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[PODCAST] US Open Rundown 23rd April 2019

  • European indices are slightly subdued [Euro Stoxx 50 -0.2%] as markets trade largely in-line with indecisive overnight trade
  • UK MP’s return from recess with Labour-Tory talks resuming, recent newsflow surrounds potential no-confidence votes in PM May
  • Looking ahead, highlights include US New Home Sales, EZ Consumer Confidence (Flash), Supply from the US
  • Earnings: Verizon, P&G, eBay, State Street, Twitter, United Technologies, Lockheed Martin, Nextera

 

ASIA-PAC

Asian equity markets traded mixed as sentiment somewhat deteriorated from the mostly positive close in the US, where the energy sector surged after the US decided to end Iranian oil sanction waivers but with gains in the broader market capped ahead of this week’s heavy slate of earnings. ASX 200 (+0.9%) was led higher by the energy sector after crude prices rallied around 3% to 6-month highs and NZX 50 (+0.5%)topped the 10K level for the first time ever, while Nikkei 225 (+0.2%) barely held on to early gains and stumbled from the weight of a firmer currency. Hang Seng (U/C) and Shanghai Comp. (-0.5%) were subdued after PBoC inaction resulted to a net liquidity drain of CNY 40bln which pushed the Overnight SHIBOR higher by over 27bps and with Hong Kong tentative amid resistance ahead of the 30K level and as its reflected on the recent mainland underperformance on return from its 4-day closure. Finally, 10yr JGBs were relatively flat after having recovered from earlier weakness as risk sentiment in Tokyo soured, while weaker results at today’s 2yr JGB auction also ensured price action was drab.

PBoC skipped open market operations for a daily net drain of CNY 40bln. (Newswires) PBoC set CNY mid-point at 6.7082 (Prev. 6.7035) UBS raised China 2019 GDP growth forecast to 6.4% from 6.1%. (Newswires) 

US

US President Trump will conduct a state visit to the UK in June and will visit Buckingham Palace. (Sky News)

UK/EU

UK Conservative Party activists are to hold an emergency summit for a vote of no-confidence in UK PM May after over 70 heads of local Conservative associations signed a petition calling for an extraordinary general meeting with PM May's position at the top of the agenda. Furthermore, reports added that the vote would be a non-binding vote but could pressure the 1922 Committee to take action to oust PM May.(Newswires/FT) A member of the 1922 committee stated that their leader Brady is set to meet the PM May this week to set a date for her departure with May 22nd or June 30th suggested, according to ITV's Brand. (Twitter)

1922 Committee Officer Evans says his recommendation is that we should say to UK PM May that she should go as quickly as possible, and if she refuses then the rules should be changed., talkRadio's Kempsell. (Twitter)

Brexit discussions between government ministers and Labour are due to resume today amid limited expectations of a breakthrough. (Guardian)

ECB's Coeure said negative rates are not the biggest problem for the banking sector and that banks should instead pay attention to costs, while he currently doesn’t see any monetary policy reason for tiered interest rates. (Newswires)

Italian Deputy PM Salvini states that the government is not at risk and the contested growth boosting decree will be passed today without issue; follows previous reports that Italy could postpone growth pack approval to next Monday amind renewed tension in the ruling coalition. (Newswires)

EQUITIES

Major European Indices are slightly subdued [Euro Stoxx 50 -0.2%], after being essentially unchanged for much of the session, with stocks largely following on from the indecisive sentiment seen overnight in Asia as participants return from the Easter weekend. Sectors are similarly mixed, although the significant outperformance in energy names continues following on from the lifting of Iranian waivers; as such Shell (+2.0%) are firmly in the green with the Co. also aided by the agreement to sell their 50% stake in SAREF to Saudi Aramco for USD 631mln. Due to the strong performance in Shell, alongside the Co. representing 11.3% of the FTSE 100 due to it having two listings in the form of A and B shares, the FTSE 100 (+0.4%) is outperforming its peers. Other notable movers this morning include Umicore (-15.4%) who are underperforming the Stoxx 600 following the Co. warning that 2020 revenue and earnings growth will be below expectations. Separately, Wirecard (-2.9%) are down after the expiration of BaFin’s short selling ban on Friday April 19th. Elsewhere, Thomas Cook (+16.3%) are soaring after reports that the Co. has received approaches for sections/entirety of the Co., with names such as Forsum International, KKR and EQT citied as potential bidders.

FX

DXY - The index remains firm and comfortably above the 97.000 handle within a 97.281-402 range amidst Greenback gains vs most major counterparts and EM rivals as the latest rally in oil prices continues to undermine crude importers and risk sentiment more broadly to the detriment of high beta currencies. However, the DXY still needs to overcome early April highs at 95.517 to expose ytd peaks posted in the previous month and virtually matching late 2018 levels just above 97.700.

CHF/AUD/NZD/NOK/SEK - The G10 laggards and largest losers against the buoyant Buck, as the Franc extends its decline further towards 1.0200 and through 1.1450 vs a relatively resilient Euro, while the Aussie and Kiwi hover closer to the bottom of 0.7140-10 and 0.6685-57 ranges vs their US peer on more dovish RBA and RBNZ policy leanings compared to the Fed. On that note, the Aud will be eyeing Q1 inflation data overnight amidst the consensus for a slowdown in q/q and y/y CPI rates with caution given latest RBA minutes revealing discussions about the conditions that may warrant a lower OCR including weaker price developments along with any deterioration in the labour market. Elsewhere, even the Nok is underperforming alongside the Sek as the Scandi Crowns fall victim to overall aversion rather than gleaning more support from the aforementioned advance in oil, as the former retreats to circa 9.5900 and latter to around 10.5000 vs the Eur.

GBP/JPY/EUR/CAD - All narrowly mixed vs the Usd, as Cable recovers from pre-Easter lows to retest the 1.3000 level after holding above the 200 DMA (1.2966) and shrugging off heightened pressure on UK PM May as Parliament returns from its recess. Meanwhile, Usd/Jpy remains capped just ahead of 112.00 within a 111.97-66 range and decent option expiry interest between 111.50-65 and 111.90-112.00 (1.1 bn either side). Note also, reported Japanese import and investor bids above 111.50 and the 200 DMA (111.51) may be curtailing a more concerted pull-back. Expiries could be impacting Eur/Usd as well given 2.3 bn rolling off from 1.1250 to 1.1260, while the Loonie is pivoting 1.3350 in the run up to Wednesday’s BoC policy meeting and press conference from Poloz and Wilkins – full preview of the event available on the Research Suite (along with a BoJ primer for Thursday).

EM - Most regional currencies are on the back foot vs the Dollar, as noted above, but the Rand is also factoring in renewed concerns about SA’s Eskom in wake of reports that the Government had to bail out the company to the tune of Zar 5bn to avert non-payment and a call on state guarantees – Usd/Zar currently at 14.1900+ vs sub-14.1500 at one stage.

FIXED INCOME

Bunds are still trying to stem losses after another downturn and brief breach of bearish technical levels between 164.80-78 to a fresh 164.71 Eurex low with the aid of further underperformance in Italian bonds and a near full point reversal from 130.11 in wake of official debt/GDP figures for 2018 showing an even bigger shortfall. However, core debt remains weak overall amidst the ongoing ramp up in oil prices and post-Easter correction to bear-steepening price action in US Treasuries that has only partially and marginally reversed. Ahead more US housing data and the Richmond Fed survey before the start of this week’s T-note supply and API stocks that could be pivotal in terms of the next move in crude.

COMMODITIES

Brent (+0.6%) and WTI (+0.8%) prices are in the green, as the oil complex extends on yesterdays gains following the US announcing that they are not going to extend waivers for Iranian oil, which expire on May 2nd. For reference, Iranian exports averaged 1.3mln BPD in March as such if the US are successful in their goal of reducing Iran’s exports to zero then this would result in a significant supply reduction; although, some analysts believe that the complete elimination of exports is unlikely. RBC state that they believe around 700-800K BPD to be removed from the market in the short term as a result of the waiver elimination. Saudi Energy Minister Al Falih stated that Saudi Arabia will cooperate with other oil suppliers in order to ensure that there is sufficient supply and that the market will not go out of balance. In light of the US’ announcement to not extend waivers Barclays sees upside risks of at a minimum USD 5/bbl for the USD 70/bbl Brent 2019 forecast if their exports drop to zero; however, Goldman Sachs state that the price impact will be limited and reiterates their 2019 Brent range of USD 70-75/bbl. Looking ahead, we have the API weekly crude release where the expectations are for crude stocks to build by around 0.5mln barrels.

Gold (-0.1%) is largely unchanged and trading within a narrow USD 4/oz range, largely in line with major stock indices and the generally indecisive risk tone as markets return from the extended Easter weekend. Elsewhere, the majority of steel mills in China’s Tangshan, Hebei province have been asked to cut around 40% of their sintering capacity due to the expected increase in pollution levels over the coming week.

China's Foreign Ministry says they have lodged representations with the US regarding their plan to end Iranian oil waivers. (Newswires)

Barclays sees upside risks of a minimum USD 5/bbl to its 2019 Brent Crude forecast of USD 70/bbl if Iran oil exports drop to zero. (Newswires)

Goldman Sachs sees tightening of Iran oil sanctions to have a limited impact on prices this time and although it acknowledged near-term upside risks to prices, it reiterated fundamentally derived Brent price range of USD 70-75/bbl for the year. (Newswires)

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