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[PODCAST] US Open Rundown 20th December 2019

  • European bourses are firmer in choppy quadruple witching trade following on from the US record highs
  • US House voted to approve the USMCA trade agreement and the Senate passed the bill to advert a Government shutdown
  • UK House of Commons is to vote on UK PM Johnson's Brexit deal today, the bill would also prevent the Government from extending the transition period past 2020; voting is expected at around 14:30GMT/09:30EST
  • FX complex is mixed with GBP outperforming slightly after data and ahead of the vote
  • Looking ahead, highlights include Canadian Retail Sales, US Personal Income, Consumption, Core PCE, Uni. Of Michigan, EZ Consumer Confidence, Quadruple Witching

ASIA-PAC

Asian equity markets traded mixed as the Christmas rally on Wall St, where all major indices notched fresh record highs and the S&P 500 breached the 3200 milestone for the first time, only partially transitioned into the region amid a lack of significant macro drivers. ASX 200 (-0.3%) was subdued by weakness in energy and financials, with the consumer sectors the worst performers as markets continued to digest the dampened prospects for further easing as reflected by OIS which priced in an under 26% chance of an RBA rate cut in February, while Nikkei 225 (-0.2%) was pressured by recent adverse currency flows. Elsewhere, Hang Seng (+0.3%) and Shanghai Comp. (-0.4%) were indecisive after the PBoC conducted another respectable liquidity operation to bring this week’s total net injections to CNY 630bln but then kept its 1yr Loan Prime Rate unchanged which defied the consensus for a 5bps cut, while reports also suggested lingering uncertainty on the trade front related to the technological restrictions the US may impose on China. Finally, 10yr JGBs extended on the slump below the 152.00 level following selling pressure in T-notes and as the benchmark Japanese 10yr yield turned positive for the first time since March, which overshadowed the slightly firmer demand at the enhanced liquidity auction for longer dated JGBs.

PBoC injected CNY 150bln via 14-day reverse repos for net weekly injection of CNY 630bln vs. last week's net neutral position.

PBoC set USD/CNY reference rate at 7.0020 vs. Exp. 7.0033 (Prev. 7.0025)

PBoC 1yr Loan Prime Rate 4.15% vs. Exp. 4.10% (Prev. 4.15%). PBoC 5yr Loan Prime Rate 4.80% vs. Exp. 4.80% (Prev. 4.80%)

China's Foreign Ministry, when asked about Canadian PM's comments on US-China trade deal, says Canada's attempt to link other issues with US-Sino trade is doomed to fail. (Newswires)

Chinese President Xi said Macau has become one of the safest cities in the world and that people in Macau are able to rationally express different demands, while he added that China will not allow foreign forces to interfere with Hong Kong and Macau affairs. (Newswires)

CNBC report noted that US-China phase one agreement softens trade risks but suggested that an unpredictable factor lingers which is the technological restriction US may impose on China. (Newswires)

Japanese National CPI (Nov) Y/Y 0.5% vs. Exp. 0.5% (Prev. 0.2%). (Newswires) Japanese National CPI Ex. Fresh Food (Nov) Y/Y 0.5% vs. Exp. 0.5% (Prev. 0.4%) Japanese National CPI Ex. Fresh Food & Energy (Nov) Y/Y 0.8% vs. Exp. 0.7% (Prev. 0.7%); largest increase since April 2016.

China’s President Xi is reportedly not planning on attending the World Economic Forum/Davos event in January., according to sources. Beijing still intend to send Vice Premier Liu He to Washington for the signing (Newswires)

US  

US President Trump tweeted that the Democrats gave him no due process in the House and now want to tell the Senate how to run their trial, while he added that they have zero proof of anything and that he wants an immediate trial. In related news, US Senate Republican Leader McConnell said he met with Senate Democrat Leader Schumer and that they remain at an impasse on impeachment trial process, while he added that witness testifying at the Senate impeachment trial continues to be a sticking point. (Twitter/Newswires)

US House voted 385 vs. 41 to approve the USMCA trade agreement, while it was also reported that the Senate passed the two-bill spending package to avert a government shutdown in which the first bill on domestic programs passed by 71-23 vote and the second part of the funding measure was passed by 81-11 vote. (Newswires)

UK/EU

FCA Chief Executive Andrew Bailey has been selected as next BoE Governor; Governor Carney will remain until March 15th 2020. (Newswires)

UK House of Commons is to vote on UK PM Johnson's Brexit deal today, the bill would also prevent the Government from extending the transition period past 2020; voting is expected at around 14:30GMT. The bill is expected to pass as the Conservatives have an 80-seat majority, and all Conservative MPs pledged their support to the deal prior to the election. (Newswires/BBC)

Multiple French Unions state that talks over pension reform have failed to progress, and they intend to continue protesting. (Newswires)

German Finance Ministry said exports are to be subdued in approaching months amid global risks and slowing world trade but added that a strong labour market will continue to support the domestic economy. (Newswires)

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

-        Business Investment YY (Q3) 0.5% vs. Exp. -0.6% (Prev. -0.6%)

BoE’s Haskel (Dovish, Dissenter) says current data justifies looser monetary policy, cutting interest rates now would be insurance against rates getting stuck near zero in the near future, effects of unconventional policies such as QE “much more uncertain; “slow and gradual” rise in bank rates may be needed if path to post-Brexit EU trade agreement is smoother than he expects. (Newswires)

GEOPOLITICS

Japan's Ministry of Economy, Trade and Industry is reportedly to ease some of the technology transport controls on South Korea., JiJi. (Newswires)

EQUITIES

Choppy but ultimately positive trade for European bourses in holiday-thinned conditions [Eurostoxx 50 +0.7%] following a mixed APAC handover in which the region traded without conviction; albeit, the FTSE MIB somewhat outperforms. As a reminder, today’s Quadruple Witching may prompt some volatility around expiry times (full scheduled posted on the Newsquawk headline feed). Sectors are mostly in the green, but the energy sector sees underperformance on the back of an update from Shell (-1.2%) after the oil-giant warned it expects FY19 cash capital expenditures at the lower end of its previously guided range and sees its Q4 chemical cracker and intermediate margins materially lower than in Q3 this year; citing a weak macro environment. In terms of other individual movers, Adidas (+0.4%) shares were initially pressured in light of overall weak earnings from US peer Nike (-1.6% pre-market) and after Nike’s CFO expressed caution regarding trade tariffs hitting the group’s gross profit margins. Elsewhere, NMC Health (-19.1%) experiences renewed downside with traders citing an FT report which notes the Co. held talks to raise GBP 200mln in off-balance sheet debt to fund new hospitals despite “having faced increased scrutiny from short-sellers over the scale of its borrowing”, which comes amid the Muddy Waters report earlier in the week.

FX

GBP - Sterling is consolidating recovery gains with the aid better than forecast data in the guise of final Q3 GDP that was tweaked higher, albeit modestly. Cable is forming a firmer base on the 1.3000 handle after dipping under the psychological level yesterday, while Eur/Gbp is paring back from 0.8550+ highs to sub-0.8525 awaiting a speech from BoE dove Haskel and then the Brexit WAB vote in parliament that should be a formality, but will include an addendum aimed at preventing any move to extend the transition period. Note also, hefty option expiry interest in Cable today from 1.3000 extending up to 1.3250, but the closest from 1.3000-15 and 1.3040-50 in 1 bn clips.

USD - Notwithstanding the Pound’s partial revival and outperformance in several other G10 currency peers, the DXY is holding a firm/fine line between 97.454-381 awaiting another round of US economic releases, including the last Q3 GDP revision, November personal income and spending and final Michigan sentiment for the current month.

SEK/NOK - The Scandi Crowns have regained or retained momentum following respective December policy meetings from the Riksbank and Norges Bank, as Eur/Sek revisits Thursday’s post-25 bp repo hike lows below 10.4500 with some impetus from frothier Swedish PPI in the absence of retail sales that have been delayed until next Friday for no official reason. Meanwhile, Eur/Nok is still under the 10.0000 marker in response to a gentle incline in the depo rate path to 1.6% in 2022 from the current 1.5%.

AUD/NZD - In contrast to the above, divergence between the Antipodean Dollars has persisted in wake of Australia’s upbeat jobs report that is keeping Aud/Usd afloat near 0.6900 and Aud/Nzd elevated around 1.0450 even though Nzd/Usd is pivoting 0.6600.

JPY/EUR/CAD - Narrowly mixed vs the Greenback and not straying far or outside of recent ranges, as the Yen meanders above 109.50, Euro hovers over 1.1100 and Loonie straddles 1.3130. Usd/Jpy, Eur/Usd and Usd/Cad all look capped by big expiries given 3 bn+, almost 4 bn and 1.1 bn respectively around 109.45-50, between 1.1140-45 and 1.1150 and between 1.3140-50 respectively.

Major FX Expiries, NY Cut:

-        EUR/USD: 1.1130 (755M), 1.1140-45 (1.2B), 1.1150 (2.7B), 1.1175-1.12 (2.1B)

-        EUR/SEK: 10.45-60 (1.0B)

-        GBP/USD: 1.3000-15 (1B), 1.3040-50 (1.0B), 1.31 (800M), 1.3150 (1.9B), 1.32 (1.9B), 1.3250 (1.7B)

-        USD/CAD: 1.3100 (525M), 1.3140-50 (1.1B), 1.3265 (750M)

-        USD/JPY: 109.00 (577M), 109.25 (670M), 109.45-50 (3.165B), 110.00 (1.6B)

South Africa's National Treasury states that they are working to step up the timeline for state-owned Eskom's restructuring. (Newswires)

FIXED INCOME

Although volumes remain seasonally thin and the motivation to trade seems to be fading on the final Friday before the festivities begin, bonds are extending declines amidst fewer and more fleeting bouts of consolidation. Conversely, stocks retain an underlying bid with dips proving shallower, so even without any clear sign of asset-switching sellers are holding the upper hand in debt futures and curves continue to steepen. Bunds have gleaned some traction ahead of 171.00 after slipping to a 171.06, but Gilts are now underperforming a few ticks off a new 131.24 Liffe low and US Treasuries are back to within striking distance of worst levels seen recently ahead of a raft of data to end the week.

COMMODITIES 

Little by way of fresh catalysts to drive the energy complex in the run-up to the holiday season with the futures trading modestly in negative territory. WTI and Brent futures remain caged within relatively tight intraday bands of USD 0.30-50/bbl and around USD 61.00/bbl and under USD 65.50/bbl respectively at time of writing. On the geopolitical front, a US probe into the attacks on the Aramco facilities showed it came from the north, with US Envoy to Iran Hook suggesting Iran launched the strike. Tehran, in response, denied carrying out the assault. Elsewhere, spot gold trades sideways above the USD 1475/oz mark and gravitates around its 50 DMA (USD 1477.09/oz) as the yellow metal remains on standby for macro developments. Copper meanwhile trades on the backfoot, having lost the 2.80/lb mark in early EU trade, which may have triggered more pronounced downside amid potential stops tripped at the round figure.

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BoC left rates unchanged as expected. Cut 2020 GDP forecasts. Output gap is wider than expected in October. Key: th… https://t.co/Y0N1GV8w0l