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[PODCAST] US Open Rundown 8th July 2019

European Indices [Euro Stoxx 50 U/C] are little changed thus far, with Deutsche Bank’s restructuring capturing the equity markets focus

·  China is expected to use its plan to name foreign companies that are a national security risk, as a bargaining chip in trade talks with US, SCMP notes that US & China are no closer to a deal

·  Iran has reportedly surpassed the 3.67% uranium enrichment cap, discussions on exceeding 20% have been taken but no decision yet

·  Looking ahead, highlights include BoE’s Haldane

ASIA-PAC

Asian equity markets began the week with firm losses as the region reacted to the weakness last Friday on Wall St. ASX 200 (-1.1%) and Nikkei 225 (-1.0%) were lower in which the commodity-related sectors led the broad declines in Australia, especially gold miners after the precious metal slipped below the USD 1400/oz level as a function of a stronger USD and tempered rate cut calls, while Tokyo sentiment was also downbeat as participants digested data releases including a contraction in Machinery Orders. Hang Seng (-1.5%) and Shanghai Comp. (-2.6%) were the laggards after continued PBoC liquidity inaction and further clashes between police and protesters who have now targeted tourist areas in Kowloon. In addition, there were suggestions the US-China trade truce at the G20 has done little to bring the sides closer to an actual trade agreement and it is also expected that China could use its plan to name foreign companies a national security risk, as a bargaining chip in trade discussions. Finally, 10yr JGBs were lower as they tracked the decline in T-notes and rebound in yields in the aftermath of the strong US jobs data, with the absence of the BoJ in the market also contributing to the lack of demand for bonds.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.8881 (Prev. 6.8697)

China is expected to use its plan to name foreign companies that are a national security risk, as a bargaining chip in trade talks with US. In related news, a SCMP columnist suggested to ignore the hype and that US President Trump and Chinese President Xi are no closer to an agreement. (SCMP) 

China FX Reserves (USD)(Jun) 3.119T vs. Exp. 3.110T (Prev. 3.101T). (Newswires)

Japanese Machinery Orders (May) M/M -7.8% vs. Exp. -4.7% (Prev. 5.2%) Japanese Machinery Orders (May) Y/Y -3.7% vs. Exp. -3.9% (Prev. 2.5%)

US

US President Trump said the Fed does not have a clue and that the most difficult problem for the US is the Fed and not the nation’s competitors, while he separately commented that the Fed would lower rates if it knew what it was doing. Furthermore, Trump said that China is devaluing its currency and that the UK Ambassador to the US has not served the UK well. (Newswires)

UK/EU

A YouGov poll over the weekend showed UK PM candidate Boris Johnson with 74% of support vs. 26% for Jeremy Hunt, while it was also reported that Home Secretary Javid backs Johnson as he sees him as better placed to deliver what we need to do at this critical time. (Newswires)

British lawmakers from both the ruling Conservatives and opposition Labour said they were examining steps to prevent the next PM from pursuing a no-deal Brexit. (Newswires) More specifically, Dominic Grieve is planning on amending a bill in Parliament on Monday, to ensure the House of Commons is sitting in October in order to prevent the next PM from suspending legislature to pursue a no-deal Brexit. (Newswires)

Britain could reportedly be facing a EUR 200bln EU bail-out bill unless it manages a clean Brexit, according to a group which represents numerous pro-Brexit campaigning organisations. (Telegraph)

ECB's Villeroy said if and when needed, there must be no doubt about our determination and capacity to act. Villeroy also suggested that the ECB looks at markets but are data dependent, while he added that the ECB cannot make miracles and it is up to political leaders to reduce uncertainty. (Newswires)

Germany’s CDU Chairwoman Kramp-Karrenbauer warned junior coalition partners against blocking the appointment of a German as the next European Commission President as it would put their coalition under “maximum strain”. (Newswires)

Greece’s centre-right New Democracy party won a landslide victory over incumbent Syriza party, which led to outgoing PM Tsipras conceding defeat to New Democracy leader Kyriakos Mitsotakis. (Guardian)

German Trade Balance, EUR, SA* May 18.7B vs. Exp. 17.0B (Prev. 17.0B, Rev. 16.9B)

- German Industrial Output MM* May 0.3% vs. Exp. 0.4% (Prev. -1.9%, Rev. -2.0%)

GEOPOLITICS

US President Trump said Iran better be careful and that it is doing a lot of bad things, while he added that Iran will never have a nuclear weapon. (Newswires)

Iran Defence Minister said the downing of the US drone sends a message that Iran will defend its borders. (Newswires)

Iran has surpassed the 3.67% uranium enrichment cap, according to a Iran Nuclear Energy Spokesman; additionally, enriching uranium above 20% has been discussed at the Supreme National Security Council but no decision has been taken as of yet; Iran’s 3rd step in reducing commitments under the 2015 nuclear deal will be stronger. Follows earlier reports that Iran is to lift uranium enrichment to over 3.67%, while an Iranian official confirmed they will scale back commitment to the 2015 nuclear deal and will keep reducing its commitments every 60 days unless signatories move to protect it from US sanctions and signal room for diplomacy. (Newswires/FARS)

EQUITIES

Major European indices are little changed this morning [Euro Stoxx 50 -0.1%] though bourses have been somewhat choppy. Deutsche Bank (-0.1%) have announced a major restructuring programme (full details available in the EU Equity Opening News) which includes 18k job cuts by 2022 and the creation of a net capital release unit representing EUR 74bln of risk-weighted assets. In addition, no dividend is to be paid for the next two years and they anticipate a Q2 net loss of EUR 2.8bln. The bank opened firmer this morning by around 3.5%, as markets initially had positive expectations for the Co’s plan; notably the FT highlight that UBS’s share prices roughly doubled in the 3 years after they announced a very similar plan in 2012. However, Co. shares have since given up these gains as further comments have been released by the Co for instance that they see significant uncertainty in their forecast to at least break even in 2020. Unsurprisingly, the banking sector has moved largely in sympathy the German bank this morning, currently lower by around 0.2%. Elsewhere, Pirelli (+4.0%) reside at the top of the FTSE MIB after being upgraded to overweight from neutral at JP Morgan. Finally, Sodexo (-4.1%) are in the red this morning post-earnings, where the Co. indicated that FY19 operating profit is to towards the lower end of the previously announced range.

Apple (AAPL) – Rosenblatt believe that new iPhone sales will be disappointing and iPad sales growth will slow in H2 2019, believe that the Co. will face a fundamental deterioration over the next 6-12 months. (Newswires)

FX

 

NZD/TRY - Vastly contrasting starts to the new week for the Kiwi and Lira, as Nzd/Usd rebounds firmly from post-NFP lows to probe above 0.6650, but Usd/Try extends gains to just over 5.7930 at one stage on the back of further Government intervention aimed at forcing the Turkish CB to cut rates. In short, President Erdogan sacked CBRT chief Cetinkaya over the weekend by decree and put Deputy Governor Uysal in charge and it seems that the failure to cut rates at the June policy meeting and/or not signalling sufficiently aggressive easing for this month prompted the decree and change of leadership.

USD - The Dollar has eased back from Friday’s headline payrolls peaks across the board, not just against the Kiwi as noted above, with the DXY unable to sustain momentum or breach 97.500 to expose the next upside technical objective. Another verbal lashing from US President Trump about the Fed not helping the economy, along the lines of his Turkish counterpart may be weighing on the index and Greenback generally, as markets brace for Powell’s semi-annual testimony to gauge whether easing is on the cards for the July FOMC, and more importantly if there is more than merely an insurance cut in the offing. On that note, markets are 97.5% certain that Funds will be lowered by 25 bp vs just 2.5% still looking for -50 bp.

AUD - The next best major, but capped ahead of 0.7000 as the Aud/Nzd cross drifts back down to 1.0500 from rebound highs posted in wake of last week’s RBA rate cut and tweak in guidance to signal a pause after 2 in a row.

GBP/JPY/CAD/EUR/CHF - All narrowly mixed against the Usd as Cable consolidates in a narrow range north of 1.2500 and the Yen pares some losses between 108.58-29 amidst weaker than forecast Japanese data (machinery orders) and with decent option expiry interest sitting just below (1.2 bn from 108.25-15 and 1 bn from 108.05-00). Meanwhile, the Loonie has also found its footing after underperforming on Friday when Canadian jobs data revealed an unexpected decline, but the breakdown was not as bleak, with Usd/Cad meandering in a 1.3062-83 range, and the single currency has shrugged off a surprise deterioration in Sentix sentiment to hold above 1.1200 in a 1.1219-34 band. Note, expiries could keep Eur/Usd in check given 2.5 bn sitting at 1.1250-55 and 1.1260-65, while the Franc is midway between 0.9900-19 and straddling 1.1125 vs the Euro in lacklustre mood overall.

Turkey Central Bank Governor Cetinkaya was removed from position and replaced by Deputy Governor Uysal in which President Erdogan cited a refusal to cut rates as the reason behind the dismissal. (Newswires)

Notable FX Expiries:

- EUR/USD: 1.1250-55 (1BLN), 1.1260-65 (1.5BLN), 1.1310-20 (2BLN)

- AUD/JPY: 75.58 (870M), 76.80 (690M)

- USD/JPY: 108.00-05 (1BLN), 108.15-25 (1.2BLN), 108.50 (450M)

 

FIXED INCOME

Bunds are just off a marginal new Eurex low of 173.36 as the post-NFP rebound fades further, but Gilts and US Treasuries continue to trade nearer the tops of their recovery ranges or at fresh highs (like 131.90 for the former on Liffe), while Spanish debt has reversed all and more of its earlier gains with 10 year benchmark down to 157.75 vs 158.76 at one stage and last Friday’s 158.16 close. Bonos appear to have resumed their post-supply retracement from fresh peaks and yield lows and dragging the rest of the Eurozone bond complex down, or at least capping the upside. Ahead, relatively quiet pm agenda, with US employment trends and consumer trends flanking BoE’s Haldane.

COMMODITIES

WTI and Brent have had a jittery start to the week and are trading within a relatively narrow USD 0.50/bbl range, with the complex continuing to garner some support from Friday’s price action where WTI reclaimed the USD 57.00/bbl level on Friday and is approaching the USD 58.00/bbl level; session high of USD 57.91. Recent commentary for the complex has been relatively light, Iranian Oil Minister Zanganeh said he is hopeful that Iran’s oil exports will improve and the main concern is Iran’s ability to export oil not the price of oil. Elsewhere, Ineos’ Forties Pipeline System’s (575k BPD) oil flows are to be continually reduced as a processing unit is in need of maintenance; flows are expected to be reduced to 150mln BPD until Tuesday. Separately, Goldman Sachs have reiterated their stance that they continue to see WTI between USD 50-60/bbl and Brent between USD 55-65/bbl. Looking ahead, this week we have the three main monthly oil market reports beginning with the EIA’s STE tomorrow at 17:00 BST which includes their expanded forecast discussion.

Gold (+0.5%) is firmer this morning as the metal has once again surpassed the USD 1400/oz level to the upside after losing the handle last week post US jobs report. Of note for the yellow metal, PBoC added 0.33mln ounces of gold to their reserve stockpile in June, to a total of 61.94mln ounces; the PBoC’s seventh consecutive months of gold buying. Separately, copper has been largely resilient to the downside seen in Asia overnight, with the red metal firmer by jut shy of 1.0% this morning; though does trade within a narrow range on the day thus far.

Iran Oil Minister Zanganeh said he is hopeful that Iran’s crude oil exports will improve, while he added that the price of oil is not Iran's main concern and that what matters is the amount Iran can export. (Newswires)

Goldman Sachs continue to see WTI between USD 50-60/bbl and Brent between USD 55-65/bbl. (Newswires)

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