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[PODCAST] US Open Rundown 25th March 2019

  • European Indices [Euro Stoxx 50 -0.2%] are lower but edging towards positive territory, as risk sentiment recovers
  • US AG Barr’s summary of the Mueller Report stated that President Trump's campaign did not collude with Russia during the 2016 election but stopped short of exoneration
  • In FX markets, DXY resides within a tight range whilst GBP is tentative ahead of another crucial week for Brexit
  • Looking ahead, highlights include NZ trade balance, BoJ Summary of opinions

 

ASIA  

Asian equity markets began the week with hefty losses as the region followed suit to the stock sell-off last Friday on Wall St where disappointing PMI data from both sides of the Atlantic added to slowdown concerns, while curve inversion in which yields on US 3-month T-bills rose above 10yr yields for the first time since the GFC also stoked recession fears. ASX 200 (-1.1%) and Nikkei 225 (-3.1%) declined from the open in which Tech and Energy led the broad losses across the sectors in Australia, while selling in Tokyo was exacerbated by flows into JPY which dragged the local benchmark below the 21,000 level. Elsewhere, Hang Seng (-2.0%) and Shanghai Comp. (-1.9%) conformed to the negative tone as participants digested a slew of earnings and after PBoC inaction resulted to a CNY 60bln liquidity drain, with oil names among the worst hit following a recent slip in crude prices. Finally, 10yr JGBs were underpinned by safe-haven demand and as yields tracked the declines in global counterparts to push the 10yr JGB yield to its lowest since September 2016 and 30yr JGB yields to its lowest since November 2016. 

PBoC skipped open market operations for a net daily drain of CNY 60bln. (Newswires)

PBoC set CNY mid-point at 6.7098 (Prev. 6.6944)

BoJ's Harada states that the biggest contribution to Japan's economy from QQE was to boost productivity, and without it the jobless rate would not have fallen below 2.5%. (Newswires)

US is said to note that China’s initial offer regarding digital trade was not sufficient, according to the FT. Elsewhere, there were separate reports that President Trump dispatched a US Envoy to Germany to keep the pressure on Huawei, while Chinese Vice Premier Liu He is to travel to Washington on April 3rd following a visit by US Treasury Secretary Mnuchin and Trade Representative Lighthizer to Beijing set for this week. (Newswires/FT)

US

Attorney General William Barr submitted to Congress his summary of the main conclusions from special counsel Mueller’s investigation in which it found that President Trump's campaign did not collude with Russia during the 2016 election. Furthermore, the report summary did not draw a conclusion as to whether President Trump illegally obstructed justice but also did not exonerate him, while House Speaker Pelosi and Senate Minority Leader Schumer suggested that William Barr is not a neutral observer of the Mueller report and said Congress require full Mueller report and underlying documents. (Newswires)

Fed's Evans (voter, dove) said the US economy is in a strong position and that it is a good time to pause and be cautious, while he added that US monetary policy is currently neither accommodative or restrictive. Evans also commented they will take action if inflation undershoots, while he wants to see more inflation and does not expect a rate hike till H2 next year. Adding they may have to ease if economic activity weakens more than expected and that the recent US data has been softer than expected. (Newswires)

Fed’s Harker (non-voter, dove) says economic risks tilt very slightly to the downside, and that outlook is pretty good. He reiterated the Fed’s wait-and-see stance whilst stating he favours one rate hike at most this year. He noted inflation is around the Fed's target, is edging slightly downward. Finally, he expects GDP slightly above 2% in 2019, returning to around 2% trend level in 2020. (Newswires)

UK/EU   

* For reference a full list of amendments along with an indicative timetable for today & this week is available on the headline feed.

Reports suggested on Sunday UK PM May could reportedly be ousted in days as her cabinet plot to replace her with Michael Gove as caretaker PM, while a senior Downing Street source stated PM May’s Chief Whip has advised her to set out her departure plans and some ministers are predicting she could be gone in 10 days. There were also reports that 11 Cabinet Ministers confirmed they want to replace PM May with her Deputy Liddington, while UK Chancellor Hammond commented the UK must find a way to leave the EU but replacing PM May will not help. (Daily Mail/The Sun) PM May was reportedly told at yesterday’s Chequers’ meeting that she must set out a timetable to leave her premiership in order to get her deal through Parliament; according to Buzzfeed reporter. (Buzzfeed) Late on Sunday, reports stated that May has resisted pressure to set a date for her departure in return for support for her EU divorce deal after a threatened cabinet coup fizzled out. The report stated that instead the PM will allow Parliament to move towards adopting a softer exit from the EU in order to force the hand of Brexiteers to support her deal. (Times)

UK PM May said on Friday it is possible the UK could request a new A50 extension if her deal is rejected, while she also suggested that she might not bring her MV3 back to parliament this week if it is likely to fail. In related news, PM May is expected to unveil plans to hold indicative votes and is considering offering votes regarding the Brexit deal, no-deal, 2nd referendum, revoking Article 50, FTA customs union and the single market according to Telegraph’s political reporter. (Newswires/BBC/Telegraph) Ministers have been invited to assess documents on the seven options for the potential indicative votes at 0900GMT today; according to Telegraph’s Deputy Political Editor Swinford (Twitter) PM May is expected to hold a cabinet meeting at 1000GMT to update ministers on her Brexit strategy. (BBC News)

The Sun newspaper editorial stated UK PM May should announce on Monday that she will stand down once her Brexit deal is approved and UK leaves the EU. (The Sun)

Minutes from a meeting of EU ambassadors and senior officials stated that European Commission Secretary General Selmayr asked colleagues to imagine scenarios featuring a new Brexit secretary or new Prime Minister in which the starting point in such a scenario must not be a renegotiation of the UK’s withdrawal from the EU, while Selmayr added that Article 50 has been agreed and the process is over. (The Observer)

UK PM May will reportedly quit if Boris Johnson, Iain Duncan Smith, Steven Baker, Jacob Rees-Mogg and David Davis vote for her deal, however she gave no specifics so there is not much trust she will actually quit; according to ITV's Peston. (Twitter)

UK Tory lawmaker Evans notes that several lawmakers want an orderly replacement of UK PM May after she gets her deal through Parliament. (Newswires)

Reading room on Brexit indicative votes this morning for UK cabinet ministers was pulled, however this is unclear what it means for both indicative votes and Meaningful Vote 3. Cabinet is now underway; according to Telegraph's Swinford. (Twitter)

Senior UK MPs expect the Letwin (A) amendment to pass this evening, adding that what the government is offering on indicative votes does not go far enough, according to Business Insider's Senior Political Editor Payne. (Newswires)

  • German Ifo Business Climate (Mar) 99.6 vs. Exp. 98.5 (Prev. 98.5, Rev. 98.7)
  • German Ifo Current Conditions (Mar) 103.8 vs. Exp. 102.9 (Prev. 103.4, Rev. 103.6)
  • German Ifo Expectations (Mar) 95.6 vs. Exp. 94 (Prev. 93.8, Rev. 94)

 

ECB's Rehn (Neutral) said Brexit is the biggest threat to Euro zone in the short-term and that markets are underestimating the risks, while he added Euro zone growth has slowed significantly and that we must be concerned. (Newswires)

ECB's Hansson (Hawk) says that the Euro-area slowdown may continue in the medium term; tiered deposit rate has not really been discussed. QE could be restarted in event of major shock. (Newswires)

S&P affirmed Belgium at AA; Outlook Stable, affirmed Spain at A-; Outlook Stable and affirmed Norway at AAA; Outlook Stable. (Newswires)

GEOPOLITICAL

Reports of a explosion at a US Military Base in Okinawa on Sunday, report indicates that no one was injured in the explosion. (Sputnik)

EQUITIES

European equities kicked off Monday trade mostly lower [Stoxx 600 -0.2%] following a dismal lead from Asia wherein the Nikkei 225 shed 3.0% and closed below 21,000 for the first time in over a month. Back in Europe, stocks have somewhat nursed opening losses as sentiment improved following a better-than-forecast German Ifo Survey which aided the DAX (+0.1%) climb into positive territory. Elsewhere, Italy’s FTSE MIB (+0.4%) is marginally outperforming its peers as Fiat Chrysler (+3.3%) supports the index amid reports its chairman is pushing for a tie up with a rival, Peugeot (-0.7%) has been touted as a potential suitor. Sector-wise, IT names are underperforming, in-fitting with the sector’s performance overnight, whilst the consumer discretionary sector is buoyed by the overall positivity in auto stocks. Finally, this morning saw a LVMH (-0.5%) open lower by just under 9% and immediately pared losses with traders citing a potential “fat-finger” incident.

FX

EUR - Not the biggest G10 mover or best performer, but the single currency has staged a firmer recovery rebound from sub-1.1300 lows vs the Dollar in wake of an encouraging Ifo survey, with beats on all 3 key metrics compounded by upward revisions to the previous month across the board. Hot on the heels of last Friday’s dire Eurozone preliminary PMIs, and an especially worrying German manufacturing print, the institute contends that the bloc’s number one economy is displaying relative resistance, and this has helped to dispel some concerns about a deeper slowdown, or even recession. However, Eur/Usd has not clearly breached upside technical resistance in the form of the 30 DMA that comes in around 1.1321.

SEK/NOK - The Scandi Crowns are back on the front foot and leading the major league, with the Sek especially buoyant on a mixture of improving risk sentiment, bullish technicals and the Riksbank maintaining repo rate guidance for further tightening. Eur/Sek is back down below 10.4500 and Eur/Nok is eying bids/support at 9.6500 against the backdrop of oil prices trying to recover some poise after their end of week rout.

AUD/NZD/CAD - All firmer vs their US counterpart after sharp underperformance last Friday when aversion was rife and safe-haven positioning escalated. Aud/Usd is back within striking distance of 0.7100 and Nzd/Usd is not too much further from 0.6900 even though Aud/Nzd has crossed 1.0300 from its latest decline through the big figure, while Usd/Cad is hovering near the bottom end of a 1.3445-05 range, as the Loonie also derives some underlying support from the aforementioned bounce in crude.

JPY/GBP/CHF - Usd/Jpy has bounced from overnight safe-haven lows in line with the gradual improvement in risk appetite and through heavy 110.00 option expiry interest at the round number (2 bn), while Cable also looks unlikely to test expiry interest or hedges at the 1.3200 strike (1.6 bn) given ongoing/heightened Brexit jitters that have pulled the Pound down towards 1.3160 and close to 0.8600 vs the Euro (Ifo also impacting this pair). Similarly, the Franc has unwound some safe-haven premium towards 0.9950 against the Greenback from circa 0.9933 at one stage and 1.1250 vs around 1.1223 against the single currency.

EM - Yet more thrills and spills for the Lira after official intervention against a big US bank that put out a bearish trade recommendation on the Try, and the CBRT’s decision to double swap limits on outstanding FX maturities after shelving 1 week repos. Usd/Try currently at 5.6400 within a 5.7700-5.5700 band.

Turkish President Erdogan said those in the finance sector that purchase foreign currencies on expectations a decline in TRY, will pay a very heavy price. (Newswires)

FIXED INCOME

In stark contrast to Friday’s almost universally dire PMIs, the March Ifo survey revealed a clean sweep of beats vs consensus and upgrades to back month readings for all 3 metrics, but the market reaction has been relatively limited. Nevertheless, Bunds have retreated further from earlier peaks to a 165.34 base, and the corresponding 10 year yield has crossed parity, albeit just, with Gilts down to 128.82 in sympathy.

COMMODITIES

WTI (+0.1%) and Brent (-0.1%) futures have rebounded off lows amid an improvement in risk-appetite with the former flirting with the USD 59.00/bbl to the upside whilst the latter resides just below the USD 67.00/bbl level. The latest CFTC data also shows that speculators increased next longs in NYMEX WTI by over 54k lots with a bulk of this increase driven by fresh positions. Elsewhere, Chinese crude imports increased by 2% in February to average around 10.3mln BPD, with a Y/Y increase of just under 22%. Furthermore, the country increased its share of Iranian and Venezuelan imports over February.

Metals are largely on the front foot with gold (+0.4%) gaining further ground above USD 1300/oz with the recent fears surrounding and inverted yield curve between the US front-end and 10yr (Note: this has reversed) prompting additional demand in the yellow metal. Elsewhere, the twin cyclones which hit Australia over the weekend impacted mining and energy operations in the region, with reports stating some activities have been halted at BHP and Rio Tinto’s Pilbara mine. The mine is located in Western Australia and accounts for almost 40% of global iron ore production. The storms have now weakened to a category two, however there is no clarity on how long production will be halted and of any potential costs to the Australian economy.

US Coast Guard announced Houston Ship Channel closure impacting a 2-mile span and didn’t provide a timeline for reopening. (Newswires)

China's Feb crude oil imports Y/Y: from Iran 509,711 BPD +7.4%; from Russia 1.498mln BPD +13.6%; from US 22,380 BPD -91%; from Saudi Arabia 1.552mln BPD +28.5%; from Venezuela 530,148 +98%. (Newswires)

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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