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[PODCAST] US Open Rundown 5th April 2019

  • Major European indices are little changed [Euro Stoxx 50 U/C], continuing the cautious tone seen in Asia ahead of today’s key risk events.
  • US-China trade discussions continue, with Chinese Vice Premier Liu He saying the two sides have reached a new consensus on key issues, working to conclude talks swiftly
  • In a letter to EU’s Tusk, UK PM May has proposed a Brexit extension until 30th June 2019
  • Looking ahead, highlights include US & Canadian Jobs Report & Fed's Bostic

ASIA-PAC

Asian equity markets traded slightly mixed following a similar indecisive lead from Wall St. as US-China trade optimism was partially offset by pre-NFP caution and holiday thinned conditions from closures across the Greater China region. ASX 200 (-0.8%) was the laggard and extended on its pullback from 7-month highs, with the declines led by tech which mirrored the underperformance of the sector stateside. Nikkei 225 (+0.4%) was positive with the index underpinned by favourable currency moves and trade-related hopes, while the KOSPI (+0.1%) remained afloat as index giant Samsung Electronics weathered a miss on its Q1 earnings guidance. Chinese markets were shut for national holidays although there was certainly no lack of relevant news flow with trade talks remaining in the limelight, in which leaders from both sides noted substantial progress was made and President Trump suggested that a deal could be announced in the next 4 weeks. Finally, 10yr JGBs were pressured amid spill-over selling from T-notes and as stocks in Japan remained afloat, while the BoJ were only present in the market today for T-bills.

US President Trump said rapid progress is being made in trade discussions with China and we're getting very close to trade deal, but added it is not yet made and could be announced in the next 4 weeks, maybe more or less. Furthermore, US President Trump said he will hold a summit with Chinese President XI in Washington if there is a deal and that he will discuss tariffs with Chinese Vice Premier Liu He, while he cited tariffs as well as IP theft when asked about sticking points. (Newswires)

US Trade Representative Lighthizer also noted that plenty of headway was made and the US has a good partner in China's Vice Premier Liu He but added there are still major, major issues remaining. (Newswires)

Chinese Vice Premier Liu He told US President Trump that the 2 sides reached a new consensus on key issues in text of trade agreement and will continue to work hard to conclude talks ASAP, while Liu also commented that Chinese President Xi hopes US and China can continue to make progress to address each other's concerns. (Newswires)

China is to cut social insurance contributions of businesses by CNY 300bln in an effort to reduce the tax burden and social insurance contribution of businesses, reported via Xinhua. (Xinhua)

US

US President Trump commented that there would be a 25% tariff on car imports from Mexico if he decides to apply tariffs but also said that Mexico has done good regarding the border during past 4 days, while he added that he did not say the border would stay open for a year but that he would place tariffs first. (Newswires)

US President Trump confirmed he has recommended Herman Cain to the Fed board. (Newswires)

GEOPOLITICS

North Korea has built a ballistic missile submarine, according to South Korean press reports. (Newswires)

UK/EU   

UK PM May's letter to EU's Tusk proposes an extension for Brexit until 30th June 2019 with potential to terminate early should a deal be ratified before then. Letter states that the UK will begin to prepare to host European elections and that the UK needs to provide a clear plan by Tuesday (the day before the EU Council meeting). (Newswires)

There were reports EU's Tusk is preparing to offer the UK a 12-month flexible extension, according to a senior EU source; which has since been confirmd by a Senior EU Official (The Guardian/BBC) EU Council President Tusk's proposal of a year long extension to Brexit would permit the UK to leave as early as 1st July if the UK has passed with Withdrawal Agreement by that point, according to a senior EU official. In related news a source close to French President Macron suggests that talk of a further extension to Article 50 is premature, adds that the EU 27 criteria for an extension (a credible alternative plan) has not been met yet. (Newswires)

UK Attorney General Geoffrey Cox admitted PM May will be forced to accept an extension to Article 50 of longer than 'just a few weeks or months', which reports suggested sets the stage for fresh cabinet infighting. (Independent) Subsequently, stating that “[there is] no need for any delay, we’re getting on with it”, via Sky News' Westminster Political Reporter Powell. (Twitter)

UK ministers have reportedly discussed a mass walkout in protest against a soft Brexit and long delay to Article 50, while it was also reported that some UK cabinet ministers are reportedly attempting to block a long Brexit extension. (Telegraph/Times)

REC survey showed UK firms' hiring of permanent staff declined by the fastest pace since August 2016. (Newswires)

Italian PM Conte sees Italian spreads declining due to government measures and ECB policies. (Newswires)

EQUITIES

A cautious start for European equities [Euro Stoxx 50 Unch] after a relatively mixed Asia-Pac session, as is usually the case ahead of US jobs data. Italy’s FTSE MIB (+0.4%) modestly outperforms its peers as Saipem (+3.0%) rose to the top of the Stoxx 600 on the back of a positive JP Morgan broker move. Sectors are mixed with no clear standout. Analysts at Citi highlight that equity market polarisation has hit levels where investors historically act upon. “History says..."Sell quality, buy risk and buy value"; that is an uncomfortable message for some investors. ", Citi notes. Looking ahead into next week, key risk events which could impact the equity-space include: FOMC Minutes (Wed), ECB’s policy meeting (Wed), EU Brexit Summit (Wed), Fed’s Vice Chair’s view on the US economy (Thu).

FX

AUD/NZD/GBP/EUR - All bucking the broader trend of consolidation and sideways trading into NFP and Canada’s latest employment report, albeit not by much in terms of moves vs the Greenback. However, the Aussie has extended its rebound from post-RBA lows and outperformance vs the Kiwi in the process. Aud/Usd has retested recent 0.7100+ peaks as Aud/Nzd advances through 1.0550 towards 1.0575 and Nzd/Usd declines to new early April lows below 0.6740. The catalysts, more momentum towards a US-China trade agreement, per latest reports from Beijing especially, another rise in iron ore prices and a supportive Aussie note from GS that Is going against the grain with an unchanged RBA policy call to support its revised forecasts for Aud/Usd over 3 and 6 month horizons (0.7400 and 0.7500 from 0.7200 and 0.7300 respectively). Recall, the US bank also went long of Aud/Nzd yesterday and decent option expiry interest sits at the 0.7100 strike (1.6 bn). Elsewhere, Cable remains volatile and fixated on Brexit headlines around the 1.3100 handle amidst latest reports about a potential lengthier A 50 extension to mid-year or end March 2020 with a flexible early termination option. Eur/Usd is still rangebound between 1.1200-50 after topping out not far above a 1.1246 Fib again on Thursday, but deriving some underlying support from better than expected German IP data and Italy’s ISTAT suggesting that its leading economic indicator points to signs of a recovery or base. Note also, hefty option expiries may be keeping the headline pair in check, as 2 bn resides between 1.1185-1.1200 and 2.5 bn from 1.1240-50.

CHF/CAD/JPY - Minimal deviation against the Usd that is equally restrained pre-US and Canadian labour updates, with the DXY firm, but confined between 97.177-331. The Franc is pivoting parity and Loonie straddling 1.3350, while Usd/Jpy is just off a marginal new wtd high of 111.80 having breached its 200 DMA (111.49).

EM - Contrasting fortunes for regional currencies as the Lira continues to lick wounds amidst the ongoing political contention following local Turkish elections and wrangling with the US over its S-400 order from Russia. Moreover, Usd/Try remains elevated near 5.6000 ahead of next week’s Economic Plan and the next CBRT policy meeting, in contrast to Usd/Zar below 14.1000 and not far from the 100 DMA (14.0625) in wake of SA’s ratings reprieve for the Rand by Moody’s earlier this week.

Turkish opposition party leads AKP rival by 18.74k votes following the recount of invalid votes in 17 districts, according to the opposition party candidate in Istanbul. (Newswires)

FIXED INCOME

Gilts and US Treasuries have carved out fresh intraday or overnight session lows as the clock ticks down to NFP and the prospect of a lengthier Brexit extension with conditions and clauses attached appears to be rising. The 10 year UK bond has been down to 127.78 and not far from supposedly strong technical support at 127.72, while its US equivalent hit 123-10 as the corresponding yield inched a bit further above 2.50% to new highs for the week. Bunds are holding above their 165.13 Eurex base in comparison/contrast, albeit still around ¼ point adrift and with the benchmark yield back to flat.

COMMODITIES

Tentative trade in the energy complex as WTI (Unch) and Brent (-0.3%) gear up for this week’s US jobs data.  WTI rests just above its 200 DMA at 61.38, whilst its global counterpart straddles just below its 200 DMA at 69.54. Oil is on track for its longest weekly winning streak since the back-end of 2017, overall supported by the output decline in Venezuela coupled with growing hope of a US-Sino trade truce. Crude has advanced around 40% this year thus far as OPEC+ supply curbs counter record high US shale production. As a reminder, tonight will see the release of the Baker Hughes rig count, although price-action may be muted amidst macro-newsflow.

Not much price action in the metals complex (thus far) with gold (U/C) treading water around yesterday’s close after briefly breaching its 200 DMA (1283) to the downside yesterday, whilst copper (-0.1%) remains tentative amidst the cautious risk-tone. Finally, Australia’s Port Hedland’s iron ore shipments to China declined by 8% M/M, totalling 30.7mln tonnes vs. 33.5mln tonnes in February after the port was shut for almost 4 days due to cyclones hitting Western Australia.

Saudi Arabia reportedly discussed plans to ditch USD from oil trades if US passes NOPEC. (Newswires)

Venezuela's PDVSA expects output from upgraders to remain below capacity for this month following blackouts. (Newswires)

Australia's Port Hedland iron ore shipment to China 30.68mln tonnes vs 33.5mln in February. (Newswires)

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