[PODCAST] US Open Rundown 12th July 2018
- Mixed reports that US President Trump is to exit NATO after the Chinese Commerce Ministry rubbished suggestions that there had been contact with the US on trade
- Choppy trade in equities while commodities find some relief after sharp losses in Wednesday’s trade
- Looking ahead, highlights include, ECB minutes, US CPI, weekly jobs figures, supply from the US
Asian equity markets shrugged off the energy-led declines in US and traded higher across the board with short covering in the region seen after the prior day’s trade-related losses. ASX 200 (+0.9%) and Nikkei 225 (+1.2%) were positive in which the latter coat-tailed on upside in USD/JPY and with Softbank among the biggest gainers after US investment fund Tiger Global took a stake of over USD 1bln in the Co., while broad gains were also seen in Australia aside from commodity-related sectors following recent weakness in the complex including a near-5% drop in crude. Elsewhere, Hang Seng (+0.6%) and Shanghai Comp. (+2.1%) conformed to the improved risk tone after the PBoC conducted repo operations for the 1st time in over a week and amid continued positive rhetoric regarding A-shares valuations which were said to be at historic lows. Finally, 10yr JGBs were flat with price action uneventful throughout the session amid focus on riskier assets and with the 20yr auction results largely ignored, despite showing firmer demand and higher accepted prices than previous.
PBoC injected CNY 30bln via 7-day reverse repos for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.6726 (Prev. 6.6234)
White House aide stated that US has conducted several high-level talks with China and are open to further discussions. However, there were later conflicting reports that talks between US-China have collapsed following the fresh tariff list and that there were no immediate plans to restart discussions. Thereafter, in early European trade the Chinese Commerce Ministry said that so far they have had no contact with the US about restarting negotiations (Newswires/Twitter)
Bank of Korea kept the 7-Day Repo Rate unchanged at 1.50% as expected, with the decision not unanimous as board member Lee Il-Houng dissented. BoK Governor Lee commented that GDP growth forecast for 2018 was lowered to 2.9% from 3.0% and stated that recent depreciation in KRW against USD was rapid. (Newswires)
UK PM May is said to propose a looser relationship with the EU regarding financial services which would reduce access to the European market for UK-based financial firms post-Brexit. (FT) Hardline Tory Brexiters are looking to try to force UK PM May to publish a rival draft of the white paper drawn up by David Davis in the run-up to last week’s Chequers summit, which Downing Street ditched. (Guardian)
UK RICS Housing Survey (Jun) 2 vs. Exp. -4 (Prev. -3). (Newswires)
US President Trump was reportedly threatening to withdraw from NATO, as according to sources, but this was denied later in trade, with the same source saying that Trump had criticized the alliance today in an unscheduled session. In a press conference US President Trump said he is in talks with the EU and will meet them next week on trade, adding their commitment to NATO is very strong (Newswires)
Riksbank minutes: Measures of underlying inflation indicate that inflationary pressures are still moderate, which, according to several members, raises questions about the development of inflation in the long-run. (Newswires)
Fed's Williams (Voter, Hawkish) said despite strength in equities and house prices, he is not seeing risk taking in financial system of last decade and stated that employers struggling to fill job vacancies which signals a strong economy. (Newswires)
European equities are currently mixed, with the Euro Stoxx 50 essentially flat on the day and consolidating following the losses seen in yesterday’s trade. Equities were slightly choppy amid source reports suggesting that US President Trump was criticising NATO and had threatened to drop out, reports thereafter suggested that pulling out is not on the cards.
The IBEX (-0.2%) and FTSE MIB (-0.3%) are in the red, weighed on by bank stocks with exposure to Turkish assets (BBVA -0.7%) alongside broad-based financial underperformance (UniCredit -1.0%, Banca Generali -1.1%, CaixaBank -1.1%) and possible strike action at Fiat’s (-1.0%) Melfi plant over Cristiano Ronaldo’s transfer cost. Telecom Italia (-1.3%) is also underperforming after a price target cut at Barclays, and is weighing on the telecoms sector, which is currently negative for the day.
The FTSE is outperforming on the back of betting names such as Paddy Power Betfair (+2.7%) benefitting from England’s exit from the World Cup.
Updates on Sky (+1.8%) where Comcast have tabled a GBP 26bln offer to buy the co., moving swiftly to trump Fox’s GBP 24.5bln offer earlier in the week.
It remains rather begrudging or at least lacking in conviction, but Bunds and Gilts did stretch the upper end of their intraday ranges to 162.68 and 123.09 (+15 and +16 ticks) before topping out again. No real rationale, though this did coincide with a downturn in BTPs and other peripheral bonds, which looks supply-related in part at least. Conversely, US Treasuries remain depressed and close to overnight session lows ahead of a slew of data, highlighted by CPI that may be skewed to the upside vs consensus in wake of Wednesday’s above forecast PPI. Weekly claims also due after last Friday’s mixed NFP report and the last leg of this week’s auctions in the shape of $14 bn 30 year debt. Note also, some Fed speak via Kashkari and Harker.
JPY/AUD - Flanking the G10 list of worst and best performers on less investor angst over a full blown US-China trade war even though the latter (via a Commerce Ministry official) has scotched speculation that the 2 sides have been talking already. Short covering also a factor behind the broad bounce in risk assets and resultant reduced demand for safe-havens like the Jpy that finally yielded to pressure below 111.00 vs the Usd, as the pair broke higher and into a fresh range overnight. Stops are said to have been tripped through 111.50 and major trend-line resistance around 111.57 that had been capping the upside, with more triggered when 112.00 was breached on the way to a circa 112.40 peak. Conversely, the Aud has been able to stem further losses and rebound ahead of 0.7350 vs its US counterpart, although the 0.7400 handle remains elusive.
CHF - Mildly softer vs the Usd as the Franc slips through 0.9950, but still not really behaving like a true port in a currency storm given strict SNB intervention to prevent the highly valued Chf getting too strong.
NZD/GBP/EUR/CAD - All around 0.1-0.15% up on the Greenback, but rangebound with the Kiwi hovering between 0.6750-75, Cable pivoting 1.3200 and awaiting the Brexit White Paper, Eur/Usd trading just below 1.1700 ahead of the ECB minutes and Loonie straddling 1.3200 having lost all and more of its BoC-inspired strength following the tank in oil prices yesterday.
SEK/TRY - Sub-forecast Swedish inflation data and Riksbank minutes highlighting dovish dissenting views have undermined the Krona as the Eur cross climbs to 10.3300 from just over 10.2700 at one stage, but the Lira has regained some composure after slumping to a fresh all time low vs the Usd on Wednesday circa 5.0000 amidst comments from Turkey’s new Treasury and Finance Minister ‘assuring’ CBRT independence and reaffirming pledges to pursue policies that will be fiscally prudent, with single digit inflation and structural reform among the other main priorities. Usd/Try back down around 4.8000.
Oil is recovering this morning after the significant losses seen in yesterday’s trade that was spurred on by trade concerns and increased Libyan production. WTI is up 0.8% and Brent up 1.8% but still well below the levels seen prior to yesterday’s trade, with WTI finding some support at its 100DMA, currently at USD 69.40. IEA maintain their forecast for 2018 global oil demand growth of 1.4mln BPD, say OPEC crude production in June reached a 4-month high of 31.87mln BPD, up 180k BPD (excl. Congo)
Gold prices are edging up on the back of trade war concerns, with the yellow metal currently at the USD 1,245/oz level. Copper (+0.8%) and nickel (+3.8%) are also seeing some reprieve and have edged up, with copper moving away from year-long lows. Steel has advanced to near 10-month highs as the Chinese Government intensifies efforts to cut pollution is raising supply concerns.