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[PODCAST] US Open Rundown 20th March 2019

  • Significant underperformance in the DAX following losses in BMW and Bayer
  • PM May to ask for a ‘short’ extension to A50, of up to 3 months. However, remainers are looking to derail her plans via an emergency debate
  • In FX, Dollar steadies ahead of FOMC, aided by GBP declines
  • Looking ahead, highlights include New Zealand GDP, FOMC Rate Decision & Press Conference

 

ASIA  

Asian equity markets lacked firm direction with the region cautious following a lacklustre lead from Wall St and as global risk appetite was hampered by the looming FOMC meeting and ongoing US-China trade uncertainty. ASX 200 (-0.3%) and Nikkei 225 (+0.2%) traded mixed in which the former was pressured by weakness in financials and mining names, while Sony and Nintendo shares were among the biggest decliners in Japan following Google’s announcement of a cloud-based gaming service, although losses in the broader Tokyo market were later pared by favourable currency moves. Hang Seng (-0.2%) and Shanghai Comp. (U/C)conformed to the indecisive tone due to trade uncertainty following conflicting news flow in which US-China trade talks were said to be at the final stages with senior trade negotiators to meet from next week, although other reports noted expectations that China may walk back on some trade offers and that issues remained regarding data services and pharma. Finally, 10yr JGBs were restrained as they reflected the flat picture in T-notes and uneventful BoJ Minutes release, although prices were then pressured as Tokyo trade began to improve and following a tepid BoJ Rinban operation of JPY 500bln concentrated in the belly.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.7101 (Prev. 6.7062)

BoJ Minutes from January 22nd-23rd meeting stated that most members suggested it will take time to reach 2% inflation target and that it is appropriate to continue easing persistently. The minutes added that it was vital to communicate persistent easing stance and that one member said it was undesirable to create a situation where markets view excessively that there will be no policy changes in the near-term. (Newswires)

BoJ Governor Kuroda says the BoJ would consider easing further if the momentum to hit the price target is lost, various means can be considered for this. Include, ramping up JGB buying if needs to ease further, while balancing benefits and costs of such steps. (Newswires)

China restrictions on coal imports from Australia appear to be widening to other ports in China according to Australian press reports which mention the southern port of Fangcheng. (Newswires)

US

US President Trump is to host Caribbean leaders at Mar-a-Lago on Friday where discussions will include China's predatory economic practices and Venezuela. (Newswires)

White House Economic Adviser Hassett said performance of the economy is the opposite of a sugar rush, while he added that the budget assumes tax cuts are permanent. (Newswires)

EU Leader are to ask ministers to move on agreeing a negotiating mandate for the commission in US trade talks, Senior EU Official. (Newswires)

UK/EU   

UK PM May requested to address the 1922 Committee at 1700GMT, while the PM’s office has indicated the Brexit extension letter will be sent to the EU today.

UK PM May will ask for a "short" extension to Article 50 from European Council President Donald Tusk, according to Sky News. (Sky) Subsequently, reported that UK PM May is to ask for a Brexit delay of up to 3 months in letter to EU, source states this rules out the prospect of partaking in EU elections, PoliticsHome's Schofield. (Twitter) EU leaders will want to hear UK PM May's reasons for requesting a short extension, will not just say yes., BBC's Adler citing the reaction of EU diplomats this morning. Adding that a short extension makes sense to the EU if Parliament can get a deal through Parliament, and the extension is used to ratify the deal; but EU leaders are doubtful. (Twitter)

Appears as if UK PM May's decision to rule out a long-delay has not calmed Brexiteers, are now calling for PM May to secure further changes to her deal at the EU Council Meeting, BBC's Smith. (Newswires)

Labour MP Alison McGovern is tabling an SO24 emergency debate on the Article 50 extension. Subsequent reports have suggested that Labour will support the debate but based on the nature of the extension rather than the length of the extension i.e. Labour want the opportunity to push forward their own Brexit plan

UK CPI YY Feb 1.9% vs. Exp. 1.8% (Prev. 1.8%)

- UK Core CPI YY Feb 1.8% vs. Exp. 1.9% (Prev. 1.9%)

Chinese President Xi will sign agreements with France including energy, transport and agriculture during visit to Europe, while China will also sign trade and finance agreements with Italy. (Newswires)

GEOPOLITICAL

North Korean propaganda outlet Uriminzokkiri said South Korean military's Ssangyong and Ulchi Taegeuk exercises are a vicious challenge to hopes of peace and violate agreements made between North Korea and South Korea. (Newswires)

EQUITIES

Major European indices are in the red [Euro Stoxx 50 -0.5%], with clear underperformance seen in the Dax (-1.0%). Underperformance in the Dax was seen at the open following Bayer (-12.5%) opening significantly lower following a US Jury ruling that the Co’s Roundup was a ‘substantial factor’ in causing a man’s cancer, for reference the Co. has around a 8.3% DAX weighting. Losses in the Dax were subsequently exacerbated by BMW (-4.8%) reporting that they see 2019 group profit before tax significantly lower than the prior years levels; other German names have been dragged down in sympathy. In terms of sectors the material sector continues to underperform, after opening lower than peers at the open, which has been attributed by some to a potential easing of supply constraints after Vale surpassed a milestone in their path to resume production at their Brucutu, Brazil mine. Other notable movers include UBS (-2.3%) are in the red, after the CEO stated that Q1 investment bank revenues are down by around a thirds Y/Y, adding that the CO’s global wealth management income remains under pressure. Elsewhere, Inmarsat (+16.6%) after reports that the Co. have received their 3rd takeover bid this year; which valued the Co. at GBP 2.5bln. Of note, Norsk Hydro (+1.0%) stated that it is too early to determine the exact operational and financial impact of the cyber attack they were subject to yesterday.

FX

USD - The Greenback appears to have stabilised as the clocks tick down to the Fed, partly on technical grounds and short covering, but also due to the plight of others like the Pound that is underperforming on latest Brexit developments. The DXY is back within touching distance of the 96.500 level having stopped the rot just ahead of Fib support at 96.264, but it remains to be seen whether the index closes above another chart retracement level at 96.434, which did not hold yesterday, and this in turn depends on how dovish the FOMC proves to be via a combination of the revised growth and inflation forecasts, updated dot plots and especially QT guidance – for a full preview of the looming and pivotal event check out the Ransquawk Research Suite.

GBP - In contrast to the Buck’s resolve, Sterling seems resigned to heightened Brexit risk, and in particular the increased uncertainty that extending the A 50 deadline might bring, assuming the EU accepts the request of course. Latest reports suggest that PM May will ask for a short delay of up to June 30 after discussing the alternative of a longer postponement from March 29 with her Cabinet, but meeting staunch opposition to the latter from Tory Leave rebels. However, Brussels remains adamant that any request will only be considered, let alone granted, if accompanied by a rationale reason or firm plan of action, while stressing no going back to the table and renegotiating the WA. Moreover, a 3 month extension crosses the EU election deadline and event itself, as the deadline falls on April 12 for May 23. Cable has accordingly recoiled from another approach towards 1.3300, stopping just short of 1.3200, and Eur/Gbp is hovering near the top of a 0.8590-50 range.

G10 - Elsewhere, Usd/majors remain relatively rangebound and narrowly mixed, with the AUD, CHF and EUR marginally outperforming vs the JPY, CAD and NZD that are on a moderately softer footing vs the Dollar. Aud/Usd is holding close to 0.7100, and gleaning some support from the Kiwi on cross-positioning as Aud/Nzd climbs back above 1.0350 and Nzd/Usd is capped ahead of 0.6850 in advance of NZ Q4 GDP data that is likely to carry downside risks vs consensus. Usd/Jpy is pivoting 111.50 after more dovish leaning Japanese rhetoric from BoJ Governor Kuroda and the Government, while the Loonie has lost Tuesday’s bullish momentum and retreated further from 1.3250 to almost 1.3350 alongside crude prices. Turning to the single currency and Franc, trading parameters are still extremely tight around parity and 1.1350 respectively, with the Chf not just wary of the FOMC, but also the SNB on Thursday, while Eur/Usd does not seem likely to trigger decent option expiries at 1.1320-35 (1 bn) or 1.1390-1.1400 (2 bn) at this stage.

FIXED INCOME

Hardly a flinch on the UK inflation data as Gilts remain transfixed by Brexit and retain a decent bid on no deal risk towards the top of a 127.41-16 band, while Bunds have drifted back from 164.10 to just below 164.00 even though BTPs are seeing extended weakness/outperformance in wake of Italy’s exchange auction. Note, Germany’s Bobl sale was satisfactory rather than solid and has resulted in marginal belly indigestion. Elsewhere, US Treasuries are moderately above parity and curve flatter with all eyes on the eagerly awaited FOMC, but also an element of safe-haven/risk aversion in the mix as EU equities extend losses, and the German Dax especially.

COMMODITIES

Brent (-1.0%) and WTI (-0.5%) prices have slipped, and eliminated the support to prices garnered from yesterdays surprise API draw of -2.1mln vs. Exp. +0.3mln. Separately, UBS highlights that the slowing US’s slowing supply, which they note was highlighted in the EIA’s monthly report, suggests that oil markets are continuing to tighten. Looking ahead we have the EIA Weekly Crude report, where expectations are for a crude stocks draw of 0.775mln; at 14:30GMT.

Gold (-0.3%) is trading towards the bottom of the days range, weighed on by a stronger dollar and ahead of FOMC rate decision later in the session. Elsewhere, copper has traded uneventfully this morning and Glencore are reportedly in talks with Aeris to offload their CSA copper mine for USD 575mln.

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China's Agriculture team getting as far away from the NYSE, just like us!! Hope you all have a good weekend, we'll… https://t.co/NsIJqCDJFE