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[PODCAST] US Open Rundown 7th February 2019

  • Major European equities extended losses [Euro Stoxx 50 -0.8%] as the risk-averse sentiment intensified following the European Commission’s cut to Eurozone GDP and inflation
  • DXY advances further above 96.500 while EUR/USD and GBP/USD fell below 1.1350 and 1.2900 respectively
  • Looking ahead, highlights include BoE Rate Decision, Press Conference & QIR, US Initial Jobless Claims, Fed's Kaplan & Clarida, UK PM May meeting European Council President Tusk, US Auction
  • EARNINGS: Cardinal Health, Kellog, Yum! Brands, Tyson Foods, Expedia, ice, Western Union, Phillip Morris, Twitter, T-Mobile

ASIA

Asian equity markets were somewhat mixed with the region cautious following the subdued performance on Wall St, where all majors posted mild losses and the S&P 500 snapped a 5-day win streak. Nikkei 225 (-0.6%) was negative with sentiment dampened by a firmer currency and as participants digested a slew of earnings, although the index was not short of success stories as Mazda was buoyed after an upward revision to guidance and SoftBank surged over 17% on higher profits and the announcement of a JPY 600bln buyback. Elsewhere, KOSPI (Unch) traded indecisively and struggled to maintain the early exuberant tone on return from the Lunar New Year holidays, while ASX 200 (+1.1%) outperformed its peers with broad-based gains as sentiment continued to get a lift from RBA Governor Lowe’s recent dovish shift to a more evenly balanced view on rates. Finally, 10yr JGBS failed to benefit from the risk averse tone in Japan with demand kept subdued amid a similar picture seen in T-notes, while firmer results at today’s 30yr JGB auction were also ineffective in spurring prices.

Italy's industry minister has denied reports that the government will ban China's Huawei and ZTE from it's 5G plans; adding that there is no evidence that Huawei presents a threat to national security. (Newswires)

US

Fed Chair Powell said the US economy is now in a good place, while he also commented that surveys have showed this is a good time to find a job for workers which is a sign of a very healthy labour market but added that lagging labour force participation is a concern. (Newswires)

Fed's Quarles says we have better tools than monetary policy to address financial stability concerns. (Newswires)

UK/EU

UK Parliament is now said to be planning a 2nd Brexit vote at the end of the month, ministers believe an extension of Article 50 is now inevitable; vote will now likely be held on the week commencing Feb 25th. (Telegraph)

UK government is reportedly presenting Brexit motion on Feb 14th, the motion is to allow MPs to debate plan B options and the government has not set a date for the vote on the revised Brexit deal. (Newswires)

UK opposition Labour Party leader Corbyn sent a letter to PM May in which he made 5 legally binding Brexit demands in return for Labour support behind her deal. (Guardian)

A “permanent and comprehensive UK wide customs union” and a future say in trade deals

Close alignment with the single market

“Dynamic alignment on rights and protections

Clear commitments on future British participation in EU agencies and funding programmes

Agreements on future security arrangements
 

UK Cabinet Office Minister Lidington says he may hold talks with opposition Labour figures in an attempt to reach a compromise regarding Brexit. (Newswires)

BBC's Assistant Political Editor tweets "Am told PM will not put a specific proposal to eu on backstop but will seek eu acceptance that backstop has to change.". (Twitter)

UK PM May spokesman says the governments position on the customs union with the EU has not changed; adding that the PM will respond to Labour leader Corbyn’s letter in due course. (Newswires)

ECB Bulletin: Economic indicators signal a moderation in global growth momentum; downside risks have been increasing. Lower oil prices are likely to lead to further declines in headline inflation in the coming months. Global trade decelerated towards the end of 2018 as downside risks related to unresolved trade disputes remained prominent and growth in emerging markets slowed down. (Newswires)

European Commission Winter Forecasts:

- 2019 GDP:

              - Eurozone 1.3% (Prev. 1.9%)

              - Germany 1.1% (Prev. 1.8%)

              - France 1.3% (Prev. 1.6%)

              - Italy 0.2% (Prev. 1.2%)

              - UK 1.3% (Prev. 1.2%)

- 2019 Inflation:

              - Eurozone 1.4% (Prev. 1.7%)

German DIHK Chambers of Industry and Commerce has lowered their 2019 GDP growth forecast to 0.9% vs. Prev. 1.7%. (Newswires)

German Industrial Output MM Dec -0.4% vs. Exp. 0.7% (Prev. -1.9%, Rev. -1.3%)

Italian Retail Sales NSA YY* Dec -0.6% (Prev. 1.6%, Rev. 1.7%)

Italian Retail Sales SA MM* Dec -0.7% (Prev. 0.7%, Rev. 0.6%)

EQUITIES

All major European equities kicked off the day in the red [Euro Stoxx 50 -0.8%], taking the lead from the softer performance seen on Wall Street; losses extended as the risk-averse sentiment intensified following the European Commission’s cut to Eurozone GDP and inflation forecasts. The FTSE 100 (-0.1%) is less impacted amid currency effects. Sectors are mixed with some underperformance seen in telecom names and some outperformance in healthcare.  Towards the bottom of the Stoxx 600 are Tui (-16.7%) following the Co. cutting profit outlook due to sector headwinds.  Separately, Publicis (-12.4%) are down following Q4 revenue growth coming in below expectations; pressuring WPP (-6.2%) and Prosiebensat (-3.1%) in sympathy.

FX

NZD – The Kiwi has dropped to the bottom of the G10 pile on the back of a relatively bleak NZ jobs report overnight, as employment growth almost dried up in Q4 and the unemployment rate rose more than expected. Nzd/Usd is now hovering around 0.6750 and in danger of testing support just ahead of 0.6700 having lost grip of the 0.6900 and 0.6800 handles in very short order, while the Aud/Nzd cross has snapped back above 1.0500 from close to 1.0400 only yesterday even though the Aussie continues to weaken independently on the RBA shift from a tightening to neutral bias, with Aud/Usd pivoting 0.7100 and edging closer to bids/tech support circa 0.7075.

EUR/CAD/GBP – All extending losses vs the Greenback as well, and the single currency blighted by more weak Eurozone data, confirmation of downside economic risks via the latest ECB monthly bulletin and GDP/inflation downgrades from the EU Commission. Eur/Usd has now filled bids at 1.1350, with bears targeting the 1.1320 level next for more buying interest ahead of the 30 DMA around 1.1316 before 1.1300. Meanwhile, consolidation in crude prices and a stalling of recent recovery momentum has combined with a change in the technical landscape for the Loonie that has retreated further from recent highs to 1.3250+, and Sterling continues to suffer Brexit-related jitters on top of the overriding Dollar strength (DXY holding firm above 96.500), with Cable testing support just under 1.2900 (namely 1.2895 where 30 and 100 DMAs align).

JPY/CHF – Relative outperformers and benefiting from their safe-haven appeal as risk sentiment wanes, with Usd/Jpy reversing from another 110.00+ foray and Eur/Chf has retreating further from 1.1400+ even though the Franc remains below par vs the Buck.

NOK/SEK – As usual, the Scandi crowns are prone to broader swings in risk appetite, and thus are weaker today irrespective of regional data like firmer than forecast Norwegian manufacturing production and steady, albeit flat Swedish house prices. Eur/Nok is around 9.7270 and has been up over 9.7300, while Eur/Sek climbed to 10.4950 at one stage before easing back a bit towards 10.4700.

FIXED INCOME

It took a while, and perhaps somewhat longer than appeared likely in early EU trade, but the combination of poor data, the ECB’s monthly report underlining last month’s downgrade to the balance of risks and some significantly lower EU growth forecasts eventually pushed Bunds through their previous contract best and 166.00 on the way to a fresh high at 166.21 (+70 ticks on the day). Accordingly, or concurrently, the 10 year German yield broke down through the 0.15-0.146% area to a new 2+ year low around 0.125% and opening the way to single digit levels. Back to the futures, 166.22 is the nearest continuation chart peak before a stronger level at 166.40, while Gilts are now nudging 124.01 (+37 ticks) ahead of 124.19 and then their Mar contract pinnacle at 124.45 as the focus turns to BoE super Thursday in earnest. Elsewhere, US Treasuries are also on a roll and the curve is flattening further ahead of a packed US agenda.

COMMODITIES 

Brent (-0.5%) and WTI (-0.4%) prices have been choppy but are ultimately in the red, although off of session lows as the impact from yesterday’s EIA data showing production remained unchanged at the record level of 11.9mln BPD dissipated overnight where trade in the complex was largely flat. In recent news flow Libya’s NOC is said to have not ordered the Sharara oil field to be reopened; Libya are reportedly producing 950k BPD of oil. Separately, the TransCanada Keystone oil pipeline was shut due to a potential leak in the Missouri area; however, it was unknown if the leak originated from Keystone. Finally, sources noted that Saudi oil output fell to 10.24mln BPD, below the target level under the OPEC production pact.

Gold (Unch) prices are muted and trading within a thin USD 5/oz range, the yellow metal is still above the USD 1300/oz level and continues to move in tandem with the buck. Similarly, London Metal Exchange copper has retreated from the two months high reached in the previous session as the dollar firms and China’s absence due to their holiday continues to impact markets.

Transcanada Keystone oil pipeline was shut due to a potential leak in St. Louis, Missouri area, although it was unsure if the leak was from Keystone. Elsewhere, an evacuation was ordered in a San Francisco neighbourhood after a PG&E gas line explosion engulfed some buildings in flames. (Newswires)

CME lowered March 2019 NYMEX crude oil futures margins to USD 3900 per contract from USD 4275 per contract. (Newswires)

Libya's NOC is said to have not ordered the reopening of Sharara oil field yet; the country is reportedly producing 950k BPD of oil. (Newswires)

Saudi Arabia's January oil output fell to 10.24mln, below the target level under OPEC production cut pact; according to OPEC sources. (Newswires)

Russian Energy Minister Novak says the charter on indefinite cooperation with OPEC could be discussed in April; as according to Tass. (Newswires)

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Morning all! - Asian stocks were mixed as the region struggled for firm direction following yesterday’s rally and… https://t.co/Z4rnzsUd0k