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[PODCAST] US Open Rundown 11th June 2019

  • European indices are firmer this morning [Euro Stoxx 50 +0.9%], taking the lead from a positive Asia-Pac session.
  • In FX, Sterling is outperforming G10 counterparts on the combination of both strong UK labour data and hawkish BoE speak
  • Looking ahead highlights include, US PPI. Supply from the US

ASIA-PAC

Asian equity markets were higher across the board after a similar lead from US where sentiment was underpinned by the US-Mexico tariff relief which lifted the S&P 500 and DJIA to a 5-day and 6-day win streak respectively, although gains in the region were initially capped amid a lack of fresh catalysts. ASX 200 (+1.6%) and Nikkei 225 (+0.3%) traded positively with early outperformance in Australia as it played catch up on return from the extended weekend and with Vocus Group the largest gainer following a takeover offer from AGL Energy, while the Japanese benchmark was just about kept afloat by a weaker currency. Elsewhere, Hang Seng (+0.8%) and Shanghai Comp. (+2.6%) conformed to the upbeat tone despite another net liquidity drain by the PBoC and mixed comments by US President Trump who stated that a trade deal with China will work out because of tariffs but warned the next USD 300bln of tariffs will come into effect if Chinese President Xi does not come to the G20. Nonetheless, mainland China outperformed after China issued notice encouraging investment in local government special bonds issuance for project financing and amid reports that the PBoC may continue to support banks through various tools. Finally, 10yr JGBs were lower as yields tracked the rebound in their US counterparts and with demand for Japanese bonds also sapped by gains in stocks and after weaker demand in the enhanced liquidity auction for longer-dated bonds.

PBoC injected CNY 10bln via 7-day reverse repos for a daily net drain of CNY 50bln. (Newswires) PBoC set CNY mid-point at 6.8930 (Prev. 6.8925)

PBoC may continue to support banks through various tools including RRR, MLF and SLF, while there were separate reports that Chinese companies have been scaling back or halting investment in the US market. (China Securities Journal/SCMP)

Chinese authorities have reportedly begun a survey into rare earth resources in multiple provinces and regions on Monday., China Securities Journal. (Newswires)

US

President Trump stated that the US has an agreement on something with Mexico that they will announce very soon and that he does not think Mexico will be denying for very long the undisclosed portion of the agreement. (Newswires/Twitter)

UK/EU

BoE's Saunders (Hawk) said the BoE will likely need to return to neutral policy stance sooner than the market expects and that the MPC doesn't necessarily need to keep rates unchanged until Brexit uncertainties are resolved. Saunders added that BoE's neutral rate is around 2% and suggested that they should not just look at Brexit uncertainty and instead should look at growth as well as assess whether or not it is above or below potential when setting interest rate. Subsequently, Saunders stated that the UK could face more rate hikes in the event of a smooth Brexit, and the rate could be cut close to zero but would not go negative and QE asset purchases can be expanded if necessary.

UK right-wing Tory caucus held a non-binding vote to gauge support in which Boris Johnson received the most votes as the results from the 92 Group vote showed Johnson received 34 votes, Raab at 18 votes, Gove at 6 votes, McVey at 6 votes, Harper at 5 votes, Javid at 5 votes, Hunt at 2 votes and Leadsom at 2 votes. (Newswires)

EU Source indicates that the idea of Boris Johnson in the European Council is ‘likely abhorrent’ to some EU leaders, with the source also critical of Dominic Raab. (Guardian)

UK Avg Earnings (Ex-Bonus) (Apr) 3.4% vs. Exp. 3.1% (Prev. 3.3%)

- UK Avg Wk Earnings 3M YY (Apr) 3.1% vs. Exp. 3.0% (Prev. 3.2%, Rev. 3.3%)

- UK Employment Change (Apr) 32k vs. Exp. 10k (Prev. 99k)

- UK Claimant Count Unem Chng (May) 23.2k vs. Exp. 22.9k (Prev. 24.7k, Rev. 19.1k)

- UK ILO Unemployment Rate (Apr) 3.8% vs. Exp. 3.8% (Prev. 3.8%)

ECB's Rehn (Neutral) says the Bank could bolster forward guidance, lower rates, introduce mitigating measures from negative rates and resume QE if necessary, are determined to act in the event of further economic activity weakening and the price stability goal will be hampered in the event of low inflation expectations. (Newswires)

Italy PM Conte will meet with Deputy PMs Salvini and Di Maio in approaching days to complete action plan for entire legislature and want to avert EU disciplinary action against Italy, while they will meet with Finance Minister Tria on budget package. Subsequently, Deputy PM Salvini says they will advert EU deficit procedure with growth and tax cuts. Both Deputy PM Di Maio and PM Conte stated that the coalition meeting went well. While PM Conte has stated they believe the 2019 deficit/GDP ratio can be reduced to 2.2%. (Newswires)

GEOPOLITICAL

North Korea state media called on the US to “withdraw its hostile policy” towards Pyongyang or agreements made at the Singapore summit 1 year ago may become “a blank sheet of paper". (Newswires)

Chinese press reports stated the US Air Force is preparing to run through aggressor drills to simulate combat with China's J-20 fighter jets, while it was also reported that China and Russia are expected to form an alliance to fend off the US. (SCMP)

Reported that the IAEA stated Iran has accelerated enrichment of uranium. (Newswires) Follows on from yesteday’s UN Nuclear Watchdog Chief states that iran’s enriched uranium production rate is increasing. (Newswires)

Turkey’s Foreign Ministry has ‘slammed the unacceptable’ US resolution which condemns Turkey’s decision to acquire the S-400 missile system; Turkey’s Ministry stated the resolution does not align with the relationship between Turkey and the US. (Anadolu)

EQUITIES

European equities are higher across the board [Eurostoxx 50 +0.9%] following on from a similar lead in Asia wherein Mainland China closed with gains in excess of 2.5%. Germany’s DAX (+1.3%) is outperforming its peers as the index plays catch-up following yesterday’s holiday. Sectors are broadly in the green with the exception of defensive sectors amid the current “risk on” mood, whilst material names are outperforming as Dalian iron ore futures spiked 6% higher on supply concerns and copper prices rose almost 1% on the firmer risk sentiment. In terms of in individual movers, Thyssenkrupp (+5.5%) sits near the top of the Stoxx 600 as the steel name benefits from the aforementioned iron ore spike. Elsewhere, German autos are supported (BMW +1.6%, Daimler +1.8%, Volkswagen +1.8%) as the stocks react to the weekend US-Mexico developments for the first time. Finally, Hugo Boss (+4.3%) shares were bolstered amid an upgrade at Morgan Stanley.

FX

GBP - More hawkish leaning BoE rhetoric, as Saunders follows Haldane on the rate hike path has been validated to a degree by the latest UK labour report revealing firmer than forecast wages, and in particular an unexpected pick-up in ex-bonus earnings, in stark contrast to Monday’s dismal GDP and industrial output figures. Hence, the Pound has rebounded across the board with Cable back above 1.2700 and testing yesterday’s pre-data peaks ahead of resistance seen around 1.2740, while Eur/Gbp has reversed from fresh multi-week highs circa 0.8932 through 0.8900.

NZD/JPY/CHF/AUD - In contrast to Sterling’s revival, the Kiwi has extended losses to 0.6588 vs its US counterpart and 1.0550+ against the Aussie, which is also weak compared to the Buck but holding up better around 0.6950 ahead of jobs data on Thursday. Nzd/Usd saw accelerated selling on a break of 0.6600 and market participants also noted stops in Nzd/Jpy when 71.81 failed to hold, with a variety of model and spec offers pushing the cross down to 71.54. Similarly, the Yen and Franc have weakened a bit further vs the Dollar as the DXY sits tight between 96.832-673, with Usd/Jpy hovering above 108.50 within a 108.36-73 range and Usd/Chf holding closer to the upper end of a 0.9923-0.9893 band. Note, however, Usd/Jpy may well be drawn towards decent option expiry interest at 108.50 in 1.1 bn.

CAD/EUR - The Loonie continues to outperform, as technical impulses turn increasingly bullish and Usd/Cad trade below the 200 DMA (1.3273) towards 1.3250 and post-NA jobs data lows of 1.3225, while the single currency remains above 1.1300 where more expiries lie (1.1 bn) even though Eurozone Sentix sentiment soured significantly and ECB’s Rehn reiterated that all monetary stimulus options will be available if growth weakens further. On the flip-side, Eur/Usd is still butting up against resistance ahead of 1.1350 and the 200 DMA (1.1365), including option barriers and more expiries, like 2.3 bn from 1.1340 to 1.1350 and 2.8 bn at 1.1360.

NOK - The Norwegian Crown slipped in wake of considerably sub-consensus CPI metrics that called into question firm Norges Bank guidance for a rate hike at this month’s policy meeting, but Eur/Nok reversed from a probe over resistance around 9.8300 to revisit pre-inflation data levels sub-9.7800 on the back of an upbeat regional survey that restored June tightening expectations. Conversely, Eur/Sek has seen more upside towards 10.6900 ahead of Sweden’s inflation update on Friday and potential pointers from Prospera’s expectations survey tomorrow.

FIXED INCOME

Post-UK data losses for UK bonds and STIRs are piling up through BoE testimony and more signs that MPC members may not be completely beholden to the fate of Brexit in terms of tweaking policy, while the latest snapshot of the labour market is also conducive to normalisation in contrast to Monday’s bleak ‘activity’ data. The 10 year debt future just hit a fresh Liffe low at 129.90 (-44 ticks on the day) and 3 month contracts are as much as 6.5 ticks adrift, while USTs are succumbing to more pronounced bear-steepening into supply and PPI, with Bunds being dragged down in sympathy it seems.

COMMODITIES

WTI (+0.8%) and Brent (-0.3%) futures are choppy as the benchmarks are benefitting from the improved risk tone,with the former around USD 62.50/bbl and the latter hitting a session peak just under USD 54.00/bbl. News flow has been light for the complex as participants eye tonight’s EIA Short term Energy Outlook report and API inventories release with the street looking for a headline draw of 1.25mln barrels. Elsewhere, Energy Intel’s Senior Correspondent notes that Russian Energy Minister Novak requested a delay to the OPEC/OPEC+ meeting (originally scheduled for June 25/26) as a later date would give key participants the chance to discuss the issue more at the G-20 summit on June 28. The correspondent also notes of that Iranian officials are yet to agree on the new proposed dates to move the OPEC meeting from June to early July, according to sources and the current secretariat is looking at the option of holding OPEC meet in June and the non-OPEC in July. Elsewhere, gold (-0.4%) continues to fall at the whim of a firmer risk appetite, whilst in terms of base metals, copper (+0.9%) extends on its gains aided by the risk tone and Dalian iron ore surged 6% on supply woes amid expectations that  miners will be unable to expand output to meet higher steel demand. Subsequently, JPM modestly upgraded its Chinese steel demand and iron ore price forecasts, noting that the peak disruption “is likely behind us”.

Iranian officials are yet to agree on the new proposed dates to move the OPEC meeting from June to early July, according to sources via Energy Intelligence; adds secretariat is looking at the option of holding OPEC meet in June and the non-OPEC in July. (Twitter)

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