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[PODCAST] US Open Rundown 21st March 2019

  • Major European indices are mixed, but are generally little changed [Euro Stoxx 50 U/C], after dovish FOMC; underperformance in financials on this.
  • SNB unchanged & Norges Bank hike as expected
  • DXY has paired some losses, largely on other G10 currencies failing to capitalise
  • Looking ahead, highlights include, US Initial Jobless Claims, Leading Index & Philly Fed, EZ Consumer Confidence, Japanese CPI, European Council Meeting (21/22 March), BoE Rate Decision
  • Earnings: Nike

 

ASIA  

Asian equity markets eventually traded mostly higher in the aftermath of a dovish FOMC, which immediately supported risk sentiment, although the gains in the major US indices were later pared due to underlying growth and trade concerns. ASX 200 (Unch) was subdued as financials tracked the underperformance of their US counterparts post-FOMC and with a broad subdued tone across most sectors aside from commodity-related names. Elsewhere, Hang Seng (-0.8%) and Shanghai Comp. (+0.4%) remained afloat with CITIC Securities suggesting increased possibility of a PBoC rate cut following the dovish Fed stance, although gains were capped amid lingering trade uncertainty as US President Trump recently suggested tariffs on China will be kept in place for a "substantial" amount of time after a trade agreement is struck to ensure Beijing holds up its end of the bargain. As a reminder, Japanese and Indian markets were shut for Vernal Equinox and Holi respectively.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.6850 (Prev. 6.7101); strongest fix since July 2018.

US

White House Economic Adviser Hassett sees 2019 GDP at 3.0%. (Newswires)

China's Commerce Ministry says USTR Lighthizer and Treasury Secretary Mnuchin are to visit China March 28-29th. Vice Premier Liu He to visit US in early April for trade talks. (Newswires)

- says imports and exports rebounded in March, and overall trade was table in Q1.

Chinese public will not accept the government reaching a deal where the US keeps the tariffs in Chinese good and China cancels tariffs, if this is the deal US wants investors should sell their stocks soon., Chinese Global Times Editor. (Twitter)

UK/EU   

ERG Member Francois said the ERG will not vote for PM May's deal under any circumstance. (Newswires)

EU27 will reject the June 30th extension date, and insist on May 22nd to avoid EU parliament election clash., Telegraph's Crisp citing Senior EU Source.(Twitter)

Government insiders believe the EU would still agree to a Brexit extension, even if PM May's deal is voted down., BBC's Smith. (Twitter)

European Parliament President Verhofstadt states that it is impossible to get an extension that goes beyond May 23rd, as it will create enormous problems. (Sky)

UK Retail Sales MM Feb 0.4% vs. Exp. -0.4% (Prev. 1.0%, Rev. 0.9%)

- UK Retail Sales YY Feb 4.0% vs. Exp. 3.3% (Prev. 4.2%, Rev. 4.1%)

- ONS notes strong increases in fuel sales and online shopping in the 3 months to February, a significant fall for supermarkets after January sales ended

- ONS notes anecdotal evidence that unusually warm Feb weather lifted sales of sporting goods and sales at garden centres.

German Finance Ministry said February tax revenue fell 1.6% Y/Y, while it added German growth is likely to remain subdued through H1 and that Brexit and trade disputes are dampening expectations. (Newswires)

CENTRAL BANKS

Swiss 3M Target LIBOR Rate Q1 -1.25 - -0.25% vs. Exp. -0.75% (Prev. -0.75%)

Swiss 3M Target LIBOR Rate -0.75% vs. Exp. -0.75% (Prev. -0.75%)

- The SNB says that the CHF is highly valued, situation on FX market is still fragile, unchanged from prior. Therefore, negative interest rates and a willingness to intervene in FX markets remains essential

- See 2019 inflation at 0.3% (vs. prev. 0.5%), 2020 0.6% (vs. prev. 1.0%)

- See 2019 growth at around 1.5%, unchanged from prior

- SNB states economic indicators are currently pointing to moderately positive momentum

Norwegian Key Policy Rate 1.0% vs. Exp. 1.0% (Prev. 0.75%)

- Current assessment of the outlook and balance of risks suggests that the policy rate will most likely be increased further in the course of the next half-year. Norges Bank Governot Olson sees above 50% chance of a hike in June

- The Executive Board also noted that the upturn in the Norwegian economy may prove to be more pronounced than envisaged

- Sees 2019 key policy rate level at 1.1% vs. Dec forecast 1.0%. 2020 1.6% vs. 1.5%. 2021 1.7% vs. 1.8%. 2022 1.7%.

- Sees 2019 core CPI 2.3% vs. Dec forecast 2.0%. 2020 2.0% vs. 2.3%.

- Sees 2019 non-oil GDP growth at 2.7%  vs. Dec forecast 2.3%. 2020 1.8% vs. 1.6%. 2021 1.2% vs. 1.4%

GEOPOLITICAL

North Korean Leader Kim Jung Un is said to be seeking a meeting with Russia. (Newswires)

EQUITIES

Major European indices are mixed, but are generally little changed [Euro Stoxx 50 U/C], following the dovish FOMC; which has led to underperformance in financial names with the sector significantly lagging its peers and the likes of Lloyds (-2.8%) and RBS (-5.3%) underperforming (RBS are trading ex-dividends). The FTSE 100 (+0.3%) has been supported from the open by a rebound in material names such as Fresnillo (+5.3%), Antofagasta (+2.6%) and Glencore (+2.2%); with the broader sector outperforming its peers in a turn around from the significant underperformance seen yesterday in the material sector which was attributed to Vale surpassing a key milestone in resuming production. Other notable movers include, Inmarsat (+2.1%) in the green after speculation surrounding a counterbid for the Co. after reports yesterday that investors made a bid valued at GBP 2.5bln. At the bottom of the Stoxx 600 are IG Group (-7.6%) after poor earnings figures and the Co. stating they expect FY revenue to be lower than the priors. Separately, Skanska (-2.6%) are lower as the Co. states that they are not likely to hit their 2019-20 construction margin target.

FX

NOK - In stark contrast to the dovish FOMC and steady SNB, the Norges Bank delivered the 25 bp hike flagged at the start of the year and signalled another ¼ point tightening for the 2nd half of 2019 before 2 more next year. The accompanying statement was also more upbeat/hawkish than most expected, with upgrades to growth forecasts and 2019 core CPI, while the Board added that the domestic economy may even expand faster than previously envisaged. Moreover, Governor Olsen went one step further by assigning better than even odds of a 25 bp hike in June, and Eur/Nok has slumped in response from around 9.6900 to just over 9.5900 at one stage.

DXY - The broad Dollar and index have pared some post-Fed losses, albeit mainly due to several rival G10 currencies failing to build on gains at the expense of the Greenback. Indeed, Usd/majors are somewhat mixed as the DXY reclaims 96.000 status, just. To recap, the FOMC was more dovish than expected given no further policy normalisation this year vs 2 hikes previously and confirmation that QT will end sooner than planned, with a slower monthly run-off from May and end by September.

NZD/AUD/JPY - The other big beneficiaries of Usd weakness, with the Kiwi reclaiming the 0.6900 handle and gleaning independent support to a mostly solid NZ Q4 GDP update, while the Aussie is firmly back above 0.7100 as sub-forecast jobs growth in February was countered by a near 8 year low unemployment rate. Elsewhere, Usd/Jpy has reversed sharply through 111.00 and to the lower end of a 110.75-30 range as US Treasury yields recoil in wake of the aforementioned Fed policy shift.

CAD/CHF/EUR/GBP - All underperforming to varying degrees, as the Loonie failed to sustain momentum through 1.3300 and the Franc resists advances towards 0.9900 in wake of the SNB quarterly policy review that maintained a high value assessment of the Chf amidst still fragile FX market conditions and the ongoing need for NIRP alongside close monitoring and intervention if needed. Meanwhile, the single currency has faded ahead of 1.1450 having cleared a Fib level at 1.1420 temporarily, and now looks prone to hefty option expiries at 1.1400 in 2.8 bn, with further upside attempts potentially capped by similar size between 1.1415-30 (2.9 bn). Turning to the Pound, Brexit remains the overriding issue and currently a mainly negative factor given even more uncertainty surrounding the conclusion and whether the EU is willing to grant an A 50 extension. Indeed, Cable only got a knee-jerk lift from better than forecast UK retail sales data before extending losses from 1.3200+ to circa 1.3135.

FIXED INCOME

Some signs of fatigue or perhaps merely consolidation and a refuel, as Bunds ease off 164.84 Eurex highs and Gilts hover just under their 128.20 Liffe peak, but both retain healthy ½ point+ gains on the day in the post-dovish FOMC limelight. Technically, 164.97 and 128.24 are still the nearest bullish targets, while the US Treasury complex remains firmer and the curve flatter ahead of weekly claims, Philly Fed and the leading index before 10 year TIPS supply (Usd11 bn).

COMMODITIES

Brent (-0.3%) and WTI (-0.3%) are marginally softer, and remain affixed within a USD 1/bbl range. WTI did surpass the USD 60.0/bbl level overnight on the back of a dovish FOMC, however the complex has since drifted somewhat with WTI now trading just below the key level. Regarding the 9.6mln draw in EIA Crude Inventories reported yesterday, UBS note that this is bullish in respect to both the API’s 2.1mln draw and compared to the 5yr average for this period; of around +5.4mln.

Gold (+0.4%) is firmer, although off of session highs of around USD 1320/oz, on the back of dollar weakness after yesterdays dovish Fed, base metals more broadly have garnered support from the weaker dollar with copper rising to around a 3-week high overnight. Elsewhere, Barclays note that the risks surrounding iron ore have not dissipated following the reopening of Vale’s Brucutu mine as two others have been temporarily closed recently and there is a risk of further mine closures.

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