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[PODCAST] US Open Rundown 1st April 2019

  • Major European indices are firmly in the green [Euro Stoxx 50 +0.8%] as the China fueled momentum rolls on from overnight
  • Dollar underperforms most G10 counterparts; excluding JPY which is subdued by the improvement in risk sentiment
  • Another busy day of Brexit ahead, amendment selection for today’s indicative votes by Speaker Bercow due around 14:30BST/08:30CDT & voting to commence around 20:00BST/14:00CDT
  • Looking ahead, highlights include US Manufacturing PMIs, US Retail Sales, Business Inventories, Construction Spending, ISM Mfg, ECB’s de Guindos, BoC’s Poloz

 

ASIA  

Asian equity markets began the new quarter on the front-foot with momentum sustained from last Friday’s global rally in which the S&P 500 notched its best quarterly performance in nearly a decade and as the region also cheered encouraging Chinese PMI data. ASX 200 (+0.6%) and Nikkei 225 (+1.4%) gained from the open in which Consumer Staples led the broad gains across Australia’s sectors after Woolworths completed the sale of its petrol business and announced to return funds through a AUD 1.7bln off-market buyback, while the Japanese benchmark shrugged off a weak Tankan survey and was among the best performers with risk appetite fuelled by favourable currency flows. Hang Seng (+1.8%) and Shanghai Comp. (+2.6%) were uplifted by strong Chinese data in which the Official Manufacturing, Non-Manufacturing and Caixin Manufacturing PMIs all topped estimates with the official reading in expansionary territory for the first time since October. Furthermore, trade optimism and the inclusion of China’s onshore bonds in the Bloomberg Barclays Global Aggregate Index from today further added to the optimism with the mainland firmly extending on the over-3% gains seen on Friday and with the Hang Seng now in bull market territory. Finally, 10yr JGBs were lower amid similar weakness in T-notes and as a rally across riskier assets dampened safe-haven demand, while the BoJ recently announced its purchase intentions for the month in which it kept all amounts unchanged.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.7193 (Prev. 6.7335)

Chinese Manufacturing PMI (Mar) 50.5 vs. Exp. 49.5 (Prev. 49.2); First expansion since October. (Newswires) Chinese Non-Manufacturing PMI (Mar) 54.8 vs. Exp. 54.5 (Prev. 54.3) Chinese Caixin Manufacturing PMI (Mar) 50.8 vs. Exp. 50.1 (Prev. 49.9)

Reports from Chinese press that suggested China-US trade talks have made 'new' progress. (Newswires)

Japanese Tankan Large Manufacturing Index (Q1) 12 vs. Exp. 14.0 (Prev. 19.0); 2 year low. (Newswires) Japanese Tankan Large Manufacturing Outlook (Q1) 8 vs. Exp. 12.0 (Prev. 15.0) Japanese Tankan Large All Industry Capex (Q1) 1.2% vs. Exp. -0.4% (Prev. 14.3%)

UK/EU   

*For reference, a Brexit analysis piece for today’s events is available in the form of a rolling post on the headline feed

Over the weekend there were comments from Conservative Party Deputy Chairman Cleverly that the party is not preparing for a snap general election as it wouldn’t solve anything and could cause an “unnecessary delay’’ to Brexit. (Newswires/Twitter)

UK Justice Secretary Gauke has suggested that PM May could have to “accept” UK staying in customs union and break a 2017 general election manifesto pledge. (Telegraph)

Sources confirm that those close to UK PM May will push for a new PM to be selected after the Conservative Party conference in September. (Guardian)

An EU Diplomat has stated the political declaration could be amended ‘very quickly’, and that it may ‘be expected’ that EU leaders would agree to a further Brexit delay to the May 22nd one if a House of Commons majority backed a deal revised on such lines. (FT) Following this, EU are closely watching today's indicative vote process, would welcome a softer Brexit, Brussels say the can amend the political declaration quickly if MP's unite around a softer Brexit, and that all Brexit forms require the WA to pass., BBC's Adler. (Twitter)

European Commission President Juncker stated that patience was running out with the UK, and the EU wants UK MP’s to reach an agreement over Brexit in the coming hours and days. (BBC)

Labour has not tabled a motion for today's indicative votes, implying their effort will be on trying to secure support for Kyle/Wilson, which calls for a confirmatory referendum [Amednment E]., ITV's Peston. While, UK's SNP could support Nick Boles Common Market 2.0 proposal [D] today in indicative votes (if selected), according to BBC's Eardley. Separately, Up to 26 UK ministers are considering voting for Brexit option [C] for a customs union; assuming they get a free vote, according to Times' Deputy Political Editor Coates. (Twitter)

UK Treasury Minister Truss states that people are coming on board with UK PM May's plan, following it losing by a smaller amount in parliament last Friday. (Newswires)

Cabinet has not been told yet whether they will be expected to abstain on all choices tonight in indicative votes process, as according to sources cited by Sky's Cohen. (Twitter)

ECB’s Knot (hawk) commented that the ECB would need a clear monetary-policy reason to consider acting to mitigate the effects of negative interest rates on banks and expressed doubts regarding tiered deposit rates as a best solution for banks’ excess liquidity, while he also suggested it was clear that even policy normalization interest rates would be below pre-crisis levels. (Newswires)

ECB's Lautenschlaeger states that the rise of inflation is slower than what was expected. (Newswires)

 

UK Markit/CIPS Manufacturing PMI (Mar) 55.1 vs. Exp. 51.0 (Prev. 52.0)

- Stocks of inputs & finished goods rise at record rates

- Trends in output, new orders & employment strengthen

EU Markit Manufacturing Final PMI (Mar) 47.5 vs. Exp. 47.6 (Prev. 47.6)

German Markit/BME Manufacturing PMI (Mar) 44.1 vs. Exp. 44.7 (Prev. 44.7)

- French Markit Manufacturing PMI (Mar) 49.7 vs. Exp. 49.8 (Prev. 49.8)

- Spanish Manufacturing PMI Mar 50.9 vs. Exp. 49.6 (Prev. 49.9)

- Italian Markit/IHS Manufacturing PMI (Mar) 47.4 vs. Exp. 47.4 (Prev. 47.7)

EU HICP Flash YY Mar 1.4% vs. Exp. 1.5% (Prev. 1.5%)

EQUITIES

A stellar start to the week for European stocks [Eurostoxx 50 +0.7%] following an inspiring performance in Asia where mainland China advanced in excess of 2% on the back of optimistic China manufacturing PMIs. Broad-based gains are being seen across major European indices, although Germany’s DAX (+1.5%) modestly outperforms peers, driven forward by the likes of auto names [Daimler +3.5%, Volkswagen +2.6% and BMW +1.8%] after Chinese PMIs topped estimates. Furthermore, the release also bolstered other China exposed sectors, i.e. luxury names, with Swatch (+1.4%), Richemont (+0.8%), LMVH (+1.0%) all performing well in their respective bourses. Sectors are also showing broad-based positivity, although utilities are underperforming as investors move away from defensive stocks. In terms of notable movers, WPP (+3.2%) rests at the top of the FTSE after a Deutsche Bank upgrade, whilst easyJet (-7.9%) shares declined after company CEO warned of a cautious H2 outlook as he expects softer yields from UK and European tickets.

FX

AUD/NZD/GBP/NOK/SEK - All beneficiaries of forecast-beating PMIs, albeit indirectly in the case of the Antipodean Dollars, as encouraging Chinese surveys overnight lifted broad risk sentiment and the Aussie and Kiwi accordingly. Meanwhile, a significantly better than expected UK headline print was mainly boosted by further pre-Brexit stock-piling, although output, new orders and jobs sub-components also improved and activity in both Scandi manufacturing sectors expanded at a faster pace. Hence, Aud/Usd and Nzd/Usd are both looking firmer above big figure levels at 0.7100 and 0.6800 respectively, with the former also probing above its 50 DMA (0.7119), while Cable extended its rebound from last week’s lows and back over 1.3000 to circa 1.3100, breaching its 55 DMA (1.3075) on the way. However, the latest round of IVs present more risk and uncertainty for the Pound with up to 8 amendments up for selection around 2.30 pm before debates and voting tonight – for a more detailed schedule and analysis see our headline feed. Elsewhere, Eur/Nok is back down below 9.6500 and Eur/Sek sub-10.4000 to test multi technical support levels including the 30 DMA (10.3844), 200 DMA (10.3812) and the bottom of a chart cloud (10.3785). Back down under, and the Aud will be looking for independent impetus via the RBA tomorrow with options pricing a 35 pip break-even for the event – full preview also available via the headline feed.

EUR/CHF - Also firmer vs the Usd as the DXY retreats towards 97.000 again, but capped around 1.1250 and 0.9935 respectively in wake of relatively downbeat PMIs and Swiss retail sales.

CAD/JPY - The G10 laggards, as the Loonie meanders between 1.3340-30 vs its US counterpart and the Jpy pivots 111.00 amidst the aforementioned general revival in risk appetite post-Chinese PMIs, and with the headline pair also underpinned by a downbeat Japanese Tankan report. However, 111.20 is holding (just) and represents a 61.8% Fib retracement of the 112.13-109.70 downmove.

EM - Contrasting fortunes for the Lira and Rand, as weekend municipal elections in Turkey saw some key losses for the ruling AK Party to main opposition CHP, but not enough to threaten President Erdogan’s overall majority and result in regime change. Usd/Try has been up to 5.7000+ in response vs Usd/Zar that has been as low as 14.2225 after Moody’s delayed its latest credit review of SA and any potential cut in the rating and/or outlook, for the time being at least.

Turkey opposition party claimed victory in Istanbul and Ankara, while the ruling AK Party also initially claimed to have won in Istanbul following local elections over the weekend which was seen as a referendum on President Erdogan. However. President Erdogan later commented that although the Mayorship may have been lost in Istanbul, they won in many of its municipalities. (Newswires)

FIXED INCOME

Stock-piling certainly boosted the UK manufacturing PMI, but stock-taking appears to have contributed to the demise of Gilts and Bunds in recent trade following fleeting and mixed recoveries ahead of the Markit/CIPS release (which for the record was on time unlike the premature Eurozone surveys). The 10 year UK benchmark retested bids ahead of 129.00 again, having peered 1 tick above par at 129.38, while its Eurex equivalent has actually fallen to a fresh session low at 165.68 (-66 ticks) amidst extended gains in the Dax other EU bourses. Elsewhere, US Treasuries remain closer to overnight lows with the curve steeper again ahead of top-tier data in the form of retail sales, manufacturing PMI/ISM business inventories and construction spending.

COMMODITIES

The upbeat sentiment emanating from the optimistic China metrics overnight has supported sentiment alongside the demand outlook for the energy complex. Brent futures are marching with gains of around USD 1.0/bbl while WTI futures advance over USD 0.50/bbl. Brent oil has reached levels last seen in November, and from a technical front, the 200 DMA for Brent resides around USD 69.68/bbl and around USD 61.50/bbl for WTI. Furthermore, BAML expects Brent to average USD 74/bbl in Q2 2019, and USD 70/bbl in 2019. Meanwhile, the bank sees WTI averaging USD 56/bbl in 2019 and USD 60/bbl in 2020. Elsewhere, the latest CFTC data shows that speculative net long NYMEX WTI by almost 26k lots over last week, with a bulk of the buying coming from fresh longs. Of note, this month sees the EIA short-term energy outlook release on the 9th, OPEC monthly report on the 10th and IAE oil market report the day after. It is also worth noting that traders will be keeping an eye on trade developments as US is to host a Chinese trade delegation on the 3rd.

Over in the metals complex, gold prices succumb to the positive risk tone as the yellow metal remains below the USD 1300/oz, albeit off lows. Meanwhile, the aforementioned China data bolstered copper prices to levels just shy of USD 3.00/lb, to levels last seen in June 2018. Elsewhere, iron ore prices have been supported by the Caixin-beat alongside a force majeure by Rio Tinto which will result in a loss of around 14mln tonnes of production this year. As such, Goldman Sachs raised iron ore price forecasts with 3-month estimate at USD 85/ton (Prev. USD 80), 6-month estimate at USD 80/ton (Prev. USD 75/ton) and 1-year estimate at USD 70/ton (Prev. USD 65).

The Omani oil minister says that he sees prices staying in a USD 65-75 range until year-end. (Newswires)

Rio Tinto sees Pilbara iron ore shipments to be at lower end of 338mln-350mln tons and expects impact of disruption from cyclone will result in loss of around 14mln tonnes of production this year. (Newswires)

Goldman Sachs raised iron ore price forecasts with 3-month estimate at USD 85/ton (Prev. USD 80), 6-month estimate at USD 80/ton (Prev. USD 75/ton) and 1-year estimate at USD 70/ton (Prev. USD 65). (Newswires)

Bank of America see Brent averaging USD 74/bbl in Q2 2019, USD 70/bbl in 2019 and USD 65/bbl in 2020; see WTI averaging USD 56/bbl in 2019 and USD 60/bbl in 2020. (Newswires)

Oil exports from the Russian port of Tuapse are forecast at 1.429mln tons in April vs. 0.824mln tons scheduled in March, according to traders. (Newswires)

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Dominic Raab = The Turnip in Brussels via @Telegraph https://t.co/lf6JLRb6Pg