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[PODCAST] US Open Rundown 12th August 2019

  • European indices are now little changed, after a volatile morning dictated by risk sentiment amidst further unrest in Hong Kong
  • Hong Kong’s airport authority have activated an ‘emergency center’, and all non-checking in flights cancelled for Monday; reports indicate the People’s Armed Police are heading towards Shenzhen
  • China Global Times Editor tweeted that as long as US forces a deal on China through maximum pressure, there will never be a deal
  • Looking ahead, highlights include Italian Senate to set a date for a no-confidence vote (15:00BST), RBA’s Kent and a lack of Tier 1 data

ASIA-PAC

Asian equity markets began the week with a cautious tone amid several market closures and after last Friday’s losses on Wall St. due to ongoing trade uncertainty. ASX 200 (+0.1%) was lower with the index weighed by weakness in commodity names including profit taking in gold miners and as iron ore prices resumed an aggressive pullback from last month’s record levels, although the losses in the index were stemmed due to resilience in the top weighted financials and as JB Hi-Fi led the outperformance in the Consumer Discretionary sector post-earnings. Elsewhere, Hang Seng (-0.4%) kept afloat and Shanghai Comp. (+1.5%) was underpinned after the PBoC set a firmer than expected reference rate and injected liquidity through reverse repos for the 1st time in 2 weeks. In addition, strength was seen in brokerages after China instructed a revision to margin financing and margin trading regulations, although trade concerns lingered following President Trump’s recent suggestion that talks with China may be cancelled. As a reminder, Japan, Singapore and India were among the numerous holiday closures across the region and Middle East.

PBoC injected CNY 30bln via 7-day reverse repos. (Newswires)

PBoC set CNY mid-point at 7.0211 vs. Exp. 7.0331 (Prev. 7.0136) 

US President Trump reiterate that China may be hoping for a Democrat to win the 2020 elections so China could continue to “rip off America”. China Global Times Editor Hu Xijin replied by stating that China wants a deal, but as long as US forces a deal on China through maximum pressure, “there will never be a deal no matter how long you are US President”. (Twitter)

China FX Regulator Chief does not expect a disorderly depreciation of the Yuan despite trade frictions, the depreciation will not lead to large-scale deleveraging in China's foreign debt, according to a publication. China has confidence and capability to effectively fend off shocks and risks, maintain stable FX markets (Newswires)

South Korea's Industry Ministry is to remove Japan from the 'White List', with the creation of a new category for Japan to take effect in September. (Newswires) 

GEOPOLITICAL

Hong Kong Airport Authority has activated an emergency center and is to cancel all flights not checked in by Monday afternoon amid serious disruptions in operations. (Newswires) Most recently, Hong Kong protestors have called for a retreat from the airport, according to SCMP. (SCMP)

People's Armed Police are reportedly gathering and heading towards Shenzhen, a city bordering Hong Kong, in advance of apparent large scale exercises., Global Times. (Twitter)

North Korea fired another 2 projectiles into the East China Sea on Saturday, while it threatened to freeze any future talks with South Korea and only hold them with the US in retaliation to US-South Korea military drills. (Newswires)

US President Trump tweeted that he received a letter from North Korean Leader Kim Jong Un in which the North Korean Leader said he would like to meet and start negotiations as soon as the joint US/South Korean military exercises are over. Trump also stated that the letter was a small apology for testing short range missile and that testing will stop when the joint exercises end. (Twitter)

UK/EU

A leaked paper showed MPs are drawing up plans to force PM Johnson to request a Brexit extension. Under the proposals set out in the document, 1) MPs plan to block any attempt by the PM to call an election before Brexit day unless the PM agrees to a Brexit extension for the poll to the place, and 2) use a vote of confidence in the runup to October 31st to take control of the parliamentary timetable and change the law to force the PM to request for an Article 50 extension. (The Times)

UK opposition Labour MPs have been told to cancel travel plans for next month as party leader Corbyn prepares to table a no-confidence motion. (Telegraph) Labour Party MP Abbott, when asked about a no confidence vote in the UK Government replies with - who has confidence in PM Johnson's government, and if we go to a no confidence vote we want to know we can win it. (Newswires)

UK MPs attempting block a no-deal Brexit may have run out of time and options to prevent an October 31st exit from the EU, according to The Institute for Government. (Telegraph)

UK PM Johnson has accepted an offer from Irish PM Varadkar to meet to try break the Brexit deadlock, dates for the bilateral meeting are now being discussed, according to sources. (Telegraph)

UK PM Johnson was said to be developing plans for a bailout fund to support businesses at risk of collapsing from a no-deal Brexit. (Politics Home)

Italian Deputy PM Salvini may pull ministers soon unless an Italian election happens soon, reported via Messagero. (Messagero)

Italy's League Party Economics Chief says the party's budget plan would raise the public deficit target to 2.8% of GDP, to avoid a VAT increase. (La Stampa)

Fitch affirmed Italy at 'BBB'; Outlook Negative and raised Russia to 'BBB'; Outlook Stable. (Newswires) 

EQUITIES

European equities have given up the gain seen at the open and now trade mixed [Eurostoxx 50 +0.1% vs. +0.9% at the open], which follows a cautious handover from the Asia-Pac session whilst Japanese markets were closed on holiday.  The bout of risk-aversion coincided with reports of escalating violence in Hong Kong, with its airport cancelling all flights as protestors stage a sit-in, whilst separate reports noted that People's Armed Police are reportedly gathering and heading towards Shenzhen (a city bordering Hong Kong) in advance of apparent large scale exercises. Back to Europe, bourses are mixed with some mild underperformance in the FTSE 100 as a firmer Sterling weighs on exporters. Sectors are mixed with no clear outperformer/laggard. In terms of individual movers: Osram Licht (+9.9%) shares spiked to the top of the pan-European index after AMS (-9.5%) offered EUR 4.1bln to acquire the Co. The bid is 10% higher than that of the Bain & Carlyle consortium; Osram have said they will review the offer. On the flip side, Anglo American (-1.4%) and ThyssenKrupp (-2.8%) rest near the foot of the Stoxx 600 amid the respective declines in copper and iron ore prices. Finally, luxury good makers also bear the brunt of the US/China trade spat, LVMH (-2.6%), Kering (-1.4%); with the Global Times editor noting, over the weekend, that as long as the US forces a deal on China with maximum pressure, then “there will never be a deal”.

Facebook (FB) - The EU are nearing a decision regarding Facebook privacy cases, Ireland’s Data Protection Commission reportedly has the power to levy billions of euros in fines. (WSJ)

FX

EUR - Not the worst G10 performer, but one of the major movers amidst all round selling that appeared to start vs Sterling as Eur/Gbp recoiled from circa 0.9325 towards 0.9250. A corporate order has been touted, but Eur/Jpy also crossed 118.00 and seemed to trip stops and technical levels on its way down to almost 117.50. Meanwhile, the single currency succumbed to accelerated declines through 1.1200 vs the Dollar and alongside ongoing Italian political jitters chart points may also have exacerbated the fall as the 21 DMA at 1.1176 gave way and the headline pair has struggled to sustain rebounds beyond Fib resistance at 1.1220 in recent sessions. However, the 10 DMA at 1.1161 is holding in for now at least.

AUD/NZD/NOK/SEK - A broad deterioration or erosion of risk sentiment against the backdrop of heightened unrest in Hong Kong and the ongoing Yuan depreciation (Usd/Cnh now probing 7.1100) has hit the Aussie and Kiwi especially hard, with Aud/Usd down to around 0.6750 and Nzd/Usd under 0.6450. Note also, dovish Central Bank vibes continue to undermine the Antipodean currencies with research from the NZ Treasury overnight raising eyebrows given -0.35% tagged for the OCR in a crisis situation. Elsewhere, the Scandi Crowns are not deriving any indirect support from the aforementioned Euro weakness or relatively hawkish monetary policy stances ahead of Thursday’s Norges Bank meeting, as Eur/Nok and Eur/Sek rebound to just over 9.9900 and 10.7300 respectively, with the former also propelled by another downturn in oil prices.

JPY/GBP - The Yen is strong across the board and back in demand as a safe-haven, with Usd/Jpy down to 105.15 and eyeing 105.00 ahead of flash crash lows beneath the big figure, but perhaps wary of decent option expiry interest at the round number (1.6 bn) that could provide support. Meanwhile, the Pound is also bid on the cross flow noted above, and with Cable holding firm between 1.2015-75 parameters after reports that a group of UK MPs are trying to ensure another Brextension rather than risk PM Johnson leading the country out of the EU on October 31 with no deal.

EM - Widespread losses vs a mostly buoyant Buck as the DXY continues to pivot 97.500, but some protection for the Rouble from risk aversion and soft Brent via Fitch upgrading Russia to BBB last Friday. However, Usd/Rub is still firmer within a 65.2535-5700 range.

FIXED INCOME

Bunds extended gains to 30 ticks at best, but pulled up ahead of 177.55 interim resistance and some distance from last week’s 177.74 contract peak again. However, safe-haven debt has benefited from a general deterioration in risk appetite, with even Gilts recovering and posting a marginal new Liffe high at 134.40 (+12 ticks vs -19 ticks at one stage) and US Treasuries nudging fresh overnight session pinnacles amidst more pronounced curve flattening on little sign of any improvement in global trade or geopolitical tensions. Conversely, Italian BTPs seem to have topped out at 138.00 as the clock ticks down to a meeting in Rome between coalition partners and the President to set the date for a confidence vote that is likely to trigger new elections.

COMMODITIES

WTI and Brent futures have succumbed to the firmer Dollar and the risk averse tone around the market thus far. The former breached 54/bbl to the downside whilst the latter hovers around the 58/bbl handle. Newsflow has been relatively light for the complex, although the Kuwaiti oil minister stated that the country is committed to fully implement OPEC’s output pacts and noted that fears concerning a global slowdown are “exaggerated”. Analysts at ING see stronger non-OPEC supply growth in 2020 which will subsequently lead to OEPC taking further action or face the risk of further declines in prices. Elsewhere, Gold prices are choppy and ultimately unchanged on the day as the yellow metal balances a cautious risk tone against a firmer Buck. Spot Gold now hovers around the 1500/oz level (having hit a current intraday low of 1487.50/oz).  Meanwhile, copper prices fell back below the 2.60/lb level as a firmer Greenback and fragile risk tone weighed on the red metal. Finally, Dalian iron ore futures fell to a two-month low, notching its 8th straight session of losses amid the ongoing supply worries and a bleak demand outlook as China’s top steel-producing province looks to tighten emission requirements.

Kuwait is committed to fully implement OPEC's output reduction agreement, according to the Kuwaiti Oil Minister, adds that global oil demand is currently acceptable, expects excess in oil inventories to fall gradually and sees a pick-up in demand in H2. (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)