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[PODCAST] US Open Rundown 28th February 2019

  • US President Trump and North Korean Leader Kim Jong-Un failed to reach an agreement
  • Major European equities [Euro Stoxx 50 U/C] trim opening losses ahead of US entrance to market
  • Looking ahead, highlights include; US GDP & Chicago PMI, Fed’s Clarida, Bostic, Harker & Kaplan

ASIA

Asian stocks were mixed following a similar lead from Wall Street wherein the Dow and S&P fell for a second consecutive day as investors digested key testimonies from US Trade Representative Lighthizer and Fed Chair Powell. The Dow was also weighed on by shares from UnitedHealth which closed lower by almost 5% whilst the S&P was pressured by the telecom and healthcare sectors. ASX 200 (+0.3%) was kept afloat by its pharma and energy names, while the Nikkei 225 (-0.9%) felt pressure from its heavyweight industrial and machinery sectors. Elsewhere, Shanghai Comp (-0.4%) and Hang Seng (-0.4%) initially traded choppy although the latter recovered from opening losses as pharma and finance stocks led the gains. Finally, South Korea’s KOSPI (-0.6%) slipped after index heavyweights Samsung Electronics (-1.8%) and SK Hynix (-4.2%) succumbed to the semiconductor weakness experienced stateside.

BoJ Board Member Suzuki says it is important for the BoJ to maintain powerful monetary easing but there is no need to ease further, BoJ must be mindful of a sustainable framework as inflation may remain subdued for a prolonged period. Suzuki said the BoJ does not intend to raise rates now but will act swiftly through market operations if yield rise sharply, he added that overseas tail risk appear to be heightening. (Newswires)

BoJ and RBI have signed a bilateral swap agreement, effective immediately. The agreement would allow Japan and India to swap their domestic currencies against the USD for an amount of up to USD 75bln. (Newswires)

Japan will go ahead with arranging a US-Japan trade talk schedule; according to the Japanese Chief Cabinet Secretary Suga. Furthermore, there were reports that US and Japan are to hold their first meeting on a Trade Agreement on Goods in April. (Newswires)

Bank of Korea maintained its 7-day repo rate at 1.75% as expected, the decision was unanimous. The KRW immediately experienced marginal weakness as policymakers kept in mind the country’s declining exports, rising unemployment and the slowdown in Chinese growth. At the press conference, Governor Lee the central bank is to maintain accommodative rate policy although it is not time to consider easing policy rates. (Newswires)

PBoC set CNY mid-point at 6.6901 (Prev. 6.6857) (Newswires)
PBoC skipped open market operations for a net neutral daily position

Chinese NBS Manufacturing PMI (Feb) 49.2 vs. Exp. 49.5 (Prev. 49.5). The third consecutive month of contraction. (Newswires)

GEOPOLITICAL

No agreement has been reached between US President Trump and North Korean Leader Kim Jong-Un at this time, but they look forward to meeting in the future; according to the White House. The two leaders discussed various ways of advancing denuclearisation and economic driven concepts, with the White House adding that the meetings were very good and constructive. US President Trump stating that they had a really productive time and they had some options but decided not to take them, North Korea wanted the sanctions entirely lifted but this could not be done; Trump added that he would walk away from a deal with China if it did not work out. Additionally, US Secretary of State Pompeo stated that we asked Kim to do more, and he was unprepared to do so.

Prior to this, US President Trump said the speed of North Korean denuclearisation is not important to him, he is more concerned on getting a good deal. Meanwhile, North Korean Leader Kim Jung Un said it is too early to say whether he is confident, but he feels a good outcome will come from meeting with US President Trump. Furthermore, US is reportedly no longer demanding North Korea to disclose full accounting of nukes and ballistic missiles; according to NBC citing current and former US officials. (Newswires/NBC) North Korean Leader Kim Jung Un said if North Korea was not ready to denuclearise, then he would not have met with US President Trump; and added that they are discussing steps for that. US President Trump and North Korean Leader Kim Jung Un both said that a diplomatic office exchange is a good idea. (Newswires)

Airlines have reportedly rerouted flights from East Asia to European destinations to avoid flying over Pakistan and Northern India amid the rising tensions between the two countries. (BBC)

UK/EU

UK PM May is to formally announce a series of new pledges workers’ rights and easing of trade union restrictions in a bid to get Labour backing for her deal. (The Guardian)

UK House of Commons leader Leadsom says that if they can bring the meaningful vote back to Parliament before March 12th they will. (Newswires)

Swedish GDP QQ Q4 1.2% vs. Exp. 0.6% (Rev. -0.1%)

- Swedish GDP YY Q4 2.4% vs. Exp. 1.5% (Rev. 1.5%)

EQUITIES

Major European equities are currently flat after opening slightly lower [Euro Stoxx 50 U/C] as risk sentiment deteriorated following reports of no agreement being reached between US President Trump and North Korean leader Kim Jong-Un; with US President Trump stating they had some options but decided not to take them. The FTSE 100 (-0.7%) is underperforming its counterparts, weighed on by the pounds recent strength; additional downward pressure is exerted by Rolls Royce (-3.4%) at the bottom of the index in spite of strong earnings as the Co. have withdrawn from Boeing’s engine race. British American Tobacco (-2.5%) are in the red in-spite of good earnings; with some analysts attributing this to a lack of guidance for 2019. Sectors are also in the red with some marginal outperformance in telecom names. Other notable movers include, Zalando (+17.6%) who are leading the Stoxx 600 after their Q4 adj. EBIT came in above expectations; AB InBev (+5.1%) are also higher after a beat on their Q4 revenue. Towards the bottom of the Stoxx 600 are Adecco (-4.7%) after the Co. posted a Q4 net loss of EUR 112mln instead of the expected net profit of EUR 150mln.

FX

SEK/CHF - Super strong Q4 GDP data from Sweden after the surprise contraction in the previous quarter has propelled the Krona through 10.5000 vs the Euro and further above recent lows, but the Franc is also a marked G10 outperformer following sub-forecast Swiss growth in the final 3 months of 2018 and a weaker than expected KoF survey, with Usd/Chf probing below the 100 DMA at 0.9960, while Eur/Chf has slipped under 1.1350. Indeed, the Franc is firmer across the board and clearly benefiting from its premier status as the safest currency destination amidst a storm, with risk sentiment still fragile due to ongoing tensions between India and Pakistan, and in wake of the Trump-Kim summit ending without a nuclear agreement. Back to Eur/Sek, nearest technical support level is seen at 10.4550.

JPY/EUR - Also firmer into month end, and partly on the aforementioned risk-off or defensive positioning as the Jpy rebounds from 111.00 vs the Dollar yet again (heavy exporter supply touted at the big figure). Eur/Usd has now firmly breached the 1.14 level to the upside, for reference the current high is 1.1418, after surpassing both the 50 and 100 DMA’s, looking ahead is the February 5th high of 1.1441 and prior to this 1.1420. Of note moderate rebalancing sell signals for the Buck are said to be ‘strongest’ against the Euro.

AUD/GBP/NZD/CAD - All flat to marginally weaker vs the Greenback, with the Aussie and Kiwi undermined by a 3rd consecutive sub-50.0 Chinese manufacturing PMI overnight after mixed independent impulses via a welcome beat in Australian Q4 Capex vs a deterioration in the NBNZ business outlook for the current month. Hence, Aud/Usd is holding up marginally better than Nzd/Usd within 0.7166-28 and 0.6854-35 respective ranges. Meanwhile, the Pound retains a relatively strong Brexit-related bid, albeit off best levels posted on Wednesday, with Cable pivoting 1.3300 vs its new 1.3351 ytd peak and perhaps wary about hefty option expiry interest at 1.3325 (1 bn). Elsewhere, the Loonie has stalled alongside oil prices and is back around the 1.3150 axis vs its US counterpart, as the DXY continues to skirt 96.000.

EM - Unsurprisingly, the KRW has depreciated in disappointment over no breakthrough on a deal between the US and NK, to a low of almost 1125.00 vs the Usd at one stage.

FIXED INCOME

In contrast to yesterday and other sessions of late, it appears that Bunds have been calling the tune after topping out just ahead of 166.00 and resistance just above the big figure (like 166.02 that represents a 50% retracement of yesterday’s pronounced fall). Firmer German state CPI could also have impacted alongside a rebound in French household spending and BTPs after the EU deferred excess deficit proceedings pending a response to a request to revise the 2019 budget. Back to the charts, a close market contact and service subscriber suggests that intraday longs may have set stops on at the Eurex opening low (165.71), and could have stepped back in at the new intraday base (165.54) as this roughly aligned to support between 162.56-52 that held ‘firm’ on Wednesday. Meanwhile, Gilts have pared more losses, but remained just above parity at their fresh 126.07 Liffe low having lost a lot of ground relative to Bunds recently on Brexit developments, and US Treasuries are also keeping their heads above water with the curve unwinding a degree of its post-Fed chair and supply-induced steepening ahead of a busy end of month agenda. To recap, weekly claims and GDP are scheduled along with a host of Fed speakers.

COMMODITIES 

Brent (-0.8%) and WTI (-0.6%) prices are negative but trading within a very narrow USD 1/oz range as risk sentiment is hampered following no agreement being reached between the US and North Korea alongside Chinese Manufacturing PMI printing the third consecutive month of contraction. In terms of recent news flow Libya’s NOC spokesperson stated that there is no technical obstacle to restarting the El Sharara oilfield, but security remains the issue. Elsewhere, UBS highlight that the 8.6mln draw in US crude inventories does not necessarily signal the start of a trend, although the size of the draw indicates that the market is tightening. And just of note Brent futures expire later today.

Gold (+0.5%) is firmer and approaching session highs, as the yellow metal is benefitting from the deteriorating risk sentiment after this mornings aforementioned US-North Korea updates. Elsewhere, copper prices were steady in-spite of the poor Chinese manufacturing PMI, with the negative impact of this balanced out by the ongoing supply concerns for the metal; as LME registered warehouse stocks are approaching their lowest level in 10 years.

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