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[PODCAST] US Open Rundown 8th April 2019

  • A quiet start to the week for European trade [Euro Stoxx 50 -0.3%] following on from mixed trade overnight and ahead of several key events this week.
  • Reports indicate that UK PM May is to offer Labour leader Corbyn a legally binding soft Brexit, with a ‘Boris Lock’; separately, Tory MP’s may oust May if the UK partakes in EU elections or get an extension beyond June
  • Looking ahead, highlights include US Factory Orders, Durables Revisions, ECB’s de Galhau, Norges Bank’s Olsen, Riksbank’s Floden

 

ASIA-PAC

Asian equity markets began the week mixed as the region somewhat failed to sustain the initial momentum from last Friday’s gains on Wall St, where all majors edged higher and the S&P 500 notched a 7-day win streak after the latest NFP data. ASX 200 (+0.6%) and Nikkei 225 (-0.2%) both opened higher with commodity-related sectors among the biggest gainers in Australia due to strength in metal prices and after WTI crude rallied to fresh YTD highs above the USD 63.00/bbl level, while risk appetite in Japan was less decisive and eventually waned as exporters contended with flows into JPY. Hang Seng (+0.4%) and Shanghai Comp. (U/C) were initially buoyed on return from their extended weekend as they played catch up to the optimism from last week’s US-China trade talks in which both sides noted significant progress was made and with discussions to continue via teleconference this week, while China also plans to ease the burden on businesses in which it will reduce companies’ social insurance contributions by CNY 300bln. However, the mainland gradually deteriorated as some were kept cautious by reports that plans for a US-China joint statement hit a stalemate due to differences regarding access to China’s market. Finally, 10yr JGBs were mildly higher with prices supported as the initial positive momentum in the region waned and with the BoJ present in the market for JPY 280bln in JGBs, while prices also tracked the rebound seen in T-notes in the wake of the US jobs data where weak wage growth subsequently saw the probability of a Fed rate cut this year increase to 75% before paring back to 50%.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.7201 (Prev. 6.7055)

Chinese FX Reserves (USD)(Mar) 3.099tln vs. Exp. 3.095tln (Prev. 3.09tln). (Newswires)

GEOPOLITICAL

Fighting between rebel forces and Libya’s UN-backed government near Tripoli resulted to 21 deaths and many injuries. (BBC)

Turkey's Erdogan says he plans to discuss in Moscow the possibility of a Turkish military operation in Syria; according to Ria. (Newswires)

UK/EU   

UK PM May could offer the Labour Party a post-Brexit customs union today, prior to this The Times reports that PM May is set to offer Jeremy Corbyn a legally binding soft Brexit deal with a “Boris lock” that would make it difficult for a future Eurosceptic prime minister to tear up after she leaves No 10. (Newswires/Times) Separately, UK Labour party want a firm indication that the government is prepared to reopen the political declaration, there may be some movement later (either talks or a new offer), according to BBC's Nick Eardley. (Twitter)

Conservative MPs are warning that they will move to remove UK PM May within weeks if the UK is forced to partake in EU elections and extend membership beyond the end of June. (Guardian)

UK government are not going to intensify preparations for a no-deal Brexit today, according to ITV's Preston citing government sources. (Twitter)

UK Cabinet meeting is likely to be cancelled tomorrow amid reports PM May will meet German Chancellor Merkel at 11:00BST, according to Telegraph's Political Editor Swinford. (Twitter) UK PM May is also scheduled to meet French President Macron on Tuesday.

Manufacturers are calling on PM May to revoke article 50 if she fails to strike a Brexit agreement next week, in the latest sign that the looming possibility of Britain leaving the EU without a deal is hammering confidence in the sector. (Times)

EQUITIES

A subdued start to the week for European equities [Stoxx 600 -0.2%] following on from a mixed Asia-Pac session as Friday’s NFP optimism waned ahead of another week filled with risk events. Broad-based losses are being experienced across major indices, whilst sectors are relatively mixed with energy names outperforming after WTI and Brent crude rallied to fresh YTD highs. In terms of individual movers, BMW (-0.4%) shares have nursed some losses after opening lower in excess of 2% amid reports that its Q1 results will be impacted by the EU fines into antitrust proceedings. This initially pressured its fellow German peers in sympathy [Daimler (-0.2%), Volkswagen (+0.4%)] who later climbed back above break-even. Sticking with Germany, Dialog Semiconductor (+1.1%) shares were bolstered amid news that the company closed a deal with US tech giant Apple (-0.4% pre-market), ahead of schedule. Finally, Fiat Chrysler (+1.3%) rose to the top of the FTSE MIB following reports the Co. signed a deal with Tesla to bypass EU emission rules. Elsewhere, Boeing (BA) CEO says they plan to cut their 737 Max monthly production by just under 20%. As such Co. are lower by 2.6% in the pre-market.

FX

USD - The Dollar continues to drift down from initial post-NFP highs as global stocks wobble and oil climbs to fresh ytd peaks. The DXY remains relatively rangebound, however, and ‘comfortably’ above the 97.000 handle within 97.230-384 parameters.

JPY/GBP - The Yen has regained a safe-haven bid and rebounded from circa 111.80 lows through 111.50 and close to the 200 DMA (111.495) vs the Greenback, while technical buying was also noted during the Asia-Pacific session in several Jpy crosses including Eur/Jpy and Nzd/Jpy that tested psychological/round number levels at 125.00 and 75.00 respectively. Meanwhile, Sterling retains an underlying bid vs the Buck above 1.3000 and is straddling 1.3050, as Eur/Gbp pivots 0.8600 in the run up to Wednesday’s EU Brexit Summit when UK PM May will present the case for another A 50 extension backed by a withdrawal plan or at least a strategy to avert no deal on April 12. On that note, she will resume talks with the Labour Party in an effort to find a compromise amidst reports that the opposition want a firm commitment to re-opening the PD rather than additions to the existing document.

EUR - The single currency is also holding above a big figure mark vs the Dollar and 2019 lows not far below 1.1200, but chart resistance around 1.1250 and a key Fib is still capping the upside, while hefty option expiry interest at 1.1225 (1.4 bn) is also weighing on the headline pair.

NZD/CAD/AUD/CHF - All relatively flat and narrowly mixed vs the Usd, as the Kiwi meanders between 0.6723-37 and also has expiries close by to exert some influence into the NY cut (1 bn at 0.6725). Elsewhere, another upturn in oil prices has helped the Loonie reverse some post-Canadian jobs data losses within a 1.3390-70 band, and is also supporting the NOK vs the Eur with the cross back down through 9.6500. Note, Barclays has shorted Eur/Nok and is looking for a move to 9.5908 with a 9.7100 stop. Elsewhere, the Aussie is hovering around 0.7100 and Franc is sitting tight near parity.

EM - The Lira has weakened even further vs the Dollar as municipal election results are recounted in Istanbul and Turkey mulls military action in Syria, while the CBRT has cut its FX swap rate by 150 bp and decided to restart 1 week refunding operations. Usd/Try up over 5.7000 and 5.7100+ at one stage.

FIXED INCOME

Bunds have retreated further from overnight Eurex highs and a bit deeper below parity to a fresh 165.24 low, in stark contrast to Gilts that extended gains off the 128.00 level to 22 ticks and 21 ticks from last Friday’s close at one stage. A better than expected Eurozone Sentix survey may have prompted some core debt selling as some periphery spreads tightened and Germany’s BDB banking association called for the ECB to introduce a tiered deposit system if rates are not normalised by year end, which looks highly unlikely given the toll-back in policy guidance last month. Conversely, UK bonds spiked amidst reports highlighting tough talks between Conservative and Labour Parties on Brexit, but the 10 year benchmark has reversed in sympathy with Bunds to 127.97 since, like US Treasuries ahead of data including revisions to prelim durable good and factory orders.

COMMODITIES

Further supply-side woes have bolstered the energy complex to YTD highs with WTI and Brent futures revisiting levels last seen in November 2018 (USD 63/bbl and USD 70/bbl respectively). Gains are spurred as conflict in Libya escalates, with Hafta ordering his troops to march towards Tripoli. The fight has not yet effected oil supply, with Port Zawiya closely monitored by oil traders as it is the closest to the conflict. The port is scheduled to load 6mln barrels of crude in April which is subject to change if shipments are delayed. Amidst this, the oil complex last week saw speculators adding to their net long positive positions, with managed money positions in ICE Brent rising by just under 27k to result in net long speculative positions at almost 350k lots, the largest since the end of October 2018. Elsewhere, Saudi Energy Minister noted that he does not believe the Kingdom needs to cut output below its target, whilst a key architect of Russia’s OPEC+ deal said that the members could raise oil output in its June meeting. On the Aramco front, Saudi Energy Minister Al-Falih stated that the Aramco bond could attract demand north of USD 30bln (vs. touted USD 10bln) which will be used as part of a payment for the 70% purchase of Sabic (valued at USD 6.9bln).

In the metals complex, gold prices are underpinned as the Greenback softened overnight and continues to pull back during the European session thus far. Demand for the yellow metal was also reflected in an increase in China’s gold reserves which showed the fourth consecutive month of gold purchases. Elsewhere, copper benefitted amid overnight gains across Chinese commodity prices in which Dalian iron ore futures extended on record highs, while Shanghai rebar and hot rolled coil rallied over 3% shortly after the open.

Saudi Energy Minister Al- Falih says he does not believe the kingdom needs to cut output below its target. (Newswires)

- Also, reaffirms commitment to being a stabilizing force in energy markets

Saudi Energy Minister Al Falih says the Aramco bond deal is to close on Wednesday; adds that the demand for the bond could be above USD 30bln. Subsequently, reported that Saudi Aramco may price its bond on Tuesday afternoon UK time; Saudi Aramco are to open books for their debut international bond later today., according to sources. (Newswires)

UAE Energy Minister Al Mazroui says OPEC and allies expect good April compliance numbers

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