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[PODCAST] US Open Rundown 20th February 2019

  • Major indices in Europe have somewhat waned off earlier highs [Euro Stoxx 50 +0.1%] following a relatively indecisive Asia-Pac session
  • UK Tory MPs Heidi Allen, Anna Soubry and Sarah Wollaston have resigned from the Conservative Party and joined the Independent Group
  • The greenback has regained some poise after yesterday’s relatively pronounced downturn ahead of the FOMC minutes later today
  • Looking ahead, highlights include EZ Consumer Confidence, FOMC Minutes, Fed’s Kaplan, Bullard & Daly, UK PM May meeting EU Commission President Juncker
  • Earnings: CVS Health, Analog Devices

ASIA

Asian stocks traded somewhat indecisively following the cautious gains seen on Wall St. ahead of this week’s key events including FOMC minutes and US-China trade talks. ASX 200 (-0.2%) and Nikkei 225 (+0.6%) were mixed with Australia dragged lower by continued underperformance in Consumer Staples after Woolworth shares slumped more than 5% post-earnings, while Tokyo stocks were propped up as the impact of a weaker currency eclipsed the concerns from the steepest decline in Japanese Exports for more than 2 years. Elsewhere, Hang Seng (+1.0%) and Shanghai Comp. (+0.2%) were also varied as the mainland lagged despite the PBoC announcement of its first liquidity injection since before the Lunar New Year, as the amount was a relatively paltry CNY 20bln and with participants also kept tentative ahead of upcoming senior level trade discussions between US and China. Finally, 10yr JGBs were subdued with price action contained by an indecisive risk tone in the region and after having recently hit resistance at 153.00, while the absence of the BoJ in the market also contributed to the lacklustre trade.

PBoC injected CNY 20bln via 7-day reverse repos. (Newswires)
PBoC set CNY mid-point at 6.7558 (Prev. 6.7642)

China's Premier Li states that China has not and will not change monetary policy; will not resort to 'flood-like' stimulus. RRR cut in January reflected that there is sufficient room for cuts. Adding that increasing bill financing and short-term loans may create the potential for risks. (Newswires)

Japanese Trade Balance (JPY)(Jan) -1415.2B vs. Exp. -1011.0B (Prev. -55.3B, Rev. -56.7B). (Newswires)
Japanese Exports (Jan) Y/Y -8.4% vs. Exp. -5.5% (Prev. -3.8%, Rev. -3.9%); largest decline since October 2016.
Japanese Imports (Jan) Y/Y -0.6% vs. Exp. -2.8% (Prev. 1.9%)

GEOPOLITICS

China officially warned citizens on travel to New Zealand in which it said to expect robberies, dangerous driving and a police force with a patchy response record. (Newswires)

US

The press lockup for the FOMC minutes has been cancelled as the Fed announced Washington offices will be closed today due to weather, although the minutes will still be released as scheduled at 1400EST. (Newswires)

UK/EU

PM May is reportedly to present the EU with fresh legal proposals to break the Irish backstop deadlock and which will hopefully convince Brexiteers to support her deal. In related news, a spokesperson said PM May and Brexit Ministers updated cabinet on Brexit and that the UK is still looking to reopen the withdrawal agreement. (Telegraph/Guardian/Newswires)

UK Tory MPs Heidi Allen, Anna Soubry and Sarah Wollaston have resigned from the Conservative Party and joined the Independent Group; talkRadio's Kempsell confirms. Prior to this, ITV's Peston tweets that if, as he expects, four Tory MPs quit the party today to become independent, PM May's minority government will become even more of a minority, with less grips on the Commons, so a general election moves nearer. (Twitter)

UK Chancellor Hammond said a no-deal Brexit would be mutual calamity for UK and EU, while he also noted that the most urgent task is to reach an agreement that will protect trading relationship with EU. Furthermore, Hammond said the Malthouse initiative is a valuable effort to allay backstop concerns in the future but added that EU will not consider a replacement to the backstop now. (Newswires)

Sky’s Political Correspondent McCann tweeted that UK's new legal proposals may not be presented to the EU on Wednesday and could instead be on Thursday or Friday. (Twitter)

Dutch MPs warned EU to prepare for the worst regarding Brexit as they were left with the impression UK politics is "locked in the mother of all chicken games" and "a mess" following a visit to Westminster. (Telegraph)

Officials in Brussels were said to talk openly of a 60% probability there will be a no-deal Brexit, according to ITV political editor Peston. (ITV)

An eighth Labour MP, Joan Ryan, has quit the party to join the newly-formed Independent Group amid unhappiness over how the party handled Brexit and its antisemitism problem. (The Guardian)

Tory and Labour MPs are reportedly anxious that the new breakaway Independent Group has increased the chances of PM May calling for an early election. (The Guardian)

Telegraph's Rothwell tweets "EU slightly taken aback by London's enthusiasm about movement on the backstop... EU has not seen any new text from Brits on the backstop either. " (Twitter)

UK Foreign Secretary Hunt states that we can now see a way to achieve a parliamentary majority for Brexit agreement, if simple changes are made to the Irish backstop. Adding that we now have to find a compromise that allows the attorney general to change the backstop advice. (Newswires)

EU Diplomats say Britain has until mid-March at the latest to acheive a Brexit deal with the EU in order for it to be approved at March 21st/22nd summit; otherwise will have to delay or face a no-deal Brexit on the 29th March. (Newswires)

Italian Deputy PM Salvini has ruled out revisions to the 2019 budget; according to Messaggero. Adding that forming a European Parliament involving the coalition parties 5SM and League would be a "good idea" and is looking to create a strong "euro-critic" group, and that the League party is not considering forming a single group with 5 star at the European Parliament.

EQUITIES

Major indices in Europe have somewhat waned off earlier highs [Euro Stoxx 50 +0.1%] following a relatively indecisive Asia-Pac session. Sectors are mixed with outperformance in industrials given the price action in the base metal complex, while energy names marginally lag their peers. In terms of notable movers, Sainsbury’s (-15.6%) shares plumbed the depths after the supermarket was dealt a blow by the UK CMA, which stated that the proposed Sainsbury’s-Asda has extensive competition concerns, whilst adding that the two companies will have to shut a significant number of stores or face rejection. The companies now have until 13th March to respond to the CMA's findings, with a final report by the CMA to be issued by 30th April. Elsewhere, Swedbank (-11.8%) has become the latest financial institute embroiled in the Danske Bank (-1.2%) money laundering scandal, following reports of the Co. being linked to USD 4.3bln in illicit transfers. Finally, regarding earnings-driven stocks, Glencore (-1.2%) gave up initial gains as indices came off highs, while Lloyds (+4.1%) maintained its positive at the top of the FTSE amid a GBP 1.75bln share buyback programme alongside a dividend hike.

FX

USD -The Greenback has regained some poise after its relatively pronounced downturn late yesterday amidst uncharacteristically dovish comments from Fed’s Mester regarding balance sheet run-offs, as she intimated a willingness to back an end to QT by or even before the end of 2019, albeit keeping options open for a 25 bp hike later this year. However, the index remains depressed and not far off sub-96.500 lows in anticipation that the upcoming FOMC minutes will reiterate the shift in policy guidance to a pause in normalisation and patience before any further adjustments.

AUD/JPY/NZD/GBP - All on the backfoot vs the Usd, or paring gains to be more precise, as Aud/Usd eases back towards 0.7150 from circa 0.7175 at best in wake of moderately softer than forecast Q4 Aussie wage data overnight. Meanwhile, a bigger than expected Japanese trade deficit due to the worst export showing since October 2016 compounded post-BoJ Governor Kuroda Jpy weakness as it slips a bit further towards 111.00, but again could glean some traction from option expiry interest given 1.1 bn rolling off between 110.75-85 at the NY cut. Indeed, the Kiwi and Pound are marginally underperforming as Nzd/Usd hovers near the bottom end of a 0.6885-63 range and the Aud/Nzd cross consolidates recovery gains above 1.0400, while Cable runs out of steam ahead of 1.3100 having spiked from sub-1.2900 through 1.3000 in double quick time on Tuesday and topping out around 1.3075 ahead of today’s UK PM May-EU Juncker showdown later today.

CAD/EUR - The Loonie continues to reap the most from pre-Fed minutes US Dollar defensive positioning and remains close to multi-week peaks above 1.3200 even though crude prices have encountered more offers/resistance around 2019 highs, while the single currency has formed a firmer base over 1.1300 having closed above a 1.1313 Fib and now eyeing another resistance level at 1.1362 for a stronger bullish technical signal.

EM - Contrasting performances for the Yuan and Rand, as the former draws momentum from a stronger PBoC fix, fresh liquidity and positivity surrounding US-China trade talks to test 6.7200 levels vs the Usd, but pre-budget jitters hit the latter with the Zar down to 14.1500 at one stage.

FIXED INCOME

Almost déjà vu for core debt, as Bunds and Gilts both extend gains after several dips and periods of sideways trade, albeit with latest peaks not quite as lofty vs Tuesday’s session highs. The Eurex and Liffe pinnacles currently stand at 166.69 and 124.18 respectively, with the core Eurozone bond bolstered by a solid Bobl auction even though the 5-year future is underperforming amidst post-sale hedge unwinding. Meanwhile, US Treasuries remains firm and nearer overnight highs with the curve flatter in the run up to FOMC minutes and with short end supply to absorb in the form of Usd18 bn 2-year FRNs. Note also, Fed speakers on tap via Kaplan, Bullard and Daly.

COMMODITIES 

Brent (-0.4%) and WTI (-0.3%) prices are subdued after being rangebound throughout the Asia session where WTI reached 2019 highs of USD 56.39.bbl, as markets await today’s FOMC minutes and the beginning of high-level US-China trade talks tomorrow with USTR Lighthizer. The EIA forecasts that US total shale regions oil production will average 8.3938mln barrels in March, which is 84mln barrels above February’s estimate of 8.31mln barrels. Separately, there have been reports of a fire at a PDVSA crude pumping station, which has a 300k BPD capacity; although, as details surrounding the fire are sparse the impact on production is currently unclear. Looking ahead, API’s weekly inventory numbers are to be released today due to the US market holiday on Monday, market expectations are that US crude oil inventories increased over the prior week by 3.1mln barrels. Note, some abnormality may be observed today in WTI trading due to the expiration of the March WTO contract.

Gold (+0.1%) is trading within a thin USD 5/oz range, as the yellow metal follows cautiousness seen in the dollar ahead of today’s FOMC. Elsewhere, spot-Palladium has convincingly moved above the USD 1500/oz level reaching USD 1504.46/oz; as the metals 7-month rally, which has been driven by a supply shortage, continues. Separately, German inspection frim TUV SUD has stated that it will no longer certify Vale owned tailings dams, following a Vale owned dam bursting last month.

Keystone oil pipeline has restarted with 20% pressure reduction, according to US regulator PHMSA. (Newswires)

Saudi Energy Minister Al Falih states that he hopes the market is re-balanced by April. (Newswires)

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