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[PODCAST] US Open Rundown 5th February 2019

  • Major European indices extend on opening gains and are firmly in positive territory with Britain’s FTSE 100 (+1.4%) led by oil and mining giants
  • EUR and GBP are both on the back foot vs the Dollar and inching closer towards downside big figures at 1.1400 and 1.3000 respectively
  • Looking ahead, highlights include Canadian Trade, US ISM Non-Manufacturing PMI, APIs and US 3yr Note Auction
  • EARNINGS: Anadarko Petroleum, Archer Daniels, Walt Disney, EA, Gartner, Estee Lauder, Viacom, Snap, Intesa Sanpaolo

ASIA-PAC

Asia-Pac equity markets found some early support from the tech-led gains on Wall St, although later turned somewhat mixed amid focus on earnings and with most the region shut for the Lunar New Year. Nonetheless, ASX 200 (+2.0%) was the stellar performer due to strength in its largest weighted financials sector as banks seemingly made light of the Banking Royal Commission final report regarding misconduct in the industry. As such, Australia’s banking powerhouses all edged firm gains in the aftermath of the report which recommended against structural separation and referred 24 misconduct cases to regulators but did not suggest criminal charges, while many viewed the report as unlikely to result in fundamental reforms for the industry in the long-term and Moody’s also noted that the recommendations will likely preserve profitability in the industry. Nikkei 225 (-0.2%) shrugged off opening gains and traded flat as earnings remained the main driver for price action in Tokyo after Panasonic cut its outlook, while Yahoo Japan outperformed following an upward revision to its FY giudance. Finally, 10yr JGBs were initially pressured as they followed suit to the recent downside in T-notes, although prices later rebounded following the 10yr auction in which the b/c and accepted prices increased from prior, while the average yield slipped to negative territory.

US Trade Representative Lighthizer said in report to Congress that the US intends to hold China accountable for unfair market distorting trade practices that harm US workers, businesses or farmers. (Newswires)

UN predicts US and China tariff hike would enable EU to take over about USD 70bln of US-China trade. (Newswires)

RBA kept the Cash Rate Target unchanged at 1.50% as expected. The RBA reiterated that low rates are supporting the economy and that progress on inflation and unemployment is expected to be gradual. Furthermore, the RBA noted that the labour market remains strong and that it sees a gradual inflation pick up over next couple of years but added that the central scenario for GDP growth is to average around 3% this year and to slow in 2020 vs. Prev. forecast of around 3.5% growth for the next 2 years back at the December meeting. (Newswires)

Australian Retail Sales (Dec) M/M -0.4% vs. Exp. -0.1% (Prev. 0.4%, Rev. 0.5%). (Newswires)
Australian Retail Sales (Q4) Q/Q 0.1% vs. Exp. 0.4% (Prev. 0.2%)

US

US President Trump's inaugural committee said it received a subpoena for documents. Elsewhere, there were separate reports that US Rep. Neal is building a case to subpoena US President Trump's tax returns. (Newswires)

Fed said Chairman Powell and Vice Chair Clarida met with President Trump at the White House in which they discussed the economic outlook. Fed added that Powell's comments were inline with last week's press conference and did not include expectations for monetary policy, while Powell stressed that policy will depend entirely on incoming economic information (Newswires)

Fed's Mester (Non-Voter, Hawk) said Fed's wait and see approach is well calibrated to outlook and that US economy is in a good place. Furthermore, Mester forecasts 2.00-2.50% GDP growth, 2% inflation and unemployment at 4% for this year, while she added that rates may need to go a bit higher if economy performs as she expects but will adjust outlook and policy views if the economy is weaker than what she anticipates. (Newswires)

Alphabet Inc (GOOGL) reported Q4 diluted EPS USD 12.77 vs. Exp. USD 10.82, revenue USD 39.28bln vs. Exp. USD 38.93bln. Co. reported capital expenditures just above USD 7.0bln, above the projected USD 5.63bln, with concerns also raised over margins, subsequently Co. shares fell over 3% after-market. (Newswires/CNBC)

UK/EU

Europe’s top official offered Britain a legal guarantee that it would not be trapped by the Irish backstop last night but was swiftly rejected by Brexiteer MPs. (Times)

As a reminder, UK PM May is heading to Northern Ireland in a bid to salvage her Brexit deal by finding an alternative to the "toxic" backstop proposal. (Sky News)

UK Ministers are secretly planning to unilaterally cut tariffs on all imports to zero in the event of a no-deal Brexit, in a move that could flood the market with cheap goods and “ruin” industry, according to a HuffPost UK exclusive. (HuffPost)

EU may drastically reduce its 2019 growth forecast for the Italian economy, according to Italian press. (Newswires)

  • UK Markit/CIPS Services PMI (Jan) 50.1 vs. Exp. 51 (Prev. 51.2)
  • EU Markit Services Final PMI (Jan) 51.2 vs. Exp. 50.8 (Prev. 50.8)
  • EU Markit Comp Final PMI (Jan) 51.0 vs. Exp. 50.7 (Prev. 50.7)
  • German Markit Services PMI (Jan) 53.0 vs. Exp. 53.1 (Prev. 53.1)
  • German Markit Comp Final PMI (Jan) 52.1 vs. Exp. 52.1 (Prev. 52.1)
  • French Markit Services PMI (Jan) 47.8 vs. Exp. 47.5 (Prev. 47.5)
  • French Markit Comp PMI (Jan) 48.2 vs. Exp. 47.9 (Prev. 47.9)
  • Italian Markit/IHS Services PMI (Jan) 49.7 vs. Exp. 50 (Prev. 50.5)
  • Spanish Services PMI Jan 54.7 vs. Exp. 53.0 (Prev. 54.0)
     

GEOPOLITICS

UN sanctions monitor report said North Korea nuclear and ballistic missile program remains intact and that North Korea is working to protect those capabilities from military strikes. Furthermore, it added that North Korea is violating UN arms embargo and is breaching sanctions through illegal ship-to-ship transfers of petroleum products and coal. (Newswires)

EQUITIES

An upbeat session for European equities thus far following on from a holiday-thinned Asia-Pac session as the region is fuelled by a number of large-cap earnings. Major indices extended on opening gains and are firmly in positive territory (Euro Stoxx 50 +1.0%) with Britain’s FTSE 100 (+1.4%) leading the advances amid upbeat earnings from heavyweight BP (+5.2%), wherein the oil-giant beat on adjusted net and revenue forecasts while also expecting higher underlying production and lower refining margins this fiscal year. Sectors are experiencing broad-based gains with the energy sector the marked outperformer as earnings from BP lifts the likes of Royal Dutch Shell (+1.7%) and Total (+1.6%) in sympathy. Elsewhere, the tech sector is largely resilient to a guidance cut from AMS (-13.2%), as the rebound in Wirecard (+6.5%) keeps the sector afloat. Meanwhile, Infineon (-0.3%) numbers printed largely in-line, though the company now expects 2019 revenue growth to be at the bottom end of the forecast range. Finally, Indivior (-11.4%) shares fell as much as 24% at the EU open after the US Federal Court rejected its appeal for another hearing regarding patent infringement by a low-cost copycat drug developed by Dr Reddy.

FX

AUD - Top G10 performer after a sharp turnaround in fortunes overnight, as the Aussie recovered impressively from sub-0.7200 lows vs the Usd and circa 1.0455 vs the Nzd in wake of a less dovish than many anticipated RBA policy statement. This, despite yet more disappointing data in the form of retail sales and downgrades to the outlook for growth in 2019 and 2020. Aud/Usd is now back up near 0.7250 and Aud/Nzd has rebounded over 1.0500+.

CHF - The Franc has extended recent losses vs the Greenback and just traded down through parity amidst broadly risk on trade highlighted by broad EU equity market gains, and the Chf seemingly taking some of the strain from the Jpy that has rebounded from 110.00+ vs the Usd.

EUR/GBP - Both on the back foot vs the Dollar and inching closer towards downside big figures at 1.1400 and 1.3000 respectively. The single currency tested bids around 1.1410 before gleaning some traction from a firmer than flash pan-Eurozone services PMI as sub-50.00 Italian and French prints were offset by more encouraging Spanish and German surveys (in headline terms at least). However, Eur/Usd remains precarious below several daily chart levels and just above decent option expiries between 1.1400-10 (1.1 bn). Conversely, Cable has now breached the 200 DMA (around 1.3038) following a 3rd and most worrying UK PMI miss given the importance of services to overall GDP. The Pound is holding just above late January lows, while Eur/Gbp has rebounded towards recent peaks not far from 0.8800.

CAD - The Loonie continues track moves in crude prices and is back on the front foot vs its US counterpart having rebounded above the 200 DMA (1.3130) and retesting chart/psychological resistance at 1.3100.

DXY - Although the Usd is mixed vs major currency rivals, the index has inched a bit closer to the 96.000 mark, largely by virtue of the aforementioned Eur/Usd decline and that pair’s biggest weighting in the basket.

FIXED INCOME

Bunds and Gilts have both slipped to new intraday troughs in recent trade, at 164.99 and 122.98 respectively, as EU equities consolidate and build on gains. However, the 10 year benchmarks have not succumbed to follow-through selling or triggered more stops to test the next set of downside chart targets as one might have anticipated. The core Eurozone debt future did trip some on a break of the 165.12-09 area that incorporated a Fib, but is back above 165.00 and its UK equivalent is now just over par after the latest considerably weaker than consensus PMI. It looks like Bunds may be deriving some underlying support from the corresponding 10 year yield holding around 0.20% in the same vein that 0.15% proved sticky on the downside (upside in futures terms). Elsewhere, US Treasuries are on the back foot and the curve a tad steeper, awaiting data and the first slug of this week’s supply, but there have been some bullish flows noted via options during the overnight session.

COMMODITIES 

A relatively choppy session for the oil market as earlier losses were nursed after a muted Asia-Pac trade. WTI (+1.1%) and Brent (+0.7%) edged higher in recent trade amid the overall market risk-appetite wherein the former reclaimed USD 53/bbl, while the latter hovers around the USD 63/bbl level. News flow has been light for the complex with participants awaiting the release of the weekly API crude inventories for a further catalyst. Elsewhere, metals have been mixed with spot gold (+0.1%) largely moving in tandem with the buck, meanwhile copper is outperforming in the complex with prices holding onto most of yesterday’s risk-fuelled gains. Finally, iron ore prices remain on an upward trajectory as Brazilian mining-giant Vale suspended operations at its Brucutu mine to comply with a court order regarding safety improvement at the mine, ING notes “the mine halt could impact 30mtpa of iron ore supply if Vale is unable to successfully appeal the decision.”

US doesn't plan to extend sanction waivers to purchasers of Iranian oil and are seeking to reduce Iranian oil shipments to zero ASAP, according to reports citing US State Department Senior Policy Adviser Hook. (NHK)

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