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[PODCAST] US Open Rundown 25th February 2019

  • US President Trump’s announcement of a China tariff extension spurs markets into risk on trade
  • GBP shrugs off UK PM May delaying meaningful vote again, with suggestions abound of an extension to Article 50
  • Looking ahead, highlights include US National Activity Index and US 2yr, 5yr note auctions

TRADE

US President Trump said he will be delaying the deadline for the China tariff hike, and assuming US and China make additional progress, he will be planning a Summit with Chinese President Xi. President Trump also noted substantial progress with China on structural issues such as intellectual property protection, technology transfer, agriculture, services.

US-China trade talks are said to become more difficult at the final stage; commentary from Xinhua. (Xinhua) Sources stated that the US and China have not yet agreed on the enforcement of a currency pact which would ensure China will not manipulate the Yuan. (Newswires)

China has committed to buying up to USD 1.2trln of US goods; according to CNBC citing sources. (CNBC)

US Government are reportedly still aiming to drive Iranian exports to zero, according to Frank Fannon US Assistant Secretary of State. (Newswires)

ASIA

Asian stocks kick-started the week with modest gains following a strong lead from Wall Street where the DJIA notched a 9-week winning streak and reclaimed the 26,000 level to the upside amid optimism surrounding US-China trade talks. ASX 200 (+0.3%) opened marginally firmer but gains in the material sector were offset by underperformance in the utility and telecom names, whilst Nikkei 225 (+0.5%) advances were led by the IT and material sectors. Elsewhere, Shanghai Comp (+5.6%) outperformed as investors cheered US President Trump’s announcement of an extension to the China tariff deadline, citing good progress on key issues whilst also noting plans for a Summit with Chinese President Xi. Meanwhile the CSI 300 (+5.9%), formed of major companies listed in Shanghai and Shenzhen, surged into bull market territory, marking a 23% gain from cycle lows. Finally, Hang Seng (+0.5%) failed to grasp onto the same momentum as its mainland peers, as the index was weighed on by the utilities sector after China Resources Power fell over 5% amid reports of delisting.

Japanese PM Abe's economic adviser Hamada said the BoJ can abandon the 2% inflation target as it "isn't absolutely crucial". (Newswires)

PBoC sets CNY mid-point at 6.7131 (Prev. 6.7151) (Newswire)
PBoC injected CNY 40bln via 7-day reverse repos

US

Fed's Bostic (non-voter, dove) says that the looks for one rate hike in 2019 and another in 2020. Policy rate is touching the lower end of the neutral range. There is still some room for rates to run. Does not see inflation exceeding the Fed's 2% target. (WSJ)

UK/EU

EU are reportedly mulling a proposal for a Brexit delay until 2021 as leaders are said to be determined to avoid uncertainty of three-month extension requests; according to The Guardian citing EU sources. (The Guardian) Brexit is to be delayed for up to two months under plans being considered by UK PM May in a bid to avoid resignations by ministers; according to The Telegraph. (The Telegraph)

UK PM May confirmed that a meaningful vote will not take place this week whilst also saying she will not rule out extending Article 50. She said MPs will be able to have a final vote on the Brexit deal by March 12th. Furthermore, senior government sources stated that the Premier could signal this week that she is taking a no-deal Brexit off the table. (BBC/Newswires)

Labour MPs Phil Wilson and Peter Kyle are tabling an amendment that backs PM May's current Brexit deal with the condition of a second Brexit referendum. Wilson said that he is winning over support from Labour leader Corbyn's team and Tory cabinet ministers. (The Times)

UK PM May has been warned by ministers that she has until Tuesday to announce a Brexit delay or she will face a mass rebellion that risks collapsing the government. (The Telegraph)

Senior UK ministers warned that extending Article 50 could lead to further temporary extensions that would become permanent and stop Brexit altogether. (The Telegraph)

Senior UK Ministers Greg Clark, Amber Rudd and David Gauke said they will vote for a Brexit delay if there is no breakthrough in negotiations. Five cabinet ministers have called on Work and Pensions Secretary Amber Rudd to be sacked after she threatened to vote for the delay. (The Times)

UK PM May believes that extending Brexit doesn’t solve the issue, and that extending Article 50 is not the focus of talks with German Chancellor Merkel; according to an Official. (Newswires)

Irish Times Journalist tweets "PM Varadkar says he thinks a Brexit deal will be reached by the end of March, or that there will be an A50 extension. Indicates he personally is not hung up on the length of extension and calls no deal "lose-lose-lose". (Twitter)

BBC's Kuenssberg tweets that Dutch PM Rutte is not optimistic about May and Juncker finding a new way of handling the backstop, but says he could accept an additional 'interpretation' of what's been agreed in divorce deal. (Twitter)

DUP's Wilson says that the right thing to do is delay Brexit and it may make sense to delay by a couple of months. (Newswires)

Irish Foreign Minister Coveney says that Ireland would not stand in the way of a 21-month Brexit extension. (Newswires)

Fitch affirmed Italy at “BBB”; Outlook Negative (Newswires)

EQUITIES

Major European equities are in the green [Euro Stoxx 50 +0.4%] continuing the gains seen in Asia which were spurred by strong US markets. There is some mild underperformance in the SMI (U/C) as index heavyweight Roche (-0.4%) is down as the Co. are to purchase Spark Therapeutics in a deal valued at USD 4.8bln, which is at a 122% premium to Spark’s Friday close and at a 19% premium to their 52-week intraday high. Sectors are mixed, with some slight outperformance in Financial names. Other notable movers include PostNL (+9.9%) who are at the top of the Stoxx 600 following their earnings. UK housebuilders are underperforming after Persimmon (-4.4%) are reportedly facing removal of their right to participate in the government’s Help to Buy scheme, following reports of poor standards and hidden charges; as such, Taylor Wimpey (-2.5%) and Barratt Developments (-1.5%) are down in sympathy.

FX

AUD/NZD/SEK/NOK The Aussie and Kiwi are just eclipsing the Swedish Crown at the helm of the G10 pack, partly on latest US-China trade news that has lifted broad risk sentiment, and for the Nzd also much stronger than expected data in the form of Q4 retail sales overnight. Aud/Usd has rebounded further from recent sub-0.7100 lows through the 50 DMA (0.7134) and just above  the 0.7161 (100 DMA) to a high of 0.7174 with last Thursday’s high (0.7207) next on the rader for bulls. Nzd/Usd is hovering just below the top of a 0.6883-27 range as the cross pivots 1.0400 again. Similarly, the Sek and Nok are benefiting from the general appetite for risk assets, with Eur/Sek extending its post-Riksbank minutes retreat to just under 10.5600 at best, while Eur/Nok has been down through 9.7400.

GBP/EUR  The next best majors, but mainly at the expense of a softer Usd with the DXY slipping back below 96.500 on the aforementioned US-Sino tariff truce, as Cable maintains 1.3000+ status and the single currency keeps its head above 1.1300. However, the Pound has been choppy again amidst ongoing Brexit uncertainty and a barrage of contrasting headlines, and the Eur is still encountering chart hurdles above 1.1350, like the 30 DMA around 1.1365.

CAD/CHF/JPY All narrowly mixed vs the Greenback, but the Loonie is consolidating closer to highs vs its US counterpart alongside crude prices and eyeing 1.3100 within a 1.3150-22 range and the Franc appears more settled above parity, while the Jpy has pared some overnight losses from 110.85 towards 110.50.

EM Understandably, the Yuans have greeted ‘substantial’ or ‘concrete’ progress between the US and China on the trade issue with delight/huge relief, and from another softer PBoC Usd/Cny reference point have rallied further to test 6.6900+ levels. However, other regional currencies are also getting a boost on the prospect of a deal and wider repercussions for the global economy, with Usd/Zar down sharply from 13.9930 to 13.8480 at one stage, Usd/Rub under 65.2500 and Eur/Huf probing below 318.00 (Forint also appreciating Fitch’s Hungarian upgrade to BBB/stable outlook).

FIXED INCOME

Bunds and Gilts have both extended losses to set marginal new Eurex and Liffe intraday lows at 166.20 and 123.96 respectively, but while the former breached near term chart support around 166.27-25 in the process it did not really threaten last Friday’s 166.11 session base or 166.00 obviously. Hence, another consolidative bounce and Gilts have reclaimed 124.00 plus a bit more having eked a fresh peak at 124.13 before waning again, and getting somewhat closer to its previous trough (123.90). Core debt continues to acknowledge the overall positive risk tone, with Bunds still aware that BTPs remain firm, and supply could be another bearish factor given an abundance of corporate and institutional issuance ahead of this week’s sovereign auctions that kick off promptly via 2 and 5 year US T-notes today (Usd81 bn in total). However, the Treasury curve is a tad steeper at present with the 10 year future just holding the psychological 122-00 handle and a whisker above chart support seen at 121-29 (a trend-line level). Turning to data, January’s National Activity Index, December wholesale inventories and sales, plus February’s Dallas Fed business index al to come.

COMMODITIES 

Commodities were mixed overnight as WTI futures gave up opening gains despite the overall trade-driven optimism, although it is worth noting that Nigerian election polls have now closed with reports of dozens killed in election violence, however, there has been no reports of disrupted oil flow from the OPEC producer. Also, in spite of the Baker Hughes rig count showing a drop of four active rigs, US production reached a record high last week at 12mln BPD according to EIA data. Elsewhere, spot gold benefitted from the easing buck and hovered near Friday’s highs, while copper traded choppy as initial trade-induced upside waned after Xinhua noted that US-China trade talks are said to become more difficult at the final stage.

Iranian Supreme National Security Council Secretary said Iran has designed and put into practice initiatives to neutralise the US sanctions against Iranian oil exports. He also noted that Iran has options to stop oil flow if threatened, other than closing Strait of Hormuz. (Tasnim)

Libya’s NOC Head said the 300K BPD El-Sharara oil field remains closed as armed men are still at the field. (Newswires) Following this, Libya's oil boss states that the biggest field will not restart until militia leave. (Newswires)

Goldman Sachs say the near-term outlook for oil is modestly bullish over the next two/three months, and the oil market is likely to continue to significantly tighten in March and April. (Newswires)

Iraq Southern oil exports have averaged 3.565mln BPD so far in February; according to a oil executive. 

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