Newsquawk EU Mid Session: Low volumes on MLK day, whilst Davos WEF goes underway - 20th January 2020

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EQUITIES

A cautious start to the week for European stocks [Eurostoxx 50 -0.3%] with bourses in the region mostly lower, diverging from the mostly positive APAC performance and with volumes light on account of Martin Luther King Jr. market holiday. European sectors are experiencing broad-based losses with no clear standouts. Energy names failed to reap benefits from the overnight rise in oil prices following the Libyan supply disruption. In terms of individual movers – Airbus (+0.2%) shares are buoyed by reports of glitches during Boeing’s 737 Max tests, with other reports noting that the troubleshooting timeframe is unclear. Furthermore, Airbus is developing a derivatives-based trading platform, dubbed Skytra, designed to hedge the air travel’s exposure to volatile ticket prices, which Citi said to be interested in the venture. Meanwhile, BAE Systems (+2.3%) rose amid strategic acquisitions in which it will purchase Collins Aerospace Military GPS business for USD 1.925bln in cash, alongside another agreement to purchase Raytheon’s radio business for USD 275mln in cash. Both agreements are contingent on the successful closure of Raytheon and United Technologies Corp’s merger. Telefonica (+1.2%) are supported by source reports that the Co. is said to have been offered EUR 10bln for its LatAm business. On the flip slide, Enel (-1.7%) and Snam (-1.7%) rest towards to the foot of the Stoxx 600, albeit more on the back of ex-divs as opposed to individual stories. Lufthansa (-1.7%) shares are also pressured after the German cabin crew union UFO said it is mulling further strikes to increase pressure on management. The union stated that it will announce details on Wednesday 22nd at 1300GMT. Finally, Fevertree (-21%) shares fell amid a profit warning in which it also noted that implementing initiatives is expected to result in a one-off impact on net revenue growth in 2020.

FX

USD - The Dollar has resumed its post-US data advance after a shallow pull-back, and with added impetus in lacklustre MLK holiday trade coming from weakness in rival currencies, like the Pound and Rand in particular. The DXY bounced from 97.575 and beyond last week’s peak to test the 200 DMA (97.720) after breaching a key Fib retracement level (97.620), but faded ahead of the next key/significant upside chart hurdles before 98.000, such as December highs at 98.817 and 97.844.

GBP - In stark contrast to the Greenback, Sterling bears are back in the driving seat as Cable teeters just above last week’s sub-1.3000 lows and Eur/Gbp hovers around 0.8550 even though the Euro has seen some knock-on selling vs the Buck. BoE easing prospects have been bolstered by recent dovish rhetoric from the MPC and relatively bleak domestic data, while reports about Brexit and FTA divisions between the UK and EU are stoking concerns that will only add to rate cut speculation and short positioning in the Pound.

EUR - As noted above, Eur/Usd has been dragged down alongside Cable and deeper below the 1.1100 handle to probe under earlier January lows (1.1085 on NFP day), but stops have not been tripped in size perhaps due to the aforementioned US market holiday or the draw of hefty option expiry interest between the big figure and 1.1105 (1.5 bn).

NZD/CAD/JPY/AUD/CHF - All fractionally softer vs the Buck, as the Kiwi clings to 0.6600 by virtue of supportive Aud/Nzd cross flows through 1.0400 and the Aussie’s inability to maintain 0.6900+ status ahead of jobs data and Q4 CPI respectively on Thursday. Meanwhile, the Loonie remains rangy within 1.3055-71 parameters eyeing Canadian manufacturing sales tomorrow, the Yen is meandering from 110.05 to 110.21 awaiting the BoJ policy announcement and accompanying statement overnight and Franc is flitting either side of 0.9683, but firmer against the Euro over 1.0750 despite another rise in weekly Swiss sight deposits.

EM - Broad declines vs the Usd, but more prominent for the Zar and Try amidst ongoing SAA debt financing issues (failed to make a 2 bn payment over the weekend) and another supply-related spike in oil prices (due to Libyan and Iraqi production disruptions) that have pushed the Rand down through 14.5000 and Lira towards 5.9100.

FIXED INCOME

Bunds remain just off worst levels in muted trade (turnover less than 105k lots), but the just released Buba monthly bulletin may prompt a bit more interest and volume on a day bereft of US involvement. Meanwhile, UK bonds have unwound more of their early Liffe advances and recently retreated into negative territory at 133.33 (-12 ticks vs +28 ticks at best) on a lack of follow-through buying rather than anything more fundamental it seems. However, the Eurozone semi-core and periphery are still perky and some participants are pointing to spread plays vs PGBs after Moody’s failed to publish its latest review of Portugal’s rating last Friday and the EC deemed that the country’s deficit could exceed the ceiling. Elsewhere, US Treasury futures are marginally firmer with the curve fractionally flatter ahead of the IMF’s WEO.

COMMODITIES

WTI and Brent Futures have waned off overnight highs in which front-month futures rose in excess of 1% after Libya’s NOC declared a force-majeure over the weekend, following the LNA blocking ports in the Eastern region. In terms of the impact: the blockade would result in oil exports decreasing by 700k BPD and production by 800k BPD. If the blockades continue then the NOC have warned that Libya’s oil output could be cut to 72k BPD from 1.2mln BPD over the next few days, as only one port will remain open - Link to analysis. Brent futures hit a high of USD 66/bbl but has since shed its overnight gains – with Mar’20 futures meandering just above the 65/bbl mark at the time of writing. If the 65/bbl level is breached to the downside, technicians may be eyeing 64.64/bbl (50 WMA) for potential support. In terms of bank outlooks on energy, BOFA has upgraded its 2020 average forecasts for Brent to USD 62/bbl (Prev. USD 60/bbl) and WTI to USD 57/bbl (Prev. USD 54/bbl) -  adding that supply and demand forecasts suggest a 190k BPD surplus in 2020 and the bank expects global oil demand growth of 1.1mln BPD (Prev. 1mln BPD) in 2020. Elsewhere, gold remains steady as eyes are set on Davos, with opening statements today and European Commission President von der Leyen the only pertinent speaker of the day. The yellow metal stays north of 1550/oz despite the firmer Buck as prices remain supported by Middle East angst. Copper prices remain little changed but holds onto a bulk of its recent gains amid thin volumes and tailwinds from last week’s Chinese GDP and IP data. Finally, Dalian iron ore closed with gains amid supply concerns (as imported iron or stocks at China’s ports fell) and improved steel demand outlook heading into the week-long Lunar New Year. 

20 Jan 2020 - 11:15- Research Sheet- Source: Newsquawk