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[PODCAST] US Open Rundown 22nd March 2019

  • Major European indices are firmly in the red [Euro Stoxx 50 -0.7%], weighed on by dismal PMIs; notably, German Manufacturing PMI plummeting to a 72-month low
  • US President Trump says the deal with China is coming along very well
  • EU leaders will give the UK an extension until May 22nd if parliament agrees to May’s deal next week, if rejected, the UK will have until April 12th to indicate a way forward
  • Looking ahead, highlights include US PMIs (Flash), Canadian CPI & Retail Sales, US Existing Home Sales, Fed’s Bostic speaking

 

ASIA  

Asian equity markets traded mixed as the region failed to sustain the momentum from the tech-led advances on Wall St, where the sector rose by nearly 2.5% in the S&P 500 with Micron shares up over 9% post-earnings and with Apple the best performer in the DJIA on bullish broker calls. As such, ASX 200 (+0.5%) was positive as tech names tracked the upside of their US counterparts and with broad strength seen across sectors aside from the mining names amid a subdued metals complex, while attempts by the Nikkei 225 (U/C) to play catch up to the prior day’s Fed-inspired performance was cut short by recent JPY strength. Elsewhere, Hang Seng (+0.1%) and Shanghai Comp. (U/C) were negative with focus in China centred on earnings releases including Tencent and PetroChina which both fell short of net profit estimates and resulted in the latter leading the declines in Hong Kong. Finally, 10yr JGBs were higher with prices boosted in the wake of the dovish Fed and as longer-term yields dropped to multi-year lows last seen in late 2016.

China MoF is to lower export rebate rates to 13% and 9% from Prev. 16% and 10% in accordance with VAT cuts beginning in April. (Newswires)

China Central Bank survey, shows business confidence index increased in Q1 vs. Q4 2018. (Newswires)

China is extending Labour Day holidays which start on May 1st by 2 days to create a 4-day break in an attempt to spur travel and spending. (Newswires)

PBoC skipped open market operations for a weekly net injection of CNY 90bln vs. Prev. CNY 20bln injection W/W. (Newswires) PBoC set CNY mid-point at 6.6944 (Prev. 6.6850)

Japanese National CPI (Feb) Y/Y 0.2% vs. Exp. 0.3% (Prev. 0.2%). (Newswires) Japanese National CPI Ex. Fresh Food (Feb) Y/Y 0.7% vs. Exp. 0.8% (Prev. 0.8%) Japanese National CPI Ex. Fresh Food & Energy (Feb) Y/Y 0.4% vs. Exp. 0.4%       (Prev. 0.4%)

US

US President Trump says the deal with China is coming along very well., Fox Business

- When asked about tariffs on Chinese goods staying in place for a period of time, says there is no snag in trade talks

- US will be able to maintain 25% tariff on autos

US President Trump is said to consider Stephen Moore for the Fed board. (Newswires) For reference, Stephen Moore is a visiting fellow at the Heritage Foundation and is regarded as a long term supporter of US President Trump; having aided in the Presidents campaign and assisting in the economic agendas preparation.

UK/EU   

EU summit final communique stated that EU leaders will give the UK an extension until May 22nd if parliament agrees to the deal next week, otherwise it will give the UK until April 12th to indicate a way forward if the deal is rejected, while the EU reiterated its stance that the WA cannot be renegotiated. (Newswires)

EU's Tusk said a cliff edge will be avoided and that all options for the UK are still open until April 12. Tusk added that a long extension will become impossible if UK has not decided by April 12th, while EU's Juncker said there is no more we can give the UK and that we are ready for a no-deal with emergency measures in place. (Newswires)

UK PM May said she welcomes council approval of assurances on the backstop and will work hard to get support for her deal. Furthermore, PM May added that a new Brexit plan is needed by April 12th if the deal is rejected but had also suggested confidence earlier that she can still get a Brexit deal passed. (Newswires)

UK 1922 Committee Chairman Brady is said to tell PM May that MPs want her to quit. (Telegraph)

Remain ministers have warned PM May that they are prepared to quit unless she gives them a free vote on a new backbench bid to stop no deal. (Telegraph)

Goldman Sachs have revised down the probability of PM May's deal ratification to 50% from 60%. Raised no-deal Brexit probability to 15% from 5%. No Brexit probability unchanged at 35%. (Newswires)

Norges Bank's Nicolaisen says policy rate is not projected to be as high as in previous upturns, and most households are expected to be better off as wages are growing faster than prices are. Reiterates policy rate forecast indicates a slightly faster rise in 2019 and a somewhat lower rate further out, when compared with Decembers view. (Newswires)

French Markit Manufacturing Flash PMI (Mar) 49.8 vs. Exp. 51.5 (Prev. 51.5)

- French Markit Services Flash PMI (Mar) 48.7 vs. Exp. 50.7 (Prev. 50.2)

- French Markit Comp Flash PMI (Mar) 48.7 vs. Exp. 50.7 (Prev. 50.4)

German Markit Manufacturing Flash PMI (Mar) 44.7 vs. Exp. 48.0 (Prev. 47.6)

- German Markit Services Flash PMI (Mar) 54.9 vs. Exp. 54.8 (Prev. 55.3)

- German Markit Comp Flash PMI (Mar) 51.5 vs. Exp. 52.7 (Prev. 52.8)

EU Markit Manufacturing Flash PMI (Mar) 47.6 vs. Exp. 49.5 (Prev. 49.3)

- EU Markit Services Flash PMI (Mar) 52.7 vs. Exp. 52.7 (Prev. 52.8)

- EU Markit Comp Flash PMI (Mar) 51.3 vs. Exp. 52.0 (Prev. 51.9)

GEOPOLITICAL

China's Foreign Ministry say they have lodged stern representations with the US regarding sanctions on Chinese firms relating to North Korea, Ministry adding they oppose unilateral sanctions. (Newswires)

North Korea have withdrawn from the Inter-Korean liaison office in Kaesong, according to South Korea's Unification Ministry. (Newswires)

EQUITIES

In spite of a relatively upbeat open, major European indices are firmly in the red [Euro Stoxx 50 -0.7%], following disappointing European PMI data; with many of the indicators unexpectedly falling into contractionary territory including French, EZ & German Manufacturing PMIs, the latter dropping to a 72-month low of 44.7. The strong downside seen in European stocks, and more broadly in the EUR and 10yr Bunds – where the yield fell below 0% for the first time since October 2016, can be attributed to increased concerns surrounding EZ growth. Unsurprisingly, given the data induced downturn sectors are firmly in the red with some underperformance seen in industrial names following the dismal Manufacturing PMI from Germany; with the likes of Siemens (-1.9%) and Airbus (-1.3%) weighed on by the data, for reference the two Co’s have a joint weighting of around 16% in the Stoxx 600 industrial sector.

Notable movers this morning include, Aggreko (+3.8%) are at the top of the Stoxx 600 after being upgraded to buy at Stifel Nicolaus. Smith’s Group (+1.1%) are in the green following the Co. stating they plan to separate their medical business and thereafter separately list it in the UK. While, Deutsche Bank (U/C) did initially trade with gains of around 1% after the Co. stated they expect 2019 revenue to be slightly higher than the 2018 figure.

US President Trump states that he doesn't like the prospect of breaking up tech companies like Facebook (FB), Google (GOOG) and Twitter (TWTR). (Newswires)

FX

EUR - The single currency has slumped vs the Dollar, and right across the board in wake of the preliminary March PMIs that defied expectations for some form of recovery or at least stability, as Germany’s manufacturing sector plunged deeper into recessionary territory and France entered contraction to pull the pan-Eurozone measure further below 50. Eur/Usd was already on the retreat from near 1.1400 highs, but then lost the 1.1300 handle before finding some support and underlying bids, while Eur/Gbp reversed course from 0.8680+ towards 0.8600 even though the Pound also weakened in sympathy, not to mention ongoing/heightened Brexit uncertainty.

CHF - The Franc has benefited from the Euro’s demise with the cross down near the middle of a 1.1300-1.1230 range, but is losing out vs the Greenback as Usd/Chf bounces from 0.9915 lows to 0.9970 and the DXY hits new post-Fed recovery peaks just over 96.800 given the Eur’s heavy weighting in the basket.

AUD/CAD/NZD - All losing out to their US peer as the overall risk tone sours on the back of the aforementioned bleak EZ surveys, with Aud/Usd back under 0.7100, Usd/Cad close to the top of a 1.3385-50 band and Nzd/Usd also relinquishing its big figure+ status (0.6900) forged after solid NZ Q4 q/q GDP earlier this week.

GBP - As noted above, Sterling has suffered a bout of Euro contagion with Cable slipping from 1.3150+ to sub-1.3100 at one stage having derived a degree of comfort from breathing space afforded by the EU on Article 50, albeit still aware that this could just be a stay of Brexicution if UK PM May fails to convince a majority in Parliament to back the WA again.

NOK/SEK - Also victims of the current bout of broad risk aversion, and unwinding recent outperformance even against the Eur. In fact, Eur/Nok has bounced relatively firmly from Thursday’s near 9.5900 lows irrespective of Norges Bank rhetoric reinforcing the hawkish hike, while Eur/Sek is currently hovering around 10.4700 within 10.4960-4250 parameters. Note, however, Eur/Nok should be capped ahead of 9.7000 given a hefty 1.4 bn option expiry, while similar size resides down at 9.5000.

JPY - Bucking the general trend and gaining some ground vs the Usd due to the Yen’s greater safe-haven allure, as the headline pair pulls back from circa 110.90 to around 110.45 and into very large option expiry terrain between 110.40-65 (3 bn).

FIXED INCOME

Another bout of consolidation tinged with consideration for big figures, half round numbers and symbolical yields, but also acknowledging a recovery in equities amidst waning risk-off flows and positioning. Bunds, Gilts and US Treasuries are off best levels in response having topped out (for now at least) at 165.43, 129.01 and 123-24 in 10 year futures, while the cash equivalents are hovering around 0%, 1% and 2.5% respectively.

COMMODITIES

Brent and WTI are firmly in the red, impacted by the change in market sentiment following poor PMI data; diverting from the relatively directionless trade seen overnight with both Brent and WTI now at the bottom of what is still a relatively narrow range, currently trading around USD 67.40/bbl and USD 59.50/bbl respectively. Elsewhere, PVM note that the USD 70/bbl threshold remains elusive for Brent, which notched a 2019 high of USD 68.69/bbl recently; PVM highlight that the complex is generally stagnant awaiting a strong catalyst, likely in the form of a US-China trade agreement.

Gold (+0.3%) benefitted from the negative diversion in market sentiment, with the yellow metal trading at the top of its USD 8/oz range at around USD 1313/oz. Separately, China’s Mofcom has announced it is to implement a temporary antidumping measure in stainless steel billets and hot-rolled steel plate imports from the EU, Japan, South Korea & Indonesia. Elsewhere, Glencore’s Australian McArthur zinc mine have suspended production ahead of an approaching cyclone.

US DoE sold a total 4.32mln barrels of SPR crude to Marathon, Motiva and Phillips 66. (Platts)

China’s Mofcom announced it will impose temporary antidumping measures on stainless steel billet and hot-rolled steel plate imports from EU, Japan, South Korea and Indonesia in which it will collect anti-dumping deposits of 18.1%-103.1%. (Newswires)

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Well, this week has had us all bamboozled! Team RAN tapping out for the weekend to reload, ECB quite possibly abo… https://t.co/n0fsbPLwFp