the price action in the complex) with some outperformance seen in telecom names; with the likes of Dixons Carphone (+3.1%) in the green after being upgraded at Morgan Stanley. Other notable movers include, Telecom Italia (+1.4%) who were initially at bottom of the Stoxx 600, though the company pared losses amid reports suggesting that Enel’s (-0.3%) open fibre unit are said to be seeking a pact with the Co. Elsewhere, London-listed Ocado (+2.7%) are towards the top of the Stoxx 600 following reports that the Co. have held talks with Marks and Spencer (+0.4%) concerning the launch of a food delivery service. Finally, miners are initially outperformed (Rio Tinto +1.6%) amid hopes of rising iron ore prices following the dam collapse at the Vale mine in Brazil.

FX

GBP - The main G10 underperformer ahead of Tuesday’s Brexit vote, as Cable recoils from 1.3200+ overnight peaks and Eur/Gbp bounces off circa 0.8637 lows to trade around 1.3150 and 0.8670 respectively. Consolidation, profit-taking and/or position paring has stemmed the latest advance in Sterling, along with a broader stabilisation in the Dollar and relative resilience in the single currency (holding above 1.1400 vs the Usd) following firmer than forecast Eurozone M3 data. Note, decent Eur/Usd option expiry interest between 1.1400-15 as 1.4 bn rolls off at the NY cut. Back to the Pound, some chance of additional impetus via BoE members today including Governor Carney, Broadbent and Ramsden, but in truth tomorrow’s Plan B Parliament judgement will likely be the next major driver.

NZD - The Kiwi tops the major league, albeit helped by external factors, like a firmer Yuan and Aud cross flows, as Australia’s national day celebrations spilled over to Monday. Nzd/Usd is pivoting 0.6850 and Aud/Nzd has dipped below 1.0500, while Aud/Usd hovers just under 0.7200. Back to the Kiwi, NZ trade data looms and could be key.

DXY - As noted, the Buck appears to have gleaned some traction in the run up to the FOMC, US-China trade talks and NFP, with perhaps a degree of support coming via the deal to re-open Government. However, the index still looks vulnerable sub-96.00 within a 95.920-671 range, and as the Greenback remains softer vs the Jpy and Chf circa 109.50 and 0.9915.

CAD - Soft oil prices undermining the Loonie to an extent, as Usd/Cad nestles near the top of 1.3200-30 parameters

FIXED INCOME

After churning and trading sideways in the absence of any fresh catalysts, drivers or major breaking headlines, core debt is sagging again with Bunds easing a bit further below 165.00 to 164.88, so far (-19 ticks on the day). Techs may now be eyeing 164.82 ahead of 164.59-56 and then deeper trendline chart support at 164.33 given the downside break through last Friday’s Eurex low, while Gilts bears will also be looking at a trend low (122.52) if the opening 122.61 Liffe print is pierced. Perhaps a partial recovery in EU stocks is weighing, while US Treasuries have edged lower ahead of hefty supply and the prospect of more regular data updates in the run up to the Fed as Government workers return to their desks.

COMMODITIES 

Brent (-1.6%) and WTI (-1.7%) are both firmly in the red, weighed on by risk sentiment, ahead of this week’s key events including US-China trade talks in Washington. Furthermore, Friday’s Baker Hughes rig count showed the number of active oil rigs increased by 10 (first increase this year); adding additional downward pressure to the complex.

Gold (-0.2%) is marginally in negative territory, weighed on by dollar strength despite of the negative risk sentiment, as the yellow metal detaches itself from its safe-haven status (again). Elsewhere, the US has removed sanctions on Rusal and two other firms connected with Russian billionaire Deripaska; with the move returning some certainty to the aluminium markets supply. Separately, iron ore prices have moved higher as markets react to news of a dam collapse at the Corrego do Feijao iron ore mine in Brazil; for reference the mine has an approximate capacity of 7.8mln tonnes.

Categories:
MOC: * SPX 850mln to sell (vs at 650mln to sell at 1549 EDT) * Dow 50mln to sell (vs 100mln to buy at 1549 EDT)