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[PODCAST] US Open Rundown 11th March 2019

  • Major European equity indices are essentially unchanged, while Dow futures underperform due to heavyweight Boeing
  • Brexit deadlock continues, recent reports suggest that PM May may change tomorrows vote from meaningful to provisional
  • Looking ahead, highlights include US retail sales (Jan), BoE’s Haskel, US supply. Note: US clocks have changed (London-NY gap is now 4 hours)

 

ASIA

Asian equity markets traded somewhat indecisive as the region digested Friday’s mixed US jobs data in which NFPs severely missed expectations and although the declines across the major US indices were only mild, the S&P 500 still posted a 5th consecutive daily loss and its worst weekly performance YTD. ASX 200 (-0.4%) and Nikkei 225 (+0.4%) were mixed with Energy the underperformer in Australia which some attributed to news of Norway’s sovereign wealth fund exiting energy companies and with the Japanese benchmark reflecting a choppy currency. Elsewhere, Hang Seng (+0.9%) and Shanghai Comp. (+1.9%) eventually outperformed despite a steep drop in lending data over the weekend, as some attributed the sharp decline in New Yuan Loans and Aggregate Financing to seasonal factors, while the PBoC also reportedly pledged to further support the slowing economy by spurring loans and reducing the cost of borrowing. Finally, 10yr JGBs were subdued with price action contained by the indecisive risk tone and lack of BoJ presence in the market.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.7202 (Prev. 6.7235)

US NEC Director Kudlow said US and China are still negotiating over the phone and that a Trump- Xi meeting may happen late this month or next. (Newswires)

China Mofcom stated that US-China trade talks have made substantial progress and leaders have agreed to work towards removal of tariffs. (Newswires)

PBoC pledged to further support the slowing economy by spurring loans and lowering borrowing costs after data showed a sharp decline in lending data due to seasonal factors. Furthermore, PBoC Governor Yi Gang stated there is still some room for a RRR cut although the amount of room is less compared with a few years ago and there were also comments from PBoC Deputy Governor Pan that they will keep liquidity ample and set up counter cyclical adjustments, while a central bank official also noted that February money supply data is normal and inline with historical trends. (Newswires/Yahoo)

Chinese New Yuan Loans (CNY)(Feb) 885.8B vs. Exp. 975.0B (Prev. 3230.0B). (Newswires) Chinese Aggregate Financing (CNY)(Feb) 703.0B vs. Exp. 1300.0B (Prev. 4640.0B). Chinese Money Supply M2 (Feb) Y/Y 8.0% vs. Exp. 8.4% (Prev. 8.4%) Chinese CPI (Feb) Y/Y 1.5% vs. Exp. 1.5% (Prev. 1.7%). (Newswires) Chinese PPI (Feb) Y/Y 0.1% vs. Exp. 0.2% (Prev. 0.1%)

US

US President Trump will release the 2020 budget today (comes into effect in October) in which he is to request USD 8.6bln of funding for border wall and is to ask Congress to reduce non-defense spending by an average of 5% in fiscal 2020 budget. Furthermore, growth is exp. 3.2% in 2019, 3.1% in 2020, 3.0% in 2021 and a 10-year forecast of 3.0%, while the proposal will see a balanced budget in 2034 rather than the typical 10-year horizon that has been a goal for Republicans. (Newswires)

Fed Chair Powell (Neutral) commented that downside risks to the economic outlook have increased and that more economies began to slow 6 months ago, while he added that US economic outlook is still favourable but that trade talks have added to the uncertainty. Fed Chair Powell also stated the economy is in a good place and rates are appropriate considering muted inflation, while he added the Fed does not feel any hurry to change interest rates again and will wait to observe how global conditions evolve before making any changes. (Newswires)

UK/EU

Fed Chair Powell (Neutral) commented that downside risks to the economic outlook have increased and that more economies began to slow 6 months ago, while he added that US economic outlook is still favourable but that trade talks have added to the uncertainty.. (BBC)

UK PM May has reportedly been warned by MPs that the Brexit vote must be put on hold if she fails to secure significant concessions from Brussels. (Times)

EU is preparing to impose punitive conditions on UK for agreeing a Brexit extension with EU member states said to be toughening their stance by demanding legal and financial conditions such as a higher divorce bill in return for an extension. (Telegraph)

Only two cabinet members reportedly still support PM May, according to a cabinet minister. (Telegraph)

Shadow Brexit Secretary Keir Starmer said the Labour party will not push for a vote on a second referendum even if PM May’s deal is defeated. (The Times)

Senior Brexiteers wanted PM May’s team that she will only get her deal passed if she offers to resign by June. (The Times)

UK Chancellor Hammond will reportedly offer Tory MPs a fund pump of GBP 20bln this week to “end austerity” if they support PM May’s deal. (The Times)

There are talks of PM May having a "conditional" vote on her dream Brexit deal, rather than one on the table, as a way of showing what could get through HoC; according to FT's Political Editor. (FT)

UK Government sources says UK PM May has no plans to head to Brussels following the deadlock in talks with the EU. (Newswires)

EU Sources are rubbishing claims of extra payments being attached to a Brexit deal, adding that the EU expects the UK to pay what has been signed up to; Guardian's Rankin. (Twitter)

The chances of tomorrows meaningful vote being pulled are 50/50 says Tory Brexiteer Mark Francois; Sun's Dathan. (Twitter)

ITV's Peston notes that he can find no one in the Cabinet or on the backbenches who any longer believes Theresa May will be PM for longer than a few weeks. (Twitter)

PM May is meeting with senior aides in No10 to plot a way through the week, told that it is most likely PM will change the vote tomorrow from a meaningful vote to a provisional one; Sun's Dunn. (Twitter)

- Adding that if PM May can produce a commons majority for a detailed deal on the backstop then the EU may buckle and concede at the Council meeting on March 21/22.

- Dunn adds that he was told this was discussed by the PM with EU Commission President Juncker last night, and No10 considers it a win that Juncker agreed to continue technical negotiations  between officials by the end of the call.

 

Irish PM Varadkar says an Article 50 extension would have to be with a purpose, adding that no one wants a rolling Brexit cliff edge. (Newswires)

 

BoE reportedly tightened liquidity buffers ahead of Brexit in which it asked some UK banks to triple their holdings of easy-to-sell assets to cope in the event of a market crash from a potential no-deal Brexit. (FT)

ECB's Coeure (Neutral) said he does not see a need to restart asset purchases and added that the ECB does not see a recession at the moment. (Newswires)

German Industrial Output MM* Jan -0.8% vs. Exp. 0.5% (Prev. -0.4%). (Newswires)

EQUITIES

After opening with gains of around 0.5%, major European indices are largely unchanged [Eurostoxx 50 +0.1%] following an indecisive lead from Asia where Chinese stocks eventually outperformed. Goldman Sachs noted that China A shares could be set for large gains as “fear of missing out” takes hold. If retail optimism were to return to its peaks in 2015 and 2018, the CSI 300 would give approximately 50% and 15% potential upside respectively from current levels, Goldman says. Equities across Europe have somewhat waned off opening highs with the FTSE 100 (+0.8%) holding its composure amid a weak domestic currency ahead of a series of Parliamentary votes this week. Meanwhile, Spain’s IBEX (-0.1%) underperforms as heavyweight BBVA (Unch) swings between gains and losses amid reports the Co. is planning board changes in the coming months. Over in Germany, Wirecard (+5.6%) shares lift the benchmark as the Co. expects the final report on fraud allegations soon (Note: Shorting ban on Co shares are still ongoing). Deutsche Bank (+2.2%) also supports the German index amid pre-market reports that the Co. and Commerzbank (+4.6%) have begun tentative merger talks. Finally, Dow Jones Mar’19 futures dipped lower as Boeing shares dropped 10% in pre-market trade following the weekend Boeing 737 Max 8 crash on its way to Nairobi, marking the second disaster for the jet in five months. Several airlines have since grounded the Boeing jet, whilst Airbus shares (+0.4%) are little moved.

FX

GBP – Sterling remains under pressure across the board, irrespective of latest bullish bank calls (this time via Eur/Gbp rather than Cable), as talks between UK and EU officials on changes to the back-stop continue to hit a brick wall, and the prospects of a breakthrough looks increasingly bleak before Tuesday’s meaningful vote. Indeed, given the ongoing impasse and indications that PM May’s deal will be roundly rejected again, rumours are now circulating about a provisional or conditional vote before going back to Parliament, and with the possibility of adding the Cox amendment to try and coerce more support. Cable briefly reclaimed 1.3000+ status amidst reports that the EU will not demand more money from Britain in exchange for an extension to the March 29 Article 50 deadline, in contrast to earlier suggestions, but is back below the round number and not far from circa 1.2950 lows hit when stops were said to have been tripped around the 1.2960 level (trend-line support). Meanwhile, Eur/Gbp is hugging the top of a 0.8675-40 range, leaving the aforementioned short strategy underwater at this stage, as the institution entered at 0.8630 with a 0.8760 stop and 0.8400 target.

NOK – The Norwegian Crown is also bucking an otherwise relatively muted and rangebound start to the week for G10 currencies/pairings, but outperforming in wake of significantly stronger than forecast CPI data, and especially the core inflation measure. Eur/Nok fell from 9.8250+ to just shy of 9.7600 in response, but is currently holding near 9.7700.

EUR/NZD/AUD/CAD/JPY/CHF –  All narrowly mixed vs the Greenback, with the single currency reclaiming some lost ground after its sharp post-ECB demise, but struggling to sustain recovery gains much beyond 1.1250 with resistance seen at 1.1270 (Fib level) and 1.1298, while hefty options may also keep Eur/Usd in check given 2.7 bn sitting between 1.1300-20 and not much on the downside until 1.7 bn at the 1.1200 strike. Meanwhile, the Kiwi is still performing better than the Aussie down under, partly due to post-NFP weakness in its US counterpart and switching via the Aud/Nzd cross that is pivoting 1.0350. Consequently, Nzd/Usd is hovering just above 0.6800, while Aud/Usd is capped circa 0.7050. Elsewhere, the Loonie continues to benefit from upbeat Canadian jobs data in contrast to the headline US tally, and firmer crude prices to an extent, as Usd/Cad eases back from recent 1.3460 highs. Turning to Usd/Jpy and Usd/Chf, both are nearer the apex of respective 111.30-110.90 and 1.0095-70 trading parameters, as the broad Dollar and DXY regain some composure – index meandering between 97.500-250.

FIXED INCOME

The ongoing malaise and heightened uncertainty on the eve of what could well be 3 consecutive and pivotal Parliamentary votes on the fate of Brexit has underpinned UK debt, albeit belatedly, as Gilts grind higher to reach a new 127.39 Liffe peak for the day (+26 ticks). Meanwhile, Bunds have also regained composure after a deeper retreat from best levels to 164.32 at one stage (-7 ticks), and another sell-off in Italian bonds could well be supporting the 10 year Eurozone benchmark. However, US Treasuries are not that impressed as futures remain depressed and the curve steeper in wake of latest comments from Fed chair Powell reiterating an upbeat assessment of the economy, but no rush to hike rates again. Note also, key retail sales data on tap later, and Usd38 bn 3 year supply.

COMMODITIES

US President Trump administration officials are reportedly divided over NOPEC legislation that would allow the government to sue OPEC nations for attempting to control oil prices. (Axios)

Sinopec and PetroChina are to shut down several refineries with tens of millions of tonnes of total capacity for several months due to overhaul work. (Newswires)

Libya is currently producing 1.17mln BPD, including 200K BPD from restarted Sharara Oil Field (300K BPD) where full production is expected this week. (Newswires)

Saudi Official says that they plan to cut April crude exports below 7mln BPD despite strong demand. (Newswires)

- Are to keep oil production in April well below 10mln BPD

- Add that they are committed to oil market rebalancing, and they expect other producers to show similar commitment

- Saudi Aramco’s Crude oil allocation in April are 635k BPD lower than their customer requested volumes

 

Global oil demand to grow by an average 1.2mln BPD a year through to 2024; IEA.

- Report adds that the US are to become a net oil exporter in 2021 and global oil output capacity to increase by 5.9mln BPD by 2024.

 

Libya's Harouge crude oil pipeline is leaking following a car crash; NOC. (Newswires)

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