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[PODCAST] US Open Rundown 26th March 2019

  • European Indices are slightly firmer, taking impetus from the mild recovery staged late in Wall Street and overnight
  • In terms of FX, the greenback remains rangebound and mixed vs G10 counterparts
  • UK Parliament voted (327 vs. 300) to approve government motion which included the Letwin amendment (A) of taking control of Parliament time to hold indicative votes on Brexit options
  • Looking ahead, highlights include US Building Permits & Housing Starts, US Consumer Confidence, Fed's Daly, BoE's Broadbent & ECB's Makuch

 

ASIA  

Asian equity markets were mostly higher as the region took the consolidation on Wall St as a cue to pick itself up from the prior day’s sell-off. ASX 200 (+0.1%) was choppy as weakness in energy, tech and financials off-set the strength in miners, while Nikkei 225 (+2.1%) outperformed on bargain hunting after the prior day’s 3% drop and its worst performance YTD with Tokyo sentiment also boosted by currency weakness and reinvestment buying heading into ex-dividend day tomorrow. Hang Seng (-0.2%) andShanghai Comp. (-1.5%) both began higher, although sentiment in the mainland eventually deteriorated after another PBoC liquidity drain and amid tentativeness ahead of upcoming blue-chip earnings including the Big-4 banks later this week with the industry anticipated to post slower profit growth for a 5th consecutive year. Finally, 10yr JGBs were lower with demand subdued amid the heightened risk appetite in Tokyo and following the mixed results in the 40yr auction.

PBoC skipped open market operations for a net daily drain of CNY 50bln. (Newswires) PBoC set CNY mid-point at 6.7042 (Prev. 6.7098)

BoJ Summary of Opinions from the March 14th-15th meeting reiterated that although it will take time to achieve 2% target, it is necessary to persistently continue with the current powerful monetary easing as the momentum toward 2 percent is maintained. BoJ viewed Japan's economy is expanding moderately and private consumption is likely to follow an uptrend for the time being, although there was also the opinion that downside risks are clearly increasing and that there seems to be room for the conduct of JGB purchase operation to be revised. (Newswires)

US

Fed's Rosengren (voter, hawk) said returning Fed assets to pre-crisis levels is not desirable nor feasible and that the balance sheet is likely to grow, while he added that it may be important to increase share of Treasury bills as well as lower duration of balance sheet more quickly. Furthermore, Rosengren noted that Fed pause is the responsible action to do now and that the dot plot is not a promise of policy direction which depends on changes to the economy. (Newswires)

Fed's Harker (Non-Voter, Dovish) says he was not supportive of the December move and reiterates that he is in wait and see mode, favouring at most one hike this year and one in 2020. (Newswires) Harker’s comments are largely a reiteration of what was said yesterday, which will be available on the headline feed.

UK/EU   

*For reference a Brexit Situation Report & Analysis post is available on the headline feed

UK Parliament voted (327 vs. 300) to approve government motion which included the Letwin amendment (A) of taking control of Parliament time to hold indicative votes on Brexit options. This was after MPs voted (329 vs. 302) in favour of the Letwin amendment A which seeks to change the rules of parliament on March 27 in order to provide time for lawmakers to debate and hold indicative votes. Furthermore, MPs voted (311 vs. 314) against the Beckett amendment (F) which called on the government to seek parliament approval on a no-deal if there is an agreement is not reached 1 week to Brexit date, while the Labour amendment (D) to provide parliamentary time for lawmakers to find a majority for a different approach on Brexit was not moved. (Newswires)

The Brexit Ministry said the Letwin amendment upends balance between our democratic institutions and sets a dangerous, unpredictable precedent, while it added that any options put forward by Parliament must be deliverable in negotiations with EU. In related news, 3 junior ministers resigned in order to vote for the Letwin amendment. (Newswires)

UK Brexit Secretary Barclay said the government will return to parliament if Brexit deal is not approved this week. (Newswires)

Goldman Sachs state they are keeping their Brexit probabilities unchanged following the UK parliament passing the Letwin (A) amendment. (Newswires) For reference, On Friday, Goldman Sachs 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%.

SNP Leader Blackford says he will move a motion to revoke Article 50, as we need to prevent the UK from crashing out., talkRADIO's Kempsell. (Newswires)

ERG sources indicate that Iain Duncan Smith is 'softening' to the deal., talkRadio's Kempsell. (Twitter)

ECB’s Rehn says the Euro-area slowdown seems more durable than short-term. ECB does not want to raise rates prematurely

- Adding that Euro-area banks can expect ECB loan details by June and the terms of TLTRO-3 should be close to TLTRO-2

 

GEOPOLITICAL

German police say they have evacuated town halls in Augsburg, Kaiserslautern, Chemnitz, Gottingen, Neunkirchen & Rendsburg; after threats have been received., according to German Media & Police. (Newswires/Twitter/Welt) Note, the situation appears to still be ongoing at the time of publishing

Iranian President Rouhani has criticised US President Trump for recognising Golan Heights as part of Israel, reported via IRNA. (Newswires)

EQUITIES

Major European indices are slightly firmer [Euro Stoxx 50 +0.3%] roughly in-line with how they started the session, in-spite of indices drifting somewhat into mixed/negative territory not long after the open. In a similar pattern, after opening the session all in the green, major sectors are now mixed, with some mild outperformance seen in Energy names. The FTSE 100 (+0.3%) is firmer, boosted by the likes of Ocado (+4.3%) after signing a deal with Australian supermarket chain Coles at the top of the index alongside housing names such as Persimmon (+2.3%) and Fresnillo (+1.2%) after positive broker moves. However, the FTSE 100’s gains are hampered by the significant underperformance seen in Ferguson (-9.0%) shares after the Co. warned that FY profit will be towards the lower end of expectations. Other notable movers include, Airbus (+2.4%) after reports just before 16:00GMT yesterday that they had secured an order from China at which Co. shares moved higher and Boeing shares saw some negativity. Subsequently, further details have emerged that the deal is for 300 jets with an estimated value of around USD 35bln; which is almost double the level that had been indicated by French President Macron in 2018. Elsewhere, Rolls Royce (-1.8%) who are in negative territory after being reiterated underweight at Morgan Stanley. Of note for tech names Samsung Electronics (005930 KS) guides Q1 earnigns to be lower than market expectations. For reference Co. shares closed around 0.6% lower.

 

FX

USD - The Greenback remains rangebound and mixed vs G10 counterparts, as the DXY pivots the 96.500 level with technical resistance capping the upside along with month end rebalancing signals pointing to moderate to modest selling vs several major currencies. However, the Buck is also underpinned ahead of 96.000 amidst relative weakness elsewhere, such as the Yen on improving or more stable risk sentiment, Pound on Brexit and Kiwi pre-RBNZ.

JPY - As noted above, an upturn of recovery in risk appetite has prompted an unwind in safe-haven premiums to the detriment of the Yen in particular, and after recent strengthening through 110.00 vs the Usd the headline pair has now rebounded quite markedly through the big figure and a Fib at 110.23 to trip some stops on the way to 110.42. Note, a hefty 1.8 bn option expiry between 110.10-15 for today’s NY cut appears safe at the current juncture.

NZD/GBP - Also back under pressure vs the Usd having forged gains on the back of better than forecast NZ trade data in the case of the Kiwi and for Sterling the latest vote in UK Parliament that effectively takes the onus away from PM May in terms of the next Brexit steps. Nzd/Usd is hovering around 0.6900 vs circa 0.6925 at best overnight, while Cable retreated from around 1.3225 to a 1.3160 base again (virtually matching Monday’s low) before rebounding firmly over 1.3200 handle to 1.3250. Note, next up for the Kiwi is March’s RBNZ policy meeting (full preview flagged on the headline feed and within the Research Suite), while the Pound remains hostage to Brexit and will be eyeing Wednesday’s indicative votes.

AUD/CAD/EUR - All nudging new or nestling near highs vs the Usd, as the Aussie extends above 0.7100 with some favourable tailwinds via the Aud/Nzd cross that has rebounded firmly over 1.0300 amidst the aforementioned pre-RBNZ Kiwi caution. However, Aud/Usd still has some way to go from 0.7135 to arouse any expiry related interest from 1 bn rolling off from 0.7145 to 0.7150. Meanwhile, the Loonie is trying to extend gains above 1.3400 against the backdrop of firm oil prices and news that China has lifted some bans on Candian canola imports, and the single currency is sitting above 1.1300, albeit tight.

EM - A more stable session so far for the TRY and some outperformance vs regional peers as the Lira continues to pare recent heavy losses, albeit due to intervention or various forms of capital repatriation and amidst further spikes in money market rates. Usd/Try currently near the middle of a 5.4660-5.5925 band. Elsewhere, Eur/Huf is also midway between trading parameters (316.80-00) ahead of a widely anticipated NBH rate hike

New Zealand Trade Balance (Feb) M/M 12M vs. Exp. -200M (Prev. -914M, Rev. -948M). (Newswires) New Zealand Exports (Feb) 4.82B vs. Exp. 4.70B (Prev. 4.40B, Rev. 4.33B) New Zealand Imports (Feb) 4.80B vs. Exp. 4.90B (Prev. 5.32B, Rev. 5.28B)

FIXED INCOME

Very volatile trade in Gilts amidst even more fluid and fluctuating Brexit headlines, but ultimately the 10 year UK benchmark has reversed to trade near a fresh 122.22 Liffe low (-29 ticks), as perceptions move towards PM May perhaps getting more support for the WA via previous staunch opposers ERG. Bunds are also back down near lows within a 165.50-83 range and US Treasuries are succumbing to more acute bear steepening also evident across the Eurodollar strip as the broader risk backdrop improves.

COMMODITIES

A firm rebound in the energy complex with WTI and Brent futures advancing further above USD 59.00/bbl and USD 67.50/bbl respectively as global growth pessimism takes a back seat (for now) and risk appetite takes the wheel. OPEC+ members are said to be planning the next JMMC meeting on May 19th after cancelling their April assembly before OPEC+ convenes on June 25-26. ING argues that the cancellation of the April meeting could suggest that the members “are not in agreement to extend the current deal”, set to last until the end of H1 2019. Analysts at ING also speculate that if this is the case, then it is likely that Russia believes an extension is not needed. Nonetheless, traders will be eyeing the usual API crude inventory release later today (2030 GMT/1530 ET) as a fresh catalyst. Elsewhere, metals are relatively mixed with gold (-0.6%) shedding recent gains amid the broad risk appetite whilst copper prices are supported for the same reason. Back to precious metals, UBS raised its 6 and 12-month silver forecasts, both to USD 16.30/oz from USD 15.50/oz and USD 16.00/oz respectively.

BHP expects to resume loading iron ore ships at Port Hedland on Tuesday and ramp up output over the approaching days, while it found no major damage from the recent cyclone. (Newswires)

Iran's crude oil pipelines have not been damaged by heavy rain and flooding over the last few days., according to Shana. (Newswires)

Libya's NOC has reopened the airfield at the southwestern Wafa Oilfield after state guards ended a blockade, via an administration specialist at the WAHA oil company. (Newswires)

OPEC+ are reportedly planning the next JMMC meeting on May 19th in Saudi Arabia. (Newswires)

UBS have lifted their 6 month silver price forecast to USD 16.30oz vs. Prev. USD 15.50/oz and 12-month to USD 16.30oz vs. Prev. USD 16.00/oz. (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