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[PODCAST] US Open Rundown 11th November 2019

  • European bourses are subdued as the sentiment from Hong Kong unrest outweighs Singles Day, financials remain under pressure given Moody’s downgrading UK and Spanish election stalemate
  • US President Trump said he thinks trade talks are moving along very nicely, while he suggested that the accord with China has to be the right deal and that reports on the level of tariffs being lifted were incorrect
  • FI markets have a slight bid thus far, USD is slightly subdued on the deterioration in sentiment; NZD outperforms ahead of Wednesday RBNZ
  • China Singles Day holiday have surpassed the prev. year, setting a new record
  • Note: US Veteran’s Day holiday (Non-market holiday, US cash Treasuries closed)

ASIA-PAC

Asian equity markets traded mostly negative with sentiment clouded by uncertainty brought on by the temperamental trade headlines including comments from US President Trump who was optimistic on trade talks but clarified that he has not yet agreed to rollback tariffs on China. ASX 200 (+0.7%) and Nikkei 225 (-0.3%) were mixed in which strength in defensive stocks and resilience in the financials sector underpinned Australia, while the mood in Tokyo deteriorated on flows into its currency and as participants digested weaker than expected Machine Orders, as well as a slew of corporate earnings. Hang Seng (-2.6%) and Shanghai Comp. (-1.8%) were the laggards amid the ongoing US-China trade uncertainty, continued PBoC liquidity inaction and mixed Chinese inflation data. Hong Kong markets also took the brunt of further unrest in the city in which police were reported to have fired live rounds at protesters, which overshadowed the euphoria from a potential record-breaking Singles’ Day where sales in the first 90 minutes alone already reached halfway of the USD 31bln record set for the whole day last year. Finally, 10yr JGBs were lifted and reclaimed the 153.00 level with prices supported by the predominantly negative performance across stocks and with the BoJ in the market for a respectable JPY 1.16tln of JGBs in up to 10yr maturities.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.9933 vs. Exp. 6.9943 (Prev. 6.9945)

Chinese CPI (Oct) Y/Y 3.8% vs. Exp. 3.3% (Prev. 3.0%). (Newswires) Chinese PPI (Oct) Y/Y -1.6% vs. Exp. -1.5% (Prev. -1.2%)

Chinese M2 Money Supply YY* (Oct) 8.4% vs. Exp. 8.4% (Prev. 8.4%)

- Chinese New Yuan Loans* (Oct) 661.3B vs. Exp. 800.0B (Prev. 1690.0B)

- Chinese Outstanding Loan Growth* (Oct) 12.4% vs. Exp. 12.5% (Prev. 12.5%)

 

US President Trump said he thinks trade talks are moving along very nicely, while he suggested that the accord with China has to be the right deal and that reports on the level of tariffs being lifted were incorrect. In related news, White House Trade Adviser Navarro stated that there is no agreement to rollback any existing tariffs as part of the Phase One deal and US Chief of Staff to the Vice President said he is very confident a phase one trade deal with China will be signed before the end of the year. (Newswires)

Hong Kong violence continued on what was the 24th weekend of unrest for Hong Kong and which persisted through to Monday, while police were reported to have used live fire rounds in which at least 1 protester was shot and is in critical condition. (Newswires)

BoJ Summary of Opinions from October meeting stated Japan's economy is likely to continue on an expanding trend as the impact of the slowdown in overseas economies on domestic demand is expected to be limited. BoJ added the rate of change in CPI Y/Y is likely to increase gradually toward 2% but added it is expected to take time for the inflation rate to accelerate, while it noted there has been no further increase in the possibility that momentum towards achieving the price stability target will be lost. (Newswires) US

Fed’s Williams (Voter, Neutral) said he expects interest rates will be very low for the foreseeable future and that global growth will be modest, while he added that monetary policy is moderately accommodative and that he was concerned about persistently low inflation. (Newswires)

 

UK/EU

UK Election Polling: - Panelbase poll estimates support for the Conservatives at 40% (unch.), Labour at 30% (+1), Liberal Democrats (+1), Brexit Party (-1). (Newswires) - Opinium poll (6-8 Nov) show support for the Conservatives at 41% (-1), Labour 29% (+3), Liberal Democrats 15% (-1), Brexit Party 6% (-3)

UK GDP Prelim QQ (Q3) 0.3% vs. Exp. 0.4% (Prev. -0.2%); GDP Prelim YY (Q3) 1.0% vs. Exp. 1.1% (Prev. 1.3%)

- UK Manufacturing Output MM (Sep) -0.4% vs. Exp. -0.3% (Prev. -0.7%); Manufacturing Output YY (Sep) -1.8% vs. Exp. -1.6% (Prev. -1.7%, Rev. -1.6%)

- UK Industrial Output MM (Sep) -0.3% vs. Exp. -0.2% (Prev. -0.6%, Rev. -0.7%); Industrial Output YY (Sep) -1.4% vs. Exp. -1.3% (Prev. -1.8%)

- UK Construction O/P Vol MM (Sep) -0.2% vs. Exp. -0.5% (Prev. 0.2%, Rev. 0.1%); YY (Sep) 1.2% vs. Exp. 0.6% (Prev. 2.4%, Rev. 1.1%)

- UK Business Investment YY Prelim (Q3) -0.6% vs. Exp. -1.3% (Prev. -1.4%)

- UK Services YY (Sep) 1.30% (Prev. 1.50%, Rev. 1.40%); MM (Sep) 0.00% (Prev. 0.00%, Rev. -0.10%)

- UK GDP Estimate MM (Sep) -0.10% vs. Exp. -0.10% (Prev. -0.10%, Rev. -0.20%); YY (Sep) 0.90% vs. Exp. 1.00% (Prev. 1.10%, Rev. 1.00%); 3M/3M (Sep) 0.30% vs. Exp. 0.40% (Prev. 0.30%, Rev. 0.2%)

 

Moody’s affirmed UK at Aa2; Outlook cut to Negative from Stable. (Newswires)

Results from the Spanish election showed no party with a majority as expected, although Spain’s socialists won the most seats with 120 (-3) out of the 350 seats and the conservatives Peoples’ Party with 87 (+21) seats, while far-right VOX won 52 seats (+28) and UP has 35 seats (-7). There were also comments from Spanish PM Sanchez that his socialist party will call on other parties on Monday to tackle the political stalemate. (Newswires)

ECB President Lagarde is reportedly facing a push by ECB council to overhaul policymaking. Four national Central Banks represented on the ECB Governing Council said they would make proposals from holding regular votes on monetary policy to requests that the President does not pre-announce policy plans, according to sources cited by the FT. (FT)

 

GEOPOLITICS

US National Security Advisor O’Brien said the US is ready to economically punish Turkey unless it gives up its Russian-made S-400 defence missile systems. (CBS)

US President Trump tweeted it would be a very positive step if Iran is able to turn over kidnapped former FBI Agent Robert Levinson to the US, but also suggested Iran is enriching uranium which would be a very bad step. (Twitter)

Bolivia President Morales resigned after the country’s armed forces chief called on him to quit. (Newswires)

 

EQUITIES

A choppy start to the week for European stocks thus far [Eurostoxx 50 -0.4%], with the region now off lows after being initially dented from the overnight performance in Asia, which was weighed on by mixed trade signals and further unrest in Hong Kong. Sectors are mostly lower with some buoyancy seen in defensives whilst cyclicals are in the red. Materials lead the pack to the downside amid a sentiment-driven slump in copper prices, in-turn providing some reprieve to industrial names. FTSE 100 modestly lags peers (cash fell below its 200 DMA at 7296) as the index bears the brunt of downside in heavyweight materials and energy stocks in lockstep with the respective complexes, whilst UK financials are hit on Moody’s downgrade of the UK’s outlook; some heavyweight UK losers include Glencore (-3.5%), Antofagasta (-3.5%), Standard Chartered (-2.5%), HSBC (-2.5%) and BP (-1.3%). Further for the banking index, Spanish banks are also under pressured in the aftermath of the Spanish election deadlock, which sees BBVA (-1.0%) and Santander (-1.8%) on the backfoot amid political uncertainty. Elsewhere, European luxury names fail to benefit from record China Singles Day sales (Alibaba -0.6% pre-market) amid the escalating situation in Hong Kong as region saw its 24th week of unrest and as a police officer shot a protestor with a live round – Burberry (-2.8%), LVMH (-0.3%), Pandora (-3.5%), Swatch (-1.8%) and Richemont (-1.8%) are all near the foot of their respective bourses. Finally, in terms of individual movers – Greggs (+15.0%) rose to the top of the pan-European index after the Co. once again upgraded outlook, whilst Novartis (+1.0%) after Co’s Sandoz unit announced an agreement for Aspen’s Japanese operations and assets, with expectations for the amount of deferred consideration not to exceed EUR 100mln.

 

European Commission has suspended the investigation into Boeing (BA)/Embraer joint venture. (EC)

FX

USD - The Dollar has lost momentum against most major peers amidst a partial reversal in UST yields and curve re-flattening, with the DXY drifting back from Friday’s 98.408 highs into a 98.382-98.231 range. Risk sentiment has soured somewhat on several fronts, including US-China trade after President Trump clarified that no decision to lift existing tariffs as part of the Phase 1 deal has been taken, while weekend protests in HK escalated markedly and US-Turkey relations remain strained ahead of a planned meeting between Trump and Erdogan later this week.

 

NZD/AUD - The Kiwi is sharply outperforming in the run up to Wednesday’s RBNZ policy meeting with the market pricing in a 25 bp rate cut, but NZIER’s shadow board going against the roughly 2/3 consensus and looking for no change, albeit noting a more diverse range of views compared to the previous OCR decision. Nzd/Usd is firmly back above 0.6350, and also benefiting from favourable cross-flows as Aud/Nzd retreats through 1.0800 and the Aussie flounders just above 0.6850 on the aforementioned less positive US-China updates.

 

GBP/JPY/CHF/EUR - All clawing back losses vs the Buck, with Cable trying to regain 1.2800+ status following a raft of UK data that was mildly disappointing in headline terms, but included some encouraging elements, like flat q/q business inventories and -0.2% construction output vs -0.5% forecast for both. Meanwhile, Usd/Jpy and Usd/Chf have both pulled back from last week’s peaks to sub-109.00 and circa 0.9950, as the Yen and Franc retrieve some of their risk-related declines. Elsewhere, the Euro is testing Fib resistance at 1.1030 after some initial reticence on Spanish political grounds, but may be stymied ahead of decent option expiry interest from 1.1045-60 (1 bn).

 

CAD/SEK/NOK - Relative laggards amidst weak crude prices and the broad downturn in risk appetite noted above, with the Loonie meandering between 1.3215-35 and still smarting after last Friday’s worrying Canadian jobs data, while Eur/Sek and Eur/Nok are both rebounding further towards 10.7250 and 10.1100 respectively, with the Norwegian Crown also unsettled by softer than expected core CPI.

 

EM - Losses against the Dollar are commonplace, but notable for the Yuan, Lira and Rand on the no full tariff rollback news, ongoing US-Turkey angst and SA Eskom production constraints. Meanwhile, the Mexican Peso awaits ip data in the absence of any US releases to drive Usd/Mxn due to the Veterans Day vacation north of the border.

 

NZIER Shadow Board on average expect the RBNZ to remain on hold at this week’s meeting but the range of views has widened since the last meeting with an increased skew towards a higher OCR, while it noted that the recent data has been mixed. (Newswires)

 

FIXED INCOME

Bunds and Gilts have both lost impetus, but retain an underlying bid approaching midday and the US open that will be cash-less for US Treasuries given the Veterans Day holiday. However, the 10 year benchmarks retain an underlying bid within 169.60-99 and 131.21-130.85 parameters in contrast to Italian BTPs and Spanish Bonos that are feeling the brunt of a general retracement in risk sentiment and the latter on political stalemate following to clear majority for the PSOE.

 

COMMODITIES

Crude markets are lower, amid a cautious macro backdrop following mixed US/China trade headlines over the weekend. Supply side factors have also likely weighed on prices; a new oil field was discovered in Iran’s South-western province of Khuzestan and is said to contain 53 billion barrels of crude, which would increase the country’s proven oil reserves by one third. Moreover, Oman’s Oil Minister said deeper cuts by OPEC+ are unlikely and the extension of the pact is likely (in fitting with recent source reports) and, finally, the Keystone pipeline returned to service over the weekend following a leak at the end of last month. As such, WTI Dec’ 19 and Brent Jan’ 19 futures are trading in the USD 56.40/bbl and USD 61.70/bbl regions, having come off substantially from Friday’s highs of USD 57.40/bbl and USD 62.60/bbl. Also making the headlines, but less pertinent for crude markets for now, Saudi Aramco released the prospectus for its upcoming IPO over the weekend. The state oil giant will sell up to 0.5% of its shares to individual retail investors and will be restricted from issuing additional shares for a year after the IPO. According to the prospectus, the offering will begin on 17th November. In terms of metals; Gold prices have edged higher, assisted by the markets cautious tone, although the precious metal remains only slightly off recent lows around the USD 1460/oz level. “Investors have been liquidating gold as risk appetite appears to be returning to the market and demand for safe-haven assets slows down” observes ING, citing evidence from ETF investors, who have sold nearly 615k oz of gold over the past two days, taking total ETF holdings in gold to a one-month low of 81.68mln Oz as of 8 November. Elsewhere, the bank adds that the physical demand for gold faces pressure due to high prices and a pause by China on gold buying for forex reserves. Meanwhile, fragile risk sentiment have seen copper prices come under pressure, also weighed by broadly mixed data out of China; CPI beat expectations, largely driven by higher food prices, but PPI disappointed and provides yet more evidence that the country’s industrial sector is in deflation.

Iran said it discovered an oilfield with 53bln barrels in southwest Iran. (Newswires)

Omani Oil Minister says deeper cuts by the OPEC+ are unlikely and the extension of the pact is likely, whilst the UAE Energy Minister said he is not worried about oil demand. (Newswires)

TC Energy announced the Keystone pipeline has returned to service following approval of repair and restart plan by US PHMSA. (Newswires)

Saudi Aramco will sell up to 0.5% of its shares, will be restrictions on the issuance of additional shares for one year after the IPO; offering to begin on November 17th. (Newswires) 

 

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UK Markit/CIPS Services PMI Final (Jul) 56.5 vs. Exp. 56.6 (Prev. 56.6) https://t.co/3LixqirNxk