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[PODCAST] US Open Rundown 3rd January 2020

  • European bourses are subdued on the overnight middle-east tensions which sparked a broad flight-to-quality
  • USD is firmer this morning, and weighs on most G10 peers excluding the safe-havens
  • Senior Iranian Revolutionary Guard Corp Commander Soleimani and Iraqi Militia Commander Muhandis have been assassinated in an air strike
  • Iranian Government spokesperson says the response to the assassination of Soleimani is not far away, and the response will be strong
  • North Korea's official newspaper warned of "immediate and powerful" strikes against threats
  • Looking ahead, highlights include US ISM Manufacturing, EIA Weekly Report, FOMC Minutes (December), Fed’s Mester, Brainard, Evans, Barkin, Daly, Kaplan and BoC’s Wilkins

GEOPOLITICSFull analysis available on the Newsquawk headline feed, link here.

Senior Iranian Revolutionary Guard Corp Commander Soleimani and Iraqi Militia Commander Muhandis have been assassinated in the air strike on the convoy close to the Baghdad International Airport, according to Iraqi State TV, with the Iraqi Militia spokesman noting that US and Israel were behind the attack. The US Pentagon has since confirmed that the death of the Senior IRGC Commander and noted the attack was aimed at deterring future Iranian attack plans. (Newswires) Initially, there were reports of unknown air activity over Baghdad with explosions heard near the Baghdad International Airport, via airspace observer INTELSky and Al-Jazeera. Iraqi security sources then noted that explosions in the vicinity of Baghdad International Airport were caused by three rockets, however local police sources noted four rockets hitting the Iraqi Military base near the airport with US helicopters spotted in the airspace according to reports. INTELSky reported that PMU Relations Director alongside a delegation of the Iranian Revolutionary Guards were reportedly assassinated in the air strike.

Iranian Revolutionary Guard Corp officer said Iran will take revenge on the US for the death of the Senior IRGC Official Soleimani. Iranian Supreme Leader Khamenei said harsh revenge awaits those who assassinated Senior IRGC Commander Soleimani and added that the killing will double motivation for resistance against the US and Israel. (Newswires) Iranian Foreign Minister Zarif tweeted "The US' act of international terrorism, targeting & assassinating General Soleimani is extremely dangerous & a foolish escalation", and added that US will bear responsibility for all consequences. (Twitter) Iran's top security body is to meet to discuss the "criminal attack" against Senior IRGC Commander Soleimani, according to a spokesperson quoted by FARS. (Newswires)

Iranian Government spokesperson says the response to the assassination of Soleimani is not far away, and the response will be strong., AJA. (Twitter)

Iraqi National Assembly is to hold an emergency session tomorrow to discuss the assassination of Suleimani as well as the presence of US troops. (Newswires)

US Senator Graham warned that "If Iranian aggression continues and I worked at an Iranian oil refinery, I would think about a new career.” US Defence Department sources note that patriot batteries are active in Bahrain for alert posture, according to Newsweek's LaPorta. (Twitter)

North Korea's official newspaper warned of "immediate and powerful" strikes against threats. (Yonhap)

ASIA-PAC

Asian equities failed to benefit from the rally seen by global peers in which the major bourses on Wall Street headed into the close in fresh record territory. Tech-giant Apple briefly surpassed the USD 300/shr milestone for the first time, whilst chip names were bolstered by AMD’s +7% surge after a 45% price target boost by analysts at Instinet. In overnight trade, US equity futures alongside regional bourses saw downside which coincided with reports of North Korea's official newspaper warning of "immediate and powerful" strikes against threats and with sentiment dampened by concerns in the Middle East. Japanese markets remained closed amid an extended New Year holiday, whilst ASX 200 (+0.7%) was bolstered in early trade with all sectors initially in the green and with the heavily weighted financial sector leading the gains. Similarly, South Korea’s KOSPI (U/C) also saw early upside with heavyweight chipmaker SK Hynix advancing over 3% as semiconductor names piggy-backed on Wall Street’s stellar chip performance – similar gains were seen in TSMC shares at the Taiwan open. Hang Seng (-0.3%) was originally kept afloat by energy giants benefitting from the sudden rise in oil prices before the index conformed to the overall risk appetite, whilst Shanghai Comp (U/C) traded somewhat lacklustre following a net weekly liquidity drain of CNY 550bln by the PBoC.

PBoC set USD/CNY reference rate at 6.9681 vs. Exp. 6.9683 (Prev. 6.9614) (Newswires) PBoC drained a net CNY 550bln for the week vs. a drain of CNY 30bln in the prior week

PBoC policy easing is on track despite higher inflation, sources state. China is to set annual inflation target at 3% for 2020, unchanged from last year, policy insiders expect consumer inflation to ease in H2 2020, according to sources. (Newswires)

UK/EU

EU Trade Chief Hogan has planned a visit to Washington January 14-16th. (Newswires)

UK Construction PMI M/M 44.4 vs. Exp. 45.9 (Prev. 45.3)

-        Sharpest fall in civil engineering activity since March 2009, New business decreases for the ninth month in a row.

German Saxony State CPI YY (Dec) 1.4% (Prev. 1.1%), CPI MM (Dec) 0.6% (Prev. -0.8%)

-        The remainder of the State CPIs were similarly strong, and as such point to the mainland figure also being strong. For reference the preliminary mainland expectations are: YY 1.4%, MM 0.4%; HICP YY 1.4%, MM 0.5%.

German Unemployment Chg SA (Dec) 8k vs. Exp. 2.0k (Prev. -16.0k)

-        Unemployment Rate SA (Dec) 5.0% vs. Exp. 5.0% (Prev. 5.0%)

-        Total NSA (Dec) 2.227M vs. Exp. 2.216M (Prev. 2.18M)

EQUITIES

European bourses are subdued this morning by the risk-off tone given geopolitical events in the middle-east which has dominated price action thus far (more information available in the Commodity section below, as well as the Newsquawk headline feed). Bourses are in negative territory across the board with no notable laggard; however, the FTSE 100 (-0.3%) is holding up somewhat better than its peers gleaning assistance from the upside in Energy names given the crude complex’s action, for instance BP (+1.7%), Shell (+1.4%). Additionally, at the tope of the FTSE 100, is Fresnillo (+2.4%) shining alongside other mining names given the safe-haven bid in gold today. In terms of sectors, unsurprisingly given the aforementioned newsflow, energy names are the only sector in positive territory; with the remaining sectors experiencing broad-based losses. In terms of individual movers, and sticking with the geopolitical tensions, flight names including Air France (-7.8%), Lufthansa (-7.0%) and easyJet (-3.5%) suffering on the higher oil prices. Aside from the crude-related movers, tobacco names are firmer this morning following on from the FDA’s issuance of new guidance. While UK gambling names were subdued at the open on reports that the gambling commission is considering a ban on VIP schemes in Britain; for reference, a number of the relevant Co’s are heavily dependent on such schemes.

Chinese-made exports of Ford (F), Tesla (TSLA), BMW (BMW GY) set to surge as Beijing opens auto industry, according to a Chinese Government report via SCMP. (SCMP) Adding that, Beijing is aiming to boost exports of China-made foreign vehicles in coming years as domestic car sales slump and restrictions on overseas firms are loosened, according to a government report.

FX

USD - The Dollar revival from turn of the year and decade lows continues, as the DXY inches above 97.000 from sub-96.500, and the latest rebound has been fuelled by safe-haven demand amidst heightened US-Iran tensions following an airstrike reportedly sanctioned by President Trump targeting and killing an IRGC general. Technically, a clear breach of the big figure could see an extension or further retracement to Xmas Day lows of 97.344 ahead of 97.350, 97.500 and the high of December 27 (97.552) before the index slumped on all round Greenback selling.

JPY/XAU/CHF - The Yen and Gold are both still bucking the overall trend and outperforming due to their status as ultimate ports of security in a storm, though Usd/Jpy has bounced from circa 107.91 and Xau/Usd could not sustain momentum through the psychological 1500/oz level as the Buck built on gains more broadly, while chart watchers will be aware that support lies at 107.89 for the Dollar and last year’s Bullion peak was 1557.11. Elsewhere, the Franc remains somewhat betwixt and between, with Usd/Chf firmly elevated towards the upper end of a 0.9690-0.9743 range in stark contrast to Eur/Chf that is looking at 2019 lows within a 1.0825-55 band.

CAD/EUR/NOK/SEK/AUD/NZD/GBP - All victims of the aforementioned return to risk aversion, albeit to varying degrees as the Loonie and Norwegian Krona glean some protection/support from the spike in oil prices to trade back over 1.3000 vs the US Dollar and close to 9.8500 against the Euro respectively. However, the single currency has unwound more of its appreciation vs the Greenback and is now testing the 21 DMA (around 1.1128-30) having fallen below the 200 DMA (1.1142), while the Swedish Crown is back under 10.5000 in Euro cross terms and Antipodes even further away from recent pinnacles against their US counterpart, with Aud/Usd and Nzd/Usd sub-0.6950/0.6650 respectively. Finally, and fittingly in terms of current G10 rankings, Cable has given up more ground and another round number at 1.3100 in wake of a much weaker than forecast UK construction PMI.

EM - Widespread losses on the risk-off positioning, but again the pain for Turkey’s Lira has been more apparent after stronger than expected CPI data, the inflated cost of crude and ongoing geopolitical concerns all nudging Usd/Try closer to the 6.0000 handle.

Brazilian Economy Ministry said the trade surplus is likely to continue to decrease in 2020 due to stronger demand in Brazil supporting imports. (Newswires)

Notable FX expiries, NY Cut:

-        USD/JPY: 108.00 (330M), 108.50-55 (1.8BLN), 108.85 (690M)

FIXED INCOME

The rationale remains the same and well documented, but the demand for debt is ongoing if not quite relentless as stocks continue to wilt and EU market participants await the return of their US peers to see if the safety-flight spills over or short covering/profit taking kicks in. For now bonds remain lofty and just edging new intraday peaks of 172.26, 132.48 and 129-07 for Bunds, Gilts and 10 year US T-notes respectively. Ahead, prospects for a frothy prelim German inflation print and a busy end of week US agenda, including data and the FOMC minutes, but US-Iran and geopolitics in general seems to be the main if not only issue on Friday and into the weekend.

COMMODITIES

WTI and Brent are significantly firmer this morning, currently trading with gains in excess of USD 3.0/bbl at present, and have eclipsed their overnight highs. In terms of the crux of the newsflow, overnight the US assassination of Iranian Military General Soleimani sparked significant upside for the complex and a broad risk-off tone. Subsequently, the Iranian Government has stated the response to this is not far away and will be strong. A full briefing on this, including the potential implications, is available on the Newsquawk headline feed. Looking ahead, focus will be on magnitude of the response from Iran and the subsequent response to any measure by other regional powers and of course the US. Elsewhere, today’s other focus point for the crude complex is the delayed EIA weekly metrics, although their impact on price action could be diminished given the geopolitical factors; nonetheless, expectations are for a headline draw of 3.288mln barrels, which is slightly smaller than the previous draw of 5.474mln barrels. Moving to metals, where spot golds action is also dictated by the risk-off geopolitical news. The yellow metal has, at best, just eclipsed the USD 1550/oz mark and of note is the 2019 high at USD 1557.11/oz; it is worth caveating that the USD is also experiencing a safe-haven bid this morning which will be hindering the precious metals progress. Elsewhere, iron ore hit its highest level for around 5-months as restocking continues ahead of the China New Year, as China produces around half of the global steel supply; support also stems from Brazil’s Iron ore exports posting a decline for the month of December.

Foreign oil companies have reportedly evacuated employees who are US citizens from Iraq's Basra., Company Sources; note this will not affect their production. (Newswires)

Phillips 66 noted that its 203k BPD Ponca City, Oklahoma refinery experienced a fired in its process unit, fire is under control and said there has been no impact on personnel and no off-site impact, flaring may increase temporarily. (Newswires)

Russia has halted oil supplies to Belarus oil refineries, according to Belarusnedtekhim a Belarus oil firm; subsequently rebuffed by industry sources. (Newswires) Note, the reasoning behind this possible halt is not clear

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