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[PODCAST] US Open Rundown 15th February 2019

  • EU bourses reversed opening losses [Eurostoxx 50 +1.0%] amidst US-Sino trade optimism
  • US and Chinese officials report new progress in latest talks, ahead of further dialogue next wee
  • US President Trump is to deliver remarks on border at 1000EST/1500GMT
  • Looking ahead, highlights include, US NY Fed Manufacturing & Uni of Michigan Sentiment, US Import/Export Prices, US Industrial Production & Manufacturing Output, ECB's Coeure, Fed's Bostic Speaking

ASIA

Asian equity markets traded mostly negative following the weakness of their counterparts in US, where sentiment was dampened by a surprise contraction in Retail Sales. Furthermore, participants were also wary due to events in Washington where Congress passed the government funding and border security bill, which President Trump is expected to sign but is also anticipated to declare a national emergency. ASX 200 (+0.1%) and Nikkei 225 (-1.1%) were lower from although the Australian benchmark later recovered led by strength in telecoms and energy, while losses in Japan were exacerbated by a firmer currency. Elsewhere, Hang Seng (-1.8%) and Shanghai Comp. (-1.4%) weakened after further PBoC inaction resulted to a liquidity drain of CNY 680bln for the week and as participants digested softer than expected CPI data, while ongoing trade talks further added to the cautious tone with US and China said to be far apart on reform demands. Finally, 10yr JGBs tracked the recent gains in T-notes as the risk averse tone spurred a flight to safety, although some of the gains were eventually pared following a softer 10yr inflation-indexed auction.

PBoC skipped open market operations and drains net CNY 680bln for the week. (Newswires)
PBoC set CNY mid-point at 6.7623 (Prev. 6.7744)

Chinese CPI (Jan) Y/Y 1.7% vs. Exp. 1.9% (Prev. 1.9%). (Newswires)
Chinese PPI (Jan) Y/Y 0.1% vs. Exp. 0.2% (Prev. 0.9%)

TRADE

US Treasury Secretary Mnuchin and Trade Representative Lighthizer says US and China made new progress in latest talks, though there is still much work to be done. Meanwhile, China President Xi notes that there has been new progress in important issues on trade talks. (CCTV)

China and US have reportedly agreed to continue talks next week in Washington after the progress from this visit was not enough to seal a deal; according to SCMP citing sources. (Twitter)

US and China are reportedly scrambling to at least produce a memorandum of understanding by the end of today which could help pave the way for a Trump-Xi meeting and the report had also noted little progress on core issues, according to sources. (FT)

US

US Senate voted 83-16 and US House voted 300-128 to pass the government funding and border security bill, which sends the bill to President Trump for signing. (Newswires)

US President Trump is to deliver remarks on border at 1000EST/1500GMT. (Newswires)

US Senate Minority leader Schumer said it would be a gross abuse of power and contempt of law if President Trump declares a national emergency, US PPresident Trump has state his intention to declare an emergency, while House Speaker Pelosi said they may file a legal challenge if that occurs. (Newswires)

UK/EU

UK PM May's officials are reportedly preparing to compromise on their demands to re-write the Brexit agreement and tell the EU it doesn't want to renegotiate the agreement, according to a source. (Newswires)

EU and UK Brexit discussions are reportedly planned for Monday in Brussels where Brexit Secretary Barclays will meet with EU's Chief Brexit Negotiator Barnier. (Newswires~)

Sky News' Tamara Cohen tweets "Dominic Grieve says a dozen pro-European ministers would resign if we were heading for no deal at end of Feb - including several in cabinet.” (Twitter)

Spanish PM Sanchez calls for general elections on the 28th of April; according to Euronews. (Newswires)

Italian Ruling League Party Lawmaker Borghi says EU elections are the last chance to change Europe, otherwise Italy will have to leave. (Newswires)

EQUITIES

Major European equities have drifter higher from the open [Euro Stoxx 50 +0.7%] amidst trade optimism between the world’s two largest economies. Initial underperformance was experienced in the Dax (+0.4%) weighed on by the likes of Wirecard (-0.6%) alongside auto-names with Daimler (-0.5%), Volkswagen (-0.3%) and BMW (-0.8%) in the red following poor new EU27 car registrations data this morning, though optimistic trade developments somewhat supported sentiment. Both sides have expressed progress in talks, though dialogue is set to continue next week as not enough was agreed on to seal a deal.

Sectors are similarly mixed with some outperformance seen in telecom names, after Telecom Italia (+6.0%) are towards the top of the Stoxx 600 after Italy’s state holding CDP said the board has authorisation to increase their stake to 10% in the next 12 months. Other notable movers include, Vivendi (+7.6%) who are topping the Stoxx 600 following their earnings release and comments that Bollore is to step down from the Co’s board in April. Separately, RBS (+1.3%) are in the green, following a beat on Q4 pre-tax operating profit and a special dividend for 2018. EDF (-4.6%) are near the bottom of the Stoxx 600, after their earnings release this morning.

FX

GBP - Cable is back on the 1.2800 handle, albeit barely, and Eur/Gbp has slipped back towards 0.8800 in wake of a much bigger than forecast rebound in UK retail sales. However, Brexit remains at the fore and PM May suffered another heavy defeat in Parliament ahead of the next meaningful vote at the end of February, so the Pound is still prone to set-backs in the run up to March 29, at least.

JPY - Usd/Jpy has pulled back further from Thursday’s new 2019 high, and an even more pronounced reversal could bring big option expiries into play at the 110.00 strike (2.6 bn). The rationale, less euphoria/optimism on the US-China trade front as talks in Beijing ended on a promising note, but with core issues still unresolved and more negotiation now scheduled to take place in Washington next week as the clock ticks down to March 1’s tariff deadline (unless that date is extended).

CAD/NZD/AUD/EUR/CHF - All narrowly mixed against a relatively static Greenback, as the DXY nestles just above the 97.000 level, with the Loonie pivoting 1.3300 after yesterday’s weak Canadian data trumped US retail sales, claims and PPI misses against the backdrop of stalling oil prices. Meanwhile, the Kiwi continues to outflank the Aussie down under, as Nzd/Usd hovers just below 0.6850 and Aud/Usd clings to 0.7100, with the cross sticking close to recent lows circa 1.0375. Note, comments from RBA’s Kent hardly helped the Aud, as he essentially welcomed the weaker currency on the grounds that the domestic economy has slack and inflation is low. Elsewhere, the single currency remains heavy on rebounds through 1.1300 and also has hefty option expiry interest to contend with as 1 bn sits between 1.1250-60 and 1.3 bn from 1.1270-80, while SOMA positioning could add even more downside pressure, as today is the 2nd largest on record (Usd23.3 bn). The Franc is still meandering off recent lows within a tight 1.0070-50 range and equally restrained vs the Eur between 1.1355-35.

FIXED INCOME

Not a huge sell-off, but the post-UK retail sales decline in 10 year debt futures culminated in a marginal new session low (124.14, -16 ticks), with Bunds seemingly down in sympathy to 166.37 at worst (-17 ticks vs +10 ticks at the Eurex high) and in acknowledgment of a rebound in EU equities. Meanwhile, US Treasuries remained confined in narrow ranges, but with the curve flatter ahead of more top-tier data headlined by IP, but also including the more timely Michigan sentiment survey for the current month (preliminary release). Speaker-wise, another of the Fed’s dovish-leaning members, but current non-voter, as Bostic follows Brainard yesterday.

COMMODITIES 

Brent (+0.5%) and WTI (+0.5%) are firmer as markets received updates on US-China trade talks, in the form of a memorandum of understanding, while recent reports indicate that talks have concluded. Despite being firmer, prices are off session highs with Brent slipping back below USD 65.0/bbl after moving past this level for the first time this year earlier in the session Elsewhere, Saudi Arabia has suspended production at its Safaniyah offshore oilfield which is the world’s largest offshore oilfield with a capacity of up to 1.5mln BPD; production may be suspended until March. However, this is not expected to significantly impact Saudi Arabia’s supply level, with Saudi Aramco subsequently confirming that their facilities, including this one, are safe and normal. Looking ahead we have the Baker Hughes Rig count which last week say total rigs increase by 4.

Gold (+0.3%) is largely unchanged in spite of the cautious risk environment and some dollar strength ahead of the 2nd largest SOMA day with USD 23.3bln of liquidity being drained. Elsewhere, Vale’s CEO says that the miner’s safety procedures have not worked; while researchers at World Mine Tailings Failures have stated that these events are becoming more frequent.

US is mulling further PDVSA sanctions as a next step against Venezuela's Maduro. (Newswires)

Saudi Aramco halted production from its heavy crude field in Safaniyah this week following a power cable accident and the stoppage to the field, which is the world’s largest offshore field, could last until March. (Energy Intelligence)

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