[PODCAST] US Open Rundown 19th November 2019
- European bourses have climbed higher, following on from a largely positive Asia-Pac handover, during another session of limited newsflow
- US President Trump tweeted that he told Fed Chair Powell the Fed rate is set too high relative to the interest rates of other competitor countries and that US rates should be lower than all others
- EU's Trade Chief Weyand warned UK PM Johnson will either only get a “bare bones” trade deal from Brussels next year or none at all
- FX markets are mixed/flat vs a slightly firmer USD; debt complex is docile
- Looking ahead, highlights include US Building Permits, Housing Starts and APIs, Japanese Trade, PM Johnson vs UK Labour Party Leader Corbyn UK Election debate, Fed’s Williams, Norges Bank’s Matsen, BoC’s Wilkins
Asian equity markets eventually traded mostly higher but with gains capped after an initial lack of commitment due to the ongoing US-China uncertainty triggered by contrasting trade headlines, including reports of a pessimistic mood in Beijing about a deal being passed. ASX 200 (+0.7%) and Nikkei 225 (-0.5%) were mixed with Australia lifted as gains in the defensive sectors and recovery in financials superseded the heavy losses in tech, while Tokyo sentiment was snagged by detrimental currency flows and with SoftBank pressured by further WeWork troubles as the New York Attorney General was said to be investigating the embattled workspace company. Elsewhere, Hang Seng (+1.5%) and Shanghai Comp. (+0.9%) began indecisively but gradually improved as reports of Beijing trade pessimism was offset by a 90-day license extension for US firms to continue doing business with Huawei, while the PBoC also continued its liquidity efforts with another firm injection of CNY 120bln through 7-Day Reverse Repos. Finally, 10yr JGBs were mildly higher as they tracked recent upside in T-notes and amid weakness in Japanese stocks, while demand was also supported by the BoJ’s presence in the market for over JPY 1.1tln of JGBs in 1yr-10yr maturities.
PBoC injected CNY 120bln via 7-day reverse repos for a daily net injection of CNY 120bln. (Newswires) PBoC set CNY mid-point at 7.0030 vs. Exp. 7.0061 (Prev. 7.0037)
About 100 protesters were still barricaded in Polytechnic University in Hong Kong as the stand-off with police continued, while there were also comments from Hong Kong Chief Executive Lam that she hopes the campus standoff can be solved peacefully and she told police to handle protesters leaving the campus in a humane way. China's Hong Kong Affairs Office expressed strong concern over Hong Kong Court decision to overturn mask ban and China’s Parliament Law Committee said Hong Kong Courts have no power to rule on constitutionality of the face mask ban law. (Newswires)
Over 8,000 petrol bombs ready for use on Hong Kong streets have been found at Chinese University, according to sources, whilst police insiders said over 1000 were arrested on Monday, SCMP. (SCMP)
US President Trump tweeted that he told Fed Chair Powell the Fed rate is set too high relative to the interest rates of other competitor countries and that US rates should be lower than all others, while he added too strong USD is hurting manufacturers and growth. (Twitter)
EU's Trade Chief Weyand warned UK PM Johnson will either only get a “bare bones” trade deal from Brussels next year or none at all, while she suggested there will be a lack of time to strike a comprehensive deal. (The Sun)
North Korea says US proposed to meet in Sweden next month, according to KCNA citing a North Korean Foreign Ministry official. (Newswires)
Major European bourses (Euro Stoxx 50 +0.7%) are on the front foot in another day of quiet trade, following on from a broadly positive APAC handover. A decent liquidity injection from the PBoC, a lack of fresh negative US/China trade negatives (the 90-day Huawei waiver appears to have mostly offset negativity regarding reported pessimism on deal in China), plus a lack of looming risk events appear to be enabling the recent trend in global equities to continue, i.e. a persistent grind higher. Also, possibly acting in support are reports that US President Trump’s Section 232 auto tariff authority (which he could have used to put tariffs on European auto imports) has run out of time, meaning he may have to find other means if he wants to pursue auto tariffs on Europe/Japan, legal experts said. As a reminder, Trump last Thursday took no action to impose or delay national security tariffs on auto imports, despite a deadline to do so by that date. Regardless, US index futures made YTD highs again this morning, with the ES Dec’19 contract reaching highs of 3129, while back in Europe, the Euro Stoxx 50 broke out of last week’s range to make new highs around 3720, with ATHs seemingly now within reach at 3769. In terms of the sectors, things are mostly in the green, with underperformance being seen in the more defensive Utilities (-0.1%), Consumer Stapes (+0.1%) and Health Care (+0.3%) sectors, while Telecoms (unch.) have also been on the back foot, with the news that France’s 5G auction has been delayed until March 2020 doing little to help. Risk sensitive sectors, including Consumer Discretionary (+1.1%) and Financials (+1.1%) are amongst the outperformers. In terms of the standout movers; Halma (+12.0%) tops the Stoxx 600 performance chart, where the Co. posted decent gains in pre-tax profit and increased its interim dividend. Propping up the Stoxx 600 table is SES (-19.4%), after the US FCC chairman voiced support for a public auction to free up space for 5G – SES had been lobbying for a private auction. EasyJet (+3.6%) is higher after the Co. posted earnings which beat on top and bottom line expectations and said bookings are “slightly ahead” of last year. Looking at flow data from EPFR, they show that European equities received inflows averaging USD 9.6bln for a third straight, compared to an average USD 5bln weekly outflow since December last year. Morgan Stanley cited the return of flows as part of the reason why they are overweight European equities, adding that the region has room for a further price-to-earnings re-rating, citing reduced Brexit risk, possible shift from monetary to fiscal stimulus, and tighter peripheral and credit spreads as other catalysts.
Boeing (BA) – Unidentified airline signed order for 10 Boeing 737Max 7s and 10 Max 10s, according to sources; additionally, Air Astana announced intent to buy 30 737 Max aircrafts. (Newswires)
Chinese private firms now "shun" the US in their overseas investment, and generally prefer a home listing to a US IPO, says China's Global Times. (Twitter)
China is reportedly scrutinising a US bid for China Chipmaker Control, according to sources; China’s antitrust regulator is monitoring Diodes (DIOD)’s proposed USD 428mln takeover of Taiwan’s Lite-On Semiconductor. (Newswires)
DXY, CNH - The broad Dollar and Index have rebounded off APAC lows after the latter found a base at the 97.75 mark. DXY resides near the top end of today’s 97.75-88 parameter ahead of another quiet session in terms of scheduled events and with sights still locked on US-Sino trade developments. Meanwhile, USD/CNH trades little changed on the day having earlier tested its 21 DMA to the upside at 7.0320 (vs. intraday low of 7.0230) ahead of its 100 DMA at 7.0415
GBP, EUR - Both intially moved sideways and within tight ranges against the Buck amid a lack of fresh catalysts and with eyes on the tonight’s Johnson/Corbyn showdown debate commencing at 2000GMT and the latest YouGov polling at 2100GMT. Upside in Sterling remains somewhat capped in light of comments from EU Trade Chief Weyand who warned of a “bare bones” or no trade deal from Brussels next year, however traders need to steer through domestic political landscape first with election day drawing closer. GBP/USD remains drifted from the 1.2950 mark to around 1.2925, whilst the upside includes reported barriers at 1.3000 and reported stops at 1.3030. EUR/USD resides just north of 1.1050 having earlier tested its 21 DMA at 1.1081 and with eyes on its 100 DMA at 1.1091.
AUD, NZD - The antipodeans are flat in early European trade with AUD/USD and NZD/USD around 0.6800 and 0.6400 respectively, but off overnight lows. The pairs were initially pressured (albeit modestly) upon the release of the RBA minutes which noted that a case could be made for a cut at the November meeting and reiterated that the Board is prepared to ease further if needed. However, analysts at Westpac believe that the case for a December cut is heavily downplayed in the minutes and the dismal Aussie labour force figures from last week may not be sufficient enough for a move from its current “monitoring” approach, and thus Westpac maintains its forecast for a 25bps February cut. AUD/USD rebounded from its overnight post-RBA base of 0.6785 back above 0.6800 ahead of its 50 DMA at 0.6814. Similarly, its Kiwi counterpart reclaimed 0.6400+ status from an APAC low of 0.6383 (21 DMA) with the next level to the upside its 50 DMA at 0.6435.
JPY, CHF - Little action on the safe-heaven front thus far although prices seem to have a downside bias against the USD, potentially on the latter’s recovery from its APAC trough. Participants will again be eyeing developments on the US-Sino trade front amid mixed/contrasting recent reports. Meanwhile, the situation in Hong Kong seems to feel some reprieve (for now at least) after the number of protesters trapped inside the Polytechnic University fell from around 700 to between 100-200, however sources cite by the SCMP noted of over 8000 petrol bombs at the Chinese University ready for use. USD/JPY tested and resides around 108.75 (21 DMA) ahead of potential resistance at 108.83 (Tenkan line) with a barrage of options expiring with USD 1bln between 108.50-55 and a further USD 1bln between 108.90-109.00. The Franc also awaits further risk-driven action as USD/CHF meanders around 0.9900 in early EU trade and eyes its 21 DMA at 0.9911.
RBA Minutes from November meeting stated the board is prepared to ease further if needed and agreed a case could be made for a rate cut at the meeting but decided rates should be held steady. RBA board recognized negative effects of lower rates on savers and confidence as rate cuts could have a different impact on confidence than in the past, while it saw a case to wait and assess impact of its prior substantial stimulus and agreed an extended period of low rates is needed to achieve targets. (Newswires)
RBA watcher McCrann says he believes the RBA will not cut rates in December. (Newswires/Herald Sun)
Notable FX Option Expiries, NY Cut:
- EUR/USD: 1.1025 (600M), 1.1050-55 (1.4BLN), 1.1100-05 (400M) 1.1135-45 (900M).
- EUR/CHF: 1.1000 (855M)
- USD/JPY: 107.95 (900M), 108.30-35 (1.1BLN), 108.50-55 (1BLN) 108.90-109.00 (1BLN)
Another relatively uneventful day for the debt complex thus far, with very little in the way of catalysts for price action this morning; a picture which doesn’t look set to change until Fed’s Williams at 14:00GMT and the first UK election head-to-head debate at 20:00GMT. Prior to this, gilts are essentially unchanged but do reside towards the top of the day’s slim sub 30-tick range; tonight’s debate will provide the first opportunity for voters to see Johnson and Corbyn face off, and as such may impact on some voting intentions if either leader has a particularly strong, or alternatively weak, performance. Technically speaking, either side of the sessions current range are support/resistance points at 131.32 and 131.93 respectively, which may come into play in the event the complex livens-up ahead of the debate. Separately, but on a similar note, Bunds and USTs are little moved overall and just a shade softer on the day at present given the lack of newsflow. Stateside specifically, the curve is very modestly bear-flattening ahead of the aforementioned Fed speak.
Crude markets are lower, with the complex trading heavy despite this morning’s rally in the equity market and a lack of fresh fundamental catalysts. WTI Dec’ 19 futures fell to lows of USD 56.48/bbl, while Brent Jan’ 19 futures fell as low as USD 61.74/bbl, before losses were somewhat pared. In terms of crude specific news of note; Norwegian oil production stood at 1.519mln bpd in October (prelim) vs. Prev. 1.312mln BPD in September, according to the Norwegian Petroleum Directorate. As a reminder, this Thursday sees the release of the Norwegian oil investment survey, with Q3 oil and gas pipeline/extraction investment seen coming in at NOK 181bln, as estimated by the prior release. Elsewhere, and on the docket today, traders will be eyeing tonight’s API Inventory figure which last week printed a draw of 0.54mln barrels. Finally, gold prices slid back beneath the USD 1470/oz mark and copper has been moving higher, assisted by advancing equity prices with eyes remaining on US-China trade developments.
US total shale region production for December is expected to be +49k BPD to 9.133mln BPD, according to EIA. (Newswires)
Multiple international investors have reportedly told Saudi Aramco executives they would limit participation in the IPO in the event it is valued above USD 1.5trl; do not want to pay top amounts for a artificially overvalued Co., Energy Intel's Bakr. (Twitter)
Norwegian oil production stood at 1.519mln bpd in October (prelim) vs. Prev. 1.312mln BPD in September, according to the Norwegian Petroleum Directorate. (Newswires)