[PODCAST] EU Open Rundown 31st October 2019
- Fed cut rates by 25bps as expected and stated “it will continue to monitor incoming information as it assesses the appropriate path"
- Asian equities traded mostly positive after mild post-FOMC tailwinds, a slew of blue-chip earnings and disappointing Chinese PMI data
- China Global Times Editor tweeted that based on what he knows, Chile cancelling APEC summit will not affect arrangements of the China-US trade talks
- BoJ kept policy settings unchanged but adjusted its forward guidance to reflect chance of future reduction in rates
- Looking ahead, highlights include German Retail Sales, EZ CPI & GDP (Flash); US Personal Income, Core PCE, Employment Costs & Chicago PMI, Canadian GDP, CBRT Inflation Report, ECB’s de Guindos & SNB’s Jordan
- Earnings: ING, Bristol-Myers, Estee Lauder, Kraft Heinz, Altria, Sanofi, Fiat, Shell
Fed lowered the Federal Funds Target by 25bps to 1.50% - 1.75% as expected, with George and Rosengren the dissenters as they voted for rates to be kept unchanged and Bullard no longer advocated for a 50bps cut. Fed also lowered Interest on excess reserves to 1.55% from Prev. 1.8% and stated “it will continue to monitor incoming information as it assesses the appropriate path" for the FFR target range which was a slight tweak from the previous statement that from "will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion".
Fed repeated labour market is strong and economic growth is rising at a moderate rate, while it also affirmed that job gains have been solid and unemployment has remained low. Fed also repeated that household spending has been rising at a strong pace and inflation is still running beneath 2%.
Fed Chair Powell said the cut was an insurance against ongoing risks and believes monetary policy is in a good place, while he added current stance of monetary policy likely to remain appropriate and that policy is not on a pre-set course. Powell also commented he sees the risk to the outlook as having moved in a positive direction and that it would take a material reassessment in the outlook for the Fed to change its policy stance, while he added the Fed is not thinking about raising interest rates right now and needs to see a significant rise in inflation before considering rate hikes. (Newswires)
Note: The dollar initially rallied after the Fed rate decision, where a statement tweak was interpreted as the Fed now in pause. However, through the course of Powell’s press conference, the USD was offered, with DXY moving into negative territory again after Chair Powell signalled that rate hikes were not on the table, leaving the bias for monetary policy to be on hold/lower.
Asian equity markets traded mostly positive after the mild post-FOMC tailwinds, with participants also reflecting on a slew of blue-chip earnings and disappointing Chinese PMI data. ASX 200 (-0.6%) was among the few laggards, pressured by underperformance in its largest weighted financials sector after Big 4 lender ANZ Bank reported flat profits amid challenging conditions, while Nikkei 225 (+0.4%) just about kept afloat amid a mixed currency and with a deluge of earnings including Sony which raised its FY net forecasts. Elsewhere, KOSPI (+0.7%) was boosted by index heavyweight Samsung Electronics which surpassed its profit guidance and Apple suppliers in Taiwan saw mixed fortunes despite a strong Q4 result from the US tech giant which beat on top and bottom lines, as well as iPhone revenue but missed on iPad and Mac sales. Hang Seng (+1.1%) outperformed overnight after the HKMA lowered rates in lockstep with the Fed and Shanghai Comp. (-0.3%) was less decisive after another PBoC liquidity drain, weaker than expected Chinese Manufacturing and Non-Manufacturing PMI data, as well as some uncertainty after Chile cancelled the APEC summit next month. Finally, 10yr JGBs rallied from the open ahead of the BoJ announcement after source reports suggested that the BoJ is considering modifying its forward guidance to more clearly signal the chance of a future rate cut, although JGB prices pulled back aggressively following the BoJ announcement which was met with disappointment given that the bank’s new guidance for “short and long-term rates to stay at current or lower levels as long as needed“ didn’t provide anything ground-breaking, as the bank have previously reiterated the possibility for further negative rates.
PBoC skipped open market operations for a net daily drain of CNY 60bln. (Newswires) PBoC set CNY mid-point at 7.0533 vs. Exp. 7.0521 (Prev. 7.0582)
Chinese Manufacturing PMI (Oct) 49.3 vs. Exp. 49.8 (Prev. 49.8). (Newswires) Chinese Non-Manufacturing PMI (Oct) 52.8 vs. Exp. 53.7 (Prev. 53.7) Chinese Composite PMI (Oct) 52.0 (Prev. 53.1)
China MOFCOM said trade negotiations are progressing well and that the teams maintain close communication, while the sides will proceed according to previous plan and lead US and China negotiators are to hold a phone call on Friday. (Newswires)
China Trade Association Chief said China could remove extra tariffs on US farm products to help importers purchase as much as USD 50bln worth of agricultural goods. (Newswires)
US Treasury Secretary Mnuchin commented that that a US-China deal will likely be signed in November, while there were separate comments from a Chinese Commerce Ministry affiliated expert that the cancellation of APEC summit in Chile is not a big obstacle for China and the US to sign a trade deal, as long as they reach one. (Newswires/Global Times)
China Global Times Editor Hu tweeted that based on what he knows, Chile cancelling APEC summit will not affect arrangements of the China-US trade talks, while he added that talks are progressing smoothly and will move forward as planned. (Twitter)
Hong Kong Monetary Authority lowered its base rate by 25bps to 2.00% in lock step with the Fed as expected. (Newswires)
BoJ kept monetary policy settings unchanged as expected with rates kept at -0.1% and 10yr yield target at around 0%. The BoJ tweaked the forward guidance to more clearly signal future chance of rate cut in which it stated that it expects short and long-term rates to stay at current or lower levels as long as needed. The BoJ noted that this is to pay close attention to chance momentum for hitting price target will be lost although it added there has been no further increase in chance of momentum for hitting price target will be lost but must continue to pay attention to the possibility. Furthermore, BoJ stated Japan’s economy is likely to grow below potential temporarily but will likely continue expanding as a trend, while it noted that risks are skewed to the downside for the economy and it lowered all growth and inflation forecasts in its Outlook Report. (Newswires)
UK House of Lords passed the bill to hold a general election on December 12th, as expected. (Newswires)
Survation Poll showed UK Conservative Party have an 8-point lead over the opposition with 34% of support vs. Labour Party at 26%. (Daily Mail)
Brexit Party is considering pulling out of hundreds of seats in what would be a game-changer and could boost Boris Johnson's campaign. (FT)
UK GfK Consumer Confidence (Oct) -14 vs. Exp. -13.0 (Prev. -12.0). (Newswires) UK September Auto Manufacturing fell 3.8% Y/Y to 122.3k units according to SMMT.
The greenback was weaker across the board despite initial support following the Fed decision to cut rates for the 3rd time this year. EUR/USD traded at its strongest level in more than a week and GBP/USD reclaimed the 1.2900 handle as they gained from the broad USD weakness, while antipodeans were also firmer with AUD/USD supported by stronger than expected Building Approvals and NZD/USD benefitted after Westpac pushed back its RBNZ rate cut forecast to February next year from a prior view of a move next month. Elsewhere, USD/JPY and JPY-crosses were mixed as price action largely reflected their base currencies, although mild inflows were seen into JPY after the BoJ decision in which it kept policy settings unchanged but adjusted its forward guidance to reflect chance of future reduction in rates, as the tweak wasn’t seen as much of game changer given that Kuroda had previously reiterated lowering rates deeper into negative territory was always option.
Australian Building Approvals (Sep) M/M 7.6% vs. Exp. 0.1% (Prev. -1.1%). (Newswires) Australian Building Approvals (Sep) Y/Y -19.0% vs. Exp. -25.7% (Prev. -21.5%)
New Zealand NBNZ Business Confidence (Oct) -42.4% (Prev. -53.5%). (Newswires) New Zealand NBNZ Activity Outlook (Oct) -3.5% (Prev. -1.8%) COMMODITIES
Commodities traded relatively flat overnight with only mild support seen from a weaker USD in the aftermath of the Fed rate cut. Nonetheless, oil prices have recouped some of the losses from the prior session that were triggered by a bearish EIA crude inventory report with WTI crude futures back above the USD 55.00/bbl level. Gold was solely driven by the greenback as the precious metal initial staggered as USD strengthened in a knee-jerk reaction to the FOMC statement, although gold prices then recovered and now eye a test of the USD 1500/oz level to the upside after USD eventually slumped. Meanwhile, copper was also lacklustre with price action hampered by subdued tone in largest purchaser following disappointing Chinese PMIs.
US plans to allow Russian, Chinese and European companies to continue non-proliferation work with Iran by renewing sanctions waivers, according to sources. (Newswires)
The curve bull-flattened after the Fed cut rates by 25bps, as expected; yields fell across the curve by between 4-7bps at settlement. The Fed chair seemed to suggest that the prospect of rate hikes was not on the table (he said he'd need to see significant surge in inflation before they were up for discussion, a scenario he did not envisage. After the rate decision, the probability of further easing this year was pretty much unchanged at just over 20%; the implied easing through the end of 2020 was also little changed (currently 32bps of easing is priced to the end of next year, it was around 55bps before today's 25bps rate cut); markets are now not pricing the next full rate cut until the July meeting. T-note futures (Z9) settled 7 ticks higher at 129-15+.
Apple Inc (AAPL) Q4 EPS USD 3.03 vs. Exp. USD 2.83, rev. USD 64.04bln vs. Exp. USD 62.88bln, iPhone rev. USD 33.36bln vs. Exp. USD 32.415bln, iPad rev. USD 4.66bln vs. Exp. USD 4.81bln, Mac rev. USD 6.99bln vs. Exp. USD 7.46bln. (Newswires)
Facebook Inc (FB) Q3 19 (USD): EPS 2.12 (exp. 1.91), Revenue 17.65bln (exp. 17.36bln); DAU 1.62bln (est. 1.639bln); MAU 2.45bln (est. 2.503bln). (Newswires)