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[PODCAST] US Open Rundown 3rd July 2019

  • European Indices [Euro Stoxx 50 +0.9%] are firmer this morning diverting from the mixed Asia-Pac performance
  • HP (HP), Dell (DELL), Microsoft (MSFT) and Amazon (AMZN) are all reportedly looking at shifting substantial amounts of their production capacity out of China., Nikkei
  • In FX, the DXY remains around its 200 DMA, the antipodeans outperform and Sterling lags
  • Looking ahead, highlights include US ADP, Factory Orders & ISM Non-Manufacturing PMI BoE’s Haldane & Broadbent and ECB’s de Galhau, earlier US Independence Day market closures

 

ASIA-PAC

Asian equity markets traded mostly subdued as the region digested another bout of substandard PMI data from China and following a lacklustre session on Wall St where trade was predominantly range-bound despite the late breakout which helped the S&P 500 notch a consecutive record closing high. ASX 200 (+0.5%) and Nikkei 225 (-0.5%) were mixed with Australia led higher by gold miners as the precious metal resumed its advances but with upside capped by financials amid concerns of tighter margins due to the lower rate environment and as energy names suffered the brunt of a near-5% drop in crude, while sentiment in Tokyo caved in from the weight of a firmer currency. Elsewhere, Hang Seng (U/C) andShanghai Comp. (-1.0%) were downbeat with underperformance in the mainland after another PBoC liquidity drain and disappointing Chinese data in which Caixin Services PMI missed estimates to print a 4-month low and Composite PMI deteriorated to its weakest since October 2016. Finally, 10yr JGBs were higher as they tracked the gains in T-notes which saw the US 10yr Treasury yield drop to its lowest since 2016, with demand also underpinned by the downbeat risk sentiment and BoJ presence in the market.

PBoC skipped open market operations for a net daily drain of CNY 40bln. (Newswires) PBoC set CNY mid-point at 6.8640 (Prev. 6.8513)

Chinese Caixin Services PMI (Jun) 52.0 (Prev. 52.7); 4-month low. (Newswires) Chinese Caixin Composite PMI (Jun) 50.6 (Prev. 51.5); weakest since October 2016.

China is reportedly considering the purchase of some US farm products in a show of goodwill; however, the volume of purchases is likely to be smaller than before. (Newswires)

Australian Trade Balance (AUD)(May) 5745.0M vs. Exp. 5250.0M (Prev. 4871.0M); record high. (Newswires) Australian Building Approvals (May) 0.7% vs. Exp. 0.0% (Prev. -4.7%)

Senior US official reported told Commerce Department enforcement staff this week that Huawei should still be treated as blacklisted. (Newswires)

Japan is said to consider additional export restrictions on South Korea. (Newswires) 

US

 

US President Trump says he intends to nominate Executive VP and Director of Research at the Federal Reserve Bank of St. Louis Christopher Waller and US Executive Director at the European Bank for Reconstruction and Development Judy Shelton to the Fed board. (Newswires)

Fed's Mester (Non-Voter) is assessing where the data is going; possibility that growth is slowing by more than the Fed expects; is encouraged by consumer sector holding up, would get her attention if there was deterioration there. (Newswires)

- She says she does not have necessary data to back a rate cut yet 

US Supreme Court blocked the Trump administration from including citizenship question in the census. (Newswires)

 

UK/EU

EU Governments see Italy's 2019 deficit at 1.9% of GDP, structural improvements of 0.3%; see 'considerable improvement' in Italy's 2020 fiscal plans., according to EU Officials. (Newswires)

- Italy's Government Decree reportedly contains a guarantee clause to curb the 2020 budget deficit, and adds that if flagship welfare measures cost less than what was targeted last year; all savings can be used to reduce the budget deficit., according to a Draft

 

EU Markit Services Final PMI (Jun) 53.6 vs. Exp. 53.4 (Prev. 53.4) (Newswires) EU Markit Comp Final PMI (Jun) 52.2 vs. Exp. 52.1 (Prev. 52.1)

UK PM candidate Boris Johnson is reportedly to review sin taxes such as on tobacco and alcohol which he said impacts the poor the hardest. (Sky News)

UK Markit/CIPS Services PMI (Jun) 50.2 vs. Exp. 51.0 (Prev. 51.0)

- UK Composite PMI (Jun) 49.7 (Prev. 50.9)

- "The June reading rounds off a second quarter for which the surveys point to a 0.1% contraction of GDP" - IHS Chief Economist Williamson

GEOPOLITICS

Iranian President Rouhani stated that Iran will increase uranium enrichment beyond the 3.67% level after July 7th and uranium will be enriched to whatever levels are necessary. (Newswires)

At least 40 were reportedly killed after Haftar forces conducted an airstrike at a migrant detention centre in Tripoli, Libya although other reports suggested that the number that died could be much higher. (Newswires)

FX

AUD/NZD - The Antipodean Dollars have both overcome overnight dips on the back of sub-forecast Chinese Caixin services and composite PMIs following reports that Beijing is considering purchasing a reduced amount of US agricultural products in acknowledgement of the agreement to resume trade talks. Aud/Usd has reclaimed 0.7000+ status, but remains capped below the pre-RBA high, while Nzd/Usd has not quite managed to revisit 0.6700 as the Aud/Nzd cross holds firmly above 1.0450. However, the Aussie may yet be hampered by decent expiry options sitting between 0.6985-0.7000 (1 bn) into the NY cut.

JPY/SEK - The Yen and Swedish Crown are vying for position as the next best major, as Usd/Jpy consolidates within a 107.92-54 range after the latest safe-haven move through 108.00 and the headline pair now looks likely to remain contained by hefty expiry interest spanning 107.00-10 (3 bn) through 107.65-80 (1 bn) to 108.00 (2.2 bn). Meanwhile, Eur/Sek has pared some losses after a test of Fib support under 10.5000 in wake of the Riksbank policy meeting that stuck rigidly to previous (April) guidance in terms of the rate path and likely timing of the next hike, as growth and inflation assessments were deemed to be unchanged in the interim period.

EUR - Mostly better than expected Eurozone PMIs and an almost glowing review of Italy’s 2019 and 2020 finances, according to EU officials citing Government analysis have propped up the single currency to an extent, with Eur/Usd trading in a tight 1.1294-69 band. Moreover, option expiries appear influential given as much as 4.7 bn running off from 1.1290 to 1.1300 vs strong technical support in the form of the 100 DMA at 1.1260.

GBP - The Pound remains rooted to the base of the G10 ranks and another dismal UK PMI has rattled Sterling sentiment, as the services sector only just escaped contraction and the composite fell through 50 to signal negative Q2 GDP, albeit very marginal. Cable held above 1.2550, but partly due to a lethargic Dollar as the DXY continues to straddle the 200 DMA in a confined 96.873-662 range, while Eur/Gbp edged back up towards 0.9000 and recent highs only a few pips shy of the round number.

TRY - The Lira has maintained its recovery momentum in wake of broadly in line and softer Turkish CPI data that offset subsequent news that tax on retail FX transactions could be doubled to 0.2% and President Erdogan may be given the green light to hike levies further. Usd/Try currently around the middle of 5.6645-6090 bounds.

Swedish Riksbank Rate N/A -0.25% vs. Exp. -0.25% (Prev. -0.25%)

- Forecast for the repo rate is unchanged and indicates that it will be increased again towards the end of the year or at the beginning of next year

- Assesses that there is no reason to make any major adjustments to the forecasts for international inflation and growth.

- Riksbank's Ingves states that we believe the inflation target can be reached even if the SEK gradually strengthens

- Riksbank's Ingves says if the SEK strengthens as we expect, then there is enough pressure to achieve the 2% inflation target

 

FIXED INCOME

It remains to be seen whether the current time out is terminal or the start of a more meaningful retracement, but for now at least the bond rally has fizzled out. Bunds have succumbed to a deeper pull-back from 173.90 and as noted previously the -0.4% level in 10s cash appears to be causing some congestion, along with better Eurozone services PMIs than anticipated and strong outperformance in peripheral paper. Meanwhile, Gilts have eased back from 132.29, but remain better bid on the bleak UK PMIs and US Treasuries are off best levels ahead of a particularly heavy slate due to July 4th front-loading, although the curve retains a flatter bias after more hawkish murmurings from Fed’s Mester.

EQUITIES

European Indices are firmer this morning [Euro Stoxx 50 +0.9%] diverting from the somewhat mixed performance seen overnight, where sentiment was afflicted by poor Chinese data and a PBoC liquidity drain; upside in European bourses so far has led to some chatter that the Stoxx 50 is on track to enter a bull market soon. This mornings stock strength follows on from the SPX setting a fresh record close of 2973 yesterday, in-spite of the backdrop of increasing global growth concerns. Sectors are broadly in positive territory, with the exception of the Energy sector; which is lagging on the back of yesterday’s near-5% oil complex decline. In terms of notable movers this morning, Vonovia (+3.0%) are towards the top of the Stoxx 600 on the back of a broker move where they were upgraded to buy from neutral. Alcohol and tobacco are faring better following reports that UK PM Candidate Johnson is to review ‘sin taxes’, thus upside is seen in related names such as British American Tobacco (+2.5%) and Fever Tree (+1.8%). At the other end of the index are Sainsbury’s (-1.4%) after reporting poor grocery sales and commenting that consumer outlook remains uncertain.

HP (HP), Dell (DELL), Microsoft (MSFT) and Amazon (AMZN) are all reportedly looking at shifting substantial amounts of their production capacity out of China., Nikkei

- HP and Dell, the world's No. 1 and No. 3 personal computer makers who together command around 40% of the global market, are planning to reallocate up to 30% of their notebook production out of China., according to Nikkei citing multiple sources

- Additionally, Lenovo Group, Acer and Asustek Computer are also evaluating plans to shift production from China

- Microsoft, Google, Amazon, Sony and Nintendo are also looking at moving some of their game console and smart speaker manufacturing out of China

COMMODITIES

WTI (+0.7%) and Brent (+0.8%) are higher this morning and at the top of the day’s range, although, both WTI and Brent did drop to within a few cents of the USD 56.00/bbl and USD 63.00/bbl handles to the downside earlier in the session. Last nights larger than expected headline API draw failed to provide much in the way of impetus for the complex, which was already heavily subdued having experienced around a 5% decline in prices; in-spite of the OPEC+ meeting concluding and resulting in a agreement to extend the output cuts, with analysts citing a "sell the fact" scenario. Looking ahead, we have the EIA release later in the session where markets will be looking for confirmation of the larger than expected draw and ahead of tomorrow’s US market holiday for Independence Day.

Gold (+0.5%) is supported this morning as safe havens are benefiting from the ongoing concerns around global growth, which has most prominently been seen across Fixed Income. The yellow metal has is convincingly above the USD 1400/oz mark, and has printed session highs of USD 1437/oz. Separately, Copper is subdued due to the mixed overnight Asia-Pac performance and after Chinese data missed on expectations.

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