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[PODCAST] US Open Rundown 21st May 2019

  • European indices [Euro Stoxx 50 +0.6%] extend advances ahead of the US’s entrance to market
  • In FX, the dollar broadly outperforms its G10 counterparts particularly antipodeans following RBA Governor Lowe stating they will consider a rate cut at June’s meeting
  • Looking ahead, highlights include US Existing Home Sales, EZ Consumer Confidence (Flash), US & Japan Trade Talks, Fed’s Evans & Rosengren

 

ASIA-PAC

Asian stocks eventually traded mostly higher after the US provided temporary relief for Huawei, which helped the region shrug-off the negative lead from Wall St where the tech sector suffered the brunt of the ongoing trade uncertainty. ASX 200 (+0.4%) was initially weighed on by underperformance in the tech sector but then recovered on expectations for a rate cut next month and with strength in financials after APRA proposed amending guidance on mortgage lending which could raise the maximum borrowing capacity for individuals, while Nikkei 225 (-0.2%) was subdued and failed to benefit from a weaker currency. Hang Seng (-0.4%) andShanghai Comp. (+1.3%) were higher with sentiment underpinned following a CNY 80bln liquidity injection by the PBoC and after the US provided some temporary relief for Huawei and other entities in order to maintain their existing networks. However, Huawei’s founder seemed less than impressed as he stated the US reprieve does not mean much for Huawei and that no one will be able to catch up with it on 5G technology for the next 2-3 years. Finally, 10yr JGBs were flat despite the lacklustre tone in Japan and after the BoJ’s Rinban announce for over JPY 1.2tln of JGBs also failed to spur prices.

US Commerce Department provided Huawei with some reprieve as it announced a 90-day temporary general licence for the Co. and 68 other entities until 19th August in order to maintain existing networks. (Newswires)

PBoC say they lowered their reserve requirement ratio for rural commercial banks at the county levels on May 15th as part of planned reductions; on June 17th by 100bps and will lower RR for county level rural commercial banks on July 15th to 8%. (Newswires)

PBoC injected CNY 80bln via 7-day reverse repos. (Newswires) PBoC set CNY mid-point at 6.8990 (Prev. 6.8988)

UK/EU

UK PM May is to ask her Cabinet today to agree on concessions to Labour, in order to keep her Brexit deal alive; senior Tory sources believe that Labour Leader Corbyn could be persuaded to support the Withdrawal Agreement Bill or abstain at the second reading. (Times)

UK Chancellor Hammond is to warn that the next Conservative PM will not have a mandate to take Britain out of the EU with a no-deal, in a speech which is seen as being largely aimed at Boris Johnson. (Times)

UK Cabinet meeting today is not another rubber stamping cabinet, PM has signed off key allies and this is her plan. BBC's Kuenssberg. (Twitter)

- There may be tension over how far the government is willing to stretch regarding a customs union in order to win Labour MP support

- Told there will be something which provides MP's with another opportunity to express their view on having another referendum, hopes this will unlock some Labour votes; How, and when there could be a vote for another referendum is going to matter a lot

- Number 10 believes that elements of the bill will appeal to both Brexiteers and the DUP, although the mood is hardening on all sides

 

Tory Source states that Labour leave MP's are to wait in the chamber on the Meaningful Vote until the last moment as they wish to see where Baker and others go, as they will not risk voting with PM May if she is to lose the vote., Sky's Rigby. (Twitter)

Austrian Freedom Party would support a vote of no confidence against Austrian Chancellor Kurz, according to APA. (APA) Subsequently, Austrian Lawmaker Pilz says he will submit a motion of no confidence against Austrian Chancellor Kurz on Monday. (Newswires)

US

 

OECD see global economic growth at 3.2% for 2019 (vs. prev. 3.3%), unchanged for 2020 at 3.4%; US 2019 growth 2.8% (vs. prev. 2.6%), EZ 2019 growth 1.2% (vs. prev. 1.0%), China's economic outlook remains a concern. (Newswires)

 

GEOPOLITICAL

US President Trump said Iran has been very hostile and that the US will conduct talks with Iran when they are ready. Furthermore, Trump stated that Iran will be making a very big mistake if it did anything which would be met with great force, but also commented there is no indication they are, while Iranian President Rouhani said he favours talks and diplomacy, although under current conditions he will not accept it. (Newswires/IRNA)

 

South Korea and the US are reportedly considering various methods of resuming the stalled denuclearisation discussions with North Korea., Yonhap. (Yonhap)

 

 

EQUITIES

Upbeat trade for European stocks so far [Eurostoxx 50 +0.7%] following on from a mostly positive Asia-Pac session wherein the two major Chinese bourses closed higher in excess of 1%. Sectors are all in the green although the defensive sectors are marginally lagging their peers. Chipmakers are bolstered by reports that the US government are to temporarily ease some trade restrictions imposed on Huawei, with STMicroelectronics (+3.7%), AMS (+4.0%) and Micro Focus (+3.1%) higher. In terms of individual stocks, Spanish listed DIA (+4.5%) opened higher in excess of 8% after Santander (+0.2%) agreed a financing deal with DIA to avoid insolvency proceedings. Meanwhile, Norsk Hydro (+5.2%) shares spiked higher after Brazil gave the company the green light for its Alunorte Alumina plant to reopen. Finally, Telecom Italia (+1.9%) shares jumped following optimistic earnings aftermarket yesterday.

 

Morgan Stanley now see their bear case for Tesla (TSLA) at USD 10 (Prev. USD 97); cites increased debt load, geopolitics and Chinese demand. (Newswires)

 

FX

AUD/NZD - The Aussie is dragging its antipodean compatriot back down under after just a fleeting pop higher in wake of PM Morrison’s unexpected re-election, and the catalyst is a combination of dovish RBA minutes and rhetoric from Governor Lowe that have ramped up June rate cut expectations to over 90% per interbank pricing and around 75% in OIS terms. Aud/Usd is teetering just above last Friday’s 2019 low (0.6862) – discounting the so called ‘flash crash’ trough at 0.6743 from early January – and eyeing support at 0.6850 ahead of the 30 DMA (0.6845) and decent option expiry interest at 0.6800 (close to 1 bn). Meanwhile, Nzd/Usd is just a few pips over 0.6500 having breached the post-RBNZ cut and previous ytd base of 0.6525, as the Aud/Nzd cross holds between 1.0557-90. Next up for the Kiwi, NZ Q1 retail sales and the latest GDT auction.

 

GBP - The Pound continues to depreciate awaiting further Brexit developments following the collapse of talks between the Conservative and Labour Parties and ahead of MV4 due early next month. On that note, today’s Cabinet meeting will provide more clues as to the level of support for and opposition to the WA after a narrower defeat at the 3rd HoC vote, with some suggestions that the tide has turned back against the proposal. Cable has now filled bids said to be sitting from 1.2710-15 and any psychological buying interest at 1.2700 to hit 1.2686 vs the mid-January trough at 1.2670 that came with the failure of MV1, while Eur/Gbp has tested resistance ahead of the 200 DMA circa 0.8790 or 1.1375 in Sterling terms.

 

EUR/CHF/JPY - Also weaker vs a broadly firm Dollar as the DXY edges back above the 98.000 level to probe recent peaks and resistance spanning the 98.030-120 area ahead of this year’s high at 98.346. The single currency has slipped through bids that held on Monday at 1.1150, but not further towards support at 1.1135 or the 1.1112 ytd low, while the Franc is back on the 1.0100 pivot and Yen has retreated from its 100 HMA (109.80) to retest support at 110.31 (Fib and recent low).

 

EM - Another day in the spotlight for the Lira as the Government and CBRT maintain efforts to curtail speculative flows and restore investor confidence in the face of more evidence that sentiment is weak on economic, fiscal, political and diplomatic grounds. Indeed, Turkish consumer morale has fallen sharply in May and Usd/Try has bottomed around 6.0000 yet again even though FX transaction settlements for non-corporate retail deals in Usd100k or above have been brought forward from spot to plus one day and the CBRT has reinstated 1 week repos and cut swap rates by 150 bp to 24%.

 

RBA Governor Lowe said the board will consider lowering rates at the June policy meeting and that they need further improvement in labour market as well as unemployment to decline below 5%. Governor Lowe also commented that recent data makes it less likely that the labour market will surprise to the upside and that forecasts for growth and jobs would have been weaker without the assumption of rate cuts, while he later added that they do have an easing bias and that APRA changes to mortgage rules would be complementary to a rate cut but do not have direct implications on rate policy. (Newswires) 

RBA Minutes from May 7th meeting stated that interest rate cut would be appropriate if no further improvement in the labour market and that it is important to pay close attention to the jobs market over the period ahead. The minutes also noted that the outlook would be less favourable without an easing in policy over the next 6-months and that Q1 inflation is noticeably lower than anticipated. (Newswires)

 

Economists at Australia's "Big Four" banks now forecast an RBA rate cut in June and a second rate cut before the end of 2019. (Newswires)

Turkish Banking Watchdog notes that the delay in FX purchases settlement date aims to prevent harm to market structures, adding that the settlement delay does not apply to corporates. (Newswires)

 

FIXED INCOME

Gilts are not gleaning any extra traction from a weaker than forecast CBI industrial trends survey, but are still holding up better than core bound counterparts in the ongoing state of Brexit bewilderment having extended their rebound to 128.86 at one stage (+17 ticks vs -16 ticks at the early Liffe low). Meanwhile, Bunds have retreated back below par after a similar bounce topped out at 166.90 (+11 ticks vs -18 ticks at worst) and US Treasuries remain relatively flat and mid-range ahead of US existing home sales data and more Fed speak.

 

COMMODITIES

A relatively choppy session thus far in the energy complex as WTI (+0.8%) and Brent (+0.6%) futures have recently moved past the USD 63.50 and USD 72.20 levels to the upside, after a brief spell in negative territory on the day. News flow has been light in the sector ahead of tonight’s API crude inventories release with forecasts for a headline crude drawdown of 1.9mln barrels whilst distillates are expected to decline by 600k barrels. Turning to OPEC, following yesterday’s delay to the 25/26th June OPEC/OPEC+ meetings, Energy Intelligence notes that there are talks of a JMMC and JTC meeting on July 1st and 2nd ahead of an OPEC/OPEC+ meeting on July 3rd-4th. Nothing is yet confirmed. Elsewhere, Russian press noted that oil transit from Russian oil transit towards the EU has now resumed following the contaminated oil at the Ust-Luga port. In terms of metals, gold (-0.2%) prices remain subdued as the Dollar index gains more ground above 98.000. Meanwhile, copper prices are relatively flat amid the indecisive risk tone. Finally, aluminium futures (-1.5%) slump after a federal court in Brazil lifted a production embargo at Hydro’s Alunorte refinery which would see the a ramp-up in production from 50% to 75-80% within two months.

There is talk of July 3rd-4th OPEC meeting and 1st-2nd July for the Joint OPEC/Non-OPEC Ministerial Monitoring Committee (JMMC) and Joint OPEC-Non-OPEC Technical Committee (JTC). However, no final decision has been made, according to Energy Intelligence. (Twitter)

US Energy Secretary Perry expects US Congress to prepare a bill for restrictions for companies doing business with Nord Stream 2. (Newswires)

Nigeria's Trans Forcardos pipeline was shut on Monday due to a nearby fire, as according to sources, subsequently reports that the pipeline remains closed but no forece majeure has been declared. (Newswires)

Urktransnafta say that Russian oil transit towards the EU has resumed, Hungary is prepared to receive Russian oil. (Newswires)

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