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[PODCAST] US Open Rundown 9th January 2020

  • European bourses are firmer, as markets return to risk-on following the Middle-East de-escalation
  • Senior Iranian Revolutionary Guard Commander states that Iran will take 'harsher revenge soon' following on from the missile attacks on US targets in Iraq., Tasnim
  • China and the US will sign the Phase One deal, which will occur on January 15th at 16:30GMT., Chinese Press
  • USD is outperforming G10 counterparts today, particularly GBP post-Carney
  • Looking ahead, highlights include Jobless Claims, Fed’s Clarida, Williams, Evans & Bullard, ECB’s Lane, supply from the US

GEOPOLITICS

US reportedly considered striking Iran after its attack on Iraqi airbases, but the decision was held off until more information was gathered regarding intent and casualties, according to CNN. (CNN)

US VP Pence said the US is receiving intelligence that Iran is telling militias not to move against US targets, CBS Interview. (CBS) US Chief of Staff stated that the US expects Shiite militias in Iraq to launch terrorist attacks against coalition forces. (Newswires) Iraqi Shiite militia spokesman said, "the response of the resistance factions will be very harsh, and the coming days will be full of surprises.", according to NBC News Analyst Kohnlan. (Twitter) - ELINT News noted that the Iranian-backed Iraqi Shia militias have so far not responded to the killing of 25 of their men in western Iraq and the assassination of al-Muhandis, who was the leader of Iraqi Hezbollah and deputy commander of the Popular Mobilisation Units. (Twitter) US Defence Secretary Esper said US military remains "poised and ready" - nothing major was damaged in yesterday's Iranian attacks on Iraqi bases. Defence Secretary Esper also tweeted "We can report 100% accountability of US personnel in Iraq", and added that US remains vigilant and calls on Iran to take this chance to de-escalate tensions. (Twitter)

Senior Iranian Revolutionary Guard Commander states that Iran will take 'harsher revenge soon' following on from the missile attacks on US targets in Iraq., Tasnim. (Newswires)

Iran's Ambassador to the UN states that the offer of co-operation from US President Trump is 'unbelievable' while Tehran remains under US sanctions., IRNA. (Newswires)

UN delegate to Iran said our countries are able to solve their problems through dialogue, including differences in the Gulf, and added that Tehran does not consider the Nuclear Deal to be dead following recent steps, reported via Al-Jazeera. (Twitter)

US justifies IRGC Commander Soleimani's killing as self-defence, US said it is prepared to take additional action in the Middle East to protect US personnel, US stands ready to engage in negotiations with Iran to prevent escalations, via a letter to UN. (Newswires) Iranian Foreign Minister Zarif reiterated that the people in the region wants the US out. (Twitter)

UN investigation reportedly found that Yemen Houthi's did not launch the attacks on the oil facilities in Saudi Arabia last September, according to a confidential report. The report found that “Some of those weapons have technical characteristics similar to arms manufactured in Iran” (Newswires)

NATO Secretary General, in response to US President Trump’s call for more involvement, said NATO could contribute more to the regional stability, according to The Times citing a NATO spokesman. (Times)

The initial Iranian investigation, into the Boeing (BA) crash, report noted that the plane had a technical problem prior to the crash. (Newswires) US intelligence looking into Boeing (BA) 737 crash in Tehran, according to CNN. (CNN) Note: There were also uncited reports that Iran may seek help from the US regarding the Boeing investigation after Tehran refused to hand over the plane’s black box. (Newswires)

ASIA-PAC

Asia-Pac bourses kicked off the session with firm gains across the board after a positive handover from Wall Street - which saw the Nasdaq Comp notching intraday and closing records, whilst the S&P hit intraday all-time highs. Global sentiment was bolstered by what seems to be a simmering down in US-Iran tensions, with US President Trump also stating that the US is ready to embrace peace after saying that Iran appears to be standing down. US equity futures and cash experienced some losses heading into the Wall Street close amid reports of two rockets hitting Baghdad’s Green Zone near the US Embassy, although negative sentiment failed to materialise as no casualties were registered. ASX 200 (+0.8%) gleaned support from its largest weighted financials sector, but gains remained hindered as oil and precious metal names are pressured by recent price action in the respective complexes. Nikkei 225 (+2.3%) outperformed peers in the region as the index welcomed favourable JPY dynamics and with only a small fraction of its constituents in negative territory. Elsewhere, Hang Seng (+1.7%) and Shanghai Comp (+0.9%) echoed the performance in regional peers after the Mainland initially side-lined below-forecast Chinese inflation figures for a bulk of the session, with the US-China Phase One deal signing drawing closer. 

Chinese CPI YY (Dec) 4.5% vs. Exp. 4.7% (Prev. 4.5%) (Newswires) Chinese PPI YY (Dec) -0.5% vs. Exp. -0.4% (Prev. -1.4%)

PBoC set USD/CNY reference rate at 6.9467 vs. Exp. 6.9464 (Prev. 9.9450) (Newswires) PBoC skipped open market operations for a net neutral daily position

China and the US will sign phase one trade deal. This deal can be seen as a new start to explore each other's boundary of behavior and tolerance, according to Chinese Global Times Editor Hu Xijin. (Twitter) Deal is to be signed at 16:30GMT on January 15th, WSJ.

China's Foreign Ministry states that the US Congress report on their human rights is neither objective or credible. (Newswires)

Huawei is reportedly in talks with international banks to raise USD 2bln via loans and bond sales outside China, according to sources cited by The Information. (The Information)

China Finance Ministry reportedly to front load in excess of CNY 500bln quota for local government general purpose bond issuance, sources state, which added that it should be used up before March. (Newswires)

World Bank cut 2019 global growth forecast to 2.4% (Prev. 2.6%) and cut 2020 forecast to 2.5% (Prev. 2.7%) due to slower-than-expected recovery in trade and in investments 2019 EM growth forecasts cut to 3.5% (Prev. 4.0%) and 2020 forecast cut to 4.1% (Prev. 4.6%). (Newswires)

UK/EU

UK BRC Retail Sales Monitor (Dec) YY +1.7% (Prev. -4.9%) - distorted by timings of Black Friday sales. (Newswires)

German Industrial Output MM* (Nov) 1.1% vs. Exp. 0.7% (Prev. -1.7%, Rev. -1.0%)

-        Trade Balance, EUR, SA* (Nov) 18.3B vs. Exp. 20.0B (Prev. 20.6B, Rev. 20.4B)

-        Imports MM SA* (Nov) -0.5% vs. Exp. 0.2% (Rev. 0.5%)

-        Exports MM SA* (Nov) -2.3% vs. Exp. -0.5% (Prev. 1.2%, Rev. 1.5%)

BoE Governor Carney: Rebound forecast by the BoE for the UK economy this year is not assured, Is debate within the MPC over the merits of near-term stimulus to reinforce the anticipated recovery in UK growth and inflation. All told, a reasonable judgement is that the combined conventional and unconventional policy space is in the neighbourhood of the 250 basis points cut to Bank Rate seen in pre-crisis easing cycles. Is sufficient headroom to release, at least, double the August 2016 GBP 60bln package of asset purchases; a number that is to increase with additional gilt issuance. (BoE/Newswires)

EQUITIES

European bourses are firmer this morning, in the next turn of what is proving to be a roller-coaster week for markets. This strength comes as comments from US President Trump yesterday intimated a de-escalation in tensions, more information available in the Commodity section below. This morning’s notable outperformer is the Dax, with the cash bourse having printed a high above the 13500 mark; marking a significant retracement/turnaround from the weeks low below the 12950 level, an over 500 point range already for the index. Sector wise, energy is this morning’s notable underperformer, on the aforementioned de-escalation in tensions in-line with the broader crude complex. Energy aside, the remaining bourses are in positive territory for the session. At the bottom of the Stoxx 600 this morning are Marks & Spencer (-9.4%), after providing a Q3 and Christmas Period trading update; in which, they did note that gross margins are expected at the lower-end of guidance, but this should be offset. In contrast, after also providing a holiday update, Tesco (+2.2%) are firmly in the green, the Co. highlighted that over the Christmas period they outperformed the market. UK supermarkets aside, flight names such as Air France (+4.3%) are benefitting on the reduction in oil-prices and calming of tensions; with Air France specifically having provided a strong December update this morning.

EU antitrust regulators have now recommenced their investigation into the Boeing (BA) and Embraer deal, following on from Boeing presenting requested data, decision is due by the 30th of April. (Newswires)

FX

USD - The great Greenback revival continues, albeit gradually, with the DXY nudging through 97.500 having picked off the next upside chart objectives at 97.344 and 97.350 to target December 27’s 97.552 high set before the broad Dollar was beset by portfolio selling for year end. The Buck is still forging gains or clawing back losses vs major rivals, and in particular those currencies deemed to be safer havens, with only a minor blip caused by several incendiary Iranian remarks earlier today, as investors take comfort from the fact that Tehran’s strike back did not irk US President Trump to the extent of further action beyond more sanctions.

GBP - Unexpectedly dovish commentary from BoE Governor Carney has pushed the Pound down to the bottom of the G10 rankings, as he raises some doubt about the anticipated 2020 economic recovery and reveals that the MPC is mulling whether it needs to help via additional stimulus. Moreover, he believes there is room to restart QE within a wider easing package equating to 250 bp and the APF more than twice the size of August 2016’s Gbp60 bn. Cable had already given up 1.3100+ status around the 9 am fix as Eur/Gbp squeezed up towards 0.8500, but Sterling declines subsequently extended to sub-1.3020 and circa 0.8530 respectively.

NZD/JPY/AUD - The Kiwi and Yen are also underperforming, as Nzd/Usd retests support/bids ahead of 0.6600 and Usd/Jpy probes offers/supply into 109.50. However, the former appears weak partly, if not mainly due to relative Aussie resilience near 1.0350 and 0.6850 vs its US peer in wake of a much wider than forecast trade surplus, while the latter may yet be drawn back down towards a very large option expiry at 109.25 (2.4 bn).

EUR/CHF/CAD/NOK/SEK - All softer against the Greenback or Euro in the case of the Scandi Crowns, but to varying degrees with the single currency and Franc holding up a bit better than others even though Eur/Usd has pulled back further from recent highs and into a heavy option expiry interest zone spanning the 1.1100 level (1.7 bn from 1.1090 to the round number and 1.5 bn between 1.1110-15). Meanwhile, Usd/Chf is trapped in a tight 0.9732-47 range following stagnant Swiss retail sales data (y/y) and Usd/Cad awaits Canadian housing starts and building permits before a late speech from BoC chief Poloz within 1.3026-56 confines, while Eur/Nok and Eur/Sek are both firmer circa 9.8700 and 10.5200, tracking overall risk sentiment, oil prices and for the Norwegian Krona also taking on board rather tepid monthly mainland GDP.

EM - Most regional currencies are basking or at least benefiting from the ongoing scale down of geopolitical angst, and Turkey’s Lira is delighted with the related retracement in crude costs that should aid efforts to bring inflation back to target ahead of schedule and allow the CBRT to normalise rates further. Usd/Try currently hovering close to 5.8750.

Australian Trade Balance G&S (A$) (Nov) 5.800B vs. Exp. 4.1500B (Prev. 4.502B, Rev. 4.075B) (Newswires)

Major FX Expiries, NY Cut:

-        EUR/USD: 1.1050 (1BLN), 1.1070 (400M), 1.1090-1.1100 (1.7BLN), 1.1110-15 (1.5BLN), 1.1125 (650M), 1.1140-50 (1.5BLN), 1.1200 (1.5BLN)

-        AUD/USD: 0.6840 (1.9BLN), 0.6880 (320M), 0.6895-0.6900 (1.2BLN)

-        USD/JPY: 108.45 (1.2BLN), 109.15 (575M), 109.25 (2.4BLN)

FIXED INCOME

Some range extension in EU debt during the am session, but no lasting turnaround or major game changer even though BoE Governor Carney sounded more inclined towards ensuring that growth picks up with fresh policy action given no guarantee that projections will be matched this year. His dovish-leaning comments have helped Short Sterling futures reverse early Liffe declines, but Gilts are back below parity vs +7 ticks at best, albeit doing better than Bunds that only mustered a new 171.46 Eurex intraday high before waning again. Meanwhile, US Treasuries are sitting tight after some hefty overnight block selling and awaiting this week’s final slug of issuance and the last anecdotal employment pointers ahead of Friday’s official monthly jobs report. Note also, several Fed orators on the docket later.

COMMODITIES

Today’s price action sees the crude complex in negative territory, as last nights remarks via US President Trump point to a de-escalation in the Middle East noting that he would prefer not to take a military response; albeit, POTUS did state the US is to implement further sanctions on Iran. However, subsequent remarks from a Iranian Commander state they will take ‘harsher revenge soon’ for the killing of Soleimani, following the missile strikes on US-Iraqi targets; recall, that Iran states these strikes were the least severe of the 13 options that they had considered. As such, this indicates that perhaps tensions have not entirely fizzled out, as the current market environment points towards. ING highlight that, recent price action, means speculators are now holding their largest net-long in Brent since October 2018; which they posit provides room for significant sell-off/liquidation of positions, particularly in the event that next week’s US-China signing disappoints. In-fitting with the de-escalation price action, spot gold has dropped below the USD 1550/oz mark, well off of yesterday’s USD 1600/oz+ highs. In other metals news, Brazilian state prosecutors intend to criminally charge Vale shortly regarding the Brumadinho dam collapse which resulted in the death of over 250 people.

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Tesla $TSLA Q1 deliveries 88.4k (exp. 78k); production was 103k