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[PODCAST] US Open Rundown 31st July 2019

  • European Indices are mixed this morning after an earnings dominated start to the session, and as further US earnings and the FOMC awaits
  • US-China trade talks concluded early, with no substantial progress noted though the two sides are to meet again in September
  • North Korea fired multiple projectiles early on Wednesday which was said to be 2 short-range ballistic missiles and a different type of weapon than previous launches
  • Looking ahead, highlights include Canadian GDP, FOMC Rate Decision & Press Conference, US Quarterly Refunding Announcement
  • Earnings: American Tower, Qualcomm, ADP, CME Group

ASIA-PAC

Asian equity markets followed suit to the negative performance seen across global peers amid trade concerns following US President Trump’s Twitter rant regarding China, while the looming FOMC decision, mixed Chinese PMI data and earnings deluge added to the cautious tone. ASX 200 (-0.5%) was dragged lower by losses in utilities and financials but with downside stemmed by strength in the energy sector after a rally in oil prices, while Nikkei 225 (-0.9%) suffered the ill-effects of a firmer currency with the best and worst performers in Tokyo driven by their quarterly results. KOSPI (-0.7%) weakened after North Korea conducted another launch which was said to be a new type of weapon and with earnings also in focus including index heavyweight Samsung Electronics which showed final Q2 oper. profit and revenue topped preliminary results but still suffered a 56% Y/Y drop in profits. Conversely, its main rival Apple saw a different fate with the US tech giant gaining around 4.5% after-hours due to a beat on both top and bottom lines and although it missed on iPhone sales its revenue forecast for next quarter surpassed Street estimates. Elsewhere, Hang Seng (-1.3%) and Shanghai Comp. (-0.7%) conformed to the wide risk averse tone after President Trump’s recent criticism on China and warning of a much tougher deal if China holds out until after the next US elections, with participants also digesting mixed Chinese PMI data in which the headline Manufacturing PMI beat expectations but remained below the 50 benchmark level and Non-Manufacturing PMI missed forecasts. Finally, 10yr JGBs traded relatively flat and were only marginally supported by the risk averse tone as well as the BoJ’s presence in the market for JPY 1.24tln of JGBs with 1yr-10yr maturities.

PBoC skipped open market operations. (Newswires) PBoC set CNY mid-point at 6.8841 (Prev. 6.8862)

Chinese Manufacturing PMI (Jul) 49.7 vs. Exp. 49.6 (Prev. 49.4). (Newswires) Chinese Non-Manufacturing PMI (Jul) 53.7 vs. Exp. 54.0 (Prev. 54.2) Chinese Composite PMI (Jul) 53.1 (Prev. 53.0)

China Global Times Editor Hu Xijin tweeted that China and US negotiators restarted talks and based on what he knows, the atmosphere is good which he hopes indicates that future talks will be smoother than various pessimistic predictions. (Twitter)

US

US-China trade talks have ended early with no sign of a breakthrough but a willingness to continue discussions, while China’s Foreign Minister says the US is the side that flip-flopped in trade negotiations during the past year, adding that progress in talks can only be achieved when the US shows enough sincerity and good faith. (SCMP/Newswires)

China Global Times Editor tweets that US and Chinese negotiators had an "efficient and constructive deep exchange" and discussed increasing purchase of US agricultural products whilst the US agreed to create favourable conditions for it, US-China talk will continue in the future. (Twitter)

China and US trade negotiators are to meet in the US in September for further trade talks, according to Chinese State Media, talks in Shanghai were constructive, candid, efficient and deep exchanges over major issues of mutual interest. (Newswires

GEOPOLITICS

North Korea fired multiple projectiles early on Wednesday which was said to be 2 short-range ballistic missiles and a different type of weapon than previous launches, Following the launch, South Korea convened a national security meeting, while Japan Defense Ministry said no ballistic missiles reached Japan's territory or exclusive economic zone and sees no immediate impact on Japan's security from the North Korea launch. (Newswires/Yonhap)

UK/EU

EU HICP Flash YY 1.1% vs. Exp. 1.1% (Prev. 1.3%)

- EU HICP-X F&E Flash YY Jul 1.1% vs. Exp. 1.1% (Prev. 1.3%)

- EU HICP-X F, E, A & T - SuperCore, Flash YY (Jul) 0.9% vs. Exp. 1.0% (Prev. 1.1%)

 

EU GDP Flash Prelim QQ Q2 0.2% vs. Exp. 0.2% (Prev. 0.4%)

- EU GDP Flash Prelim YY Q2 1.1% vs. Exp. 1.0% (Prev. 1.2%)

EQUITIES

Major European indices are mixed [Euro Stoxx 50 Unch], as this morning saw the early finish of US-China trade talks with initial reports indicating that the talks ended with no sign of a breakthrough after an earnings dominated morning for indices. Sectors are also mixed with no standout sector at present. In terms of this mornings earnings, L’Oreal (-3.8%) are under pressure after missing on sales growth in-spite of the Co’s CEO noting that H1 was the strongest in terms of like-for-like growth in decades; notably the Co. also announced a EUR 750mln share buyback. Sticking with the CAC 40 (+0.1%) this morning also saw earnings from Airbus (+0.8%) who beat on Q2 revenue and confirmed FY guidance; recently, the Co. also benefitting recently from WSJ reports indicating that internal risk analysis at Boeing (BA) showed the likelihood was high of further cockpit emergencies following the first crash. Elsewhere, of note for banking names Credit Suisse (+4.2%) are firmer after beating on Q2 net revenue and net income as are BNP Paribas (+3.5%) post earnings where the Co’s Q2 revenue beat on consensus.

A Tesla (TSLA) vehicle reportedly burnt down to 'not much more than a pile of ashes' for 'no apparent reason' in Germany's North Rhine-Westphalia, according to Stern.de.

Apple Inc (AAPL) reported Q3 EPS USD 2.18 vs. Exp. USD 2.10. Q3 revenue USD 53.8bln vs. Exp. USD 53.42bln. Q3 Phone net sales USD 25.99bln vs. Exp. USD 26.31bln. Sees Q4 Revenue between USD 61bln-64bln vs. Exp. USD 61bln. Co. shares rose 4.5% after-market. (Newswires)

FX

AUD, NZD - The Aussie stands as this morning’s G10 winner amid promising domestic inflation data which follows the RBA’s back-to-back rate cuts since June. CPI Y/Y rose to 1.6% (Prev. 1.3%) in Q2 but remains below the Central Bank’s 2-3% target. In terms of implications on monetary policy, the CB is likely to stand pat on rates for now in order to examine further effects of its recent rate cuts and the government’s tax cut package. AUD/USD trades closer to the top of the intraday range thus far, after testing 0.6900 to the upside. Elsewhere, the Kiwi is lacklustre after the ANZ business confidence further deteriorated alongside the activity outlook. NZD/USD hovers just above the 0.6600 mark having visited a current intra-day low of 0.6590.

DXY, CNY - Relatively side-ways trade for the DXY (for now) heading into the FOMC’s latest policy decision (full preview available in the Research Suite) and with little impetus from the fallout of US-China talks in Shanghai. The initial reports/commentary on the meeting provided little substance. Although no breakthrough was reached (as expected), discussions are said to have been constructive and future talks between the nations will happen. DXY remains flat above 98.00 having earlier tested the figure to the downside. Meanwhile, the CNH also remains tentative and within a narrow range vs. the Buck after having visited its 50 DMA (6.8967) at the European open.

GBP, EUR - Overall little changed thus far with the Pound capped amid fears of a Halloween no-deal crash and tomorrow’s BoE policy decision and QIR (full preview available in the Research Suite). GBP/USD continues to meander sub-1.2200, and as a reminder, the following support levels are still in play: 1.2110 (March 17 low), 1.2085 (Jan 17 low), 1.2000 (psychological) and 1.1841 (2016 flash crash low). Elsewhere The EUR remains flat within a 20-pip intraday range as mostly in-line inflation, growth and unemployment metrics failed to spur a reaction ahead of the FOMC’s policy decision. EUR/USD trades just below 1.1150 ahead of minor support levels at 1.1133/14/21/01, although large option expiries (1.3bln at 1.1145 and 1.2bln at 1.1100-05) may keep the pair contained heading into today’s NY cut.

EM - Another day of gains for the Lira as traders anticipated the CBRT’s QIR to signal further normalisation in its domestic economy, in which it delivered. The Central Bank cut its 2019 year-end inflation forecast mid-point to 13.9% from 14.6% whilst its 2020 figure was maintained at 8.2%, adding that the economic outlook has brightened compared to the April release. USD/TRY breached its 200 DMA (5.5600) to the downside and took out a support level at 5.5500 to print a low of 5.5150 ahead of a Fib support at 5.4172.

Australian CPI (Q2) Q/Q 0.6% vs. Exp. 0.5% (Prev. 0.0%). Australian CPI (Q2) Y/Y 1.6% vs. Exp. 1.5% (Prev. 1.3%) Australian RBA Trimmed Mean CPI (Q2) Q/Q 0.4% vs. Exp. 0.4% (Prev. 0.3%) Australian RBA Trimmed Mean CPI (Q2) Y/Y 1.6% vs. Exp. 1.5% (Prev. 1.6%)

New Zealand ANZ Business Confidence (Jul) -44.3 (Prev. -38.1). (Newswires) New Zealand ANZ Activity Outlook (Jul) 5.0 (Prev. 8.0)

 

Turkish Central Bank Inflation Forecasts:

- 2019 year-end inflation forecast mid-point seen at 13.9% vs. Prev. view of 14.6%

- 2020 year-end inflation forecast mid-point seen at 8.2% vs. Prev. view of 8.2%

FIXED INCOME

A quiet and tentative start to the session for Bonds, as markets are cautious ahead of today’s FOMC decision where expectations are for a 25bps cut; in addition, the initial reports around US-China trade talks indicate that no substantial breakthroughs were made but talks are to continue in the future. This cautiousness has dominated sentiment across the fixed complex this morning in-spite of the data slate thus far including EZ CPI and GDP flash metrics, albeit the metrics did print largely in-line. The core European Bond is once again trading within a narrow range (174.53-71) as are its European counterparts with the mild exception of BTPs currently just shy of the days 139.69 high, in-spite of better than expected unemployment metrics as harmonised CPI just missed expectations. Looking ahead, and in focus for USTs which are once again painting a similarly tentative picture, is the aforementioned FOMC but prior to this markets receive one last data input in the form of ADP which is expected at 150k (Prev. 102k); although, due to the limited reaction from yesterdays PCE report and the release occurring in the 11th hour it’s unlikely to garner as much focus as normal.

COMMODITIES

The oil complex has held onto most of its API-induced gains with WTI futures hovering just below USD 58.50/bbl and Brent north of USD 65/bbl. The report showed that crude inventories fell by 6.02mln barrels over the last week, a larger decline than the expected 2.60mln barrel drawdown. Traders today will be eyeing two events as catalysts: 1) The weekly EIA report for confirmation of the decline in stocks, 2) the FOMC’s policy decision for any Dollar or sentiment-induced action. Elsewhere, sources stated that Libya’s El-Sharara oilfield (300k BPD) has halted production amid a valve closure on a pipeline, although it is not clear how long the closures could last. Of note, WaPo reported that the Trump administration is set to announce that it will waiver five difference nuclear related sanctions on Iran, although it is currently unclear whether the waivers will be oil related. Looking at metals, gold and copper remain flat, as usually the case ahead of the FOMC’s decision

US is said to be preparing to reissue waivers related to Iran nuclear sanctions. (Washington Post)

Libya's Sharara oil field is reportedly shutting down due to a blocked valve on the pipe to the Zawiya terminal, according to sources. (Newswires)

Categories:
MOC: * SPX 850mln to sell (vs at 650mln to sell at 1549 EDT) * Dow 50mln to sell (vs 100mln to buy at 1549 EDT)