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[PODCAST] US Open Rundown 23rd May 2019

  • European indices [Euro Stoxx 50 -1.7%] are sinking following the weak lead from Asia and poor EZ data
  • In FX, USD outperforms all G10 bar safe havens as dismal data and Brexit woes afflict sentiment
  • Looking ahead, highlights include, US Initial Jobless Claims & New Home Sales, NZ Trade Balance, ECB Minutes, European Parliament Election, Fed's Kaplan

 

ASIA-PAC

Asian stock indices were mostly lower amid spillover selling from Wall St as US-China trade uncertainty remained at the forefront of market focus with the US mulling restrictions on several Chinese firms and as comments from China suggested and unwillingness to back down, as well as the potential for a prolonged trade dispute. ASX 200 (-0.3%) and Nikkei 225 (-0.6%) were negative with Australia dragged by weakness in its largest weighted financials sector and with energy names pressured after a more than 3% drop in WTI, while risk appetite in Tokyo was suppressed by a stronger currency and weak Nikkei Manufacturing PMI data which slipped into contraction territory. Hang Seng (-1.6%) and Shanghai Comp. (-1.4%)conformed to the negative tone due to the trade tensions and with some sabre-rattling from China in which Foreign Minister Wang Yi labelled US pressure on Huawei as pure economic bullying and warned they will fight to the end if the US uses extreme pressures, while China's top four official Wang Yang also suggested businesses should be prepared for a lengthy trade war. Indian markets bucked the trend and gained over 2% to record highs as the early election results showed PM Modi’s BJP and National Democratic Alliance were ahead in world’s largest democratic election with the BJP on course to achieve a majority on its own if the early results hold up. Finally, 10yr JGBs were higher as they tracked the upside in T-notes and with price action underpinned by safe-haven demand amid the mostly negative risk sentiment in the region.

PBoC skipped open market operations. (Newswires)

PBoC set CNY mid-point at 6.8994 (Prev. 6.8992)

Chinese Commerce Ministry says the nation will not make concessions on major issues, No other restrictions on rare earth minerals, except from the existing ones. (Newswires)

China has ample policy tools to deal with FX fluctuations, according to China Finance Ministry. In addition, PBoC Vice Governor says that the country is able and confident in keeping the Yuan stable; key economic indicators are within a reasonable range; FX reserves are ample and international payments are largely balanced (Newswires)

Toshiba (6502 JT) has confirmed that it has temporarily suspended shipments to Huawei, though they subsequently state that they have resumed some shipments. (Newswires)

US

US House Financial Services Committee obtained US President Trump's financial records from Wells Fargo and TD Bank. (NBC)

UK/EU

Conflicting reports: Government Whip Mark Spencer says the Brexit Withdrawal Agreement Bill will be published in the week beginning June 3rd and hope to hold a second reading on Friday 7th June; Telegraph’s Swinford. Which follows reports that the WAB wil be published in the week after Parliamentary recess., according to BBC’s Eardley. (Twitter)

Twitter report suggested UK PM May will announce her resignation date as early as today, while the Times says that Friday could be a more opportune time. (Newswires/Guido Fawkes/Twitter) Subsequently, UK PM May will not resign as Tory leader tomorrow but will announce the date of her resignation instead, according to Spectator's Forsyth. (Twitter)

UK Government is said to be seriously considering pulling the WAB due to the amount of opposition, according to Telegraph's Deputy Political Editor Swinford, while he also tweeted that the 1922 Executive wants PM May to announce to step down by June 10th at Friday's meeting with the 1922 Committee. (Twitter)

UK Environment Secretary Gove will not be resigning from Cabinet, according to BBC's Norman Smith. (Newswires)

German Ifo Business Climate New (May) 97.9 vs. Exp. 99.1 (Prev. 99.2)

- German Ifo Curr Conditions New (May) 100.6 vs. Exp. 103.5 (Prev. 103.3)

- German Ifo Expectations New (May) 95.3 vs. Exp. 95 (Prev. 95.2)

 

EU Markit Manufacturing Flash PMI (May) 47.7 vs. Exp. 48.1 (Prev. 47.9)

- EU Markit Services Flash PMI (May) 52.5 vs. Exp. 53 (Prev. 52.8)

- EU Markit Comp Flash PMI (May) 51.6 vs. Exp. 51.7 (Prev. 51.5)

 

German Markit Manufacturing Flash PMI (May) 44.3 vs. Exp. 44.8 (Prev. 44.4)

- German Markit Services Flash PMI (May) 55.0 vs. Exp. 55.5 (Prev. 55.7)

- German Markit Comp Flash PMI (May) 52.4 vs. Exp. 52 (Prev. 52.2)

 

French Markit Manufacturing Flash PMI (May) 50.6 vs. Exp. 50 (Prev. 50)

- French Markit Services Flash PMI (May) 51.7 vs. Exp. 50.8 (Prev. 50.5)

- French Markit Comp Flash PMI (May) 51.3 vs. Exp. 50.3 (Prev. 50.1)

German GDP Detailed YY NSA (Q1) 0.6% vs. Exp. 0.6% (Prev. 0.6%)

- German GDP Detailed QQ SA (Q1) 0.4% vs. Exp. 0.4% (Prev. 0.4%)

 

GEOPOLITICAL

Reports that the Pentagon is expected to submit plans to the White House that would see as many as 10000 additional US troops deployed to the Middle East. (Newswires)

Pakistan has signaled a willingness to hold peace talks with India despite the recent missile tests carried out by Pakistan, according to Nikkei. (Nikkei)

 

EQUITIES

Major European stocks are sliding [Eurostoxx 50 -1.7%] following on from a weak Asia handover wherein mainland China shed over 1.3% and Hang Seng declined in excess of 1.5%, as trade woes remain a grey cloud above markets. Equities in Europe saw a more pronounced decline amidst the release of disappointing EZ Flash PMIs and a downbeat Ifo Survey which was followed by Ifo economists stating that the export dynamic is very weak, business uncertainty remains very high and a recovery in the auto sector is not seen for the time-being. Heavy, broad-based losses are seen across the sectors; albeit healthcare, utilities and consumer staples to a lesser extent given their defensive properties. The IT sector (-2.3%) bears the brunt of a barrage of companies halting shipments to Huawei given the quarrel with the US over security, with Japanese tech giants Panasonic and Toshiba the most recent, albeit the latter announced that it has resumed shipments to the company. Nevertheless, STMicroelectronics (-4.2%), Infineon (-2.6%), Micro focus (-1.2%), SAP (-2.2%), ASML (-1.7%) shares are all pressured. In terms of individual movers, Deutsche Bank (-2.2%) shares found little reprieve as its AGM began following reports that a New York district judge has rejected US President Trump’s efforts to prevent Deutsche Bank and Capital One from complying with a congressional subpoena for the President’s financial records. Co. spokesperson said the bank remains committed to providing appropriate information regarding the investigation. At the AGM, the Co. noted that they are prepared to make tough cutbacks to their investment banking sector, and on DWS (-0.8%) they stated that they remain open to other strategic options. Finally, shares in Thomas Cook (-6.8%) plummeted after Fitch downgraded the Co.’s Long-Term Issuer Default rating to “CCC+” from “B”, outlook negative.

FX

JPY/CHF/SEK/NOK - The major outperformers as the Yen and Franc benefit from more safe-haven positioning, while the Scandi Crowns derive protection from broad risk-off sentiment with the aid of supportive and upbeat data to justify relatively hawkish Riksbank and Norges Bank policy stances. Usd/Jpy is eyeing bids ahead of 110.00 that are said to be fairly thick and layered, while Usd/Chf is pivoting 1.0100 and the Eur/Chf cross 1.1250. Elsewhere, Eur/Sek has backed off further from recent decade highs (10.8500) towards 10.7300 and Eur/Nok is testing 9.7500 in wake of better than expected jobless rates in April and March respectively (and with Swedish unemployment falling sharply in particular).

DXY - The Dollar is firmer vs the rest of the G10 after FOMC minutes underlining a patient and perhaps longer pause in normalisation than previously anticipated or flagged as it transpires that the transitory assessment on soft inflation is shared by other members aside from Powell with only a minority worried that it might unhinge expectations and warrant a rate cut. On the flip-side, there is a consensus that even if the economy develops in line with expectations it might be prudent to hold off from further tightening given ongoing risks, like trade. Hence, the index is forming a firmer base above 98.000 and inching closer to ytd peaks of 98.346 at 98.274, thus far.

CAD/GBP/EUR/AUD/NZD - All on the backfoot relative to the Greenback, as noted above, with the Loonie unwinding more of its brief post-Canadian retail sales gains and back below 1.3450 amidst a deeper retracement in oil prices and the ongoing US-China trade spat. Meanwhile, the Pound also has the Brexit situation to contend with and a near state of political limbo given that UK PM May is still widely expected to bow to increasing pressure if not this week then sometime after the WAB returns to Parliament and rejected yet again. On that note, the HoC leader Leadsom has now resigned in protest to lift the number of MPs that have departed to 36, and with the EU elections underway Cable continues to decline, just holding above 1.2600 vs Wednesday’s circa 1.2625 base. Similarly, the single currency has slipped under yesterday’s trough and through decent option expiry interest at 1.1150 (1.4 bn) to test support ahead of the 2019 base and more expiries at the 1.1100 strike (1 bn), and more downbeat Eurozone surveys have not helped as all bar the French PMIs missed consensus and Germany’s Ifo readings were mostly downbeat. Looking down under, the Aussie and Kiwi remain rooted near or at new lows for the year, as Aud/Usd is capped ahead of 0.6900 and Nzd/Usd slips further from 0.6500 awaiting NZ trade data.

EM - The Lira has been hit by more US-Turkey sanction jitters and dire sentiment news, this time in the form of a sub-100 manufacturing index, and Usd/Try topped 6.1500 in response before paring some gains. However, the Rand is also under pressure after soft SA data that could tip the SARB towards more dovish guidance later, as Usd/Zar rebounds to 14.4900.

FIXED INCOME

Bunds appear to have steered debt peers on their latest leg up and added 12 more ticks to their previous Eurex best before topping out again at 167.18. Poor PMIs, France apart, and a downbeat German Ifo survey provided further impetus and probably nudged Gilts along as the 10 year UK benchmark reached 129.63 (+58 ticks) before waning, while US Treasuries are hovering just shy of their overnight peaks with the 10 year yield now down to 2.35% or so and inching further below EFFR amidst more pronounced curve inversion/flattening post-Fed minutes flagging a potentially more prolonged pause in the policy cycle and not hinting at a cut that would have boosted the short end. Ahead, weekly claims, housing data, Markit PMIs and more Fed speak.

COMMODITIES

The energy complex continues its decline in the aftermath of this week’s surprise builds in US crude stocks coupled with a bleak demand outlook amid the ongoing US-China trade spat. WTI (-1.7%) futures reside just below the 60.50/bbl (having already fallen below its 50 DMA at 62.13/bbl) ahead of its 200 DMA at 60.24/bbl. Meanwhile, its Brent (-1.8%) counterpart recently slipped under its 50 DMA at 70.44/bbl, while gains are capped amid a rising Buck alongside a downbeat risk sentiment and bearish supply data as mentioned above. Elsewhere, gold (+0.2%) edges higher despite a firmer Dollar as investors seek the safe-heaven asset amid trade developments, dismal EZ flash PMIs and German confidence hitting the lowest level in over four years. Meanwhile, the risk-gauge copper (-0.4%) extends its losses with the red metal losing more ground below the 2.70/lb level ahead of its 200 DMA at 2.61/lb. Finally, ING highlights that LME nickel spreads have been tightening recently with the June/July spread trading around USD 32/t vs. USD 50/t last week. This is due to declining inventories which have fallen over 42k tonnes thus far this year, leaving inventories around the lowest levels since 2013.

Asia oil refiners are reportedly mulling cutting their output following refining margins moving to their lowest levels since 2003. (Newswires)

Kazakh Ambassador says they are ready to supply oil to Belarus, but an agreement with Russia is needed. (Newswires)

Czech pipeline operator Mero, states that Druzhba pipeline oil flows are yet to restart on Czech territory, are still anticipating the transport to resume by the end of May. (Newswires)

Russian Kremlin states that Russian President Putin and Bealrus President Lukashenko may next week discuss the proposal for Belarus to buy oil from Kazakhstan. (Newswires)

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