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[PODCAST] US Open Rundown 26th February 2019

Pound outperforms as anticipation builds around PM May removing Brexit no-deal from the table

Major European equities are in the red as risk sentiment faded in the Asia session; Dow constituant Home Depot missed on their top and bottom lines

Looking ahead, highlights include US Building Permits & Housing Starts. US Consumer Confidence, Fed Discount Rate Minutes, Fed’s Powell testifying before the Senate, US Auctions & earnings from Macy's

ASIA

Asian stocks traded mostly lower following an uninspiring lead from Wall Street where the major US indices gave up a bulk of their gains amidst a turn-around in risk sentiment. ASX 200 (-1.0%) extended losses from the open, with all sectors in the red and underperformance in IT, material and oil names amid price action in the energy and base metals complexes. Nikkei 225 (-0.4%) failed to hold onto opening gains as safe-haven flows into the JPY pressured the Japanese benchmark. Elsewhere, Shanghai Comp. (-0.7%) swung wildly between gains and losses following the prior day’s 5% trade-induced rally, whilst Hang Seng (-0.7%) failed to nurse losses as the index was pressured by heavyweight oil names alongside shares in Apple supplier ACC Technologies, which tumbled over 12% following a profit warning. Finally, US equity futures ebbed further from the prior day’s best levels, E-Mini futures (-0.4%) lost more ground below the 2800 level whilst DJIA futures (-0.4%) dipped below 26,000 with some attributing the downside to month-end rebalancing.

PBoC set CNY mid-point at 6.6952 (Prev. 6.7131) (Newswires)
PBoC injected CNY 120bln via 7-day reverse repos

US President Trump said China talks are in advanced stage, and the relationship between the two nations is strong. (Twitter)

A group of US Senators have reportedly written to US Energy Secretary Perry, calling on a ban to Huawei solar equipment as it poses a national security threat to the US energy structure. (FT)

US

Fed's Clarida (Voter, Neutral) said US economy is operating close to full employment and is in a good spot right now, inflation is close to the Fed's target. Clarida added that the Fed can afford to be patient and needs to be data dependent. (Newswires)

Michael Cohen, the former lawyer of US President Trump, will for the first time publicly accuse the President of criminal conduct while in office regarding a hush-money payment (WSJ)

BANK OF ENGLAND

BoE announces a temporary adjustment to its liquidity insurance facilities, to weekly frequency from monthly around the scheduled Brexit date. (Newswires)

BoE's Carney:

Will provide all stimulus possible after a no-deal, subject to delivering price stability; can provide stimulus if it is able to bring inflation back to target

If conditions evolve in line with their predictions, limited and gradual rate hikes are likely to be needed

They are not seeing and liquidity stresses in the market, and stand ready to provide liquidity in all major currencies

BoE's Vlieghe:

On balance after a no-deal Brexit they are likely to keep policy on hold or ease; will continue to argue in favour of stating more about the future direction of BoE rates

In a no-deal situation he judges that an easing or extended pause in monetary policy is more likely to be the appropriate policy response than tightening

Appropriate pace on monetary tightening is somewhat slower than judged a year ago

BoE’s Ramsden:

He is comfortable about the current BoE guidance on rates

Near term weakness on inflation has passed, domestic inflation pressure is likely to firm

BoE's Haskel:

He is hesitant that the BoE can make good predictions about inflation after a no-deal Brexit

UK/EU

UK PM May is considering a plan to postpone Brexit and will be discussing this at a crunch meeting with her Cabinet on Tuesday (0930GMT), she will reveal the Cabinet's conclusion to Parliament later in the day (1230GMT); according to sources. (Newswires) This is relatively in-fitting with reports via The Telegraph over the weekend that PM May is considering a Brexit delay of two months in a bid to avoid Cabinet resignations.

UK PM May is said to propose formally ruling out a no-deal Brexit which could postpone the Brexit date by months; according to The Sun. The article stated that the Premier is not ruling out a no-deal Brexit willingly, and to avoid total Brexiteer meltdown, PM still wants to keep the option of no-deal alive for later in the year after any extension to Article 50. Aides are said to be split over whether May should make the major concession directly when she addresses Parliament. Furthermore, key figures such as Environment Secretary Michael Gove are expected to back the PM’s move. The Sun’s Political Editor, Tom Newton Dunn tweeted that PM May is convinced that it’s now the only way she can stop Remain ministers passing the Cooper-Letwin amendment, which is viewed in No10 as “catastrophic”. (The Sun/Twitter)

As many as 15 ministers could resign and vote for the Cooper-Letwin motion unless PM May provides assurances on a no-deal Brexit today; according to Daily Mail. Ministers include Work and Pensions Secretary Amber Rudd, Secretary of State for Justice David Gauke, Business Secretary Greg Clark. Other Tories who are said to be close to resigning to stop a no-deal include Scottish Secretary David Mundell, Defence minister Tobias Ellwood, Solicitor General Robert Buckland and Disabilities Minister Sarah Newton. This comes after a group of 23 dissidents met secretly at the Commons last night to discuss how to stop a no-deal Brexit. (Daily Mail)

ITV's Brand tweets, "Cabinet source suggesting to me that resignations at that level are now OFF. There is indeed an expectation that PM will deliver an assurance that Parliament will be able to avoid No Deal". (Twitter)

UK Attorney General Cox says Brexit talks are going "very satisfactorily". (Newswires)

Italian PM Conte states that as part of the next budget law the government are considering an overhaul of tax expenditures; according to a paper; Adding that the govt's privatisation plan is limited to the real estate sector, strategic national assets will not be targeting and CDP the state lender may play a role. (Newswires) Following this, Italian Deputy PM Salvini says he has confidence in Finance Minister Tria and rules out a budget correction this year; according to a paper. (Newswires)

ECB's Lane says that the EU's labour market remains strong, and the underlying mechanisms to raise inflation are still active; sees only a small adjustment to forecasts. (Newswires)

Germany's BDI says that should a hard Brexit come to pass, 0.5% will be shaved off German GDP. (Newswires)

GEOPOLITICAL

Pakistan's National Security Committee condemns Indian airstrike and says they will respond at a time and place "of its choosing". Premier Imran Khan is to "engage with global leadership to expose irresponsible Indian policy". (Newswires)

EQUITIES

Major European equities are in the red [Euro Stoxx 50 -0.3%], taking the lead from a downbeat Asia session as risk sentiment began to fade. The FTSE 100 (-1.3%) is underperforming its peers weighed on by the currency effects of a strong pound, alongside poor performance in IAG (-4.6%) following the MSCI stating that it plans to delete the stock from MSCI Global Standard Indexes as of March 1st. Additionally impacted by Fresnillo (-7.6%) as the Co. state that they expect 2019 to be a challenging year. Sectors are mixed, with some underperformance in IT names, after Apple supplier ACC Technologies issued a profit warning. Towards the bottom of the Stoxx 600 are Babcock (-4.8%) after the Co. issued guidance regarding restructuring costs ahead of Brexit. At the other end of the Stoxx 600 are BASF (+3.9%) who are firmly in the green following their earnings, which included a beat on Q4 EPS.

FX

GBP – Sterling is the standout G10 outperformer ahead of the latest Brexit update from UK PM May amidst heightened speculation that she will bow to Cabinet pressure and pull a no deal scenario off the table and perhaps entertain an extension to the March 29 deadline if Parliament rejects the WA next month or next week. Buyers seem to be front running U-turns on the former if not both, with Cable breaching resistance around 1.3100, then circa 1.3150 (near the 50 WMA) and subsequently tripping stops at 1.3160 on its way to 1.3238 at best, so far and posting a new high for the year (Prior was 1.3217). Meanwhile, Eur/Gbp has retreated sharply to below 0.86, and also filling sell orders that were reportedly sitting between 0.8625-20 on the way. BoE testimony to the TSC on February’s QIR is now underway, but Brexit remains paramount and the PM is due to speak from 12.30GMT.

AUD/CAD/NZD – The major laggards on a mixture of tempered US-China related risk appetite and softer/stable crude prices after President Trump’s latest bearish interjection. Aud/Usd has duly retreated from Monday’s peaks having faded ahead of loftier highs reached last week and is back below 0.7150 where previous resistance at the 50 DMA (0.7134) may now provide some technical support. However, the Loonie has not been able to hold above 1.3200 vs its US rival and the Kiwi is hovering closer to the base of a 0.6872-88 range with hefty option expiry interest likely to cap the upside ahead of the NY cut (1.8 bn at the 0.6900 strike).

JPY/CHF/EUR – All on a firmer footing vs the Greenback that is drifting lower with the index down to fresh, albeit marginal lows (DXY just shy of 96.300). Usd/Jpy has eased back from 111.00+ to a 110.76 low and the Franc has pared losses from parity+ again, while the single currency appears more intent on taking out chart hurdles that have been protecting a more pronounced approach towards 1.1400, like the 30 DMA at 1.1363. If broken, 1.1393 represents daily resistance and 1.1402 is a 50% Fib, while decent expiries lie from 1.1390-1.1400 (1.6 bn).

Note also, other large option expiries running off today include 2.4 bn in Eur/Usd between 1.1330-40, 1.8 bn in Nzd/Usd at 0.6900 and 2 bn in Eur/NOK at 9.8000 (vs current spot rate of 9.7800).

FIXED INCOME

Gilts are still underperforming as the clock ticks down to potentially pivotal Brexit pronouncements from UK PM May, with the 10 year benchmark just off a new 123.82 Liffe trough and now through last Friday’s intraday low having ventured above parity at one stage ahead of the BoE’s latest TSC appearance (124.11 peak vs Monday’s 124.08 close). Aside from bearish positioning ahead of the aforementioned 12.30GMT or so speech, UK bonds have also been subject to switching from Mar to Jun contracts as the rolls reach a crescendo if not climax ahead of expiry. Meanwhile, Bunds have been dragged down in sympathy to a degree, but also negatively impacted by resurgent Eurozone peripheral paper and perhaps less dovish or downbeat ECB comments from Lane (next week’s widely anticipated growth forecast downgrades won’t be large, according to the chief economist in waiting). The 10 year German bond recently retreated to 166.20, just a tick off last Friday’s Eurex base, and technically back within striking distance of other support levels ahead of 166.00. Turning to US Treasuries, and the reversal in core EU equivalents has nudged futures off overnight session peaks, but independent drivers await via data/surveys and primarily Powell part one before the final slug of issuance in the shape of Usd32 bn 7 year notes.

COMMODITIES 

Brent (+0.3%) and WTI (+0.1%) prices are slightly firmer trading towards the top of the day’s very narrow USD 1/bbl range, after a largely unchanged overnight session. In terms of recent news flow Saudi Aramco expect oil demand to increase substantially, with this predominantly driven by transport. Adding that in order to meet future demand growth long term investment is required. Elsewhere, BP’s CEO has stated that oil prices within the range of USD 50-70/bbl works for both consumers and producers. Separately, the UAE are to host a meeting between the state oil firm and those involved in Libya’s conflict in order to resolves the El Sharara oil filed situation; with the 300k BPD field remaining closed.

Gold (U/C) is little changed with the yellow metal hovering towards the middle of its daily range, mimicking the dollar which is largely uneventful ahead of today’s testimony by Fed Chair Powell to the Senate Banking Committee at 15:00GMT. Elsewhere, spot Palladium rose above USD 1550/oz, with the metal hitting a new high of USD 1554.50/oz; following strike threat by South African mineworkers added to supply concerns.

US President Trump will meet with North Korean leader Kim Jung Un on Wednesday evening in Vietnam with a follow-up meeting on Thursday; according to the White House. (Newswires)

Canadian Foreign Minister Freeland said Ottawa is exploring ways to expand sanctions on Venezuelan officials. (Newswires)

Iran Foreign Minister Zarif announced his resignation. US Secretary of State Pompeo, following the resignation, said US policy is unchanged. (Instagram/Newswires)

Saudi Aramco says demand for oil is expected to increase substantially, driven mainly by transport; long term investment is required to meet future demand growth. (Newswires)

Categories:
MOC: * SPX 850mln to sell (vs at 650mln to sell at 1549 EDT) * Dow 50mln to sell (vs 100mln to buy at 1549 EDT)