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[PODCAST] US Open Rundown 3rd April 2019

  • European indices are firmer [Euro Stoxx 50 +0.7%] as the positive sentiment from Chinese PMI’s and US-China trade continues to drive markets; note, the FTSE 100 (U/C) is lagging on sterling strength
  • Dollar is subdued weighed on by G10 counterparts strength on the back of risk sentiment, Brexit updates & EZ PMIs
  • Looking ahead, highlights include US Services PMIs, US ADP National Employment, US Non-Manufacturing ISM PMI, Fed's Bostic, Barkin, George & Kashkari

 

ASIA-PAC

Asian equity markets were mostly higher as trade optimism and Chinese PMI data helped the region shrug-off the indecisive lead from the US, where the global stock rally had stalled amid thin volumes, weak durable goods data and ahead of upcoming risk events. ASX 200 (+0.6%) and Nikkei 225 (+1.0%) were positive with Australia led by miners amid strength in iron ore prices which hit record levels in China and as participants also digested the budget which included an upward revision to the first projected surplus in over a decade and proposed AUD 158bln in tax cuts. Japanese stocks were lifted as risk appetite was stimulated by reports US and China are nearing a final trade agreement with most issues resolved but continue to haggle on enforcement and implementation. Hang Seng (+1.2%) and Shanghai Comp. (+1.2%) also benefitted from the trade hopes and after further encouraging data from China in which Caixin Services PMI topped estimates and printed its highest since January 2018. However, the performance of the mainland was somewhat fatigued after its recent bullish streak and with Bank of Communications underperforming on reports China National Council for Social Security Fund plans to sell 1.49bln of Bocom’s A-shares. Finally, 10yr JGBs were lower as trade hopes ensured a lack of safe-haven demand and with selling exacerbated as prices ran through stops at 153.00. SMBC also suggested the BoJ may reduce its purchases today, although this failed to materialize as the BoJ maintained its Rinban amounts which totalled JPY 1.23tln in 1yr-10yr JGBs and which helped alleviate some of the pressure.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.7194 (Prev. 6.7161)

Chinese Caixin Services PMI (Mar) 54.4 vs. Exp. 52.3 (Prev. 51.1); Highest since January 2018 (Newswires)

Chinese Caixin Composite PMI (Mar) 52.9 (Prev. 50.7)

US and China are drawing closer to a final trade agreement with most issues resolved although continue to haggle on trade deal enforcement and implementation. (FT)

UK/EU   

DUP said UK PM May's lamentable handling of negotiations with EU means she has failed to deliver a sensible Brexit, while it added it remains to be seen if sub-contracting out future of Brexit to Labour's Corbyn will end happily. (Newswires)

UK Tory Lawmaker Letwin says the process of seeking an Article 50 extension will go ahead as planned, adding that we can work with the government now; adds that Labour leader Corbyn is 'someone we can do business with' regarding Brexit., Telegraph's Swinford. (Twitter)

UK Labour MP Long-Bailey notes that leader Corbyn will not set red lines in talks with PM May. (Newswires)

UK Brexit Secretary Barclay says he personally thinks that a customs union is highly undesirable, Adds that labour does not have material objections to UK PM May's Withdrawal Agreement. And that there may be an "unpalatable" choice between no Brexit or a soft Brexit; expects a stable majority in Parliament for a Brexit deal if PM May and opposition leader Corbyn come to an agreement (Newswires)

UK PM May is said to consider asking lawmakers to rank Brexit outcomes. (Newswires)

EU is preparing to offer PM May a long Brexit extension with strict conditions including taking part in European Parliament elections and a possible “gentleman’s agreement” regarding Britain's conduct (e.g. potentially abstaining from taking part in important decisions over the EU’s future), according to FT. (FT/Twitter)

French President Macron has led other EU leaders in warning that UK PM May's apparent move to take no-deal Brexit off the table offers no guarantees UK will not crash out of the EU on April 12th. (Newswires)

EU Envoys have reportedly delayed approval of their mandate for US trade talks, according to sources. (Newswires)

UK Markit/CIPS Services PMI (Mar) 48.9 vs. Exp. 50.9 (Prev. 51.3)

Italian Markit/IHS Services PMI (Mar) 53.1 vs. Exp. 50.8 (Prev. 50.4)

EU Markit Comp Final PMI (Mar) 51.6 vs. Exp. 51.3 (Prev. 51.3)

EQUITIES

Major European indices are firmer [Euro Stoxx 50 +0.7%] as the positivity continues from overnight where sentiment was driven by US-China trade optimism and positive Chinese PMI data, although the FTSE 100 (Unch) is the exception to this with the index weighed on by the Brexit-related Sterling strength. Sector wise, material names (sector +1.5%) lead the gains as copper and iron prices are bolstered by the seemingly positive trade news alongside supply-side woes. On the flip side, healthcare names lag (sector -0.8%) with heavyweights Novartis (-1.0%) and Roche (-0.9%) weighed on by Walgreen’s cut in guidance yesterday. Elsewhere, the tech sector (+1.3%) is supported by advances in AMD yesterday (+3% pre-market) alongside Taiwan Semiconductor stating that they expect chip orders to pick up. 

Japan Display (6740 JT) are to reportedly supply Apple (AAPL) Watch OLED screens from this year, according to sources. (Newswires)

 

FX

DXY - This week’s risk roller-coaster continues, and the latest turn of the ride has lifted stocks and high beta currencies to the detriment of so-called safe havens, like the Dollar and core bonds. Hence, the Greenback has handed back gains made on Tuesday vs most G10 counterparts and EMs, with the index retreating towards 97.000 again from just over 97.500. The catalysts, another strong Chinese PMI and similar beats across the Eurozone/Europe, bar the UK, reports that the US and China are getting close to a trade agreement and Brexit developments raising prospects of some kind of deal as opposed to no deal.

AUD/NZD - The Aussie and Kiwi have benefited most from the resurgence in broad risk appetite, with the former also deriving independent impetus from data in the form of retail sales and trade overnight. Aud/Usd has recovered from near 2019 lows to 0.7100+, but may be hampered by more hefty option expiry interest as 1.6 bn runs off between 0.7100-10 at the NY cut. Meanwhile, Nzd/Usd is hovering just below 0.6800 compared to sub-0.6750 at worst as the Aud/Nzd cross holds close to the upper end of a 1.0495-50 range.

EUR/GBP/CAD/CHF - All firmer vs the Usd following underperformance yesterday, with the single currency boosted by better than expected Eurozone services PMIs across the board and marginally topping Tuesday’s 1.1250 peak, but capped by layered off said to be sitting up to 1.1270. Cable tested the water and resistance into 1.3200 on the back of the aforementioned Brexit manoeuvres aimed at reaching a pact to trigger an extension from April 12 that could lead to a softer withdrawal agreement or terms. However, the Pound was derailed to a degree by a significantly weaker than forecast UK services PMI as the headline recoiled below 50 and IHS predicted this means Q1 GDP stagnation before a downturn in H2. The Loonie continues to recoup losses vs its US peer post-contrasting manufacturing PMIs/ISM on Monday with the aid of firmer crude prices and the overall rebound in risk sentiment to probe over 1.3300, while the Franc is back up around 0.9960 from parity at one stage on Tuesday, but softer vs the Eur within 1.1177-1.1208 trading parameters after more dovish/intervention talk from the SNB.

SEK/NOK - The Scandi Crowns are still tracking broader swings in risk, along with technical and fundamental impulses, as Eur/Sek and Eur/Nok retreat towards recent lows and chart support levels circa 10.4100 and 9.6000 respectively.

EM - The Lira remains embroiled in political uncertainty as the main parties wrangle over regional election results against the backdrop of renewed diplomatic angst between Turkey and the US, while latest inflation data has piled more pressure on the Try and CBRT given a firmer than forecast CPI rate. Unsurprisingly, Usd/Try is holding above 5.6100 vs other Usd/regional pairings that are reversing recent rallies, and even the Rand in wake of a weak SA services PMI.

Australian Trade Balance (Mar) 4.80B vs. Exp. 3.80B (Prev. 4.55B, Rev. 4.35B). (Newswires) Australian Retail Sales (Mar) M/M 0.8% vs. Exp. 0.2% (Prev. 0.1%)

Head of Turkey's Electoral Board says votes in eight districts in Istanbul will be recounted following objections. (Newswires)

FIXED INCOME

The post-UK PMI bounce in bonds was relatively short-lived as the bulk of the March services PMIs (and manufacturing earlier) have eased fears of a deeper and more prolonged downturn in the global economy, albeit with the caveat that one month alone does not constitute a sea-change. Indeed, Bunds, Gilts and US Treasuries have subsequently slipped to fresh intraday lows and/or tested previously established session troughs, with the 10 year EU debt futures down to 165.26 and 128.29 respectively. Ahead, ADP will be eyed as ever for NFP pointers, and the US PMI/ISM surveys to see if the forecast-beating run can resume after the CIPS/IHS Markit blip. Note also, a couple of Fed speakers and ECB’s de Cos to come.

COMMODITIES

Commodities are largely on the front foot amidst the overall risk appetite couple with a falling buck. WTI (+0.1%) and Brent (+0.6%)futures have been grinding higher since last night, shrugging off the surprise build in API crude stocks (+3.0mln vs. Exp. -0.4mln) with the former residing just above USD 62.60/bbl having hit resistance at USD 63.00/bbl. The support the oil complex has seen has mostly been due to supply disruptions rather than demand improvement. Traders will be eyeing the DoE release today, although price action may be muted as Iranian and Venezuelan supply woes/ market risk appetite hold onto the spotlight.

Elsewhere, metals across the board are benefiting from the easing buck with spot gold (+0.1%) remaining below USD 1300/oz (for now), whilst copper (+1.2%) surges on trade optimism after reports that US and China are inching closer to a deal, with the Chinese trade delegation heading to Washington today for another round of talks. Furthermore, Barclays noted that copper supply-side disruptions have the potential to boost the red metal to USD 7000/tonne. Finally, Dalian iron ore prices were bolstered to record highs, also hit by supply issues, as damage is calculated from the cyclones in Western Australia. Barclays also raised its 2019 iron ore price forecast to USD 75/tonne (Prev. USD 69/tonne).

Barclays says copper supply-side disruptions have the potential to boost the red metal to USD 7000/tonne; separately, raised its 2019 iron ore price forecast to USD 75/tonne (Prev. USD 69/tonne). (Newswires)

ARA region crude inventories rose 375k barrels to 60mlm in the week ending March 29th., according to Genscape. (Newswires)

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