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[PODCAST] US Open Rundown 27th June 2019

  • China’s President Xi is reportedly to present Trump with  a set of terms required for a resolution to the trade dispute; including the lifting of all punitive tariffs
  • European Indices are softer [Euro Stoxx 50 -0.2%], with sentiment somewhat dented on the ongoing US-China updates
  • In FX, the DXY remains cautious and within a relatively narrow band ahead of the G20 summit while bonds were only marginally afflicted by negative trade rhetoric
  • Looking ahead, highlights include German CPI (Prelim), US GDP (Final), Initial Jobless Claims, Banxico rate decision, ECB’s Nowotny and earnings from Nike.

 

ASIA-PAC

Asian equity markets traded higher after the region shrugged off the uninspiring lead from Wall St where participants were tentative heading into the G20 and amid mixed US-China trade commentary. ASX 200 (+0.4%) was positive in which outperformance in the energy sector just about kept the index afloat following the recent bullish oil inventory data, while Nikkei 225 (+1.2%) was underpinned by the JPY-risk dynamic and with Japan Display the front runner in Tokyo after reports that Apple will infuse USD 100mln into the Co. and also raise its orders. Elsewhere, Hang Seng (+1.4%)and Shanghai Comp. (+0.7%) inspired the turnaround in the region on several factors including the State Council’s recent announcement of measures to cut financing costs for smaller firms and with Industrial Profits back in the black, while the trade-related headlines were more constructive in which SCMP noted the US and China agreed a tentative truce before the G20 summit and that US President Trump’s decision to delay additional tariffs was Chinese President Xi’s price for holding this week's meeting with him. Finally, 10yr JGBs were lower with demand dampened by the improved risk sentiment and after similar weakness in T-notes, but with downside limited amid a mixed 2yr auction in which most metrics improved despite a weaker bid to cover.

PBoC skipped open market operations for a net neutral daily position but announced a CNY 2.5bln in 1-year central bank bill swap, which is aimed at increasing liquidity for perpetual bonds. (Newswires) PBoC set CNY mid-point at 6.8778 (Prev. 6.8701)

Chinese Industrial Profits (May) Y/Y 1.1% (Prev. -3.7%). (Newswires)

SCMP writes "Trade war: US and China agree tentative truce before G20 summit", while the article added that US President Trump's decision to delay additional tariffs was Chinese President Xi's price for holding this week's meeting with him. (SCMP) Subsequently, China Commerce Ministry Spokesman Geng is not aware of the SCMP report regarding a tentative trade deal. (Newswires) For reference, the SCMP article refers to a 'truce' while the Geng comments refers to a 'trade deal'; so there is some discrepancy in the article and spokesman phrasing

Huawei staff reportedly worked with Chinese military on research projects which the Co. said was unauthorized. (Newswires)

BoJ Deputy Governor Wakatabe said will maintain easy policy for as long as needed to reach to 2% target sustainably and that policy cannot be normalized unless economy and prices return to normal state. Wakatabe also suggested that Japan’s economy would not have escaped deflation if QQE was not in place and noted that Europe like Japan adopts negative interest rates but financial institutions there are making higher profits than their Japanese counterparts. (Newswires)

PBoC reiterates that the Yuan will be kept reasonably stable, will not resort to flood-like stimulus, monetary policy should neither be too tight nor too loose, Chinese economy faces increasing external uncertainties. (Newswires)

US President Trump said he looks forward to speaking to India PM Modi about how India have placed very high tariffs on US for years and recently increased them further, while Trump added this is unacceptable and tariffs must be withdrawn. In response, Indian government sources noted that India's tariffs on the US are well within the WTO bound rates. (Twitter/Newswires)

China's Commerce Ministry urges the US to immediately cancel sanctions on Chinese firms, including Huawei, will consider placing firms on a unreliable list if they implement discriminatory measures on Chinese entities; and firms that threaten the national security of China; adding that the details are to be released soon. (Newswires)

Chinese President Xi is intending on presenting US President Trump with a set of terms that the US needs to meet before Beijing will be prepared to settle the trade dispute., WSJ

- Among the pre-conditions: Beijing is insisting that the U.S. remove its ban on the sale of U.S. technology to Chinese telecommunications giant Huawei, according to a Chinese Official; U.S. to lift all punitive tariffs; Drop efforts to get China to buy even more U.S. exports.

- In-spite of these preconditions President Xi is not anticipated to undertake a confrontational stance with US President Trump, according to the Chinese officials, stating that he will outline his visions as to the optimal bilateral relations between the two countries.

Shortly after the WSJ piece above, China Global Times Editor tweets that 2-days prior to US President Trump meeting President Xi, Trump claims to have a Plan B and has threatened new tariffs; which is a very unfriendly move and will for sure have a negative impact. (Twitter)

US

US President Trump will meet with Russia President Putin on Friday at 1400 local time (0600BST), while President Trump will meet with Chinese President Xi on Saturday at 1130 local time (0330BST) in Osaka, according to a spokesman. (Newswires)

GEOPOLITICS

Iran's Parliament Speaker Larijani stated that the reaction from Tehran will be stronger in the event that the US repeats the mistake of violating Iran's borders. (Newswires)

Iran is still short of the nuclear deals limit on enriched uranium stocks, and are on course to reach the limit at the weekend., as according to diplomats citing IAEA data. (Newswires)

A Brazillian Air Force Pilot, who was amongst the crew to serve as the guard for Brazilian President Bolsonaro’s G10 visit, was arrested in Sevill following 39 kilos of cocaine being seized. (Newswires/FT/Twitter)

South Korea Unification Minister Kim said inter-Korea projects can be used as leverage to boost US-North Korea nuclear talks, while Kim added that China is working with US and is central to progress in North Korea's nuclear dismantlement but also stated that recent comments by North Korea suggests mistrust remains. (Newswires)

Venezuela President Maduro said he will be ruthless if the opposition attempts to oust him. (Newswires/AFP)

UK/EU

UK PM candidate Johnson reiterated his pledge to get the UK out of the EU by 31st October but believes the odds of a no-deal scenario are ‘million to one’. Follows on from Johnson recently stating that he intends to leave the EU by 31st October ‘do or die, come what may’. (Sky News/BBC/Newswires)

UK Remain rebels are reportedly planning to mount a new bid next week to block a no-deal Brexit and have tabled amendments to finance legislation which will force the PM to pass a WA through the Commons or get approval for a no-deal. Furthermore, the reports noted that former Tory Attorney General Grieve and former-Labour Foreign Secretary Beckett were leading the attempt which if passed, would cut off funding to key government departments if the government cannot get parliamentary approval for the Brexit. (The Sun)

Broadly thus far German state CPI’s have seen a pick up in both the YY and MM figures, with the mainland figures expected at 1.4% YY and 0.1% MM.

- German Saxony State CPI YY (Jun) 1.8% (Prev. 1.4%)

- German Saxony State CPI MM (Jun) 0.5% (Prev. 0.3%)

EQUITIES

European equities have given up earlier gains [Eurostoxx 50 -0.3%] amid reports that Chinese President Xi is intending on presenting US President Trump with a set of terms that the US needs to meet before Beijing will be prepared to settle the trade dispute. Beijing is insisting that the U.S. removes its ban on the sale of U.S. technology to Huawei, according to a Chinese Official (which was noted earlier in the session by MOFCOM) whilst also asking for the removal of all punitive tariffs and for the US to drop its efforts to get China to buy more U.S. goods. Equity futures reacted negatively to the report as the conditions from China signal the gulf in demands between the two sides ahead of this weekend’s showdown. Germany’s DAX (-0.1%) is faring slightly better than its peers as the index heavyweight Bayer (+8.0%) surges amid reports of support from Elliott as the Co. reviews its legal strategy on weed killers. Sectors are mixed with some underperformance experienced in defensive sectors. In terms of individual movers, H&M (+9.3%) shares spiked higher at the open following results in which Q2 sales rose 11%. Meanwhile, CHR Hansen (-12.2%) fell to the foot of the Stoxx 600 after cutting its revenue guidance.

Boeing (BA) (Industrials/Aerospace & Defense) continued to trade lower after the bell on the wider airing of reports that the FAA said it had found a potential risk in the 737 MAX software update that Boeing must fix. In addition, United Airlines (UAL) announced it has removed the 737 MAX from any of its flying schedules until September 3rd, causing 1,900 new flight cancellations in August.

FX

USD - Not much deviation from established or recent ranges in major pairings, and the narrow DXY band (96.390-156) illustrates the subdued and cautious tone ahead of the eagerly awaited Summit in Osaka and US-China trade showdown. Indeed, there is still little sign of strong Dollar selling for month, quarter and half year end portfolio balancing purposes, although the Fed has intervened to an extent via Powell and Bullard’s efforts to manage dovish market expectations.

AUD/NZD - The Aussie and Kiwi are still riding high on improved risk sentiment following some signs that relations between Washington and Beijing have cooled, albeit temporarily and conditionally pending the outcome of aforementioned G20 meeting where Presidents Trump and Xi will attempt to resolve issues that led to a breakdown in negotiations. Meanwhile, a welcome rebound in Chinese industrial profits has also lifted the mood down under, with Aud/Usd and Nzd/Usd both within a whisker of big figures at 0.7000 and 0.6700 respectively, and the latter not unduly ruffled by a deterioration in ANZ’s NZ activity outlook overnight.

GBP - The Pound is looking perky again as Cable reclaims the 1.2700 handle that has been tested several times this week, but proved unsustainable. Encouraging comments from Japan on the prospect of a post-Brexit trade deal with the UK along TPP lines may be supporting Sterling that is also firmer vs the Euro (cross pivoting 0.8950), but a hefty 1bn option expiry at 1.2700 in Cable could still cap that pair.

EUR/CAD/CHF/JPY/NOK - All narrowly mixed vs the Greenback and more confined, with the single currency remaining in a circa 1.1350-80 band and holding above key technical support in the form of the 200 DMA (1.1344) with the aid of firm-to-relatively frothy German state inflation data that puts an upside bias on the pan print consensus towards 1.6% from 1.4% and steady from the previous month. Conversely, the Loonie has lost some momentum ahead of 1.3100 due to a dip in oil prices, while the Franc pivots 0.9800 and Yen straddles 108.00 after dovish/downbeat remarks from BoJ’s Wakatabe. Elsewhere, the Norwegian Krona has retreated in wake of weaker than expected retail sales and the recoil in crude, with Eur/Nok back up around 9.6900.

EM - Bucking the generally firmer regional trend, reports that Turkey is looking to syphon CBRT reserves have resurfaced and undermined the Lira alongside headlines about changes to tax policy, with Usd/Try up over 5.7900 at one stage.

New Zealand ANZ Business Confidence (Jun) -38.1 (Prev. -32.0). (Newswires) New Zealand ANZ Activity Outlook (Jun) 8.0 (Prev. 8.5)

SARB Deputy Governor Mminele is to retire on 30th June 2019. (Newswires)

FIXED INCOME

Another downbeat session for bonds prior to tomorrow's G20 commencement, as general risk sentiment remains underpinned on President Trump's mainly constructive comments yesterday and notwithstanding most recent updates from China. On the latter, a WSJ piece says President Xi intends to present US President Trump with a set of terms, and notably that the US must lift all punitive tariffs. Prior to this, rhetoric stemming from China’s Commerce Ministry Spokesman Geng were also less encouraging as he claimed to be unaware of SCMP reports regarding a tentative trade deal; however, it's worth highlighting some discrepancy in the language used, as a ‘truce’ was cited. Bonds were largely unfazed on these comments, and more broadly USTs, Gilts and Bunds remain largely towards the centre of ranges at 127-21, 130.21 and 172.36. Note, the Germany 10-year benchmark did see some mild reprieve after EZ sentiment indicators that printed softer across the board in contrast to German state CPIs. Returning to USTs, a more pronounced bounce recently as participants remain tentative ahead of this weekend’s aforementioned key risk events, and data in the form of the final GDP reading (Exp. unrevised at 3.1%), initial jobless claims before the USD 32bln 7yr auction which marks the last of the week's short-end supply; following last night's mixed 5 year sale (yield lowest since mid-2017, but softer cover and a tail).

COMMODITIES

WTI and Brent futures are consolidating following this week’s geopolitics-inspired gains which were exacerbated by declining US stockpiles. WTI futures hovers around the USD 59/bbl level ahead of a cluster of DMA (50 DMA – 59.25, 100 DMA – 59.41 and 200 DMA 59.48) while its Brent counterpart trades just above the USD 65/bbl mark. On the OPEC+ front, Russia’s Energy Minister sounded somewhat upbeat in regard to reaching a consensus with Russia’s OPEC counterparts at next week’s meeting, adding that he will be meeting Saudi’s Energy Minister Al-Falih at the G20 this weekend. The energy producers will be heading into the meeting with full knowledge of the fallout from US-China talks. Market consensus is that a rollover of the current deal is the likely outlook (also mentioned by the Iraqi Oil Minister), although it is still not clear if any revisions will be made (Iraqi Oil Minister touted deeper cuts). Elsewhere, the gold rally has fizzled out as the DXY remains buoyed above 92.00, with the yellow metal now in close proximity to USD 1400/oz (vs. recent high of USD 1439/oz). Meanwhile, copper prices are little changed on the day ahead of the risk-packed weekend, with prices hovering just above USD 2.7/lb  ahead of its 50 DMA at 2.73/lb. Finally, Dalian Iron ore has resumed its rally amid renewed concerns of tightening supply whilst Rebar steel continued its upwards trajectory amid pollution-related production curbs in China.

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