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[PODCAST] US Open Rundown 12th February

  • All major European indices are in the green [Euro Stoxx 50 +1.0%], continuing from the optimism seen in Asia overnight on US-China trade and the potential for averting a US government shutdown.
  • Greenback remains strong following reports that Lighthizer and Mnuchin have arrived in Beijing ahead of trade talks.
  • Looking ahead, highlights include ECB’s Lautenschlaeger, Fed’s Powell & Mester, BoE’s Carney, UK PM May Updating House of Commons on Brexit, OPEC Monthly Oil Report

ASIA

Asian equity markets traded mostly higher amid cautious optimism regarding US-China trade talks and hopes of averting a government shutdown, as negotiators were said to have reached an agreement in principle in which the border bill will include some funds for a barrier. ASX 200 (+0.3%) and Nikkei 225 (+2.6%) were positive with outperformance in the Japanese benchmark on return from the extended weekend as exporters were underpinned by favourable currency moves, although Toshiba was the notable laggard after it confirmed reports it could reduce FY profit guidance by half. Elsewhere, Shanghai Comp. (+0.7%) and Hang Seng (Unch.) were kept afloat but with upside limited by indecision as participants await the outcome of trade discussions and after the PBoC refrained from open market operations which resulted to a daily net drain of CNY 100bln. Finally, 10yr JGBs were lower amid outperformance of Tokyo stock markets and following a reduction of the BoJ’s Rinban amounts in which it lowered its purchases of 10yr-25yr JGBs by JPY 20bln.

PBoC skipped open market operations for a net daily drain of CNY 100bln. (Newswires)
PBoC set CNY mid-point at 6.7765 (Prev. 6.7495)

Chinese Senior Official states that the nation will press on with SOE reforms in finance, oil, electricity and tech (Xinhua)

US

US President Trump said we are going to make great deals on trade and don't want China to have a hard time. President Trump also commented that we probably have some good news regarding border deal but added he didn’t know what they meant regarding progress and affirmed the US would build the wall anyway. (Newswires)

US Senator Shelby said an agreement in principle was reached on shutdown talks and that staff will work on the deal. Senator Shelby also commented that he hopes the White House will back the deal and that the border bill will have some money for a barrier, while US Rep. Lowey said staff could work out the full details of border security deal by Wednesday. (Newswires)

US congressional aide said the tentative US border security deal provides USD 1.375bln to build 55 miles of border fence but does not contain any funds for a border wall and does not include Democrats’ demand for capping number of immigrant detention beds. (Newswires)

US Treasury official Malpass who is part of the US delegation in Beijing for deputy level talks, said that March 1st deadline will not be extended. (SCMP)

USTR Lighthizer has arrived in Beijing prior to scheduled trade talks; according to sources. (Newswires)

UK/EU

UK PM May is reportedly calling on former European Council President Van Rompuy to help break the Brexit deadlock. (Sky News)

UK PM May will today urge MPs to "hold our nerve" to get the changes needed to get a Brexit deal through Parliament. Sky's Cohen tweeted in relation to this, saying:  "As PM prepares to tell MPs to hold their nerve, I understand some 14-15 ministers concerned re no deal will meet Lidington today and demand: - meaningful vote at end of Feb -time to debate Cooper-Boles if it fails My source: “she can’t just say trust me, that’s not enough”" (BBC/Twitter)

UK PM May would win a working majority if a general election were held today, according to YouGov modelling for The Times. (Times)

UK Cabinet ministers reportedly believe UK PM May is preparing to resign in the summer so she can influence who becomes her successor in an effort to stop Boris Johnson from getting the PM role, this however was later denied. (The Sun)

UK House of Commons leader Leadsom commented that there was no chance UK PM May will accept Labour Party’s customs union proposal. (ITV)

EU Chief Brexit Negotiator Barnier said meetings with UK Brexit Secretary Barclay were "constructive", while a UK spokesperson said both parties have agreed to more talks to find a breakthrough. (Newswires)

Telegraph's Swinford tweets, Delicate negotiations going on behind scenes between Remain ministers & PM. PM has been given specific wording of assurance they are seeking in exchange for giving her more time. They want confirmation Cooper/Boles II can be tabled on Feb 27 & guarantee of legislative time. A delegation of Remain ministers is expected to see David Lidington later today to seek assurances ahead of PM's statement, If they don't get assurances they need, new amendment will go down on Thurs designed to force PM's hand & guarantee votes on amendments at the end of Feb. (Twitter)

Sky's Rigby tweets, Told by govt source that No 10 planning to move the votes to tomorrow to help placate annoyed MP's who’d like to spend V-day with loved ones, think it has to go through cabinet. (Twitter)

UK House of Commons Leader Leadsom says Parliament will support May's deal providing Irish backstop is not permanent; necessary legislation will be passed by March 29th. Telegraph's Swinford tweets, Andrea Leadsom tells Tory MPs not to be ‘purist’ in thinking there have to be changes to withdrawal agreement to resolve backstop issue. (Newswires/Twitter)

ECB’s Nowotny saying the ECB will look at the decision regarding rates in the summer. (Newswires)

EQUITIES

All major European indices are in the green [Euro Stoxx 50 +1.0%], continuing from the optimism seen in Asia overnight on US-China trade and the potential for averting a US government shutdown. Sectors are also all in the green, with some slight outperformance in material names. The Dax (+1.2%) is marginally outperforming its peers, in spite of being weighed upon by index heavyweight Thyssenkrupp (-1.9%) who are down following earnings where the Co. confirmed their outlook, but stated that economic and political uncertainties are increasing. Other notable movers include, Michelin (+11.6%) who are at the top of the Stoxx 600 following their earnings, with Continental (+4.1%) higher in sympathy. Towards the bottom of the Stoxx 600 are Tui (-3.1%) following their earnings. Separately, Kering (+2.4%) were in the red following their earnings, in spite of Gucci’s operating margin reaching a record 39.5% by end of 2018; although Co. shares have now drifted higher into positive territory.

FX

USD - The Greenback remains bid in wake of reports that a deal has been struck in principle to avoid another US Government shutdown ahead of Friday’s funding deadline, while the US trade envoy has arrived in Beijing amidst heightened prospects of forging an agreement in time for the next tranche of import tariffs due on March 1st. The index just off a marginal new multi-week peak of 97.209, with the Dollar extending gains vs most G10 rivals.

CHF/JPY - Another broad upturn in risk appetite has hit the safe havens hardest, understandably, with the Franc slipping closer towards yesterday’s overnight flash crash lows at 1.0091 vs 1.0095, and Usd/Jpy climbing to fresh 2019 highs circa 110.65 having breached 110.50 and the peak from 31st December last year just a pip or so below. Rebounding US Treasury yields are also impacting, and with no Japanese exporter supply anticipated before 111.00 where barrier defence offers are also expected, technical impulses could be more influential in the short term given a key Fib level and the 55 DMA in close proximity (110.54 and 110.59 respectively).

NZD/GBP/EUR - Also conceding further ground to the Usd, with the Kiwi retesting support around the 100 DMA (0.6725) ahead of Wednesday’s RBNZ policy meeting that is widely forecast to culminate in a dovish hold (see our headline feed and/or research suite for a full preview of the event. Meanwhile, the Pound remains blighted by Brexit risk and related economic repercussions, as Cable teeters just above 1.2800 and a slightly deeper post-UK data low around 1.2834, with bids seen at 1.2820 and the 55 DMA at 1.2810. The single currency is consolidating off a fresh ytd base of 1.1258, but looking more prone to heavier losses while under 1.1300 and given little in the way of chart support ahead of the 2018 low (1.1216) apart from 1.1234.

AUD/CAD - Defying the overall trend and both firmer vs their US counterpart, the Aud has rebounded firmly above 0.7050 and 1.0500 vs the Nzd with the aid of a more encouraging NAB business survey vs much weaker than forecast housing loans data. Meanwhile, the Loonie has drawn support from a rebound in crude prices and pared losses from 1.3300+ to circa 1.3270.

SEK/NOK - The technical landscape appears to be turning less negative for the Scandi crowns after recent underperformance, and some market participants are pointing to oversold conditions that may be combining with simple short covering/positioning for tomorrow’s Riksbank meeting. Accordingly, Eur/Sek has retreated a bit further below the psychological 10.5000 mark, while Eur/Nok is following suit, albeit more gradually to sit near 9.8000.

EM - Some respite for regional currencies against the backdrop of improved risk sentiment, and with the Rand also relieved to hear that Eskom is hoping to end power cuts by the end of the week – Usd/Zar back down below 13.8000.

FIXED INCOME

UK 10yr debt futures are still being drawn to the 124.00 level having recovered from session troughs of 123.84 as UK traders await scheduled comments from UK PM May who is set to plead for tenacity ahead of the Valentine's Day vote on the Brexit deal (unless it is delayed to allow MPs to focus on matters of the heart). Some further direction may also be found from BoE’s Carney who is set to speak half hour after the PM's address at 13:00GMT. In Germany, 10-year futures have regained the 166.00 handle as the benchmark failed to breach the technical support figure of 165.87 convincingly and saw little inspiration, or demotivation, from ECB commentary via Nowotny and Weidmann.

Elsewhere, UST futures are lower across the curve with most of the action in the longer end as US participants continue to unwind risk premia following suggestions that a deal on the border has been reached. Traders will now be looking forward to comments from Fed’s Powell in the middle of the US morning, alongside any indications from Beijing after sources reported that the USTR has touched ground in the city ahead of the scheduled trade talks.

COMMODITIES 

Brent (+1.7%) and WTI (+1.5%) prices are comfortably in the green and above USD 62/bbl and USD 53/bbl respectively after Saudi Arabia posited that crude production in March is set to be 500k below their OPEC+ cut target at 9.8mln BPD. Support has also been offered by the optimistic risk tone after positive comments pertaining to US-China trade and a deal to prevent the US Government from shutting down again; as USTR Lighthizer arrived in Beijing this morning. OPEC are to publish their monthly oil market report today, where 2019 world oil demand was forecast to grow at 1.29mln BPD. In addition, the EIA are to release their Short-Term Energy Outlook; which previously forecast US oil output to average 12.1mln BBL and 12.9mln BBL in 2019 and 2020 respectively.

Gold (+0.4%) has strengthened somewhat this morning, breaking from the subdued price action seen overnight as the dollar remained firm; the yellow metal is now trading towards the top of its USD 10/oz range. Elsewhere, reports indicate that Vale knew the Brazil dam which collapsed last month was more than twice as likely to fail than the maximum allowed risk level from internal guidelines.

Venezuela Oil Minister says oil exports stand at 1.2-1.3mln BPD. (Newswires)
 

Iraqi Oil Ministers states that production capacity at the nation's South Refineries Co. will hit 280k bpd by the end of 2019.(Newswires)

Russian Kremlin states that there are currently no substantial discussions between Russia and OPEC to form a new alliance. According to a spokesman Russian President Putin sees the OPEC+ deal as contributing to oil market stabilisation. (Newswires)

IEA's Birol states that it is currently too early to say whether or not oil demand growth is slowing. (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