[PODCAST] US Open Rundown 11th February 2019
- Risk appetite has supported EU stocks (Euro Stoxx 50 +0.8%) ahead of crucial trade talks this week
- DXY gains more ground, eyeing YTD highs and then the 97.000 mark
- Bipartisan talks over the weekend regarding funding for the border wall is said to have reached a stalemate ahead of this week’s government shutdown deadline
- Looking ahead, highlights include Canadian Trade Balance, Fed’s Bowman
Asia equity markets began the week mixed following the similar performance of their US peers on Friday and with participants also cautious ahead of this week’s US-China trade discussions, while a stalemate regarding border wall funding also spurred fresh US government shutdown fears. ASX 200 (-0.2%) was negative with the index dragged by losses in the top-weighted financials sector and with focus on several corporate updates, while the absence of Japanese markets for National Founding Day has contributed to the uninspiring tone. Elsewhere, Hang Seng (+0.7%) and Shanghai Comp. (+1.3%) were initially choppy on China’s return from the week-long closure amid trade-related uncertainty and expectations of a drain in liquidity which is typically the case following the Lunar New Year holidays, although mainland stocks later found support in tandem with outperformance in Shenzhen.
PBoC skipped open market operations for a net daily drain of CNY 20bln, while there were separate reports that over CNY 1.0tln of PBoC lending operations will expire this week. (Newswires/China Securities Journal)
PBoC set CNY mid-point at 6.7495 (Prev. 6.7081)
China GDP is expected to slow to 6.3% for this year, while it was also suggested that Q1 GDP may slow to 6.0% which would be the weakest start to the year on record. (China Daily/FT)
US President Trump's advisers are said to have informally discussed holding a summit at Mar-a-Lago next month with Chinese President Xi as part of an attempt to end the trade dispute. (Axios)
US Treasury Secretary Mnuchin and USTR Lighthizer to go to China for trade meetings on February 14-15 and deputy-level talks are to begin on February 11. (Newswires)
US President Trump tweeted a comment that suggested he is on sound legal ground to declare a National Emergency, while he also noted that Border Committee Democrats are all of a sudden behaving irrationally. Furthermore, it was separately reported that bipartisan talks over the weekend regarding funding for the border wall is said to have reached a stalemate ahead of this week’s government shutdown deadline. (Twitter)
UK PM May has agreed to talks with Labour leader Corbyn regarding a soft Brexit according to The Telegraph, although it was separately reported that UK PM May rejected a pivot towards a Brexit customs union compromise. Nonetheless, should May engage in discussions with Corbyn on entering into a customs union, The Times reports that this could see the PM lose support from some members of her cabinet. (Telegraph/Newswires)
UK PM May spokesman says PM May will made a statement to Parliament tomorrow, not on Wednesday. Spokesman says No10 are "absolutely clear" that they are not considering Corbyn's customs proposal. (Newswires)
A leading thinktank,The Institute for Fiscal Studies, has revealed that UK Chancellor Hammond will need to find an extra GBP 5bln this year to meet his claims of ending austerity. (The Guardian)
UK Chancellor Hammond says now is not the time for an Article 50 extension. (Newswires)
Swiss Govt. confirms they have signed a trade agreement with the UK; will come into effect when the Swiss/EU agreements don't apply to relations between the UK and Switzerland) Elsewhere, Italy is forming emergency plans to safeguard financial stability and keep trade with the UK flowing even if there is a no-deal Brexit. (Telegraph)
UK GDP Prelimiary YY Q4 1.3% vs. Exp. 1.4% (Prev. 1.5%, Rev. 1.6%)
- GDP Preliminary QQ Q4 0.2% vs. Exp. 0.2% (Prev. 0.6%)
- UK Industrial Output YY Dec -0.9% vs. Exp. -0.4% (Prev. -1.5%, Rev. -1.3%)
Italy’s coalition government is reportedly in sharp disagreement over protecting the Bank of Italy’s independence after central bankers issued more pessimistic economic growth forecasts this year. (FT)
Italian Deputy PM Salvini says that the idea of using gold reserves to plug budget holes could be interesting. (Newswires)
ECB’s de Guindos says he expects inflation in the Eurozone to continue to slow in the coming months, and higher underlying inflation in the medium term. Adding that interest rates are expected to remain at present levels ‘at least through the summer of 2019’.
US General said withdrawal of US forces from Syria is likely to begin in weeks dependent on conditions on the ground, while he added that US troop levels in Iraq are to remain steady. (Newswires)
UK Defence Minister said Britain should enhance military lethality post-Brexit and must show it will act when needed, while he added that Russia provocation must come at a cost. (Newswires)
All Major European Indices are in the green [Euro Stoxx 50 +0.8%], strengthening from the mixed trade seen in Asia overnight. FTSE MIB (+1.5%) is the outperforming index largely due to strength in banking names, with Banco BPM (+7.2%), BPER Banca (+5.6%), UBI Banca (+3.5%) and Intesa Sanpaolo (+1.9%) in the green following ECB SREP capital requirement updates. Following this, all sectors are higher with some outperformance seen in the financial sector. Other notable movers include Smith & Nephew (-4.8%) who are towards the bottom of the Stoxx 600, after reports that the Co. are to acquire NuVasive in a deal worth over USD 3bln. Elsewhere, Euronext (+0.6%) have been choppy after they increased their offer for Oslo Bors; who have stated they still prefer a takeover by Nasdaq. Just Eat (+2.1%) are in the green as shareholder Cat Rock Capital have stated the Co. should engage in merger discussions. In terms of US premarket news, Apple’s iPhone shipments to China decreased by an estimated 20% in Q4 as Huawei’s grip on the market strengthened; the Co. are up by around 0.3% in the pre-market.
USD - The Dollar remains underpinned heading in to the next round of US-China trade talks, and with further impetus derived from ongoing weakness in rival currencies. The DXY has inched higher as a result and is now testing nearest resistance around 96.809 ahead of 97.000 and the next upside chart target at 97.116.
JPY - The G10 underperformer and major mover, partly due to thinner trading conditions overnight as Japanese markets were shut for National Foundation Day. However, the Jpy was also hit by cross demand and the headline pair has subsequently cleared last Monday’s 110.16 high that had been containing gains to trade up at 110.27.
CHF/GBP/NOK- Also considerably weaker, but the Franc has recovered relatively well from an abrupt slide to almost 1.1000 vs the Usd and back through 1.1400 vs the Eur as a combination of stops and model-driven buy orders were triggered in the aforementioned illiquid holiday impacted Asian session, with some talk that the move could have been prompted by an erroneous trade. Note, the Chf largely shrugged off in line Swiss CPI in stark contrast to Sterling and the Norwegian Krona that both extended losses in wake of data (GDP, IP, manufacturing and construction output in the case of the former, and inflation for the latter). Indeed, Cable fell from circa 1.2955 to around 1.2895 and only a few pips from the 100 DMA (1.2892), while Eur/Nok climbed to just shy of 9.8400 vs sub-9.7700 at one stage.
EUR - Notwithstanding the cross Jpy demand noted above, the single currency has dipped under 1.1300 vs the Greenback to test bids/support around key downside chart levels at 1.1296 (30 DMA) and 1.1289 (current 2019 low). No fresh bearish catalyst or new driver, but the Eur is still being undermined by slowing Eurozone growth, inflation and political jitters.
NZD/AUD/SEK - All bucking the overall trend and/or holding up better vs broadly firm Usd, with the Kiwi gleaning some encouragement after keeping its head above the 100 DMA (0.6725) to probe above 0.6750 and the 200 DMA (0.6756), but unable to clear 0.6775. Meanwhile, the Aud continues to consolidate after last week’s heavy RBA-related losses, and hover just under 0.7100/1.0500 vs its US and NZ counterparts, and the Swedish Krona has rebounded above 10.5000 vs the Eur amidst relative gains vs its Scandinavian peer.
RUB - The Rouble has been choppy between 65.3975 and 65.7655, with initial strength seen following Moody’s ratings upgrade whittled away by the generally bid Usd and another dip in Brent crude prices.
The core 10 year EU bonds have pared losses, with Gilts reclaiming 124.00 with a little more conviction in wake of the raft of mostly weaker than forecast UK data, while Bunds may have taken some solace from holding above last Friday’s Eurex base to trade back over 166.40, albeit just as EU equities remain firm and Italian BTPs even firmer than they were earlier (126.50 new high). Elsewhere, US Treasuries have slipped from overnight session peaks and the curve is fractionally steeper ahead of a speech by Fed’s Bowman, and potentially more data in the form of Q4 labour costs and productivity.
Brent (-0.3%) and WTI (-0.9%) prices have weakened on the cautious risk tone ahead of this week’s US-China trade talks. In terms of recent news flow UAE Energy Minister Al Mazroui has stated that the OPEC+ compliance was excellent in January, he sees a balanced oil market in Q1 2019 and no further action is required by OPEC+. In spite of Friday’s Baker Hughes Rig Count which saw oil rigs increase by 7, adding to the concern that record US production will hamper the OPEC+ production cuts. Separately, the Venezuelan Oil Minister stated that their oil output is currently at 1.57mln BPD, and the country are looking to expand their cooperation with India. Looking ahead OPEC are due to release their monthly oil report tomorrow, which includes January production estimates; separately, the IEA are to release their report on Wednesday.
Gold (-0.5%) prices are weighed on by dollar strength, in spite of the uncertain risk tone seen overnight ahead of US-China trade talks. Elsewhere, iron ore futures have jumped up by over 8% today as China returns to the market following the holiday period for Chinese New Year. Separately, UBS say the iron ore market faces a deficit of 30mln tonnes due to the Vale dam collapse.
UBS said iron ore market faces deficit of 30mln tons due to Vale crisis. (Newswires)
Venezuelan Oil Minister says the country is looking to expand cooperation with India; adding that the country’s oil output currently stands at 1.57mln BPD. Also stating that US oil sanctions on the country are impacting production (Newswires)
UAE Energy Minister Al Mazroui says OPEC+ cuts compliance was excellent in January; adding that he sees a balanced oil market in Q1 2019 and no further action is need by OPEC+. Adding that oil output stands at 3.07mln BPD, and that he remains optamisitc about the actions taken by OPEC and Non-OPEC. (Newswires)
OPEC Secretary General Barkindo says sanctions on Venezuela and Iran are to effect the oil market all year. (Newswires)
BOFA expect OPEC production to decline in 2019-24 due to output curbs, sanctions (on Iran and Venezuela) and insufficient investments. (Newswures)