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[PODCAST] US Open Rundown 6th July 2018

  • Limited reaction seen across asset classes as China/US tariffs are imposed ahead of NFP
  • Reports of JP Morgan taking a stake in Deutsche Bank refuted
  • Looking ahead, highlights include US NFP, US trade, Canadian jobs, Baker Hughes

ASIA

Asian stocks traded higher after the positive momentum from Wall St’s best performance in over a month followed through to Asia. ASX 200 (+0.9%) and Nikkei 225 (+1.1%) were positive as both indices took impetus from their US counterparts, in which the mining sector led the gains in Australia and the prior day’s currency weakness provided some encouragement to Japanese exporters. Conversely, Hang Seng (+0.5%) initially weakened and Shanghai Comp. (+0.5%) briefly fell below the 2700 level for the first time since March 2016 amid the tit-for-tat tariffs and after PBoC inaction amounted to a considerable CNY 500bln net drain for the week before the indices finished in the green. The KOSPI (+0.7%) was also subdued with index heavyweight Samsung Electronics dampened on disappointing preliminary Q2 results, while Singapore Straits Times Index (-2.0%) slumped from the open with developers hit by a surprise announcement yesterday of higher stamp duty rates and tighter loan-to-value limits as part of measures to cool the property market. Finally, 10yr JGBs have seen mild support overnight amid the overall cautious tone in the Asia-Pac region and BoJ’s presence in the market for JPY 810bln in JGBs, but with upside capped by resistance around the 151.00 level.

PBoC skipped open market operations for a net weekly drain of CNY 500bln vs. last week's CNY 370bln net drain. (Newswires)

PBoC set CNY mid-point at 6.6336 (Prev. 6.6180)

US President Trump confirmed China tariffs will be imposed after Thursday midnight and said another USD 16bln in tariffs are coming in 2 weeks. (Newswires)

China Mofcom stated that it has to fight back against US on trade and that it will continue evaluating impact of US tariffs. Furthermore, Mofcom added that US action regarding tariffs is bullying and triggers global market turmoil. (Newswires)

PBoC adviser Ma Jun said impact of US-China trade war is limited and sees US tariffs on USD 50bln of China goods to slow down China's growth by 0.2 ppts, while there were also comments from China Foreign Minister Wang Yi that China and EU should safeguard free trade and that China is willing to defend Iran accord with Europe. (Newswires/Xinhua)

EU/UK/US

UK PM May is to unveil plans that involve UK agreeing to a formal treaty with EU post-Brexit that will tie the UK to Brussels rules on goods, according to reports in Telegraph. However, there were also reports citing senior officials in Brussels that PM May’s new plan will be ‘dead on arrival’ and EU officials also stated any hint of the UK wanting to be part of the single market on goods but not on services will not be accepted. (Newswires/Telegraph/Independent) Overall, at least seven Cabinet ministers are expected to confront PM May today amid fears her Brexit plan will tie the UK to EU rules for the foreseeable future and put any US trade deal in jeopardy. (Times/Telegraph)

German Interior Minister Seehofer warned that EU rigidness regarding Brexit hinders reaching a security deal and puts lives at risk. Later, Seehofer also said a refugee disagreement could return if the deal doesn’t work (FT/Newswires)

German Government Spokesman Seibert says Merkel is ready to discuss auto tariff cuts. (Newswires)

EQUITIES

European equities trade higher (Eurostoxx 50 +0.2%) while investors monitor the ongoing trade disputes amid US moving forward with tariffs targeting USD 34bln of Chinese goods. Shortly after, the Chinese Foreign Ministry said tariffs have been implemented on some US goods. Energy names lag on softer oil prices. In terms of individual stock movers, Deutsche Bank (+5.0%) shares were lifted by reports JP Morgan and ICBC are to take a stake in the company, JP Morgan have denied these reports, however. Thyssenkrupp (+2.8%) also rests at the top of the German benchmark following the resignation of their CEO after he came under heavy criticism from shareholders.

FIXED INCOME

Once again there is little in the way of an obvious catalyst, but bonds have regrouped and erased all their losses and a bit more in some cases. Bunds recently topped out at 162.80, +10 ticks vs -23 ticks at one stage, while Gilts managed to climb 1 tick above parity to 123.36 having been 17 ticks adrift at the low. However, trade remains lethargic overall into potentially big risk events and with US-China import tariffs being rolled out in the interim. Back to debt markets, US Treasuries are mildly firmer and the curve fractionally flatter after somewhat mixed perceptions from latest FOMC minutes that ultimately did little to change views about Fed hike intentions for the remainder of the year, albeit with heightened attention on the aforementioned global trade war risk.

FX

USD - The Dollar remains on the back foot amidst the first roll out of reciprocal import tariffs by the US and China, but also eyeing the official monthly BLS report with several anecdotal releases in the run up suggesting moderate downside risk vs consensus for the headline payroll number. The DXY is near recent lows around 94.200 as a result, but likely to be more responsive to average earnings once the initial reaction to jobs, back revisions and the unemployment rate.

NZD/AUD - The Kiwi still outperforming its G10 counterparts, but mainly as shorts continue to pare back positions and the Nzd benefits from a technical correction to reclaim 0.6800 vs the Usd and rebound further from lows vs its antipodean peer – cross down to circa 1.0860 vs almost 1.1100 recently. However, the Aud is benefiting from broader Usd weakness and trying to firm off the 0.7400 handle.

EUR/GBP - Both maintaining momentum vs the Buck, with the single currency back above 1.1700, but still wary of decent (1.7 bn) option expiry interest at the strike and Cable looking at 1.3250 again as attention away from NFP is trained on Chequers and the latest Brexit ‘make or break’ meeting.

CHF/JPY/CAD - All treading tight lines vs the Usd, with the Franc meandering between 0.9915-45, Jpy trapped within a 110.55-80 range and Loonie locked in 1.3120-50 parameters in the run up to Canadian jobs data, and the BoC policy meet next week.

SEK/NOK - Some payback for the Scandi Kronas on disappointing Swedish budget and Norwegian manufacturing output updates – Eur/Sek back up near 10.2900 and Eur/Nok towards 9.4500 vs lows around 10.2000 and 9.4000 respectively.

COMMODITIES

Commodities are mostly lower with WTI (-0.1%) and Brent (-0.3%) pressured amid yesterday’s surprise build in crude inventories fused with nervous trading as US-Sino trade war looms. Gold (-0.2%) is experiencing cautious trade ahead of the key US NFP due later today. Elsewhere, London copper (-0.1%, -5% this week) is set for the worst week since November 2015, down a fifth consecutive session as US tariffs kick in.

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Initial jobless claims are now at their lowest since December 1969 @realDonaldTrump