[PODCAST] US Open Rundown 8th October 2019
- China is toning down exp. ahead of trade talks, delegation are planning to cut the visit short and Liu He has not been given the designation of Special Envoy., SCMP
- China’s Commerce Ministry say to stay tuned for retaliation to the US naming 28 Co’s to be placed on their entity list
- German Chancellor Merkel reportedly told PM Johnson that a deal can only occur if NI remains in the customs union, if this is the EU’s position than a UK source notes that a deal is essentially impossible at any point
- Risk-off trade continues to extend on trade updates with UK assets also afflicted on Brexit; as such, GBP is the notable G10 underperformer
- Looking ahead highlights include US PPI and EIA STEO, Fed’s Powell, Evans and Kashkari, supply from the US
US President Trump said if anything bad happened in HK, it would be bad for US/China trade talks, whilst he reiterated the US is shooting for a big deal with China and there is a good possibility of a deal. Further, the Chinese trade delegation, including Vice Premier Liu He will be in Washington on October 10/11th for trade talks. (Newswires)
US Commerce Department confirmed it is naming 28 Chinese governmental and commercial organisations - including Hikvision - to the entity list over treatment of the Muslim Uighur community, effective Monday. (Newswires)
China's Ministry of Commerce says to stay tuned for a blacklist retaliation, following the US blacklisting a number of Chinese Co’s, particularly surveillance related ones. (Newswires)
China is toning down expectations head of US/China trade talks, the round of talks will take place this week, but a source says that the Chinese delegation is already planning to cut short its stay in Washington by one night, reports SCMP; Chinese negotiator Liu He will not carry the title of “special envoy” for President Xi Jinping, which the article says is an early indication that the vice-premier has not been given any particular instructions from China’s leader. (SCMP)
Asian equities traded higher across the board despite a lacklustre handover from Wall Street where stocks were choppy but ultimately closed in the red amid trade war jitters after the US blacklisted Chinese governmental and commercial organisations over treatment of the Muslim minority community. ASX 200 (+0.4%) was kept afloat by miners amid favourable price action in base metals, whilst Nikkei 225 (+1.0%) was bolstered on the back of a weaker Yen and after US and Japan signed a limited trade deal on agricultural and digital trade. Hang Seng (+0.2%) and Shanghai Comp (+0.3%) returned from a long weekend and played catchup to the NFP-induced upside in the prior session. The former was buoyed by heavyweights Geely Auto after dealers noted a pickup in sales during Golden Week, whilst HKEX shares rose in excess of 2% after it dropped its GBP 32bln bid for LSE, as the boards of the two companies were “unable to engage”. Meanwhile, Mainland China saw upside despite the Caixin Services metric falling short of forecasts, as an improvement in the Composite metric signalled the strongest rate of growth since April. Furthermore, South Korea’s KOSPI (+0.8%) showed a strong performance as the index was supported by tech giant Samsung Electronics, who’s shares spiked higher by 1% after its Q3 guidance topped analyst expectations, albeit it still noted that its profits will likely plunge 56% Y/Y. Finally, core fixed-income futures drifted lower and tracked the risk sentiment around the market with UST and Bund futures poised to close Asia trade near session lows.
Hong Kong Chief Executive Lam said she has no plans to introduce other laws using the emergency regulation ordnance, it's too early to say the anti-mask law is ineffective. (Newswires) Reports, citing the Chief Executive, noted that the Chinese military could step in if the ongoing protests in the city get worse. (Sputnik) The Hong Kong leader also noted that during Golden week, the number of visitors declined 50% Y/Y. (Newswires)
PBoC set CNY mid-point at 7.0726 vs. Exp. 7.0799 (Prev. 7.0729) (Newswires) PBoC skipped open market operations for a net daily drain of CNY 250bln
Chinese Caixin Services PMI (Sep) 51.3 vs. Exp. 52.1 (Prev. 52.1) - Seven month low (Newswires) Chinese Caixin Composite PMI (Sep) 51.9 (Prev. 51.6) - signals the strongest rate of growth since April (Markit)
Turkish Defence Ministry says all preparations are complete for the military operation into Syria, whilst reports stated that US does not endorse any Turkish operations in northern Syria, according to a senior administration official cited by VOA News’ Steve Herman, who added that US troops will be withdrawn from the Turkey-Syria border, not out of Syria entirely. (Twitter)
UK PM Johnson was told by German Chancellor Merkel this morning that there could only be a deal if Northern Ireland stays in the custom union, if not, a deal is overwhelmingly unlikely, according to BBC's Kuenssberg. (Twitter) EU’s position is that a deal is ‘essentially impossible, not just now – but ever’. And talks in Brussels are close to breaking down; although, this afternoons talks are expected to occur. (Twitter)
Unless the EU compromises and does a Brexit deal shortly, then the UK will leave the EU without a deal, according to a senior Downing Street source. (Newswires)
UK Downing Street contact believes that negotiations will probably end this week, and added Irish PM Varadkar does not want to talk anymore, and German Chancellor Merkel and French President Macron will not push EU’s Chief Brexit Negotiator Barnier unless Ireland says it wants to negotiate, according to The Spectator’s James Forsyth. Furthermore, UK and EU negotiators will be meeting this morning, according to Buzzfeed's Nardelli, who added that EU diplomats were also told that there haven't been significant developments on the declaration outlining the future relationship. (Twitter) UK Downing Street said the EU governments which oppose a Brexit delay will be rewarded by UK PM Johnson, and that if the EU approves a delay Johnson will do his best to sabotage the functioning of the EU, pending Brexit, ITV's Peston. (Twitter)
UK borrowing could rise to GBP 100bln in the case of a no-deal Brexit, accordion to think tank IFS. Furthermore, the body notes that the nation cannot afford the tax cuts that PM Johnson has pledged during the Conservative leadership campaign. (BBC/Times)
US Secretary of State Pompeo tweeted that he had a great discussion with UK Foreign Secretary Raab, "We discussed our intentions to negotiate an ambitious future free trade agreement, ways to counter Iran’s influence in the Middle East, and Turkey"
Major European Bourses (Euro Stoxx 50 -0.9%) are lower, with the region shrugging off a positive AsiaPac hand over, as trade jitters return to the forefront following the flurry of headlines yesterday evening. This morning, China's Ministry of Commerce said to stay tuned for a blacklist retaliation to the recent US decision to list 28 Chinese governmental and commercial organisations, including Hikvision, to the entity list over treatment of the Muslim Uighur community. Further contributing to the downbeat tone, SCMP reported that China is toning down expectations head of US/China trade talks, and even though the round of talks will take place this week, a source says that the Chinese delegation is already planning to cut short its stay in Washington by one night. Moreover, Chinese negotiator Liu He will not carry the title of “special envoy” for President Xi Jinping at the meeting, which the article speculated is an early indication that the vice-premier has not been given any particular instructions from China’s leader. Separately, but also contributing some downside to global equities, was a return of no deal Brexit fears, with UK/EU talks seemingly approaching collapse and the UK government vowed to pursue a no deal exit unless the EU compromises. The confluence of negatives saw DAX Dec’ 19 futures lose the 12000 handle. Moving forward, further impetus likely to come in the form of Fed speak (including Powell at 19.30 BST) and Minutes tomorrow and US/China trade talks, US CPI and ECB Minutes on Thursday. Sectors are lower apart from Telecoms (unch.). In terms of individual movers; Airbus (+0.7%) shares were supported by a strong delivery update. Wirecard (-2.8%) initially moved higher after the Co. announced an increase to its Vision 2025 targets, before paring gains alongside the market. EasyJet (-6.3%) shares fell after a trading update; on the face of it the update appeared strong, however investors noted that they had been expecting firmer guidance, while also suggesting that the co.’s decision to not to have a conference call was a mistake. London Stock Exchange (-4.8%) sunk on news that the Hong Kong Exchange and Clearing will no longer proceed with their offer for the Co. Uniper (-8.2%) shares fell and Fortum (-0.2%) initially rose after the former announced it had agreed to acquire a majority stake in the latter, before falling with the market.
Boeing (BA) - Frictions between European and US regulators may result in a delay for the 737 Max returning to service; specifically, heightened European safety concerns regarding proposed flight-control fixes., WSJ citing sources. (WSJ)
NZD/AUD/SEK/TRY - Not quite all change, but certainly some solace for the Kiwi, Aussie, Swedish Crown and Turkish Lira following a bad start to the week. Nzd/Usd has regained 0.6300+ status on the back of supportive fiscal impulses as the NZ Finance Minister flagged a 4 bn budget surplus overshoot against target overnight, while Aud/Usd is hovering above 0.6750 in wake of mixed Chinese Caixin PMIs and an uptick in NAB business conditions. Elsewhere, Eur/Sek has eased back from 10.8900+ peaks towards 10.8500 with the aid of some encouraging Swedish data (private/services production and Usd/Try retreated from around 5.8450 to sub-5.8000 at one stage after US President Trump threatened to decimate the Turkish economy if it crosses the line in Northern Syria.
GBP - In stark contrast to all the above, no deal Brexit risk has put the Pound back on the rack amidst reports that German Chancellor Merkel deems that a breakthrough on the Irish backstop is now highly unlikely, while other headlines contend that an agreement may be dead in the water full stop. In response, Cable lost grip of the 1.2300 handle and filled bids at 1.2275 before ploughing through more between 1.2260-50 on the way through 1.2230, while Eur/Gbp spiked to just over 0.8980 and beyond 500 mn option expiries at 0.8965.
CHF/EUR/JPY - All firmer against the Dollar even though the DXY nudged back over 99.000 ahead of US PPI and Fed Chair Powell, with an element of underlying safe-haven demand underpinning the Franc, Yen and Euro awaiting US-China trade talks alongside the aforementioned Brexit negotiations on the cusp of collapsing. Usd/Chf is closer to 0.9900, Eur/Usd near the top end of a 1.0965-95 band and Usd/Jpy eyeing 107.00 again from circa 107.45 earlier. Note, latest SCMP reports confirms earlier talk that Beijing is not looking for any major deal and propose to cut their stay short, with Liu He not attending in the guise of special envoy that would imply no remit or agenda to sign off on a full trade agreement.
NOK/CAD - The Norwegian Krona and Loonie are both holding relatively steady around 10.0400 vs the single currency and 1.3300 vs the Greenback respectively, with the former largely taking comments from Norges Bank Governor Olsen in stride as he underlined guidance for rates to remain on hold after September’s hike, barring the option to reverse the tightening move if economic developments deteriorated significantly. Meanwhile, Canadian housing starts and building permits are due and may provide the Cad with some independent direction or at least a distraction.
Mexican Central Bank Governor says adjustments have been required to the real exchange range for shocks to be absorbed by the Mexican economy, mild economic recovery is expected for the remainder of the year. (Newswires)
Notable FX Expiries, NY Cut:
- EUR/USD: 1.0915 (500M), 1.0940-50 (800M), 1.0995-1.1005 (1.3BLN), 1.1050-60 (1.5BLN), 1.1065-75 (900M)
- EUR/GBP: 0.8965 (500M)
- AUD/USD: 0.6700 (200M), 0.6740-50 (500M)
- USD/JPY: 106.50 (1.2BLN), 107.65-80 (2BLN), 108.00 (450M)
Risk aversion is spreading beyond the no deal Brexit boundaries that sparked the bounce in UK debt from -¼ point Liffe lows to 135.12, so far vs yesterday’s 134.76 settlement, as latest SCMP reports appear to confirm that the Chinese delegation heading to the US is not looking for major strides to be made this week, and has changed its itinerary accordingly. Hence, Bunds have also picked up a gradual safe-haven bid to hit 174.52 (+21 ticks vs -45 ticks at one stage) and even leggy pre-US supply Treasuries have been hauled up into positive territory awaiting PPI data and Fed Chair Powell.
The crude complex is lower on Tuesday, after negative news flow on the US/China trade and Brexit front spurring risk off. WTI Nov’19 futures broke below yesterday’s USD 52.60/bbl lows and technicians will now be eyeing support just ahead of the USD 52.00/bbl handle. Meanwhile, Brent Nov’ 19 futures are probing support at USD 58.00/bbl. In terms of geopolitical developments, news flow still appears focussed on the US’ recent decision to pull troops out of Northern Syria, which opens the door for a Turkish offensive against Kurdish forces in the area (reports allege the offensive had already begun), rather than on the US/Iran/Saudi picture; given Syria’s lack of oil it remains unlikely that these developments will have much of a baring on crude prices. In supply news, the North Sea’s Buzzard Oilfield remains closed, according to its operator, and there is still no timeline for its return to normal operations. Gold prices have reclaimed the USD 1500/oz mark assisted by the aforementioned trade and Brexit jitters, after reports that China is ready to do a deal on the parts of the negotiations both sides agree upon (and is prepared to set out a timetable for the harder issues to be worked out next year) triggered a lurch lower during US hours on Monday. Copper prices saw upside overnight on decent Chinese Caixin PMI data helped to moderate concerns about an economic slowdown in the country, but has since given up the majority of its overnight gains.