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[PODCAST] US Open Rundown 10th April 2019

  • European indices have been grinding higher [Euro Stoxx 50 +0.5%], diverging from the downbeat performance seen overnight
  • Relatively quiet on the Brexit front ahead of today’s emergency summit [11:00CDT/17:00BST], recent reports highlight that MP’s are considering motions for PM May’s resignation
  • In FX markets, the AUZ & NOK outperform on inflation data and less dovish RBA comments, as the DXY pivots the 97.0 level ahead of today’s risk events
  • Looking ahead, highlights include  US CPI, ECB Rate Decision, FOMC Minutes, Special EU Council meeting on Brexit, OPEC Monthly Report, ECB's Draghi; BoE's Ramsden & Fed's Quarles

 

ASIA-PAC

Asian equity markets were mostly negative amid spill-over selling from Wall St where all majors finished lower and the S&P 500 snapped an 8-day win streak as sentiment was pressured by EU-US trade tensions and downward revisions to IMF's global growth forecasts. ASX 200 (U/C) was initially subdued with the energy sector pressured by a pullback in oil prices and with heavy losses seen in Crown Resorts after Wynn Resorts abruptly ended takeover talks, although the index has since pared its losses amid strength in gold miners, tech and the largest weighted financials sector. Nikkei 225 (-0.5%) suffered from the recent flows into JPY and disappointing Machine Orders, while Hang Seng (-0.1%) and Shanghai Comp. (U/C) conformed to the global downbeat risk tone amid further PBoC inaction and as participants awaited upcoming central bank activity and any fresh developments in the US-China trade saga. Finally, 10yr JGBs were marginally higher as they tracked gains in T-notes amid the risk averse tone across the region, while the BoJ were also present in the market with today’s Rinban operation heavily focused on the belly.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.7110 (Prev. 6.7142)

US

Fed's Clarida (Voter, Neutral) said the jobless rate may have room to decline without inflation and that it makes sense for the Fed to remain open minded amid a constantly evolving economy. (Newswires)

UK/EU

UK Chancellor Hammond suggested MPs could revoke Article 50 to prevent a no-deal sinking value of GBP. (Guardian/Telegraph)

UK Brexit Minister Barclay stated that he does not want a delay to Brexit of up to a year, adding that they key to a delay would be being able to terminate the extension early. (Newswires)

Grassroot Tory party groups are said to consider motions calling for replacement of UK PM May with MPs said to want a new leader by late July. (Telegraph) Subsequently, ITV's Paul Brand tweets "1922 Committee’s executive meeting today. Understand they will discuss UK’s exit and also PM’s. They are floating timetable of resignation 22nd May-ish, with hustings and leadership contest over summer.". (Twitter)

UK GDP Estimate MM (Feb) 0.2% vs. Exp. 0.0% (Prev. 0.5%)

- UK GDP Estimate YY (Feb) 2.0% vs. Exp. 1.7% (Prev. 1.4%)

- UK GDP Est 3M/3M (Feb) 0.3% vs. Exp. 0.2% (Prev. 0.2%)

Norwegian Consumer Price Index YY Mar 2.9% vs. Exp. 2.8% (Prev. 3.0%)

GEOPOLITICS

North Korea Leader Kim called current situation tense and urged officials to pursue party strategy of economic development with a sense of self-reliance, during the country’s politburo meeting. (KCNA) Saudi-led coalition conducted strikes on Houthi target in Yemen's capital. (Newswires)

Exit polls and initial results show that Benjamin Netanyahu is on course to take victory in the Israeli elections and build his fifth coalition government. (Newswires)

Turkish Finance Minister Albayrak says that they will only announce 2019 measures in their economic plan today; adds now is the time for reforms; Plan to give government debt security worth TRY 28bln to public banks.

EQUITIES

Major European indices have been drifting higher [Eurostoxx 50 +0.5%] since the open following on from a downbeat Asia-Pac session where equity markets conformed to the negativity seen on Wall Street.  European bourses are mostly higher by around 0.2-0.3% whilst the FTSE 100 (Unch) remains the laggard ahead of the crucial Brexit summit set to take place later today. Broad-based gains are seen across most sectors, although some underperformance is experienced in healthcare names.  JP Morgan (from today’s note) believe that the consumer sector is currently the most oversold sector in Europe whilst autos “may be seeing tentative signs of recovery”. Furthermore, analysts at JPM think that the banking sector continues to look cheap and “continued underperformance means valuations remain extreme historically, notably on dividend yields where the sector now offers a 2% yield pick-up versus the market”. In terms of notable movers, UK’s Indivior (-72%) wiped out around three-quarters of its market cap (so far) after the US DoJ said the Co. has been charged with having engaged with fraudulent marketing schemes designed to increased opioid-based drug prescriptions. Finally, Tesco (+0.6%) shares rose after the supermarket raised its dividend, despite reporting below-forecast sales figures.

FX

NOK/AUD - The major outperformers and outliers, as Norwegian inflation slowed less than expected in March to underpin H2 Norges Bank rate hike guidance after yesterday’s disappointing GDP data raised a few doubts. Meanwhile, RBA deputy Governor Debelle was less dovish than anticipated earlier, with little sign of leaning towards an ease even though he acknowledged conflicting economic trends via strength in jobs vs weakness in consumption and production. Eur/Nok is testing technical support around 9.5900 and Aud/Usd is back up near 0.7150 after retreating to circa 0.7110 at one stage overnight. Note, however, hefty option expiry interest may hamper the Aussie given 1.5 bn sitting between 0.7145-25 and 1 bn from 0.7100 to 0.7090.

NZD/GBP - The next best of the G10 bunch, as the Kiwi continues to largely track its Antipodean peer on cross consolidation within a 1.0595-43 range and while Aud/Nzd remains capped ahead of 1.0600. Nzd/Usd is back above 0.6750 ahead of US CPI data and the FOMC minutes that together with the ECB meeting and EU Brexit Summit form the key elements of ‘super Wednesday’. On that note, the Pound is underpinned towards the top end of 1.3085-45 trading parameters vs the Greenback after above consensus UK data in the form of GDP, ip, manufacturing and construction output, but will be prone to what evolves from the aforementioned EU gathering and especially the decision whether to grant Britain more breathing space, how much longer and on what terms etc.

EUR - Also firmer vs the Dollar as the DXY continues to pivot 97.000, but like the index extremely rangebound just shy of Tuesday’s high and above 1.1250. Eur/Usd is still facing pre-1.1300 big figure resistance as 21 and 31 DMAs lie at 1.1280 and 1.1284 respectively, while expiries are also keeping the headline pair relatively contained (1.3 bn at 1.1245-50 and 2 bn at 1.1260-75). As noted, the ECB meeting looms and a full preview is available via the headline feed and Research Suite section.

CAD/JPY/CHF - All narrowly mixed vs the Usd as the Loonie flits between 1.3320-41 and Yen trades just below 111.00 after a fractional/fleeting breach yesterday fell short of the 100 DMA (110.90). Weak Japanese machine orders and more dovish BoJ commentary courtesy of Governor Kuroda also in the mix along with decent expiry interest just under 111.00 at 110.90-75 (1.7 bn). Meanwhile, the Franc is back on the parity handle awaiting the impending major events.

EM - The Rand has appreciated further against the Buck and is now testing 13.9700 having cleared the psychological 14.0000 mark, but the Lira continues to struggle amidst the post-regional election results tussle with little support from the eagerly-awaited Turkish Economic plan. Indeed, Usd/Try is still elevated, albeit closer to the base of a 5.7200-6700 band.

RBA Deputy Governor Debelle said he sees tension between strength in jobs and weakness in output data, while he suggested how tension resolves in approaching months will be important for future path of rates. Debelle also commented that labour market and leading indicators of employment are solid, and although he noted that consumption growth in H2 last year was considerably slower than anticipated, he added that other parts of the economy evolved as expected. Furthermore, he added they can theoretically lower policy rate if needed and does not expect a need to introduce QE, while he still sees decent growth in the economy. (Newswires)

Turkish President Erdogan said Istanbul election irregularities may result to a cancellation. (Newswires)

FIXED INCOME

Notwithstanding the downturn from highs induced by data, in part if not the main, today’s main events lie ahead, but Bunds, Gilts and US Treasuries are all holding near their lows (165.41, 128.01 and 123-185 for the respective 10 year debt futures) and erring on the side of caution in the run up. To recap, the ECB policy decisions are not seen as a game-changer or potential market mover, but the post-meeting press conference could prompt further price action and US CPI will feed into the next Fed convene and conference on inflation targeting even if the FOMC minutes are considered somewhat stale. However, the EU emergency summit on Brexit may be the headline-grabber if no further extension is approved as widely anticipated.

COMMODITIES

WTI (+0.7%) and Brent (+0.6%) prices continue climbing despite the wider-than-forecast build in API crude inventories last night (+4.09mln vs. Exp. +2.3mln) where prices saw marginal short-lived downside in the immediate aftermath. Supply woes continue to provide a short-term bullish outlook for the complex with sources stating that Libyan air force undertook airstrikes on military targets for Haftar in the City of Gharyan, in close proximity of the pipeline connecting the El-Feel (340k bpd) oil field to the Zawiya port. Elsewhere, the UAE Energy Minister emerged on the wires, stating that there is a high probability of achieving market balance by the end of this year. It is worth keeping in mind that Russian Energy Minister Novak previously stated that Russia will not extend cuts if the market is expected to be balance in H2 2019. Finally, energy traders will be keeping an eye on the OPEC monthly report which is due to be release at 12:10 BST ahead of the weekly DoE inventory and production data at 15:30 BST.

Gold (+0.1%) is essentially flat and trading within a narrow range just above the key USD 1300/oz level, as the yellow metal continues to trade cautiously ahead of today’s ECB decision, FOMC minutes & emergency Brexit summit, whilst copper similarly trades with no firm direction ahead of these key risk events. Separately, sources report that Venezuela removed eight tonnes of gold from its central bank’s vaults, expectations are that Venezuela are to sell the metal in order to generate funds in response to US sanctions.

US President Trump plans to issue 2 executive orders on Wednesday which aims to ease domestic natural gas transport and avoid lengthy disputes related to cross-border energy projects as seen in the Keystone XL pipeline. (Axios)

Libya's El Sharara oilfield is currently production 290k BPD (normal production 300-315k BPD), according to a field engineer. (Newswires)

Libya air force has undertaken airstrikes on military targets for Haftar in the City of Gharyan, according to sources. For reference, there is a pipeline in close proximity to the city. (Newswires)

Shell (RDSA LN) - unions at the Pernis refinery may expand their strike action from Saturday. For reference, this refinery has a capacity of around 400k BPD. (Newswires)

UAE Energy Minister Al Mazroui states that if necessary the UAE can increase production to 3.5mln BPD

- adds that there is a high probability of achieving market balance by the end of 2019

- He does not see any reason for Russia to not continue with the OPEC+ deal; and Russia will not raise production unless it is in coordination with the other OPEC countries

- States that Russia's & Iraq's commitment was higher in March

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