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[PODCAST] US Open Rundown 9th July 2018

  • UK agrees on white paper proposal with Dominic Raab announced as new UK Brexit Secretary; David Davis resigns
  • European Equities in the green but FTSE underperforms on a stronger GBP
  • Looking ahead, highlights include, ECB’s Praet, Draghi and Fed’s Kashkari

ASIA

Asian stocks began the week higher across the board as the region followed suit to Wall St’s performance on Friday after a Goldilocks US jobs report. The broad appetite for risk saw all majors gains from the open with the ASX 200 (+0.2%) led higher by mining stocks including BHP amid reports BP is front running the bidding for its US shale assets and with Nikkei 225 (+1.2%) supported by a predominantly weaker currency. Hang Seng (+1.3%) and Shanghai Comp. (+2.5%) conformed to the upside with broad gains across the sectors in both indices and which followed the PBoC snapping its recent streak of liquidity drains, while focus in Hong Kong also turned to Xiaomi which declined over 4% in early trade on its debut due to valuation concerns. Finally, 10yr JGBs were subdued as focus was centred around stocks and amid a lack of Rinban announcement, although downside was also stemmed as prices sat near their best levels since May and at close proximity to retest resistance around 151.00.

PBoC skipped open market operations for a net neutral daily position. (Newswires)

PBoC set CNY mid-point at 6.6393 (Prev. 6.6336)

China's Cabinet has issued a statement on expanding agricultural and resource related imports, promoting trade balance. (Xinhua)

EU/UK/US

UK government outlined its Brexit negotiating position in which it commits UK to ongoing harmonisation with EU on goods that are needed for frictionless trade and stated it wants to work with EU on introduction of a facilitated customs arrangement which would remove need for all border checks between UK and EU as if a combined customs territory. The government added it will seek a different position for services which means the UK will not have current levels of access to the EU and stated that its Brexit negotiating position would end free movement of labour and return control of immigration. (Newswires)

UK Brexit Secretary Davis resigned, while he stated that PM May’s policy is now more likely to break the manifesto pledge and leaves the UK in a weak negotiating position. Furthermore, Brexit Minister Steve Baker also resigned, while UK PM May's office named Dominic Raab as the new Brexit Secretary. (Newswires) UK PM May is said to have promised to fire UK Foreign Minister Johnson if he undermines the new Brexit negotiating position, according to reports on Friday. (The Times)

UK Environment Minister Gove said the Brexit plan is a realistic compromise, while he also commented the UK will not walk away from the negotiations now but should be willing to if a "proper" withdrawal from the EU cannot be reached. (Newswires/BBC)

Jacob Rees-Mogg is to vote against UK PM May's Brexit plan, while there were also reports that Brexiteer MPs threaten to topple PM May and replace her with Jacob Rees-Mogg in anger at the PM’s Chequers deal. Furthermore, Jacob Rees-Mogg more recently commented that UK PM May's Brexit plan must be bad if Davis cannot support it and that a serious mistake by PM May led to Davis quitting. (Telegraph/Sun)

EU countries were said to be lobbying EU Brexit negotiator Barnier not to reject the UK White Paper. (Newswires)

British Chambers of Commerce said UK manufacturing and services companies’ domestic sales picked up slightly during Q2 but UK business investment plans and confidence weakened, while it added BoE rhetoric around hiking rates seems ill-judged. (Newswires)

ECB's Coeure said the ECB is not complacent to trade-war risks and that its June decision considered trade and other risks, while he added that Euro zone economy remains strong and that rate guidance has been effective. (Newswires)

EQUITIES

European equities are higher (Euro Stoxx 50 +0.4%), with the FTSE (+0.1%) underperforming due to a higher GBP, as investors monitor developments in the UK following the resignation of UK Brexit Secretary David Davis. The current outperformer is the AEX (+0.8%), which is being lifted by a broker upgrade for index heavyweight Altice (+3.3%) at RBC as well as Orange being open to a potential alliance within their home market.

Air France (+4.0%) reported improved passenger numbers for June vs. May, easing investors’ concerns about strike action that has been hitting the company.

Renault (-2.3%) are currently struggling on the back of emission measurement concerns at their partner co. Nissan.

FIXED INCOME

It’s been quite measured rather than sudden or on anything specific, but nevertheless Bunds and Gilts have fallen further, with the latter now underperforming having lost grip of the 123.00 handle and almost ½ point underwater at 122.79 vs last Friday’s 123.28 close. Its German equivalent just slipped to 162.41 for a 41 tick loss on the day and perhaps a much stronger than expected Sentix index provided some incentive for sellers, but the survey is not usually a major impactor. However, now that the previous session low has been breached 162.30 is near term support ahead of a channel base at 162.19 and then last week’s base at 162.06. Elsewhere, US Treasuries are ticking lower in sympathy and the curve is mildly steeper.

FX

AUD

The top G10 performer on a mixture of better risk sentiment overall, short covering and stops on a break of technical resistance, with Aud/Usd up through 0.7440-50 to just over 0.7475 and bulls now eyeing a Fib level just shy of 0.7500.

GBP

Cable has recovered well from a wobble and brief retreat through 1.3300 in wake of David Davis’ resignation due to what he perceives to be a too soft EU withdrawal White Paper from the UK Government, with market contacts noting stops on a break of 1.3330 on the way to a 1.3360 high, and also noting stops vs the EUR at 0.8800 in the cross that is currently towards the bottom of a 0.8850-15 range. However, the single currency is fairing much better vs a generally soft USD following the weaker than forecast elements of last Friday’s US jobs report, with a Fib breached around 1.1720 and peak around 1.1780, opening up scope to 1.1800, while the DXY has extended losses to just below 93.800.

CHF

The Franc is also benefiting on the back of the Greenback’s demise, to trade near 0.9850, and with little reaction to somewhat mixed Swiss unemployment data.

NZD/CAD/JPY

All pretty flat, with the Kiwi capped around 0.6850 and somewhat outflanked by its antipodean neighbour as the Aud/Nzd cross rebounds above 1.0900. The Loonie is holding in a relatively tight 1.3100-1.3070 range vs its US rival, while Usd/Jpy continues to pivot 110.50.

TRY

The Lira is firmer and back over 4.5500 vs. Usd as traders await an announcement at 18.00 from the Erdogan Government on their cabinet line-up

COMMODITIES

Oil is currently mixed and WTI/Brent spreads widening, with Brent +0.75% and WTI -0.25%. WTI has broken through the USD 74/BBL & 200 DMA levels to the downside, with investors eyeing the 50 and 100DMA levels as key supports at USD 73.52/BBL and USD 73.49 respectively in the wake of increased supply form the US, as Baker Hughes noted an increased rig count for the first time in several weeks.

Gold prices are up and being lifted to two week highs at USD 1,260/Oz by a softer dollar and short covering. London copper has rebounded from a close to 1 year low in the previous session, and is up 1.8% on the day as a weaker dollar has also forced short covering for the construction material.

BP is in the lead to acquire the U.S. onshore shale oil and gas assets of BHP submitting an offer worth over USD 10bln; according to sources.

Source: RANsquawk

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