Original insights into market moving news

[PODCAST] US Open Rundown 6th November 2019

  • Major European bourses are little changed thus far, in a relatively quiet EU session
  • Chinese President Xi's visit to Brazil next week may be too soon to sign a Phase One trade deal with the US., SCMP
  • Iranian President Rouhani says nuclear site Fordow will "soon be back to full production"; follows reports that they have begun injecting gas into the facility
  • FX complex is uninspiring with the USD marginally softer overall, debt
  • Looking ahead, highlights include, US Labour Costs, Productivity and DoEs, Canadian Ivey PMI, ECB’s Holzmann, Fed’s Evans, Williams and Harker, supply from the US
  • Earnings: Qualcomm, CVS Health Corp, Fiserv, EOG Resource, Humana, Baidu, WEC Energy



Asian equity markets traded lacklustre following a flat finish on Wall St where the major indices remained near record highs on US-China trade optimism, but with some caution seeping through amid Chinese demands for the removal of tariffs which is seen as a sticking point for the 'phase one' deal. ASX 200 (-0.6%) and Nikkei 225 (+0.2%) were mixed with underperformance in Australia’s gold miners after the precious metal slipped below the psychological key USD 1500/oz level, while trade in Tokyo was stable amid a mixed currency and as the local benchmark took a breather from the prior day’s surge to a fresh yearly high. Hang Seng (+0.1%) and Shanghai Comp. (-0.4%) were tentative after the PBoC refrained from open market operations and as participants await the next developments in the trade saga such including whether the US succumbs to China’s demands to roll-back tariffs. Finally, 10yr JGBs declined significantly overnight as the benchmark 10yr JGB yield rose to its highest in around 5 months, while the pressure in JGBs was later exacerbated following mixed 10yr auction results and after prices collapsed through a key support area around 153.60 which previously held up during the last 3 months.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 7.0080 vs. Exp. 7.0090 (Prev. 7.0385)

BoJ minutes from September meeting stated it is appropriate to persistently continue with powerful easing and that Japan's economy had been on a moderate expanding trend although exports, production and business sentiment have been impacted by overseas slowdown. Furthermore, most members shared the view that it was becoming increasingly necessary to pay closer attention to chance momentum to reaching price target would be lost, while some members stated comprehensive examination needed on possibility financial institutions profits could decline further and that more banks could take excessive risks due to low rate environment. (Newswires)

China has signed contracts worth USD 15bln during visit from French President Macron, according to a Chinese government official - France says it has received approval for 20 French companies to export beef, poultry and port to China. (Newswires)



Chinese President Xi's visit to Brazil next week may be too soon to sign a Phase One trade deal with the US., SCMP citing sources, as the two sides are yet to reach a consensus, sources note time is very limited to finalise the details in writing for next week; Source notes that one idea was for a meeting in the US, but China disagreed. (SCMP)

Fed's Kashkari (2020 voter, Dove) said US interest rates are now modestly accommodative and stated the US economy is not at full employment yet. (Newswires)

Democrats have won both chambers of the Virginia General Assembly from the Republicans which previously had a 1-seat majority in both the state Senate and House of Delegates. In related news, Democrat candidate Beshear defeated Republican and incumbent Bevin in the Kentucky Gubernatorial Election, while Republican Lieutenant Governor Reeves won the election in Mississippi in what was a fairly tight race against Democrat Attorney General Hood. (Newswires)

Chinese and US defence chiefs are undergoing talks which are designed to improve cooperation and avoid "mishaps" between the two militaries, according to SCMP citing sources. (SCMP)

In response to the resumption of Canadian pork and beef imports by China, Chinese FM states the onus in relations is on Canada and they immediately demand the release of Huawei CFO Meng., Global Times. (Twitter)


Major European bourses (Euro Stoxx 50 +0.3%) are choppy with the indices off having pared earlier upside amid cautious sentiment on multiple reports corroborating the narrative that China will push for further US tariff concessions before it signs off on a Phase 1 trade deal. Earlier in the session, the DAX and Euro Stoxx indices managed to again eke out fresh YTDs highs; the former was halted by resistance at 13170 (15th June 2018 high), ahead of further resistance at the 13200 level (22 May 2018 high). US equity futures are relatively flat intra-day and are yet to fully recover from Monday’s modest losses, which saw the contracts pull back slightly from YTD highs. “The tape is overbought, buyers seem “tired”, valuations are stretched, and trade expectations are elevated (the removal of the 9/1 tariffs is quietly becoming consensus thinking)” JPM noted yesterday, and “that this is making buyers reticent to aggressively chase at present levels.” The FTSE 100 underperforms amid weakness in large cap stocks. Sectors are mostly in the red, barring Consumer Staples (+1.0%) and Financials (+0.5%), with the latter supported by the continued rise in yield, which is also supporting SocGen (+5.3%) despite the firm reporting a net decline of 34.8% YY and a 20% drop in equities trading revenue in Q3. Co. CEO noted that the bank “delivered resilient net income in an unfavourable environment without yet benefitting from the positive effects of ongoing restructuring which is ahead of its 2020 objectives.” Sticking with earnings, solid numbers from Marks & Spencer (+2.1%) and Alstom (+3.8%) saw their respective shares moved higher. Conversely, weaker than forecast earnings from Wirecard (-1.1%), Dialog Semiconductors (-8.8%) and Adidas (-3.2%) sees their shares under pressure. Meanwhile, BT (-3.5%) have been hit by reports that Virgin Media dealt the company a “blow” by striking a deal to switch its 3mln mobile phone customers from the BT over to Vodaphone. Finally, Fincantieri (-1.6%) shares initially slumped amid reports that the Italian finance police are undertaking searches 19 shipbuilding companies working with the Co.

Softbank (9984 JT) 6M net profit -49.8% YY to JPY 421.55bln, Operating loss JPY 15.55bln vs. Prev. profit JPY 1.42tln, Pretax profit -20.3% YY to JPY 1.12tln. Co. sees JPY 497.7bln one-off loss on fair value of WeWork. (Newswires)



Officials in Downing Street are reportedly divided over whether or not to include “no deal” in their party manifesto ahead of the upcoming election. (Telegraph)

Brexit Party leader Farage is reportedly in discussions with certain Eurosceptic Conservative candidates over withdrawing rival Brexit Party candidates at the upcoming general election after PM Johnson refused his nationwide pact. (Telegraph)

UK PM Johnson spoke with US President Trump today in which he asked him to remove tariffs on UK goods including scotch whisky and urged him to refrain from imposing tariffs on autos. (Newswires)

EU Markit Services Final PMI (Oct) 52.2 vs. Exp. 51.8 (Prev. 51.8); Composite Final PMI (Oct) 50.6 vs. Exp. 50.2 (Prev. 50.2)

- IHS Markit states, While the October PMI is consistent with quarterly GDP rising by 0.1%, the forward looking data points to a possible decline in economic output in the fourth quarter

German Markit Services PMI (Oct) 51.6 vs. Exp. 51.2 (Prev. 51.2); Composite Final PMI (Oct) 48.9 vs. Exp. 48.6 (Prev. 48.6)

- IHS notes, "Based on these figures, the German economy looks set for another weak performance in the fourth quarter, with a further mild contraction in output not out of the question."



USD - The Dollar has lost some of its post-US services ISM vigour after the DXY managed to scale 98.000 and match the knee-jerk high notched in wake of last week’s FOMC policy meeting precisely. The index topped out just ahead of Fib resistance at 98.085, but also amidst broad consolidation in rival G10 currencies and especially safer-havens that have been underperforming on the positive US-China Phase 1 trade vibe alongside encouraging developments on proposed US auto tariffs. The DXY has slipped back below the big figure, but is holding well above recent lows and 97.500.

JPY/EUR/AUD/NZD - All marginally firmer vs the Greenback, as the Yen contained losses beyond 109.00 to 109.25 and did not threaten technical support around 109.37, while the Euro also defended a key chart level and Fib retracement circa 1.1064 before regrouping with the aid of some decent German data and mostly encouraging Eurozone PMIs. Elsewhere, the Aussie has crept back up to 0.6900 as the Aud/Nzd cross attempts to form a base above 1.0800 and Kiwi labours just under 0.6400 following fractionally weaker than forecast NZ jobs data overnight.

GBP/CHF/CAD - The Pound, Franc and Loonie are struggling to take advantage of the Buck’s fade, with Cable unable to reclaim 1.2900, Usd/Chf still elevated on the 0.9900 handle and Usd/Cad pivoting 1.3150 after Tuesday’s somewhat contrasting Canadian compared to US trade balances (relative to consensus), and ahead of today’s Ivey PMIs.

EM - The Rand has retraced quite sharply from sub-14.7400 vs the Dollar to 14.8000+ on renewed Eskom strife as the company suffers more severe power supply issues and concedes that output will not meet demand even though certain generation sites have resumed production after maintenance. Investors also waiting on tenterhooks to hear from SA President Ramaphosa at a conference aimed at drumming up foreign funds.

Notable FX option expiries, NY Cut:

- EUR/USD: 1.1025 (1.8BLN), 1.1100 (350M), 1.1135-40 (500M), 1.1150-60 (1.3BLN)

- EUR/GBP: 0.8640-45 (600M), 0.8700 (300M)

- AUD/USD: 0.6825 (2.3BLN)

- USD/JPY: 108.00 (1.5BLN), 108.75-85 (1BLN), 108.90-109.00 (450M), 109.15-25 (800M)

New Zealand Employment Change (Q3) Q/Q 0.2% vs. Exp. 0.3% (Prev. 0.8%). (Newswires) New Zealand Unemployment Rate (Q3) 4.2% vs. Exp. 4.1% (Prev. 3.9%)

South Africa's Eskom states that the power system continues to be severely constrained this morning, unplanned breakdowns above 12k MW; while some generation units have returned from maintenance these are not sufficient for demand. (Newswires)



Only marginal deviation outside prior ranges, as Gilts managed to trade flat at 131.32 (vs -27 ticks at worst) and Bunds slipped to a marginal new Eurex low at 170.22 (-31 ticks vs +3 ticks at one stage) before the former lost momentum and the latter found some underlying buying interest. However, both EU benchmarks are still lagging US Treasuries that seem content to sit off recent troughs and the curve unwind a degree of the marked re-steepening amidst a moderately softer Dollar, less US-China Phase 1 euphoria and awaiting more Fed speak along with the 2nd tranche of this week’s issuance.



Crude markets are modestly softer but off intraday lows, with downside seen following last night’s larger than expected headline API stocks builds, with crude inventories rising by 4.26mln BDP (vs. Exp. +1.5mln), whilst the cautious tone around the market provides little by way of sentiment-driven upside. Both the WTI Dec’ 19 and Brent Jan’ 19 contracts sit above October’s USD 56.90/bbl and USD 62.30/bbl highs – greater expectations for a US/China Phase 1 trade deal breakthrough combined with a better backdrop of macro data (i.e. US jobs data last Friday) seemingly continue to provide a base for now. In terms of crude specific news flow, the WSJ reported that the Saudis are to set to press OPEC members for production cuts ahead of its Aramco IPO, although the push would be more aimed at "laggards" to comply with current curbs, rather than pushing for deeper trims in output, the article caveated. Quoting sources, the WSJ added that Russia had privately told the group it wants to maintain the current targets until March whilst noting that Saudi wants to refrain from taking a bulk of the cuts – in fitting with recent separate source reports. Further, the article noted that the oil giant’s growth assumptions, as well as the dividend it promises investors, are predicated on oil prices around USD 65/bbl, according to an investor document. Looking ahead on the docket, oil traders will be eyeing the EIA crude stocks release as a scheduled catalyst with headline crude expected to print a build of 1.5mln barrels. In terms of the metals; gold is staging a tepid recovery after yesterday’s slide, which saw the precious metal slip briefly beneath the USD 1480/oz mark. Copper, meanwhile, is subdued after pulling back somewhat from yesterday’s 4-month highs around of USD 2.716/lbs.

API Crude Inventories: +4.26mln vs. Exp. +1.5mln (Prev. +0.59mln). (Newswires)

Saudi Arabia set to press OPEC members for production cuts ahead of its Aramco IPO, reports the WSJ citing sources. (WSJ)

- The oil giant’s growth assumptions, as well as the dividend it promises investors, are predicated on oil prices around $65 per barrel, according to an investor document

- moreover, OPEC still needs to assess first-quarter oil demand, WSJ says quoting the same people. They added that Russia had privately told the group it wants to maintain the current targets until March.

Iranian President Rouhani says nuclear site Fordow will "soon be back to full production". (Twitter) Follows confirmation that they have begun injecting gas into the plant, via State TV. (Newswires)

Tankers have been blocked from entering the Iraqi Nassiriya oil refinery by local protesters, leading to a fuel shortage in the Dhi Qar Province, according to sources. (Newswires)

*HQ saying toodle pip for the week* Much love guys, as always, see you on the other side! (don't worry about him…