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[PODCAST] US Open Rundown 18th November 2019

  • European bourses are mixed thus far as trade is choppy in a quiet session
  • US Treasury Secretary Mnuchin and US Trade Representative Lighthizer conducted a phone call with Chinese Vice Premier Liu He on Saturday in which they were said to have held "constructive discussions"
  • US government is reportedly preparing to extend licences to allow US companies to use Huawei equipment by 2 weeks
  • USD is little changed with Sterling outperforming on weekend polls; DXY remains below 98.00
  • Looking ahead, highlights include ECB’s Lane & de Cos; Fed’s Mester; BoE’s Haldane

ASIA-PAC

Asian equity markets partially resumed the momentum from last Friday’s record-setting performance on Wall St. where all major indices notched all-time highs and the DJIA breached the 28000-milestone for the first time. Furthermore, the region also digested a cut in the PBoC’s 7-Day Reverse Repo rate but with gains limited as participants await the next developments on the trade front. ASX 200 (-0.4%) and Nikkei 225 (+0.5%) were mixed with Australia dragged by broad weakness across its sectors including underperformance in gold miners and losses for the top-weighted financials, while the Japanese benchmark was relatively quiet with mild gains spurred on the back of a weaker currency. Shanghai Comp. (+0.6%) was initially choppy with markets somewhat desensitized by the latest trade headlines including reports of a constructive call between US-China top trade negotiators and recent comments from US Commerce Secretary Ross that the finish line is close regarding a phase one trade deal. However, Chinese stocks were eventually supported after the PBoC injected liquidity through reverse repos for the first time in 3 weeks and lowered the rate by 5bps to 2.50%, while the Hang Seng (+1.4%) was resilient despite continued Hong Kong unrest with the index lifted by outperformance in property names and on touted short-covering following last week’s 5% slump, as well as reports of government rescue for mid-sized lender Harbin Bank. Finally, 10yr JGBs traded choppy amid the somewhat indecisive risk sentiment and mixed results from the enhanced liquidity auction, although prices have eked mild gains as it continues its rebound from support at 153.00. 

PBoC injected CNY 180bln via 7-day reverse repos and lowered the rate by 5bps to 2.50% from 2.55%. (Newswires) PBoC set CNY mid-point at 7.0037 vs. Exp. 7.0030 (Prev. 7.0091)

PBoC quarterly monetary policy report stated China’s economy faces increasing downward pressure and more uncertainties but remains under control. (Newswires)

US Treasury Secretary Mnuchin and US Trade Representative Lighthizer conducted a phone call with Chinese Vice Premier Liu He on Saturday in which they were said to have held "constructive discussions" on each other's core concerns and agreed to maintain close communication. (Newswires)

US government is reportedly preparing to extend licences to allow US companies to use Huawei equipment by 2 weeks, while a longer extension has not yet been finalized due to regulatory hurdles. (NYT)

Global Times tweeted China and the US may be deadlocked in a trade war, but dialogue is ongoing and 11th US-China Political Leaders Dialogue kicked off in Beijing on Monday with how to defuse trade and political tensions at the top of the agenda. (Twitter)

Further clashes were reported over the weekend in Hong Kong where police fired tear gas at protesters in the vicinity of a university campus and protesters set fire to the main entrance of the Polytechnic University as police attempted to move in. In related news, Police officers were said to threaten to use live rounds if rioters carry out more violence, while China sent PLA soldiers to the Hong Kong protest site with brooms to conduct a clean-up.  (Newswires) A Hong Kong court has ruled that the Government's ban on masks is unconstitutional. (Newswires)

 

US

Fed’s Daly (Non-Voter, Dove) said low inflation despite low unemployment creates an opportunity for the economy, while she added that accommodative policy can bring more workers into the labour force and push inflation back towards 2% inflation target level. (Newswires)

 

UK/EU

UK election Survation poll conducted November 14th-16th showed Conservatives at 42% (+7), Labour at 28% (-1), Lib Dems at 13% (-4) and Brexit Party at 5% (-5). (Twitter) UK election YouGov/Times poll conducted November 14th-15th showed Conservatives at 45% (+3), Labour at 28% (unch), Lib Dems at 15% (unch) and Brexit Party at 4% (unch). Mail on Sunday poll conducted November 14th-16th showed Conservatives 45% (+4), Labour 30% (+1), Lib Dems 11% (-5%), Brexit Party 6% (unch)

UK PM Johnson is to pledge tax cuts for businesses at the Confederation of Business Industry conference in attempt to ease Brexit related concerns. (Guardian) UK opposition Labour Party manifesto will include a windfall tax on oil companies as part of its attempts to shift the UK towards a low-carbon economy, according to the FT’s Chief Political Correspondent. (FT)

UK Foreign Secretary Raab said he does not think it is remotely likely that the UK would Brexit without a Free Trade Agreement at the end of the transition period. (Newswires)

ECB’s Muller suggested the central bank could do take even more unconventional measures if the situation becomes severe. (Newswires)

ECB's de Guindos (Dove) says the most significant vulnerabilities of euro area banks relates to their weak profitability prospects. Notes banking system is operating with significant overcapacity resulting in cost inefficiencies and competitive pressures; weaker cyclical momentum and associated low interest rates are weighing on bank profitability, although monetary policy accommodation has supported lending volumes. (Newswires)

German BDI business lobby and DGB Labour Union jointly call on Berlin to boost public investment. (Newswires)

 

GEOPOLITICS

US Defence Secretary Esper met with Chinese Defence Minister Wei in Bangkok which experts described as significant in strengthening mutual military trust, while China was said to ask US to stop escalating the South China Sea situation. In related news, China's Defence Ministry spokesman said China will not tolerate any Taiwan independence incidents and a China Navy spokesperson confirmed a Chinese carrier sailed through the Taiwan Straits but note the passage is not directed at any target nor is it related to current situation. (Newswires/Twitter)

North Korea is not interested in a "fruitless" summit with the US, according to a North Korean official cited by Yonhap. (Yonhap)

 

EQUITIES

Major European bourses (Euro Stoxx 50 -0.2%) are choppy and mostly directionless thus far on the first trading session of the week, following a mostly positive APAC session where sentiment was supported by Wall Street’s Friday rally, seemingly positive US/China trade headlines and the latest cut to the PBoC’s 7-Day Reverse Repo rate. European bourses trade mostly within last week’s ranges, however, US indices futures made fresh ATHs again this morning, with ES Dec’ 19 futures reaching as high as 3127.50. Looking ahead, further impetus is most likely to come from further developments on the US/China trade front, with the data docket largely empty for the day, aside from Central Bank speak. Moving on to the sectors, the picture is mixed; Utilities (+0.1%), Financials (+0.3%) and Health Care (+0.6%) are on the front foot, while Tech (-0.3%) and Industrials (-0.3%) the slight laggards. In terms of the most notable individual movers; BME (+38.1%) shot higher on increased hopes for a bidding war between Euronext (+1.2%) and SIX Exchange, the former having confirmed it is in discussions for the Co. and the latter putting in a bid worth EUR 34.0/shr. Meanwhile, Qiagen (+12.1%) opened higher on the news that the Co. has received several conditional non-binding indications of interest and has decided to start discussions to examine potential strategic alternatives. In terms of the laggards, Aviva (-3.5%) shares were sent tumbling on the news that, after an options review for its Singapore business, the Co. had concluded that retaining the business will achieve the best shareholder value.

 

FX

DXY, Yuan - Another subdued day for the broad Dollar and Index with the latter losing further ground below the 98.00 figure amid Friday’s downbeat US IP figure coupled with strength in some G10 peers. DXY probes the 97.90 mark having dipped to 97.87 as European participants entered the market with the next level to the downside its 21 DMA at 97.83. Meanwhile, the Yuan is on a modestly softer footing after the PBoC cut its 7-day reverse repo rate by 5bps ahead of the Central Bank’s LPR decision later this week - with consensus pointing towards a maintained rate, but against growing views of a 5bps reduction. USD/CNH remains off highs after the pair rose to to almost 7.0200 post-PBoC ahead of its 100 DMA at 7.0381. Looking ahead, this week sees a mammoth USD 5bln in USD/CNH at strike 7.0000, with the largest chunk of USD 2.1bln for tomorrow.

GBP, EUR - Sterling stands as the marked outperformer thus far amid tailwinds from weekend polls suggesting an uptrend in the Conservative’s lead over Labour, with the weekend polls showing a lead between 14-17 points across three surveys. Thus, Cable extends upside above 1.2900 to test 1.2950 in early EU trade before taking out resistance at 1.2972-5 (Oct31/Nov1 highs) and ahead of touted barriers at 1.3000. As a result, EUR/GBP continues to edge lower towards the 0.8500 mark (0.8535 intraday low) with bears’ targets now including the YTD low at 0.8456 ahead of the 55 MMA (0.8437). Meanwhile, the Single Currency sees little action and largely moves at the whim of the Buck having clocked in a 20 pip intraday parameter for now and with a few pertinent speakers on today’s docket and a lack of notable data points. EUR/USD meanders just above 1.1050 and with options expiries eyeing a hefty EUR 1.3bln at 1.1055 for today’s NY cut.

JPY - Modestly softer start to the week with little by way of major weekend risk events to sway sentiment. USD/JPY tested 109.00 in early trade and has since meandered around the round figure where its 200 DMA also resides. Scheduled events today are unlikely to affect the market mood, but as always traders will be on the lookout for developments on the trade and Hong Kong front for catalysts.

Notable FX Expiries, NY Cut:

- EUR/USD: 1.1035 (300M), 1.1055 (1.3BLN), 1.1145 (760M)

- USD/JPY: 108.00 (500M), 109.00 (500M), 109.35-40 (500M)

 

FIXED INCOME

A relatively quiet start to the week for markets in general, with the debt complex little different. Bunds are slightly subdued but overall rangebound within a circa 35 tick band for the day thus far on a lack of fresh catalysts and as the day’s calendar provides little in the way of inspiration aside from ECB speak later in the session. To the downside a break below the day’s aforementioned band would bring support at 170.26 in to play; in contrast, any support for the German 10-year would, aside from the psychological 171.0 mark, highlight 171.15 as a resistance point. Elsewhere, gilts are the marginally underperformer this morning on the weekend’s Tory election poll gains and reports that all contesting Conservatives will back PM Johnsons Brexit plan; on a technical note, the sessions current low of 131.40 resides just above support at 131.36. Looking ahead, and across the pond, the afternoon’s slate does see the NAHB housing index and, more pertinently, comments from Fed’s Mester who is a 2020 voter. USTs are slightly subdued in sympathy with their European counterparts though price action is minimal with the curve unchanged at present.

 

COMMODITIES

Crude prices are flat to lower, as the market consolidates following last Friday’s healthy gains on the back of trade related optimism tailwinds. Both WTI and Brent front month contracts trade at the top of recent ranges, the former just below the USD 58.00/bbl mark and the latter comfortably above USD 63.00/bbl. Other geopolitical developments are focused over in East Asia; the US and South Korea postponed joint military drills to help provide an opportunity to bring North Korea back to negotiations, while US Defence Secretary Esper reportedly met with Chinese Defence Minister Wei in Bangkok which experts described as significant in strengthening mutual military trust and China was said to ask US to stop escalating the South China Sea situation. In terms of metals; Gold has been heading lower, breaking below resistance just above the USD 1460/oz level. Copper, meanwhile, has been moving sideways after making modest gains overnight on the back of PBoC liquidity injections at a lower RRR and trade hopes

Iran experienced widespread protests in more than 100 cities and towns following a 50% gas price increase; separately, protestors are reportedly blocking the entrance to Iraq’s Umm Qasr port, operations are down by 50%., according to port sources. (Newswires)

Russian oil output in first week of November 11.25mln BPD (vs. 11.24mln BPD in September), according to IFAX citing sources. (Newswires)

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Asia equities begin mostly positive after the mild tailwinds from Wall St where markets were encouraged by a somewh… https://t.co/3S76pZPqQt