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[PODCAST] US Open Rundown 5th March 2019

  • Major European indices are moving towards negative territory, after starting the session somewhat firmer [Euro Stoxx 50 U/C]
  • China lowered their 2019 GDP growth target range to 6.0-6.5% vs. Prev. around 6.5%
  • DXY is off of its best levels, but continues to move higher and as such is outperforming its G10 counterparts
  • Looking ahead, highlights US Composite and Services PMI, US ISM Non-Manufacturing PMI, Fed’s Rosengren, Kashkari, Barkin, BoE’s Carney, RBA’s Lowe

ASIA

Asian stocks traded lacklustre following a disappointing lead from Wall Street after the Dow slipped 0.8%, weighed on by Boeing and Goldman Sachs shares, whilst the S&P shed 0.4% amid underperformance in healthcare names. Both indices marked their worst turnaround since early February. ASX 200 (-0.3%) extended losses from the open amid underperformance in the Consumer Discretionary and Material sectors, whilst Nikkei 225 (-0.4%) was weighed on by commodity exposed stocks. Elsewhere, Shanghai Comp. (+0.8%) nursed some opening losses following the release of the NPC work report which pledged to expand infrastructure investments and cut manufacturing VAT to 13% from 16%, whilst transport and construction VAT is to be reduced to 9% from 10%, although the release of dismal Caixin services PMI briefly dented the index. Finally, Hang Seng (U/C) conformed to the overall risk-averse tone with its heavy-weight financial sector as the marked underperformer.

China lowered its 2019 GDP growth target to the range of 6.0-6.5% from “around 6.5%” and maintained CPI target at 3.0%, both as expected. Budget deficit for 2019 was set at 2.8% vs. 2.6% in 2018. China stated that fiscal policy to be proactive and monetary policy to be prudent will not resort to flood-like stimulus, whilst also saying it will keep the Yuan basically stable at reasonable equilibrium and is to increase the flexibility of the Yuan exchange rate while keeping liquidity reasonably ample. China will expand infrastructure investments in 2019 and plans to cut manufacturing VAT to 13% from 16%, as touted, VAT for transport and construction sectors to be reduced to 9% from prior 10%. China will make economic policy for forward-looking, targeted and effective whilst maintaining pace and strength in risk prevention, and higher budget deficit ration will leave more policy room for resolving potential risks. China will also step up targeted RRR cuts for smaller and medium-sized banks to support private and smaller firms. Growth in M2 Money Supply and social financial to be in-line with nominal GDP growth and basically the same as in 2018. China is to implement consensus reached between US and Chinese leaders in Argentina, but said it needs to brace for a tough economic battle.

PBoC set CNY mid-point at 6.6998 (Prev. 6.7049) (Newswires)
PBoC drained a net CNY 120bln on the day

Chinese Caixin Services PMI Feb 51.1 vs. Exp. 53.5 (Prev. 53.6) (Newswires)
Chinese Caixin Composite PMI Feb 50.7 (Prev. 50.9)

US Secretary of State Pompeo said he believes US and China are “on the cusp” of a deal to end a trade war. (Newswires)

US President Trump plans to terminate India and Turkey as Generalised System of Preferences beneficiaries. The move comes as India has not assured the US that it will provide "equitable and reasonable" market access and Turkey is now “sufficiently economically developed”; according to US Trade officials. Indian Trade Ministry Official, in response, said US and India were able to work out an extensive and reasonable package which covered almost all US concerns, although the advantages under the US GSP are "minimal and moderate". (Newswires)

US

US Treasury Secretary Mnuchin has urged Congress to lift the debt limit as soon as possible and added that the new debt issuance suspension will be from March 4th to June 5th. (Newswires)

Canadian PM Trudeau has accepted the resignation of Treasury Board Minister Philpott and names Qualtrough as acting Treasury Board President; according to a statement from the PM's office. (Newswires)

Chinese hackers have reportedly targeted Universities in the US, seeking maritime secrets (WSJ)

GEOPOLITICAL

Rail services between India and Pakistan have now resumed after being halted amid the recent conflict; according to Indian press. (Newswires)

UK/EU

UK PM May has been warned that she must whip her MPs to keep a no-deal Brexit on the table, whilst Senior Eurosceptics are convinced PM May will lose the vote on her Brexit deal and they do not expect Attorney General Cox to win concessions on the Northern Irish backstop. (The Telegraph)

UK PM May is reportedly considering a parliamentary vote on the UK's future relationship with the EU, as per demands from Labour MPs. A source close to a cabinet minister also stated that there seemed to be “no chance” that her deal would pass next week. (The Guardian)

UK Trade Secretary Fox’s department has cancelled its regular meetings with business after the details of a prior meeting were leaked to the media. (FT)

Bank of England state the core of UK financial systems are ready for worst case scenario Brexit, and most stability risks mitigated. (Newswires)

UK BRC Retail Sales YY Feb -0.1% (Prev. 1.8%) (Newswires)

Italy will implement more expansive policies and increase deficit if international growth deteriorates, according to the Head of Senate Finance Committee Bagnai. Adding that it would be difficult for the European Commission to sanction Italy if Rome raised the deficit to manage the economic slowdown. (Newswires)

Italian undersecretary Buffagni says the 5 star movement are prepared to quit the ruling coalition over the Turin-Lyon high speed rail. (Newswires) Follows reports that the EU are planning to cancel EUR 300mln in funding for the Turin-Lyon high speed rail as there have been prolonged delays; if new project tenders are not launched by the end of the month.

Riksbank's Skingsley says they struggle to understand the recent developments of the SEK, and don't think changes in macro-space justify SEK weakness. Still sees a rate hike as possible if inflation dips below 2% target. (Newswires)

ECB says that they and the BoE will activate a currency swap arrangement for potential provision of EUR to UK banks, Eurosystem would stand ready to lend GBP to Euro Area Banks, if necessary. (Newswires)

EU Markit Services Final PMI (Feb) 52.8 vs. Exp. 52.3 (Prev. 52.3)

- EU Markit Comp Final PMI (Feb) 51.9 vs. Exp. 51.4 (Prev. 51.4)

- Italian Markit/IHS Services PMI (Feb) 50.4 vs. Exp. 49.4 (Prev. 49.7)

- French Markit Comp PMI (Feb) 50.4 vs. Exp. 49.9 (Prev. 49.9)

- French Markit Services PMI (Feb) 50.2 vs. Exp. 49.8 (Prev. 49.8)

- UK Markit/CIPS Services PMI (Feb) 51.3 vs. Exp. 49.9 (Prev. 50.1)

EQUITIES

Major European indices are moving towards negative territory, after starting the session somewhat firmer [Euro Stoxx 50 U/C] moving more in-line with the relatively poor performance seen overnight in Asia which was dictated largely by a disappointing lead from Wall Street. Sectors are mixed, with some slight underperformance in consumer discretionaries; the sector is weighed on by poor performance in Daimler (-0.8%), which represents around 7% of the sectors weighting, who are in the red after executives at the Co. stated they may have to lift prices to pass on potential US tariffs. Other notable movers include, Evonik (+3.8%) who are at the top of the Stoxx 600 after earnings where they beat on Q4 revenue. At the other end of the Stoxx 600, and weighed on by broker moves, are Altice (-9.1%) as are Richemont (-3.2%), who were both downgraded at Barclays and BOFA Merrill Lynch respectively. Elsewhere, Vodafone (+1.9%) are higher after after the Co. state they intend to raise around EUR 4bln through sterling denominated MCBS and there is the potential for a share buyback as part of this. Separately, British American Tobacco (+1.0%) are higher as the Co. state there will be no impact from the Quebec charge to their ratio of adj. net debt to adj. EBITDA.

FX

DXY - Off best levels, but the index continues to edge higher and just surpassed another chart resistance level (96.784) ahead of the next big figure on its way to a 96.815 high. The Greenback is still benefiting from weakness in rival currencies to an extent if not large part, or by default as a combination of negative/bearish factors inflict damage elsewhere (ranging from weaker macro fundamentals relative to the US, geopolitical instability/uncertainty and Central Bank policies aligning to Fed patience or even turning more dovish in certain cases, to name just a few). The DXY is now holding around 96.750 and well above Monday’s 96.331 low.

NZD/CAD - The 2 biggest G10 losers, with the Kiwi slipping below 0.6800 amidst a broader fall-out in risk currencies following a considerably weaker than forecast Chinese Caixin services PMI and confirmation that the NPC has downgraded its GDP sights to 6-6.5% from 6.5% previously. Meanwhile, the Loonie has extended recent losses to fresh multi-month lows circa 1.3350 vs its US counterpart with the added weight of heightened strains between Canada and China, plus another downturn in crude prices.

EUR/AUD/JPY/CHF - Also weaker vs Usd, as the single currency fails to derive much/any real support from surprise beats and upward tweaks to the Eurozone services PMIs, including the Italian headline that rebounded over 50.0 and was supplemented by an unexpected Q4 GDP revision to -0.1% q/q from -0.2%. Eur/Usd is hovering just above yesterday’s 1.1309 base and Fib support at 1.1305, but looks technically weak after breaching 1.1350 and key chart levels not far above. Similarly, the Aussie is struggling to mount a concerted recovery from recent lows towards 0.7100 after a dovish RBA policy statement on balance and yet more poor data overnight (Q4 net exports), and Aud/Usd could become increasingly drawn to a hefty option expiry down at 0.7050 as a result (1.6 bn). Meanwhile, the Yen and Franc continue to trade defensively on constructive US-China trade deal vibes, with Usd/Jpy edging back up to 112.00 and Usd/Chf straddling parity. Note also, decent option expiries in Usd/Jpy may impact into the NY cut, with 1 bn running off between 111.80-90 and 1.9 bn at the 112.00 strike.

GBP/SEK - Relative outperformers on better than expected UK and Swedish services PMIs vs other more downbeat economic indicators. However, Cable remains capped ahead of 1.3200 and the 100 WMA (1.3207), with the 10 DMA (1.3161) and a Fib (1.3130) now flanking the pair as it pivots 1.3150 awaiting any further Brexit developments. Eur/Sek has retreated through 10.6000 again and retesting bids around 10.5500.

EM - More angst for the Try and Inr after the US pulled the GSP plug from both nations, with the Lira attempting to pare losses and stay above 5.4000, but the Rupee staging a firmer recovery from almost 71.0000 at one stage as India’s Trade Ministry downplayed the impact of the trade pact being terminated.

FIXED INCOME

Bunds have now reversed through nearest downside tech support to test the next level around 165.28 that stands in front of 165.00 and Monday’s Eurex base (165.01), and a clean sweep of above forecast Eurozone services PMIs are an obvious catalyst for the deeper retreat. However, the rebound in Italian debt futures is also compelling as BTPs gleaned additional support from an unexpected upward tweak to Q4 GDP, a deal with the EU to extend guarantees for NPLs and a warning that the 5-Star party could quit the coalition over the Turin-Lyon rail link, thereby potentially removing a more contentious element from Government. Bunds now just off a new 165.26 low (-33 ticks on the day), BTPs not far from 128.86 at best (+44 ticks) and Gilts also seeing more retracement to 125.90 (-13 ticks) before rebounding firmly to post a marginal new Liffe high at 126.08 in spite of a significantly better than expected UK Service PMI.

Elsewhere, US Treasuries are back in bear steepening mode amidst more heavy sovereign/corporate supply and ahead of the non-manufacturing PMI.

COMMODITIES 

Brent (+0.2%) and WTI (+0.1%) prices are firmer although they were initially weighed on by the deteriorating risk tone, and Chinese Caixin Services PMI coming in below expectations at 51.1 vs. Exp. 53.5; with the complex also affected by dollar strength. Elsewhere, the El Sharara oil field has reopened at a current output of 30k BPD, far below the field’s capacity of around 300k BPD; although NOC has stated that a return to regular output is expected in the next few days. Looking ahead we have API Weekly release later in the session, which last week saw crude stocks fall by -4.2mln.

Gold (-0.1%) is relatively unchanged with the metal affected by both the stronger dollar and the deterioration in the risk tone seen overnight. Elsewhere, metals were weighed on by China lowering its GDP growth target to 6.0-6.5% from the prior of around 6.5%. Separately, the amount of copper available in LME system, fell to the lowest level since 2005 of 21.6k tonnes.

Libya's NOC said it has lifted the force majeure at the El Sharara oilfield (300k BPD); production has resumed at 30K BPD but is expected to reach 80K BPD in one day; according to sources. (Newswires)

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