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[PODCAST] US Open Rundown 21st February 2019

  • Mixed trade for European stocks [Euro Stoxx 50 +0.1%] despite a firmer Asia trade
  • Aussie and Kiwi remain the underperformers while GBP gave up gains on Brexit impasse
  • Looking ahead, highlights include ECB Minutes, US Durable Goods & Existing Home Sales, US Philly Fed Business Index, ECB’s Praet, BoE’s Haldane, Fed’s Bostic & BoC’s Poloz
  • Earnings: Kraft-Heinz

ASIA

Asian equity markets eventually traded mostly higher with the region supported by US-China trade hopes after reports that negotiators were drafting MOUs on key structural issues and are looking at a list of measures to address the trade imbalance. This helped the region shake off the early cautious tone brought on by another marginal performance of their US counterparts and a mixed-perceived FOMC minutes. ASX 200 (+0.7%) was underpinned by strength in Financials as well as outperformance in Consumer Discretionary after Wesfarmers shares rallied post-earnings, while the trade hopes inspired a turnaround for the Nikkei 225 (+0.2%) which was initially dampened by currency effects and after Nikkei Manufacturing PMI data slipped into contraction territory for the 1st time since August 2016. Elsewhere, the KOSPI (+0.1%) lagged with index heavyweight Samsung Electronics lacklustre after it unveiled its ground-breaking foldable smartphone which comes with an eye-watering price of nearly USD 2000, while Hang Seng (+0.4%) and Shanghai Comp. (-0.3%) were also initially choppy before the trade-related optimism provided a rising tide across the region. Finally, 10yr JGBs found support from the early cautious tone and after disappointing Nikkei Manufacturing PMI data, but then reversed course as risk sentiment improved and after weaker results in the enhanced liquidity auction for longer-dated bonds.

PBoC skipped open market operations but offered CNY 71.9bln through pledged supplementary lending operations. (Newswires)
PBoC set CNY mid-point at 6.7220 (Prev. 6.7558)

US and China are drafting 6 MOUs on key structural issues which will cover IP, property, services, tech transfer, agriculture, currency and non-tariff barriers, while negotiators are also looking at a 10-item list of short-term measures to tackle the trade imbalance. (Newswires). Following this Chinese MOFCOM spokesman states that they have no information regarding a MOU with the US, adding that they will comment when they have more information on trade talks.

US

US House Speaker Pelosi said the House will pass resolution to block President Trump's National Emergency order. (Newswires)

Fed's Daly (non-voter, dove) said we are very near neutral level for rates and wants patience on rates until she sees inflation increasing faster. Furthermore, Daly also commented she sees more headwinds such as slower global growth, uncertainty and tighter financial conditions, but added there is nothing on the radar that shows US is declining into a recession. (Newswires)

UK/EU

UK official says getting a Brexit deal next week is unlikely and the UK is a long way from getting what it needs on the backstop. (Newswires)

UK Home Secretary Javid said risk of a no-deal Brexit have increased and that PM May cannot take no-deal off the table, while there were separate reports citing a senior official that the UK is considering a legally enforceable codicil to the Brexit agreement that could provide the UK with a unilateral exit from the backstop with a 12-month notice period. (Newswires)

Members of the newly-formed Independent Group said that more Labour and Conservative MPs could defect and added that they expect more MPs to join them. (BBC)

UK Chancellor Hammond says Brexit talks with the EU were good and constructive, adding that there may be an opportunity for a meaningful vote in Parliament next week. (Newswires)

European Commission are to release a report on Italy next week, wherein EU will say Italian plans for long term growth will fail. Furthermore, the EU has criticized Italy’s citizens income and lower pension age; according to La Repubblica quoting a draft of the EU report on Italy. (La Repubblica)

French Markit Manufacturing Flash PMI (Feb) 51.4 vs. Exp. 51.0 (Prev. 51.2)

- French Markit Services Flash PMI (Feb) 49.8 vs. Exp. 48.7 (Prev. 47.8)

German Markit Manufacturing Flash PMI (Feb) 47.6 vs. Exp. 49.7 (Prev. 49.7)

- German Markit Services Flash PMI (Feb) 55.1 vs. Exp. 52.9 (Prev. 53.0)

- German Markit Comp Flash PMI (Feb) 52.7 vs. Exp. 52.0 (Prev. 52.1)

EU Markit Manufacturing Flash PMI (Feb) 49.2 vs. Exp. 50.3 (Prev. 50.5)

- EU Markit Services Flash PMI (Feb) 52.3 vs. Exp. 51.4 (Prev. 51.2)

- EU Markit Comp Flash PMI (Feb) 51.4 vs. Exp. 51.1 (Prev. 51.0)

ECB's Nowotny (Hawkish) says given the recent economic slowdown, there is a debate on whether normalisation should continue; adding that the mood on normalisation is "wait and see". (Newswires)

EQUITIES

Major European indices are mixed [Euro Stoxx 50 +0.1%] in spite of the firmer trade seen in Asia following reports that negotiators are drafting MOU’s. The FTSE 100 (-0.6%) is underperforming its peers, weighed on by BAE Systems (-7.0%) and Centrica (-11.8%) following earnings for both Co’s; additional downward pressure is applied by Anglo American (-0.1%) after earnings and Glencore (-1.5%) who are in the red following a tax demand and mine production cut. Sectors are mixed, with some mild outperformance in consumer discretionaries. Other notable movers include Bouygues (+3.4%) near the top of the Stoxx 600 as their FY profit came in above the prior. Also performing well after earnings are Barclays (+0.2%), with the Co. stating they are considering additional returns which include buybacks. Of note are Maersk (-9.6%) in the red after stating that 2019 guidance is subject to considerable uncertainty from trade risks, also the Co. and Maersk Drilling are to trade separately from April 4th.

FX

AUD/NZD - A really rough night for the Antipodean Dollars, and especially the Aud that failed to glean any lasting benefit from a robust if not stellar January jobs report, as Westpac delivered an extremely dovish RBA outlook with not just one, but two rate cuts pencilled in for this year (August and November). Aud/Usd recoiled from just over 0.7200 in response and then reversed even more sharply on headlines reporting that China was blocking coal imports as several ports including the main Dalian hub, hitting lows under 0.7100. Meanwhile, Aud/Nzd fell from around 1.0490 to circa 1.0400, but is holding above the base as Nzd/Usd suffers knock-on losses towards 0.6800 vs 0.6875 at one stage.

CAD/CHF/EUR - All on a softer footing vs the Greenback, as the DXY recovers from its post-FOMC minutes lows and with the overall take from the release not as dovish as many anticipated or were positioned for (end of balance sheet reduction by end 2019 favoured by most, but prospect of further rate normalisation this year left on the table) – index straddling 96.500 vs 96.390 at one stage. The Loonie is close to the bottom of a 1.3207-1.3163 range, while the Franc is back below parity, albeit just, and the single currency is pivoting 1.1350 amidst mixed Eurozone flash PMIs, volatile trade on stops and near term technical with some hefty option expiries also thrown in for good measure. Specifically, 1.1365, 1.1371-73 represent resistance, with the latter zone incorporating Wednesday’s high and the 30 DMA, while 1.2 bn rolls off at the 1.1300 strike and almost 3 bn at 1.1400.

GBP/JPY - Relative G10 outperformers as Cable holds firmly above 1.3000, after a few wobbles, and not far from overnight peaks just over 1.3100 following a record UK public finance haul in January, a well received 2057 Gilt auction and comments from Chancellor Hammond suggesting the EU is showing some willingness to budge on the Irish backstop. Meanwhile, the Jpy has pared some losses within a 110.60-87 range in wake of another drop in the PBoC’s mid-point Usd/Cny fixing rate.

NOK/SEK - The Scandi Crowns are both back under pressure, with Eur/Nok nudging above 9.7900 against the backdrop of stagnating oil prices and a somewhat disappointing Norwegian energy investment report, while Eur/Sek has rebounded to 10.6000+ from around 10.5600 following the IMF’s annual report that revealed a downward revision to Sweden’s 2019 GDP forecast and urged the Riksbank to hold off from another repo rate hike.

FIXED INCOME

As US Treasuries remain under pressure post-Fed minutes and ahead of a very busy afternoon agenda, Bunds and Gilts have succumbed to renewed selling pressure, and with the former just off a marginal new Eurex low of 166.13 (-38 ticks on the day). Meanwhile, Gilts are on the retreat from a similarly slender fresh Liffe peak of 123.95 forged on the back of a strong DMO auction and with some earlier support from a record surplus in the Government’s coffers for the first month of 2019. However, the aforementioned bearish UST tone and curve steepening appears more compelling for core debt, and with the German benchmark also conscious that Italian BTPs have rebounded relatively well from 126.86 to trade a full point higher in recent trade. 

COMMODITIES 

Brent (+0.1%) and WTI (+0.5%) prices are largely unchanged after a mixed overnight session, with both Brent and WTI trading within a narrow USD 1/bbl range. Yesterday’s delayed API release showed a crude oil inventories build of 1.26mln barrels, although this was less than the expectation for a 3.1mln barrel build. EIA’s delayed weekly report is to be published later today where expectations are for a crude stock build of 3.1mln, which would make it the fifth consecutive week of builds. Elsewhere, reports show that Venezuela are paying large premiums for Russian and European fuel imports due to a limited number of available sellers, following US sanctions against PDVSA.

Of note SSB’s (Statistics Norway) first quarter oil investment survey confirms the solid outlook for oil investments, with the 2019 nominal capital spending on oil and gas extraction implies growth of 13.8% vs. 2018’s actual level. 2019 spending forecasts have been lowered slightly due to lower exploration spending; although, SEB argue that the prior figure was already high.

Gold (-0.2%) is weaker after trading largely sideways overnight, with the yellow metal approaching the bottom of its USD 10/oz range. Elsewhere, Barrick Gold have outlined a deal reached with the Tanzania government, which features a USD 300mln payment, regarding disputes with Acacia Mining. Separately, China’s northern Dalian port bans imports of Australian coal and are to cap overall imports for the year at 12mln tonnes; this ban follows other Chinese ports taking 40 days to clear Australian coal.

China's Dalian customs bans Australian coal imports indefinitely and sets 12mln tons overall coal import quota for this year, according to sources. (Newswires)

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EU Mid-Session Update: Attack sees crude prices pop as Saudi crude output drops https://t.co/IAoChFglPp