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[PODCAST] US Open Rundown 16th April 2019

  • European indices have grinded higher [Euro Stoxx 50 +0.4%], continuing from the upbeat sentiment seen at the end of the Asia-Pac session; ahead of further US earnings with more Dow components to report
  • ECB sources highlight that policymakers have doubts around H2 growth rebound projections; weighing on EUR/USD and lifting Bund futures to session highs
  • Looking ahead, highlights include US Industrial Production, APIs, Fed Discount Minutes, ECB’s Lane, Fed’s Kaplan
  • Earnings: IBM, Johnson & Johnson, Netflix, CSX, Bank of America

 

ASIA-PAC

Asian equity markets were mostly higher after the region eventually shrugged off the lacklustre lead from the US where mixed earnings from the large banks dampened risk appetite. ASX 200 (+0.4%) and Nikkei 225 (+0.2%) were initially cautious although sentiment gradually improved with Australia supported amid dovish views on the RBA and with Rio Tinto shares unfazed by weaker production numbers, while the Japanese benchmark just about remained afloat as several telecom names outperformed following reports NTT DoCoMo is to reduce mobile phone rates by as much as 40%. Hang Seng (+1.0%) and Shanghai Comp. (+2.4%) opened lower amid the early cautious tone across the region and tentativeness ahead of key Chinese data including GDP, Industrial Production and Retail Sales which are all due out tomorrow, although Chinese markets steadily improved to outperform their peers in the aftermath of the PBoC’s first liquidity injection in almost a month. Finally, 10yr JGBs were flat amid the indecisiveness in the region and uneventful price action in T-notes, while mixed results at the 20yr auction also failed to spur demand.

PBoC injected CNY 40bln via 7-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.7097 (Prev. 6.7112)

Chinese House Prices (Mar) Y/Y 10.6% (Prev. 10.4%). (Newswires)

GEOPOLITICAL

US President Trump took a reasonable point of view on the Russian S-400 missile issue, according to the Turkish Finance Minister. (Newswires)

US

Fed's Rosengren (voter, hawk) said the Fed is waiting to see evidence inflation will reach 2% target and commented that the combination of low inflation and low interest rates means Fed has little room to respond during a downturn. Rosengren also commented we are likely to reach 0% interest rates in a ‘garden-variety’ recession and that the Fed should not use negative interest rates as policy tool in the next downturn. (Newswires)

UK/EU

Cross-party talks between the UK government and Labour to solve the Brexit deadlock will continue throughout the Easter recess. (Independent)

UK lawmakers will get a new vote on a customs union in a few weeks in order to try to break the Brexit deadlock, according to the Evening Standard. (Twitter)

- Follows warnings that PM May’s Conservatives are moving into a ‘wipe-out’ in the European elections

UK Employment Change (Feb) 179k vs. Exp. 180k (Prev. 222k)

- UK ILO Unemployment Rate May 3.9% vs. Exp. 3.9% (Prev. 3.9%)

- UK Average Earnings (Ex-Bonus) May 3.4% vs. Exp. 3.4% (Prev. 3.4%, Rev. 3.5%)

ECB sources state that several policymakers have doubts about projections for the growth rebound in H2, and some even question the accuracy of forecasting models. (Newswires)

- A "significant minority" expressed their doubts that the growth rebound is coming.

ECB's officials are reportedly lacking enthusiasm for sub-zero tiering, whilst there has been no talks to cut the deposit rate, according to sources. (Newswires)

Bank of Italy's Director General says that the Italian economy may have returned to expansion in Q1, but indicators remain weak. (Newswires)

German ZEW Economic Sentiment Aug 3.1 vs. Exp. 0.8 (Prev. -3.6)

- German ZEW Current Conditions Aug 5.5 vs. Exp. 8.0 (Prev. 11.1)

- EU ZEW Survey Expectations (Apr) 4.5 (Prev. -2.5)

- EU Construction Output MM (Feb) 2.96% (Prev. -1.38%)

EQUITIES

European equities crept higher during early trade (Eurostoxx 50 +0.4%) following an upbeat tail-end to Asia-Pac session wherein the Shanghai Comp advanced in excess of 2% ahead of tomorrow’s China GDP release. Germany’s DAX (+0.7%) marginally outperforms its peers whilst broad-based gains are seen across other major bourses. Sectors are relatively mixed with outperformance seen in financials whilst energy names lag amid the price action in the complex. Notable movers include Lufthansa (-0.9%), after recouping from a 5.5% drop at the open amid a downgraded in EBIT guidance. Meanwhile Hays (-3.2%) shares tumbled to the foot of the Stoxx 600 amid disappointing earnings. Finally, UniCredit (+2.7%) shares felt some reprieve after the bank agreeing to pay USD 1.3bln to resolve investigations by US authorities regarding allegations that the bank violated multiple US sanction programmes. Looking ahead, markets will be looking out for earnings from UnitedHealth (at 10:55BST), Johnson & Johnson (11:45BST) and IBM (after-market), three DJIA components with the former accounting for 5.9% of the bellwether index. On a broader note, Morgan Stanley strategists believe that US stocks “sell off more than the rest of the world during a broad market sell-off”. This was measured by the S&P 500’s downside beta to the MSCI AC World Index (which the bank highlights is a measure of the US index’s performance when global shares decline), which is at a pre-financial crisis highs.

UnitedHealth Group Inc (UNH) Q1 EPS USD 3.73 vs. Exp. USD 3.59, revenue USD 60.3bln vs. Exp. USD 59.71bln.

- Lifted 2019 earnings outlook to adj. net earnings of USD 14.50-14.75/share vs. exp. USD 14.62/share

BlackRock Inc (BLK) Q1 EPS USD 6.61 vs. Exp. USD 6.13, revenue USD 3.346bln vs. Exp. USD 3.34bln

FX

AUD/NZD - Once again it seems that the official RBA policy statement failed to reveal all, as alongside the neutral stance and guidance maintaining no need to change rates in the near term there was a relatively detailed discussion about easing, to the extent that criteria was laid out. Hence, Aud/Usd has retreated to retest sub-0.7150 levels and the Aud/Nzd cross is back under 1.0600 even though the Kiwi also took heed of RBNZ Governor Orr reaffirming an easy bias overnight, with Nzd/Usd pivoting 0.6750 and now looking to the latest GDT auction and NZ CPI for more direction.

CAD/EUR/CHF - All weaker vs the Greenback as well, with the Loonie still suffering in wake of Monday’s somewhat cautious if not downbeat BoC business survey and extending losses to circa 1.3400 at one stage, while the single currency has lost grip of the 1.1300 handle after topping out around a Fib at 1.1316 yet again. The latest German/EZ ZEW survey was mixed, and the accompanying comments not exactly confident about economic developments, but the final straw for Eur/Usd came via sourced ECB comments suggesting that several members are concerned about forecasts for a growth rebound in H2 and the accuracy of the models used to formulate estimates. The headline pair is now just above another Fib (1.1284), while the Franc has also lost more ground vs the Buck towards 1.0060, but is pivoting 1.1350 vs the Euro.

GBP/JPY - Cable largely shrugged off broadly in line UK jobs and earnings data, but the Pound has drifted away from hefty option expiries at 1.3100 (1.6 bn) amidst a broader Dollar upturn as the DXY reclaims the 97.000 handle, albeit just and to the detriment of the aforementioned weakness elsewhere. Indeed, Usd/Jpy has slipped through 112.00 following another fade ahead of the 2019 peak and amidst export offers layered above the big figure.

EM - Only minor respite for the Lira via better than expected Turkish IP data as Usd/Try remains around 5.8000 and still eyeing recent highs on a mixture of negative domestic factors - political, fiscal and fundamental.

RBA Minutes from April 2nd meeting stated the board saw no strong case for near term move in rates but added that a rate cut would be appropriate if inflation stayed low and unemployment trended up, while the likelihood of a near-term rate hike was low given subdued inflation. The board also agreed inflation likely to stay muted for some time and expects further gradual progress on unemployment and inflation. (Newswires)

Capital Economics sees RBA cutting the cash rate in half to 0.75% by early next year amid slowing growth. (Newswires)

FIXED INCOME

German 10yr debt futures saw some volatility upon the release of the ZEW survey, wherein the forward looking metric beat expectations, but current conditions were uninspiring. The accompanying commentary also failed to encourage, simply stating that things weren’t as bad as originally expected. The headline-maker, however, was ECB sources stating a “significant minority” of policy makers doubt the growth bounce-back. This lifted the benchmark to a marginal fresh session high of 164.94, with 164.97 cited as the next technical level to look out for on the upside. Gilts also saw similar price action, with the UK benchmark piggybacking on the ECB growth concerns, which saw 10yr brush its Liffe high of 126.99, with little further momentum coming via a decent 2037 auction.

Stateside, most of the action is being seen in the longer end of the curve, with 10yr futures down 2 ticks on the day and relatively reticent to the ECB source reports. Traders will now be looking ahead to risk events in the form of Fed’s Kaplan, alongside US IP data which is forecast to show an increase of 0.2% vs. prev. 0.1%.

COMMODITIES

WTI and Brent are choppy amid a lack of catalysts ahead of tonight’s API inventory release. Markets expect US crude stocks to build by around 2mln barrels whilst gasoline and distillates are forecast to draw by 2.55mln and 1mln barrels respectively. Elsewhere, metals are mostly lower as the dollar recoups some recent losses. In terms of precious metals, gold losses more ground below the 1300/oz level ahead of support at 1281/oz. Meanwhile, base metals trade marginally in the red ahead of tomorrow’s China GDP release. On that note, Rio Tinto stated that Q1 Pilbara iron ore shipments were at 69.1mln tons (Prev. 80.3mln tons Y/Y), whilst iron ore production 76.0mln tons (Prev. 83.1mln tons Y/Y), and copper output 143.9k tons (Prev. 139.3k tons Y/Y).

Zambia's Lumwana mining company expects copper output at 107k T in 2019 vs. prev. 101K T, as according to the sustainability manager. (Newswires)

Iraqi Southern Port oil exports are at 3.25mln BPD in April (vs. prev. 3.254mln BPD) as according to sources. (Newswires)

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