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[PODCAST] US Open Rundown 27th February 2019

  • European equities are subdued as the risk tone deteriorates due to escalating tensions between Pakistan and India
  • Sterling has been boosted, with cable having surpassed 1.33 ahead of today’s amendment votes
  • Dollar has slipped somewhat ahead of Fed Powell testimony part 2; with yesterday’s testimony emphasising the patient stance
  • Looking ahead, highlights include, Canadian CPI, US Factory Orders, Fed’s Powell testifying before the House, earnings from HP

ASIA

Asian equities were higher across the board following a subdued lead from Wall Street where the Dow dipped into the red following disappointing earnings from Home Depot and the S&P retreated further below the 2800 level. ASX 200 (+0.4%) gains were led by energy names following the rebound in the complex after sources stated that OPEC are to stick to their output curb agreement coupled with bullish API inventory data, while Nikkei 225 (+0.5%) benefitted from the strength in the healthcare sector. Elsewhere, Shanghai Comp (+0.4%) and Hang Seng (U/C) extended on gains from the open with the former supported by IT names whilst the latter profited from the strong performance in heavyweight energy and financial names. Furthermore, Morgan Stanley raised its targets for Chinese equities, citing policy stimulus alongside positive trade developments.

BoJ Governor Kuroda said the chance of Japanese inflation to hit the 2% target during FY 2020 is low and any exit from the BoJ's ultra-easy policy will be very gradual. (Newswires)

BoJ Board Member Kataoka disagrees with the BoJ's view of persistently easing policy to reach price goal and added that longer monetary easing will bring more side effects. Kataoka also added that the BoJ is still far from ending its ultra-easy policy. He expects any sales-tax hike driven pickup in Japan's economy to be moderate and said Japan's inflation expectations remain weak whilst also acknowledging that global growth has slowed compared to the prior year. (Newswires)

PBoC Vice Governor says they will encourage banks to reduce over reliance on collateral to ease financing problems for private and small firms. (Newswires)

PBoC are to strengthen supervision and evaluation of financial risks. (Newswires)

PBoC set CNY mid-point at 6.6857 (Prev. 6.6952) (Newswires)
PBoC injected a net CNY 40bln via 7-day reverse repo

US

US House voted to block (245-182) US President Trump's national emergency declaration regarding a Mexican border wall, as expected. The bill will now be passed onto Senate. (Newswires) The measure would stop the action President Trump took to secure billions of dollars to build his proposed Mexican border wall

US President Trumps former lawyer Cohen plans to testify that Trump is a racist, conman & cheat, and that Trump knew ahead of time that Wikeleaks were to release Democratic Committee emails hurting Hilary Clinton's election campaign; draft statement. (Newswires)

US President Trump tweets that he and North Korean Leader Kim Jong Un are trying very hard to work something out on denuclearization and to make NK an economic powerhouse. (Newswires)

US President Trump meets with North Korean Leader Kim Jong Un and says there has been a lot of progress on their relationship, and a big meeting is scheduled for tomorrow. (Neswires)

UK/EU

UK PM May said she is close to winning concessions from the EU that could persuade Eurosceptic MPs to back her deal. (Daily Mail)

Brexiteer Jacob Rees-Mogg has softened his stance on PM May's Brexit deal; he is no longer insisting the Irish backstop be scrapped and he is prepared to consider other legal fixes to make sure it does not become permanent. (FT)

Cabinet Ministers warned PM May that Brexit could be delayed by up to two years after she announced a series of votes on her deal, no deal and a Brexit delay to be held in a fortnight. (The Telegraph)

The newly-formed Independent Group has tabled an amendment demanding the government to commence preparations for a second EU referendum. The amendment reportedly has support from the SNP, LibDems, and Plaid Cymru and is said to be aimed at provoking a fresh split in the Labour party by tempting MPs who are seeking a new vote. (The Guardian)

UK Tory Brexiteers are mulling offering to vote in favour of PM May's deal if she commits to stepping down before negotiations go forward; according to Buzzfeed’s Senior Political Correspondent Wickham. (Twitter)

BBC’s Katya Adler reported that the EU now can't wait till 21st March summit to make an offer on the Irish backstop in an attempt to stop the PM coming back for more; will now have to make an ‘offer’ in time for March 12 meaningful vote. (Twitter)

Senior Cabinet Members were reportedly accused of sabotaging dialogue with the EU after forcing UK PM May to give MPs the chance to delay Brexit. (The Times)

UK Chancellor Hammond and Work and Pensions Secretary Rudd want to move conversation on what do to with a 90-day Article 50 Extension; according to sources cited by BBC's Political Editor Kuenssberg. (Twitter)

The UK Government are set to back the Costa Amendment (B), that protects workers rights in a no-deal Brexit, as according to Pippa Crerar. (Twitter)

Britain has struck an agreement for WTO's government procurement agreement which will secure the nation's access to a GBP 1.3trl market for British contractors. (Newswires)

European Union has agreed on tough rules for investments firms wanting to operate in the bloc post-Brexit, which signals that London’s financial services industry will have to stick closely to EU standards on everything from capital requirements to bonuses in exchange for market access. (FT)

EU's Barnier states that the Irish backstop cannot be renegotiated. (Newswires)

UK Brexit Secretary Barclay states that a no-deal Brexit is still on the table. (Newswires)

ECB's Nowotny says it is natural to have a slowdown in EZ economic growth after 4-5 year period of remarkable expansion. (Newswires)

ECB's Weidmann states that there is little reason to be overly pessimistic about the economic slowdown. German growth dip has extended into this year and FY growth will fall 'well short' of 1.5%. Adding that there is no acute need to change forward guidance; must think about conditions for any TLTRO, including duration, volume and interest rate (Newswires)

EU Consumer Confid. Final Feb -7.4 vs. Exp. -7.4 (Prev. -7.4, Rev. -7.9)

EU Cons Infl Expec Feb 18.0 (Prev. 15.5)

EU Selling Price Expec Feb 8.9 (Prev. 10.9, Rev. 10.7)

EU Business Climate Feb 0.69 vs. Exp. 0.6 (Prev. 0.69)

EU Services Sentiment Feb 12.1 vs. Exp. 11.0 (Prev. 11.0)

EU Economic Sentiment Feb 106.1 vs. Exp. 106.0 (Prev. 106.2, Rev. 106.3)

EU Industrial Sentiment Feb -0.4 vs. Exp. 0.1 (Prev. 0.5, Rev. 0.6)

GEOPOLITICAL

US Secretary of State Pompeo has spoken to the Indian and Pakistani Foreign Minister separately; according to the US State Department. The Secretary of State urged Pakistan to avoid military action against Indian following the Indian air strike on a terrorist camp on Pakistan. Furthermore, at least three Pakistan fighter jets have entered the Indian side of Kashmir, Indian Air Forces intercepted the Pakistani planes; according to an Indian Official. (Newswires/FT) It was later reported that an Indian Air Force jet has crashed in Jammu & Kashmir, according to PTI. Pakistan Foreign Ministry confirms they have shot down two Indian planes and arrested a pilot, states that we have no intention of escalation, but are prepared to do so if forced into that situation. (Newswires)

Indian Foreign Ministry states that Pakistan targeted that nation's military installations this morning, India shot down one Pakistani air force place. (Newswires)

India has reportedly re-opened its northern airspace; according to local media. (Newswires)

US President Trump tweeted that North Korea could be thriving if it denuclearises. (Twitter)

EQUITIES

Major European equities are in the red [Euro Stoxx 50 -0.5%], following a subdued lead from Wall Street and modest gains in Asia overnight, as traders are mindful of growing tensions between India and Pakistan. There is some mild underperformance in the Dax (-0.7%) where only 3 companies are in the green; although losses are limited by strong performance in Bayer (+4.5%) after the Co. posted a beat on their Q4 sales. Sectors are similarly broadly in the red, with underperformance seen in consumer staples. Other notable movers include, Marks & Spencer (-9.5%) who are at the bottom of the Stoxx 600 after the Co. are considering a rights offering to fund their joint venture with Ocado (+4.7%). Air France (-11.7%) are down as the Dutch government has taken a 12.7% shareholding in the Co. in an attempt to protect their interests; which may lead to tensions with France who hold a 14.3% stake in the Co. Rio Tinto (+0.4%) are in the green after posting a significant increase in FY net earnings of USD 13.64bln vs. Prev. USD 8.76bln alongside the announcement of a special dividend.

FX

USD The Dollar continues to sag in wake of Fed chair Powell’s reinforcement of the new patient policy stance and on portfolio rebalancing for the turn of the month. The DXY has retreated below 96.000 as a result, and with additional downside pressure coming from the escalation in tensions between India and Pakistan that has prompted greater demand for safer currency havens relative to the Greenback.

CHF/GBP The Franc and Pound are vying for pole position within the G10 ranks, as the former benefits from defensive positioning amidst the aforementioned rise in Indian-Pakistani hostilities, with Usd/Chf reversing more definitively from par-plus levels to around 0.9970. Meanwhile, Sterling has extended gains on the back of Tuesday’s marked turnaround on Brexit from UK PM May that raises the prospect of a delay to Article 50 and odds on a no deal or cliff edge conclusion to the already protracted withdrawal process. Cable is now probing 1.3300 after eclipsing resistance just shy of the big figure (1.3298 high from September 2018), while Eur/Gbp is hovering around 0.8570 and eyeing chart support a few pips below, like a Fib at 0.8548.

CAD/JPY The next best majors, with the Loonie drawing comfort/support from a rebound in crude prices and the more pronounced downturn in the Usd, to rebound firmly over 1.3200 again and pivot 1.3150, while Usd/Jpy has now breached its 100 DMA more convincingly to trade under 110.40. Note, 110.00 should be well supported given the 30 DMA at 110.02, and with hefty expiries looming at the strike on Thursday (2 bn), and next up for the CAD top-tier Canadian CPI data and avg. earnings.

AUD/NZD/NOK/SEK Contrasting fortunes for the more high-beta and risk sensitive Antipodean Dollars and Scandi Crowns, as the Aussie and Kiwi underperform in wake of disappointing data overnight (Q4 construction and January trade respectively), but the Nok and Sek glean protection from the overall risk averse environment with the aid of upbeat macro releases (retail sales, manufacturing and overall industry sentiment, plus trade). Aud/Usd is currently near the bottom of a 0.7198-65 range, Nzd/Usd close to 0.6874 vs 0.6901 at one stage, while Eur/Nok is under 9.7200 and Eur/Sek around 10.5500.

EUR The single currency is also gaining at the expense of the Greenback, with one prominent bank flagging strongest month end Usd sell signals against the Eur. However, technical obstacles around 1.1400 are proving tough to overcome and the decline in Eur/Gbp noted above is also hampering the single currency to a degree

FIXED INCOME

Bunds have embarked on a decent ¼ point or so recovery from worst levels, and technical buying may have contributed to the bounce as chart support in the 166.16-11 area was well and truly tested, but not breached (166.10 low). However, a strong German 10 year auction is likely to have helped, albeit somewhat belatedly, while further underperformance in Italian BTPs following heavy and more costly issuance is also supportive, as the EU pours more scorn on the country’s 2019 budget. Meanwhile, Gilts have also pared some losses from a deeper 126.63 Liffe base, but remain under pressure on Brexit, and US Treasuries are idling into Powell part 2 and a deluge of US data.

COMMODITIES 

Brent (+1.3%) and WTI (+1.6%) prices are higher and trading towards the top of the sessions range, after yesterday’s unexpected -4.2mln draw in API Weekly Crude Inventories compared with the expectations for a +2.8mln build. Recent newsflow has seen comments from Saudi Energy Minister Al Falih saying that he sees a likelihood of an output cuts extension in H2 and are aiming for March oil exports of 7mln BPD. Separately, the Russian Energy ministry is reportedly planning to meet with Russian oil companies on March 1st in order to discuss the OPEC+ deal. Elsewhere, Nigerian President Buhari has won the re-election, which is to be contested in court and oil prices were little affected by the CME group’s technical issues which resulted in WTI live prices being unavailable for a time.

Gold (U/C) is flat as it follows the dollar after the first testimony by Fed’s Chair Powell yesterday to the Senate and ahead of his testimony to the house today at GMT 15:00. Elsewhere, Freeport’s CEO has instructed his employees to immediately report any safety concerns regarding dams the Co. operate; following January’s Vale mine disaster. Separately, Copper has slipped slightly from it’s 7-month high which was spurred by falling supply and dollar weakness.

China are reportedly to unveil plans to form a national oil & gas pipeline group, pipeline reform is the largest oil ans gas sector reshuffle in decades; according to sources. (Newswires)

Saudi's Energy Minister Al Falih states that overall demand for energy is to remain robust, and that oil & gas will continue to dominate the world energy scene for many decades. (Newswires)

Venezuela’s Oil Minister says production is at 1.5mln bbl and exports are at 1.2mln bbl. He added that they shifted their exports from the US to India and Russia. (Newswires)

Russian Energy Ministry is planning to meet with Russian oil companies on March 1st to discuss the OPEC+ deal; according to sources. (Newswires)

Saudi Energy Minister Al Falih states that all the outlooks we have seen show that we will need to continue to moderate production into H2 this year; adds 'but you never know'. (Newswires)

OPEC Secretary General says they are to hold another meeting in April to assess market response; they are assisting in market balance; adding that conformity levels have been impressive and they expect the same this year. (Newswires)

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