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[PODCAST] US Open Rundown 29th March 2019

  • Major European Indices [Euro Stoxx 50 +0.5%] are higher continuing the positive momentum from Asia – Of note, all of the Big 4 Chinese banks have now reported
  • House of Commons vote on the Withdrawal Agreement 14:30GMT/10:30EDT; no amendments have been selected for debate in Parliament
  • Dollar remains firm, but has lost some momentum against G10 counterparts while cable is somewhat depressed ahead of todays vote.
  • Looking ahead, highlights include, US PCE Price Index, Canadian GDP, Fed's Williams & Quarles, HoC to vote on the Withdrawal Agreement, US-China trade talks continue in Beijing

 

ASIA  

Asian equity markets were higher across the board as the region took impetus from the US, where all major indices finished positive and trade-sensitive sectors outperformed on optimism as US-China high-level talks resumed in Beijing. ASX 200 (+0.1%) eked mild gain as most sectors remained afloat heading into quarter-end although gold miners were heavily weighed after the precious metal succumbed to the pressure from a firmer greenback. Nikkei 225 (+0.8%) was driven by currency weakness with Daiichi Sankyo surging nearly 16% to hit limit up and a record high after it signed a USD 6.9bln collaboration and commercialization deal for its cancer drug with AstraZeneca in which it will receive an upfront payment of USD 1.35bln. Elsewhere, Hang Seng (+1.0%) conformed to the upbeat tone and the Shanghai Comp. (+3.2%) outperformed as trade discussions continued in Beijing and after China announced electricity and fuel costs reductions ahead of incoming VAT cuts. Huawei also supported the risk appetite after it posted a 25% increase in annual profits despite the ongoing US tiff, although not all stocks benefitted as some contended with disappointing earnings including China’s largest lender ICBC which fell short of FY net forecasts after flat Q4 profits. Finally, 10yr JGBs were lower as the fixed income complex eased from the rampant inflows seen this week and as gains in stocks dampened demand for safe-haven assets, although downside was limited with the BoJ also in the market for JPY 710bln of JGBs in the belly to super long-end.

PBoC skipped open market operations for a net weekly drain of CNY 110bln vs. Prev. CNY 90bln net injection W/W. (Newswires) PBoC set CNY mid-point at 6.7335 (Prev. 6.7263)

US Treasury Secretary Mnuchin commented that they had a productive working dinner last night in Beijing and was looking forward to today. (Newswires) Japanese Tokyo CPI (Mar) Y/Y 0.9% vs. Exp. 0.9%    (Prev. 0.6%). (Newswires) Japanese Tokyo CPI Ex. Fresh Food (Mar) Y/Y 1.1% vs. Exp. 1.1% (Prev. 1.1%) Japanese Tokyo CPI Ex. Fresh Food & Energy (Mar) Y/Y 0.7% vs. Exp. 0.7% (Prev. 0.7%)

Agricultural Bank of China (1288 HK) FY18 net profit CNY 202.78bln. Net interest margin at 2.33%. Non-performing loan ratio of 1.59%, at the end of December. (Newswires)

Bank of China (3988 HK) reports FY net CNY 180.1bln vs. Exp. CNY 1.75.6bln, NPL ratio 1.42% at end-2018, CET1 ratio 11.41%. (Newswires)

 

US

Fed's Bullard (voter, dove) said normalization process in US is at an end and suggested they have gone as far as they can. Bullard also commented that it is premature to consider a rate cut now and that he sees a likely rebound in economic growth during Q2 and the rest of 2019. (Newswires)

Canada is considering a new tariff retaliation to end US tariff tussle, according to sources cited by CBC. (CBC)

UK/EU   

UK House of Commons speaker selects no amendments for debate today. (Newswires)

UK government source confirmed they were laying a motion to give MPs a vote on the withdrawal agreement only for Friday without the political declaration on the future relationship between the EU and the UK, while a government source said the vote to approve the withdrawal agreement would meet the EU's test to extend A50 to May 22nd and is said to be substantially different to MV3. (Newswires/BBC/Twitter)

UK government ministers privately suggested a general election will be called if Friday's vote is rejected or things "fall apart", according HuffPost's Paul Waugh. Elsewhere, there were comments from House Speaker Bercow that the new government motion meets his tests and only covers withdrawal agreement, while Sun's Tom Newton Dunn reports it will occur at 14:30GMT/10:30EDT. (Newswires/Twitter/Huffington Post)

UK opposition Labour leader Corbyn told PM May he will not be voting in favour of the WA today, while DUP Deputy Leader Dodds said the DUP will not back the WA and that a softer form of Brexit is now possible but added the DUP's priority is ensuring no barriers between Northern Ireland and rest of UK instead of the form of Brexit. Furthermore, reports state that around 20 hard-line Tory Eurosceptics still oppose the deal. Separately, UK MPs claim that just 12 hardcore Tory ERG MPs are left opposing PM May's deal; according to Sun's Deputy Political Editor Steve Hawkes. (Newswires/Telegraph/Twitter)

EU will insist that Britain pays a GBP 39bln divorce bill and implements the Irish backstop before beginning emergency talks to prevent an economic crash in the event of a no-deal Brexit. Furthermore, there were also reports that Britain faces staying in the EU another year if the withdrawal agreement is voted down today. (Times)

At least 10 cabinet ministers are considering putting themselves forward as PM May's replacement following her promise to step down if her Brexit deal goes through. (Newswires)

Hard Brexiteers who are now backing PM May's deal, believe that those Tories who are holding out are now in the 'mid-teens', as well as 6 remainers., Sky's Cohen. (Twitter)  A UK Minister reportedly believes that PM May's WA will be voted down by 20 votes; according to Mail on Sunday's Deputy Political Editor Cole. (Twitter)

There is little expectation in the EU today that the Withdrawal Agreement will pass and as such, the EU mood is one of resignation now, according to BBC's Adler. (Twitter) SNP's Gray says some Labour MP's are preparing to back PM May's agreement. (Newswires)

ECB's Visco says that rates are expected to remain at the current level at least until the end of 2019, and then for as long as necessary. Adds that inflation converging towards the 2% goal is being pursued will all the available instruments. (Newswires)

ECB's Coeure (Neutral) says a marked fall in the inflation risk premium suggests investors only assign a small probability to inflation turning out to be greater than expected. (Newswires)

UK GDP QQ Q4 0.2% vs. Exp. 0.2% (Prev. 0.2%)

UK GDP YY Q4 1.4% vs. Exp. 1.3% (Prev. 1.3%)

UK Mortgage Lending Feb 3.457B vs. Exp. 3.7B (Prev. 3.66B, Rev. 3.587B)

UK Mortgage Approvals Feb 64.337k vs. Exp. 65.0k (Prev. 66.766k, Rev. 66.696k)

UK Business invest YY Q4 -2.5% (Prev. -3.7%)

UK Business Invest QQ Q4 -0.9% (Prev. -1.4%)

 

German Retail Sales YY Real* Feb 4.7% vs. Exp. 2.8% (Prev. 2.6%, Rev. 3.1%)

German Retail Sales MM Real* Feb 0.9% vs. Exp. -0.9% (Prev. 3.3%, Rev. 2.8%)

German Unemployment Total SA Mar 2.231M (Prev. 2.236M, Rev. 2.238M)

German Unemployment Rate SA Mar 4.9% vs. Exp. 4.9% (Prev. 5.0%)

German Unemployment Chg SA Mar -7k vs. Exp. -10.0k (Prev. -21.0k, Rev. -20k)

French CPI (EU Norm) Prelim YY Mar 1.3% vs. Exp. 1.4% (Prev. 1.6%)

EQUITIES

A relatively upbeat start for European equities [Euro Stoxx 50 +0.5%] following on from a stellar performance in Asia, wherein the Shanghai Composite ended the week higher in excess of 3% as US-Sino talks concluded on a seemingly positive note. Broad based gains are seen across major indices, UK’s FTSE (+0.5%) is keeping its composure amid the Brexit-induced weakness in the Sterling and as heavyweight mining names benefit from the surge in base metal prices: [Antofagasta (+2.6%), Glencore (+2.4%), Anglo American (+2.1%) and Rio Tinto (+2.0%)]. Sector-wise, material names lead the gains, whilst consumer discretionary names benefit from positive broker moves for Kering (+1.4%), LVMH (+1.2%) and Richemont (+0.9%). Looking at individual movers, Wirecard (-6.9%) shares plumb the depths following yet another FT article which noted that half the company’s revenues come from partners whilst noting that at some of them there is a mismatch with reality on the ground. A Wirecard executive has noted the article in incorrect and misleading. Elsewhere, yet more trouble for Scandi banks with Swedbank (-9.5%), Nordea Bank (-9.8%) lower after New York regulators reportedly expanded money laundering scandal probe into Nordea Bank.

FX

USD - The Greenback remains firm overall, but has lost a bit of momentum against a few G10 and other counterparts at the start of the final trading session of the week, month and quarter as latest US-China trade talk reports suggest more progress made. However, the DXY has nudged above the 97.300 level that capped its advances yesterday and in doing so crossed a key Fib at 97.245 (76.4% retrace of the fall from 97.711 to 95.735), which bodes well from a chart standpoint ahead of potentially pivotal data including Chicago PMI and a trio of Fed speakers (Williams, Kaplan and Quarles).

NZD/AUD/CAD - Bucking the broad trend on the aforementioned constructive US-China vibes, but with the Kiwi also getting a much needed fillip from ANZ’s consumer sentiment survey overnight showing an improvement in March. Nzd/Usd rebounded to just over 0.6800 at one stage, but then pared gains on more dovish RBNZ impulses, albeit indirectly as JPM updated its 2019 outlook for NZ rates with back-to-back cuts now seen in May and June. Similar story for the Aussie that briefly reclaimed 0.7100 before fading, while the Loonie is still relatively rangebound between 1.3420-45 ahead of Canadian PPI data.

JPY/EUR/CHF/GBP - All softer vs the Usd, with the Jpy extending its retreat from a fraction shy of 110.00 to circa 110.92 amidst reports of Japanese selling for FY end on top of the general improvement in risk sentiment. However, supply is said to be sitting at 111.00 and the recent 110.96 peak is still providing technical resistance. The single currency is holding just above 1.1200 with buying interest touted from 1.1210 down to the figure and decent option expiry interest also supporting as 1.5 bn rolls off at the NY cut vs 1.2 bn from 1.1250-60. The Franc is essentially flat vs the Buck and Euro around 0.9950 and within 1.1190-65 parameters respectively following SNB comments on Thursday reinforcing the commitment to maintain NIRP and intervention given the Chf’s ongoing high valuation and fragility in the currency markets. Last, but by no means least heading into yet another crucial Brexit vote in the HoC, the Pound is depressed with Cable almost losing the 1.3000 handle despite a big buy order at 1.3010 and Eur/Gbp pivoting 0.8600 where a sizeable 1 bn expiries reside and run-off only 30 minutes or so before the Parliament decide whether to back the WA.

EM - In contrast to partial recoveries elsewhere, the Lira has lurched to new lows vs the Dollar not far from 5.6600 as the run continues almost relentlessly, and with little last respite from a narrower than forecast Turkish trade deficit.

FIXED INCOME

Gilts and Short Sterling contracts have rebounded relatively firmly from yesterday’s closes after opening mark-ups and a few early wobbles to stretch their advances relative to Eurozone and US counterparts. The 10 year benchmark is sitting towards the upper end of its 129.40-61 Liffe range vs Thursday’s 129.28 settlement and the 3 month strip is 1-1.5 ticks ahead compared to +2.5 ticks at best, awaiting multiple UK data releases at 9.30GMT, but actually setting stalls out for the latest chapter in the Brexit saga in the form of Parliament’s debate and vote on the WA. Back to Bunds, the 10-year German debt future remains mid-range between 166.13-41 following further encouraging German data in comparison to the disappointments earlier in the month, and as eurozone peripheral bonds trade firmer into month end (recall, some month-end indices show a lengthy extension for marginal debt). Turning to US treasuries, the curve is steeper and futures are weaker ahead of a busy Friday data schedule and 3 Fed speakers.

COMMODITIES

WTI (+0.8%) and Brent (+0.6%) futures are on the front foot thus far amid the overall positive risk sentiment around the market as US-China talks are to continue next week after concluding in Beijung on a positive note. WTI futures extended gains above USD 59.00/bbl and remain in relatively close proximity to USD 60.00/bbl whilst Brent futures reside around USD 67.50/bbl. In the month of March, Brent Crude advanced around 1.6% whilst WTI crude posted gains in excess of 4%. In terms of recent energy news-flow Russian Energy Minister denied the report that Russia will only agree to extend output cut deal by 3 months and said Russia and Iran potential extension of OPEC+ deal. This follows source reports yesterday that OPEC and Russia could agree to a 3-month extension of the current agreement at the June meeting. Elsewhere, Gold ekes mild gains following yesterday’s slump below USD 1300/oz. Meanwhile, copper and iron are extending on earlier gains as optimism surrounding trade talks bolster the base metals.

Russia Energy Minister denies report that Russia will only agree to extend output cut deal by 3 months and said Russia and Iran potential extension of OPEC+ deal. (Newswires) This follows source reports yesterday that OPEC and Russian could agree to a 3-month extension of the current agreement at the June meeting.

Barclays say that Brent prices are likely to move higher in Q2, average USD 73/bbl, with WTI to average USD 65/bbl. Expects global oil demand is to grow by 1.3mln BPD this year. Prices are unlikely to exceed USD 75/bbl for more than a quarter. (Newswires)

China Q2 copper treatment and refining costs floor was lowered to USD 73/ton vs. Prev. USD 92/ton Q/Q. In addition, China is to reduce electricity tariffs for industrial and commercial use, as well as lower retail prices of gasoline by CNY 225/ton and diesel by CNY 200/ton from April 1st due to VAT cuts. (Newswires)

Rio Tinto declared a force majeure on some iron ore shipments and is assessing damage at its Cape Lambert port in Western Australia. (Newswires)

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