[PODCAST] US Open Rundown 2nd October 2019
- European equities are lower as sentiment remains subdued from yesterdays events and ahead of today’s risk catalysts
- WTO are to announce the decision on the US' right to retaliate to against the EU over their Airbus (AIR FP) subsidies at 15.00 BST
- EU Sources note UK proposals on Brexit as reported by the media "won't fly" and seem "fundamentally floored"
- In FX, DXY has regained ground against most G10 peers while the debt complex has been choppy
- Looking ahead, highlights include US ADP National Employment and EIA Weekly Crude Stocks, ECB’s de Guindos, Fed’s Harker, Williams, Evans, WTO Decision (10:00 ET), EU27 Ambassadors’ meeting
Asian equity markets took the cue from the negative lead on Wall Street where the major indices declined on the first day of Q4 after US ISM Manufacturing PMI contracted to its worst level since June 2009. Losses in ASX 200 (-1.5%) accelerated after NAB shares tumble 3% amid an additional AUD 1.2bln charge relating to increased provisions for customer-related remediation, whereas upside in the Nikkei 225 (-0.5%) was limited by the unfavourable currency flow, whilst Toyota shares slumped due to poor North American vehicle sales and Sony remained near the bottom of the index after cutting streaming prices ahead of Google’s Stadia launch. Elsewhere, the Hang Seng (-0.2%) climbed off lows after returning from a long weekend, albeit oil giants remained pressured after Norway’s Sovereign Wealth Fund received the green light to sell USD 6bln worth of oil and gas stocks, meanwhile upside in the index was capped by the ongoing situation in Hong Kong as protestors vowed to step up action after a police officer shot a teenager yesterday. Meanwhile, South Korea’s KOSPI (-2.0%) was pressured after North Korea fired short-ranged projectiles towards the East Sea. As a reminder, Mainland China and Indian markets were closed today due to public holidays.
WTO are to announce the decision on the US' right to retaliate to against the EU over their Airbus (AIR FP) subsidies at 15.00 BST
Australia's Labor party is intensifying its demands for the Australian PM Morrison to release the transcript of a conversation with US President Trump, accusing the PM of cosying up to the US President at the expense of Australia's national interest. (ABC) As a reminder, this follows reports US President Trump pushed Australian PM Morrison for information to discredit the Mueller probe.
North Korea fired short-ranged projectiles towards the East Sea, Yonhap reported. Japanese Cabinet Minister Suga said the launch did not directly impact Japan but one North Korean ballistic missile landed inside the Exclusive Economic Zone (EEZ) and one outside. Japanese PM Abe condemned the North Korea launches and added that it violates UN resolutions. Further, Japanese PM Abe will hold a meeting of the National Security Council to decide how to respond to the projectile firings. In terms of details, South Korean Defence Ministry said the missiles launched by North Korea have a range of circa 1300km and was likely launched at a higher apogee to decrease range and could have been fired from a submarine. Japan has not yet determined whether North Korea's missiles were Submarine-launched ballistic missile and notes it may have been one missile which split into two. The White House said it is aware of the launch and is monitoring the situation. (Newswires/SCMP)
Saudi Arabia Foreign Minister said Iranian claims that Saudi Arabia has sent messages to the Iranian regime are inaccurate, WSJ's Summer Said reported. The Foreign Minister said, “Regarding what the Iranian regime’s spokesman referred to about de-escalation in Yemen, the Kingdom did not and will not talk about Yemen with the Iranian regime.” (Twitter)
UK/EU – Full Brexit Analysis available on the RANsquawk headline feed
UK PM Johnson will today unveil a new ‘two borders for four years’ Brexit plan which will leave Northern Ireland in a special relationship with Europe until 2025. Under the terms of the proposal, Northern Ireland would continue to follow all EU single market rules for agricultural and industrial goods until 2025, four years after the end of the ‘transition’ period in 2021. Elements of the deal (particularly the creation of two borders), are understood to have puzzled senior European diplomats and officials. (Telegraph) Irish Foreign Minister Coveney said if the Telegraph reports are true, it does not look like basis for an agreement, however DUP sources have confirmed that the party is largely “content” with the proposals, which are believed to still include a lot of elements of the backstop and a “Stormont lock” which gives NI politicians a say in future EU rules. (Newswires/Guardian) Separate reports noted that officials and diplomats in Brussels are concerned that UK PM Johnson's plan has been specially designed to be unacceptable to the EU. (Times) UK PM Johnson says he has nine days left to negotiate a Brexit deal with the EU as on October 11th, the agenda will be set for the EU summit taking place on October 17th. (Sun)
Reports indicate the chances of a Brexit deal being secured are around 10%, and the DUP are supportive of the source report proposals. However, EU Sources note the only likely option for a Brexit deal prior to October 31st is to return to a NI backstop; otherwise likely a further delay which the EU would agree to. UK proposals as reported by the media "won't fly" and seem "fundamentally floored", and if this is the final plan, then discussion will move onto an extension on the Brexit deadline. (Newswires/Twitter)
Senior UK Government Official said the government is working for a new deal or a no-deal Brexit, there will be no delay. (Newswires) UK Downing Street is planning to prorogue parliament for three days next week to prepare for the Queen's speech on October 14th. (Sun)
UK Chancellor Javid is expected to delay the Budget until after October 31st amid uncertainty about whether the UK will leave the EU with a deal. (FT)
UK Markit/CIPS Cons PMI (Sep) 43.3 vs. Exp. 45 (Prev. 45). (Newswires)
Major European Bourses (Euro Stoxx 50 -1.3%) are firmly lower, amid a lack of fresh bearish fundamentals, as the region more takes its cue from a negative AsiaPac lead; sentiment was downbeat overnight following Wall Street underperformance after bad US ISM Manufacturing data, the latest missile test launch out of North Korea and ongoing tensions in Hong Kong. Looking ahead, at 15.00 BST the WTO is expected to announce its decision on the US' right to retaliate to against the EU over their Airbus (-0.8%) subsidies, a potential source of impetus. Prior reports have suggested the ruling will allow the US to impose tariffs on roughly USD 8bln of EU imports on a wide range of products. Sectors are also firmly in the red; Materials (-2.1%), Industrials (-1.7%) and Energy (-2.0%) (despite slightly higher crude prices) are leading the sectors lower while Consumer Staples (-0.9%), Telecoms (-0.8%) and Utilities (-1.0%) hold up comparatively better. In terms of individual movers; Flutter Entertainment (+18.4%) shot higher on the news of the co.’s merger with Stars Group, pulling other betting names higher such as William Hill (+4.3%) higher in tandem. Nestle (-0.2%) shares are being supported by the Co.’s sale of its Skin Health unit. Tesco (+0.6%) managed to reverse early losses and now trades higher, after the co. released decent earnings premarket, but its CEO resigned. Pernod Ricard (+0.7%) is higher after being upgraded at Jefferies. Luxury names including LVMH (-2.0%) and Richemont (-2.1%) underperformed the market, with bad retail data out of Hong Kong (the largest decline on record) weighing.
USD - The Dollar has clawed back some losses following yesterday’s abrupt U-turn from new 2019 highs in the DXY with the index bouncing firmly ahead of 99.000 towards 99.420, as attention switches to NFP via ADP and hopefully better news from the services side of the US economy after the more pronounced ISM manufacturing activity slowdown. However, the Greenback is also benefiting from renewed weakness in rival currencies and general risk aversion awaiting the WTO ruling on the extent that the US can counter EU subsidies for Airbus and repercussions in Brussels after UK PM Johnson delivers his latest/last Brexit proposal.
CHF/GBP - The clear G10 underperformers, with the Franc deflated on weak Swiss CPI grounds, further SNB guidance from Maechler expounding the virtues of NIRP allied to direct FX intervention and the KOF cutting growth and inflation estimates, while the Pound has been hit by a dire UK construction PMI and the ongoing political/Irish border wrangling. Consequently, Usd/Chf is back up near parity and Cable has recoiled from 1.2300+ towards Tuesday’s low only a few pips away from the big figure below, with the focus turning to Johnson’s appearance at the Tory Party conference from noon.
NZD/AUD - The Aussie and Kiwi are also unwinding/reversing post-US ISM manufacturing gains, as Aud/Usd returns to ytd lows circa 0.6670 and Nzd/Usd retests bids protecting 0.6200 alongside YUAN depreciation in holiday-thinned trade.
EUR/CAD - Holding up a bit better than most major counterparts, but some way off best levels vs the Buck as the single currency failed to sustain momentum through 1.0950 and Loonie could not breach 1.3200 amidst confirmation of more German GDP forecast downgrades and a downturn in crude prices.
JPY - Bucking the broad, if not overall trend, safe-haven demand/positioning has kept the Yen elevated between 107.90-55 against the Dollar, and from a chart perspective the 100 DMA in Usd/Jpy (now around 107.76) remains pivotal.
EM - Rand in the spotlight ahead of ANC judgment on the latest SA growth plan and following the SARB’s semi-annual MPR, with some technical support coming from a pull-back from 1 month peaks in Usd/Zar around 15.4000 to almost 15.3000 at one stage.
Goldman Sachs economists say the RBA's internal economic model suggests the Central Bank will need to release a USD 200bln QE programme to achieve its unemployment and inflation targets. (AFR)
Some upside range extension for debt, with Bunds reaching 174.04 at one stage (-14 ticks vs -57 ticks at worst), Gilts up to 134.26 (-24 ticks from -69 ticks at the Liffe low) and the 10 year T-note rebounding to 130-27 from 130-14 at the other extreme, but the EU benchmarks still not following through even though stocks have extended losses. Hence, inverse asset correlations remain broken or fragile at best and divergence is emanating across the Atlantic divide even though demand for German Bobls was relatively strong and UK bonds are prone to regaining a no deal Brexit premium at the whim of any breaking headline that delivers a rejection from the EU to PM Johnson’s final offer.
The crude complex is mixed, giving away the majority of overnight gains, where the complex bounced from post US ISM Manufacturing data lows helped by a bullish headline API print, as risk sentiment took a turn for the worse at the European open. WTI and Brent currently sit just below the USD 54.00/bbl and USD 59.00/bbl levels respectively. To the downside technicians will be eyeing the USD 53.00/bbl handle in WTI; yesterday’s low and the late August/early September base. After yesterday’s choppy session, which saw Gold price swings of north of USD 40/oz, the precious metal is lacklustre and seemingly awaiting further macro drivers in the form of today’s ADP employment report, ISM Non-manufacturing tomorrow and NFP on Friday. In fitting with fragile risk sentiment, Copper remains under pressure as global growth concerns linger, albeit the red metal is off yesterday’s post ISM Manufacturing data lows.
API Crude Inventories -5.9mln (exp. +1.6mln, Prev. +1.4mln) (Newswires) API Cushing Inventories +0.37mln (Prev. +2.3mln) API Distillate Inventories -1.7mln (exp. -1.8, Prev. -2.2mln) API Gasoline Inventories +2.1mln (exp. +0.4mln, Prev. +1.9mln)
Russian oil production (Sep): 11.25MBPD (Prev. 11.29MBPD)., according to the Energy Ministry. (Newswires)
Iranian Energy Minister says he does not see a need for a emergency OPEC meeting, is a little surplus on the oil markets supply front adding the market is now in a normal situation. (Newswires)
IEA Chief Birol says the IEA sees 2019 oil demand at 1.1mln/BPD, though this may be revised. (Newswires)