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[PODCAST] US Open Rundown 1st July 2019

  • European Indices [Euro Stoxx 50 +0.9%] as the weekend’s positive US-China updates, among other geopolitical developments, generated risk-on sentiment which rolled over from the Asia-Pac session
  • US and China agreed to a temporary trade truce in which US will not levy new tariffs on China whilst also easing some Huawei restrictions
  • US President Trump met with North Korean Leader Kim in the DMZ and became the first sitting US President to enter North Korean territory
  • Russia & Saudi Arabia have agreed to extend the OPEC+ deal, and sources report that OPEC+ monitoring committee favor a nine-month extension on the output deal
  • Looking ahead, highlights include JMMC and OPEC meetings, US Manufacturing PMI (Final), ECB’s de Guindos, Lane, Knot, de Cos & RBNZ’s Bascand

 

WEEKEND HIGHLIGHTS

US agreed to not levy new tariffs on Chinese goods following the Trump-Xi meeting at the G20, while the sides agreed to restart trade talks. Furthermore, US President Trump stated the he had an excellent meeting with Xi which was as good as it was going to be and thinks US is “back on track" with China, while he also commented that the US will ease restrictions on Huawei as long as the transactions won't present a "great, national emergency problem". (Newswires)

Chinese President Xi said talks should be held on equal footing, while China Global Times Editor tweeted that the “two sides agreed to restart trade consultations based on equality and mutual respect. This is important to Chinese side” (Newswires/Twitter)

US President Trump met North Korean leader Kim Jong Un on Sunday and became the first sitting US President to step over to North Korea’s side of the border, while they agreed to resume stalled nuclear talks. President Trump later described the meeting as very good and very strong in which they agreed to work out details and added that “we’ll see what can happen”, while North Korea Leader Kim said it was good personal relations that made such a dramatic meeting possible at just one day's notice. (Newswires)

Russia and Saudi Arabia agreed to extend the OPEC+ output deal in which Russian President Putin said will be extended by 6 to 9 months at current levels, while there were separate comments from Russian Energy Minister Novak that the agreement to extend the oil cut deal is consolidated and other countries are backing an extension. (Newswires)

As a result, US equity futures gapped higher at the electronic open in which E-Mini S&P rose by around 1%, T-Notes fell lower by 12 ticks and gold declined 1.4% to below USD 1400/oz on safe haven outflows, while WTI rose over 2% on the risk appetite as well as reports Russia and Saudi agreed to extend the output cut deal.

ASIA-PAC

Asian equity markets began H2 with gains across the board as global sentiment was buoyed following the US-China trade truce at the G20, while President Trump also met with North Korea leader Kim at the Demilitarized Zone and became the first sitting US President to step into North Korean territory. ASX 200 (+0.4%) was lifted by the trade sensitive sectors, as well as energy names after oil prices were buoyed by news of a Russia and Saudi agreement regarding the output cut deal. Advances in Nikkei 225 (+2.2%) were exacerbated by favourable currency moves and the KOSPI (U/C) was subdued by domestic tech weakness amid a dispute with Japan related to wartime forced labour in which the latter is to restrict chip material exports to South Korea. Elsewhere, the Shanghai Comp. (+2.2%) was buoyed by the US-China trade truce and after comments from President Trump which raised hopes of a potential U-turn on Huawei. This underpinned tech and telecom stocks with mainland Chinese markets the regional outperformers despite the miss in Chinese Manufacturing PMI data and absence of Hong Kong participants for holiday. Finally, 10yr JGBs were lower as they mirrored the slump seen in T-notes and heavy losses across safe-havens, while the BoJ also recently announced its bond buying intentions last week in which it reduced the amounts of JGBs with 3yr-5yr and 10yr-25yr maturities.

PBoC skipped open market operations. (Newswires)

PBoC set CNY mid-point at 6.8716 (Prev. 6.8747)

Chinese Manufacturing PMI (Jun) 49.4 vs. Exp. 49.5 (Prev. 49.4). (Newswires)

Chinese Non-Manufacturing PMI (Jun) 54.2 (Prev. 54.3)

Chinese Composite PMI (Jun) 53.0 (Prev. 53.3) Chinese Caixin Manufacturing PMI (Jun) 49.4 vs. Exp. 50.1 (Prev. 50.2)

PBoC adviser Ma Jun says there is a possibility of China growth to remain above 6% this year if US-China relationship doesn't worsen, when asked PBoC will following Fed monetary easing, says monetary policy mainly considers domestic economic situation. (Newswires)

- PBoC state that they will play an active role in responding to US-China trade frictions; will resolutely fend off systemic financial risks

Japan is to restrict chip material exports to South Korea amid dispute regarding South Korea’s ruling on wartime forced labour, while the South Korea Trade Ministry expressed regret over Japan's tighter curbs on tech material exports to South Korea and said it will firmly respond in accordance with local and international laws. (Newswires)

US

Fed's Clarida (Voter, Neutral) states that the US economy is currently in a good place with low unemployment, and inflation below objective level. (Newswires)

Fed's Barkin (Non-Voter) has warned of a chill over business investment from trade uncertainty, if growth were to slow more 'think we have to have a conversation about what do we do with the policy rate', and that he believes that emotions have gotten far out in front of the data in terms of where we sit in the economy. (WSJ)

GEOPOLITICS

Iran's enriched uranium stockpile has surpassed the 300kg limit., according to Fars News. (Newswires/Fars News)

- Prior to this it was reported that Iran are to begin suspending additional nuclear commitments and are to surpass uranium stockpile limit from July 7th, according to Tasnim.

Turkish President Erdogan said he has heard from US President Trump that there will be no sanctions regarding the S-400 missile defence system deal with Russia, although Trump did not explicitly say this at the press conference. Furthermore, a statement from the White House noted that “the President expressed concern” about the deal. (Newswires)

US President Trump reportedly asked US Treasury Secretary Mnuchin to study factors which hurt Russia trade, according to IFX citing Kremlin spokesman. (Newswires)

Israeli warplanes fired missiles on Syria military positions in Homs and outskirts of Damascus from Lebanese airspace, according to reports citing a military source. (SANA)

UK/EU

UK Foreign Secretary and PM candidate Hunt announced a GBP 20bln no-deal Brexit war chest to support industries. Furthermore, Hunt said that the EU will not get “a penny more than is legally required of us”, referring to the EU divorce bill. (Telegraph/BBC)

UK Brexit negotiator Olly Robbins is reportedly to leave position shortly. (Newswires)

EU Leaders are reportedly close to agreeing on Timmermans as the next European Commission President, according to two diplomats, Giorgieva is to lead the European Council according to the diplomats; though they caveat that the deal regarding top jobs is yet to be finalised. (Newswires)

-- Prior to this it was reported that, EU leaders are still divided over who should get the EU’s top jobs. Centre-right leaders opposed a plan to give the post to Dutch politician Frans Timmermans, a candidate European Council President Tusk was reportedly proposing as part of a balanced package. (BBC/Guardian) 

ECB's Rehn states that the ECB is ready to adjust all of its instruments as is appropriate, and with symmetric approach inflation in the short run may vary around the 2% mark. (Newswires)

EU Markit Manufacturing Final PMI (Jun) 47.6 vs. Exp. 47.8 (Prev. 47.8)

- German Markit/BME Manufacturing PMI (Jun) 45.0 vs. Exp. 45.4 (Prev. 45.4)

- French Markit Manufacturing PMI (Jun) 51.9 vs. Exp. 52 (Prev. 52)

UK Markit/CIPS Manufacturing PMI (Jun) 48.0 vs. Exp. 49.2 (Prev. 49.4)

- IHS markit state that additional UK businesses are cutting back on both their day-to-day and capital spending

EQUITIES

Major European bourses are posting gains this morning [Euro Stoxx 50 +0.9%] as the positive sentiment generated by the US and China temporary trade truce rolls over from the Asia-Pac session. Sectors are mixed, though predominantly in the green, outperformance is seen in Energy names which are also bolstered by the broader complex; in terms of the laggards, the defensive sectors, i.e. utility and consumer staples sectors are in negative territory. Towards the top of the Stoxx 600 are a number of semiconductors for example, STMicroelectronics (+5.5%), Dialog Semiconductor (+4.4%) and ASML (+3.3%) on the aforementioned US-China updates; however, also of note for chip names is that Japan are to restrict chip material exports to South Korea amidst a dispute concerning the countries ruling on wartime forced labour. Other notable movers include, ArcelorMittal (+3.0%) after the Co. has completed the sale of several steel-making assets to Liberty House Global for EUR 740mln. At the other end of the spectrum is Ericsson (-0.5%), who opened lower by around 1.5% as US President Trump commented that the US is to ease restriction on Huawei; as previously the likes of Huawei and Nokia have benefited from the Huawei restrictions. 

FX

CHF - The Franc has slumped across the board and only in part on a loss of safe-haven demand after the US-China trade truce forged on Saturday, as Swiss retail sales and manufacturing PMI both misses consensus by considerable margins, and the SMI kicks off H2 on its own after the EU severed links with the Swiss bourse. Usd/Chf is back up near 0.9850 and Eur/Chf has rebounded further above 1.1100 to just over 1.1150 vs recent lows of sub-1.1000 and circa 1.1055 respectively.

GBP - Sterling has also succumbed to all round selling in wake of the latest UK manufacturing PMI that was weaker than forecast and deeper in contraction territory, while output fell sharply from 50.3 to 47.2 and the worst level since October 2012. Cable recoiled from around 1.2707 at best through 1.2665-63 support that held several times in late June before breaching 1.2650 and a 1.2646 Fib on its way to a 1.2635 base, while Eur/Gbp has jumped towards 0.8970 from close to 0.8925 at one stage even though the single currency was pressured by disappointing Eurozone manufacturing PMIs as well.

JPY/AUD/EUR - The Yen has succumbed to the broad post-G20 recovery in risk sentiment, but not to the same extent as the Franc noted above, with 108.50 vs the Greenback tested and marginally topped before a relatively deep pull-back towards 108.25. A decent 1 bn option expiry may have capped the headline pair, while the DXY also faded after edging above 96.600 and a lack of follow-through buying to test near term resistance at 96.711 (June 21 peak). However, the Aussie remains on the backfoot just under 0.7000 ahead of Tuesday’s RBA policy meeting with a firm majority anticipating back-to-back 25 bp rate cuts, and the Euro is holding near the bottom of a hefty expiry zone from 1.1320 to 1.1335 (1.6 bn) having lost grip of the 200 DMA (a few pips below 1.1350) in the run up to the aforementioned poor PMIs and then breaching the 10 DMA (at 1.1328) to a 1.1315 low.

CAD/NZD/SEK/NOK - The Loonie and Kiwi are both down vs their US counterpart, but holding up better than most major rivals, bar the Scandi Crowns, with Usd/Cad only just above 1.3100 and Nzd/Usd hovering close to 0.6700. A firm rebound in oil prices is impacting, and also boosting the Nok (through 9.7000 vs the Eur), while the Kiwi is eyeing the impending NZIER Q2 survey for independent impetus. Note, Eur/Sek is back below 10.5500 in response to a rare manufacturing PMI beat from Sweden that will likely keep the Riksbank in hawkish mood on Wednesday.

EM - The Lira has extended gains made on the back of a relatively cordial meeting between Turkish President Erdogan and his US peer Trump on the G20 sidelines that assuaged concerns about sanctions over Russia’s imminent S-400 delivery with additional momentum coming in the form of a less contractionary manufacturing PMI. Usd/Try reversed from 5.7910 to 5.6735 in response before settling around 5.6950.

FIXED INCOME

Bunds crossed parity and matched their 172.91 contract high on follow-through buying in wake of softer than expected Eurozone manufacturing PMIs along with some technical buying perhaps as last Friday’s Eurex low at 172.46 was severely tested, but not breached. However, the 10 year debt future is still lagging Gilts that recently climbed to 130.70 vs 130.10 at the early Liffe base on the back of an even bleaker UK survey, while US Treasuries remain underwater and the curve is steeper, albeit well off overnight session lows and widest spreads ahead of US Markit PMI, ISM and construction spending.

COMMODITIES

WTI (+2.7%) and Brent (+2.7%) have started the week firmly on the front foot, with WTI having breached the USD 60/bbl level to the upside. Gains in the oil complex are stemming from a sentiment-driven gains (from constructive US-China G20 and North Korea outcomes) alongside an agreement between Russia and Saudi Arabia to extend the OPEC+ deal. The leaders discussed an extension of six to nine months at the level it is currently at (1.2mln BPD), with Russian Energy Minister Novak stating that the extension is a consolidated agreement and other countries are in favour of such an extension. Novak’s comments, and Russia agreeing to extend the OPEC+ deal, have removed a uncertainty from the discussion surrounding the deals future; as until these comments it was not known precisely what Russia’s position around an extension was and whether or not they would support one. In terms of scheduling for today we have both the JMMC and the OPEC meeting, with the closed session of the JMMC having commenced as of 10:00BST, and OPEC’s opening session is due to begin at 13:00BST, closed session at 14:00BST and a presser at 16:00BST, where we may get further insight into the OPEC+ extension; though an official decision will not be released until the presser following tomorrows OPEC+ meeting at 12:00BST. Note, the timing of the various sessions for JMMC, OPEC & OPEC+ is at best an indicative guide only.

Elsewhere, Gold (-1.3%) is suffering due to a firmer USD and a safe-haven unwind, as are other havens including JPY and CHF, with the yellow metal giving up the USD 1400/oz handle after this weekend's positive trade/geopolitical developments; having printed a session low of USD 1381/oz after the metals largest intraday fall for a year. In contrast, the trade truce has supported copper prices which are just shy of the 6-week high posted earlier in the session at USD 2.72/lb. Finally, iron ore prices have rallied in excess of 4.0%, supported by the overall risk sentiment and underpinned by supply woes.

Russian oil output 11.15mln BPD (June) vs. 11.11mln BPD (May)., according to two industry sources. (Newswires)

OPEC & non-OPEC Monitoring Committee members reportedly favor a nine-month extension to the oil output deal., according to a source. (Newswires)

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China's Agriculture team getting as far away from the NYSE, just like us!! Hope you all have a good weekend, we'll… https://t.co/NsIJqCDJFE