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[PODCAST] US Open Rundown 9th April 2019

  • Major European indices have traded choppily [Euro Stoxx 50 +0.2%], following on from the cautious trade overnight ahead of tomorrows risk events.
  • Brexit sentiment, along with sterling, was buoyed by reports of German support for a 5yr backstop time-limit; however, this was subsequently denied
  • On the trade front, USTR has released a list of EU products which may be subject to tariffs if the EU does not remove subsidies for Airbus
  • Looking ahead, highlights include Fed's Quarles & Clarida, Supply from the US

 

ASIA-PAC

Asian equity markets eventually turned mostly positive on what was a predominantly cautious session following a mixed performance on Wall Stamid tentativeness ahead of upcoming earnings season and this week’s central bank activity including FOMC Minutes and ECB policy meeting. ASX 200 (U/C) and Nikkei 225 (+0.2%) were indecisive but with losses in Australia stemmed by strength in the energy sector as the escalating conflict in Libya lifted oil prices, while Tokyo sentiment mirrored a choppy currency. However, the region was not without its success stories as Crown Resorts surged over 20% after it announced it was in discussions regarding a takeover approach by Wynn Resorts and with Sony higher by more than 7% on news Third Point was building an activist stake in the Co. and called for a review on ownership of several divisions. Hang Seng (+0.3%) and Shanghai Comp. (+0.1%) were also tepid amid a lack of any firm drivers and as trade-related news quietened down, while the PBoC also continued to refrain from open market operations. Finally, 10yr JGBs were lacklustre amid an indecisive risk tone and as participants awaited a 5yr auction, as well as Saudi Aramco’s USD 10bln bond offering which was more than 7x oversubscribed. Prices later recovered off their lows as the 5yr JGB auction later proved to better than previous with an improvement seen across most metrics including a higher b/c and accepted prices.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.7142 (Prev. 6.7201)

Chinese State Council reiterates its view that the relevant authorities should enforce proper usage of interest rates and reserve requirements to expand credit and reduce lending costs. (Newswires)

 

US

US Trade Representative Lighthizer released a list of EU products that could be subject to tariffs if the EU does not remove subsidies for Airbus (AIR FP) and said the US is seeking to place tariffs on USD 11bln of goods as a countermeasure. (Newswires) Following this, a European Commission source says that the level of action taken against Airbus (AIR FP) subsidies is 'greatly exaggerated'; suggest that the European Commission are making preparations for retaliation rights regarding the WTO dispute over Boeing (BA) and that the EU remains open to discussions with the US regarding aircraft subsidies. (Newswires)

US judge issued an injunction against President Trump administration's policy of returning asylum seekers to Mexico. (Newswires)

UK/EU

There were initially reports from a leading Brexiteer stating that they have been advised that German Chancellor Merkel is willing to put a five year time limit on the Northern Ireland backstop, according to BBC's Watt. However, this was subsequently denied by Germany. (Twitter/Newswires)

UK Parliament approved the legislation forcing PM May to delay Brexit and avoid a no-deal Brexit on April 12th which later received Royal Assent and was signed into law. (Newswires)

Reports suggesting that the 1922 Committee want UK PM May to stand down with immediate effect. (Telegraph/Twitter)

Furthermore, the EU is to set a high price for delaying Brexit including UK to give up rights in future EU budget and trade talks, while it will force the UK into a no-deal Brexit if it seeks to cancel election to European Parliament. (BuzzFeed/Newswires)

UK ministers are to resume Brexit discussions with opposition Labour Party today. (Newswires) Sources indicate that UK PM May had not accepted Labour’s demand for a customs union, however, there was a move towards altering the non-binding political declaration. (BBC) Subsequently UK Trade Secretary Fox reportedly tells Conservative lawmakers that a Customs Union would be the 'worst of both worlds', according to Telegraph's Swinford. (Twitter)

EU Chief Brexit Negotiator Barnier says that the EU is ready to improve & amend the deceleration on future UK ties in hours/days. (Newswires)

EU officials suggest that no member of the EU 27 has put forward an argument for blocking a further extension to Article 50. (Newswires)

UK BRC Sales Like-For-Like (Mar) Y/Y -1.1% vs. Exp. -0.8% (Prev. -0.1%); largest decline since April 2018. (Newswires)

UK Barclaycard Consumer Spending (Mar) Y/Y 3.1% (Prev. 1.2%), while the report noted that 69% of consumers are not confident in the economy which is the highest since the survey began in 2014. (Newswires)

Italian economic outlook is set for approval by the Cabinet Tuesday PM, with Italian PM Conte to host government talks on the economic outlook prior to this., according to a Italian Official. (Newswires)

 

GEOPOLITICS

US State Department banned 16 Saudi nationals from entering the US due to role in Khashoggi murder. (Newswires)

Iran placed US Central Command on its terror list. (Newswires)

Iranian leader Khameni rejects Us blacklisting of Iranian Revolutionary Guards by the US. (Newswires)

Iranian President Rouhani says if US pressure continues, Iran will produce IR8 Advanced Centrifuges For reference, Centrifuge cylinders are used for the separation of Uranium and could produce fuel for nuclear weapons from natural Uranium. (Newswires) 

 

EQUITIES

Choppy trade for European equities thus far [EuroStoxx 50 +0.2%] following a cautious Asia-Pac session where China was tepid amid the lack of any firm drivers ahead of tomorrow’s risk-packed session. Analysts at HSBC believe that the Chinese economy has bottomed, and growth will pick-up in the coming months as the private sector feels the effects from corporate tax cuts. Over in Europe, stocks nursed some of the losses seen at the open after jitters from the US’ release of prelim tariffs on USD 11bln of EU products [Full list available on the headline feed] somewhat waned after sources noted that the legal actions taken against Airbus (-1.5%) subsidies are “greatly exaggerated”, and the EU remains open to dialogue with the US. Furthermore, upside in equities was initially exacerbated amid reports that German Chancellor Merkel is reportedly willing to put a 5yr time limit on the Northern Irish backstop, although equities shed some gains after this was dismissed, but remain in positive territory. Sectors are relatively mixed with no clear outperformer or laggard. In terms of individual stocks, Swiss heavyweight Novartis’ (-9.8% unadj.) Alcon unit (+5.2%) began its first trading day on the front foot and opened above the CHF 46.50-53.50 indicative range at CHF 55.00. Elsewhere, SAP (-2.1%) fell to the foot of the DAX in light of downgrades at HSBC and UBS. Finally, Italy’s Prysmian (-3.9%) extended on losses seen at the open following further failed commission tests.

FX

GBP - Sterling leapt towards the top of the G10 table amidst reports that German Chancellor Merkel may be open to a fixed backstop timeframe (5 years touted), which could appease some of those unwilling to back the WA, according to a Brexiteer. Cable cleared the 55 DMA (1.3096) and 1.3100 handle on its way to 1.3121 in response, while Eur/Gbp retreated to 0.8595 from 0.8627 at one stage before a denial by the German Government. Looking ahead, UK PM May’s is in Berlin to see her German counterpart and has a subsequent meeting with French President Macron before Wednesday’s emergency EU Summit. Meanwhile, talks between Tory Cabinet members and the Labour party are ongoing to try and strike a deal, and interim updates remain mixed.

AUD/NZD - The Aussie has extended gains to 0.7150 vs its US counterpart and 1.0600 against the Kiwi as commodities continue to rally and overnight data in the form of housing finance confounded expectations to the upside. Aud/Usd is now looking at bullish chart levels including the 100 DMA and a 50% Fib at 0.7142 and 0.7149 respectively to maintain momentum on a closing basis, with decent if not insurmountable option expiries between 0.7150-55 (circa 770 mn) also on the radar. Meanwhile, Nzd/Usd is trying to tag along and trying to breach 0.6750 ahead of offers said to be sitting at 0.6760.

JPY - Usd/Jpy has drifted down within a 111.57-24 range and into a relatively heavy expiry zone, as 1.8 bn runs off from 111.20-25 vs 1.7 bn at 111.35-40, with the Yen seeing some safe-haven demand due to renewed US/EU tit-for-tat tariff posturing. Chart-wise, 111.25 also represents the 10 DMA, while resistance ahead of the 112.00 big figure comes via a daily formation around 110.78.

EUR - The single currency has consolidated yesterday’s clearance of 1.1250 vs the Dollar and is eyeing 1.1280 as the DXY slips a bit further below 97.000 to test support at 96.806 amidst broad declines in Usd/major pairings. However, a thick cluster of option expiries may drag Eur/Usd back down given 5.8 bn rolling off between 1.1245-75, not to mention a further 3.1 bn lower down.

CAD/NOK - Both benefiting from the ongoing strength in oil prices, and the latter to the extent that a knee-jerk spike in Eur/Nok in wake of weak Norwegian GDP data has already been reversed, with the cross currently straddling 9.6200 vs a high just shy of 9.6500. Meanwhile, the Loonie is pivoting 1.3300 vs its US counterpart and just eclipsed its previous April high.

EM - More thrills and spills for the Lira, as an initial rebound made on a reduced recount in Istanbul was thwarted by another rejection of the electoral board’s decision by the AKP that is insisting on a full election rerun. Usd/Try back up near 5.6700 vs 5.6425 and 5.6949 at the extremes.

FIXED INCOME

Volatile trade in EU debt after the relatively slow price action seen earlier, as Bunds led advances to fresh intraday highs amidst more EU angst over US tariff threats and then Gilts took over the reins with a swift pull-back on positive sounding Brexit reports before a snap-back on the denial. The 10 year benchmarks have settled down again more recently with Bunds back around par within a 165.11-54 range and Gilts only just a few ticks off-side between 128.27-127.82 parameters after a solid 2028 DMO tap. However, USTs have been more steady and underpinned with the curve fractionally flatter ahead of 3 year supply and as books swell for the multi-tranche ARAMCO offering, with demand said to be particularly strong for the longer maturities.

COMMODITIES

Another day of gains in the energy complex with WTI and Brent futures trading in proximity to USD 64.50/bbl and USD 71.00/bbl respectively; although the complex is trading towards the bottom of the days range. Developments in Libya remain a key factor in the upside seen recently with analysts at TD noting that “military tensions in Tripoli, Iranian sanctions and difficulties in Venezuela may cause deficits as OPEC+ is reducing supply and US shale activity is flattening — USD 68/bbl WTI in the cards”. That said, analysts at Goldman Sachs, due to lower projected inventories, expect further backwardation and modest upside in oil prices whilst forecasting the WTI/Brent spread to tighten to USD 4.50/bbl from Q4 2019 onwards. GS also raised its Q2 2019 Brent forecast to USD 72.50/bbl (Prev. USD 65.00/bbl) and maintained its USD 60.00/bbl 2020 forecast. Meanwhile, Russian Energy Minister Novak stated that there is no need to extend the OPEC+ output deal if the market is forecast to be balanced by H2, which his Saudi counterpart previously said was only 70-80mln barrel away. Elsewhere, metals are benefitting from the recent pullback in the Buck, with gold also profiting from recent flows into the yellow metal ahead of tomorrow’s risk-filled day. Copper gained amid continued strength in Chinese commodity prices in which Dalian iron ore futures gained for a 7th consecutive session amid tightening supply. Finally, Platinum caught a bid as markets speculate the impact of labour strikes in South Africa, which saw the metal break through key resistance levels whilst also triggering CTA short covering, according to TD.

Russian Energy Minister Novak says there is no need to extend oil production deal if the market is forecast to be balanced in H2, adds that a decision on oil deal will be made in June. (Newswires)

Goldman Sachs expects further backwardation and modest upside in the energy complex due to lower projected inventories. Q2 2019 forecast raised to USD 72.50/bbl (Prev. USD 65.00/bbl) and maintains its USD 60.00/bbl 2020 forecast. (Newswires)

Equatorial Guinea crude oil output currently stands at 120k BPD, according to the country's oil minister. (Newswires)

Shell (RDSA LN) report that the strike at their Pernis refinery has had a ‘significant’ impact, the refinery has a capacity of around 400k BPD. (Newswires)

Indian refiners are holding back from purchasing Iranian oil loading in May as they await further clarity on potential further oil waivers. (Newswires)

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