[PODCAST] US Open Rundown 13th January 2020
- European equities are mixed, but overall little changed, this morning; aside from the FTSE 100 on currency effects
- US Treasury Secretary Mnuchin stated that China’s commitments in Phase 1 deal were not changed during the lengthy translation process
- BoE’s Vlieghe becomes the latest MPC member to come out in support of a potential rate cut if data does not improve; subsequently, UK GDP Estimate (Nov) printed below expectations
- As such, GBP is this morning’s FX underperformer; with the USD firmer and the DXY above 97.50 at best
- Iran admitted that it accidentally shot down the Ukraine passenger jet in which it alleged that the airliner took the flying posture and altitude of an enemy target
- Looking ahead, highlights include Fed’s Bostic, Rosengren & BoC Business Outlook survey
Asian equity markets began the week somewhat mixed with the region indecisive and Japanese participants away for a national holiday, with this week’s US-China Phase 1 deal signing adding to the tentativeness. ASX 200 (-0.4%) suffered from broad losses across its sectors led by underperformance in energy and defensives, while Westpac recently estimated losses from the ongoing bushfires at AUD 5bln and a total impact to domestic GDP of between 0.2%-0.5%. The TAIEX (+0.7%) was lifted following a landslide victory by Taiwanese President Tsai and with several encouraging monthly revenue updates including Acer, Pegatron and TSMC. Shanghai Comp. (+0.8%) and Hang Seng (+1.1%) were varied with early underperformance in the mainland after the PBoC once again refrained from open market operations and as the looming Phase 1 signing kept participants on the fence. Furthermore, the sides were said to have agreed to launch a new semi-annual dialogue mechanism, although not also was rosy with the US to drop its civilian drone programme amid security concerns regarding Chinese tech and with officials to visit the UK in which they are expected to pressure the UK against the use of Huawei equipment.
PBoC skipped open market operations for a daily net neutral position. (Newswires) PBoC set USD/CNY mid-point at 6.9263 vs. Exp. 6.9249 (Prev. 6.9351)
US Treasury Secretary Mnuchin stated that China’s commitments in Phase 1 deal were not changed during the lengthy translation process and reiterated that it will be released following the signing this week, while other reports noted that US and China agreed to launch a new semi-annual dialogue mechanism that is set to be announced on Wednesday. (Newswires/WSJ)
China and EU are expected to hold a summit on March 30-31st according to sources cited by SCMP, Chinese President Xi is expected to replace Premier Li as the host of the summit and deliver a keynote speech. (SCMP)
US business executives suggested the Phase 1 deal is ‘modest but helpful’ and the broad outline of the agreement includes some advances in intellectual property protection, significant agriculture purchases and reduced export barriers. (SCMP)
US officials are to visit the UK where they are expected to pressure the country not to use Huawei equipment. In addition, there were separate comments from a former MI5 chief that Huawei technology doesn’t pose a threat to UK and it was also reported the US is to scrap its civilian drone programme amid security concerns regarding Chinese tech. (Newswires)
Iran admitted that it accidentally shot down the Ukraine passenger jet in which it alleged that the airliner took the flying posture and altitude of an enemy target, while protesters held a rally in Tehran demanding the Supreme Leader quits due to the mistake. (Newswires)
US President Trump tweeted that the National Security Adviser suggested sanctions and protests have Iran “choked off” and will force them to negotiate, although President Trump added that he couldn’t care less if they negotiate and it will be totally up to them but suggested no nuclear weapons and “don’t kill your protesters”. In addition, National Security Adviser O'Brien said President Trump is still poised to reduce troops in Afghanistan even if they cannot reach a deal with the Taliban this year. (Twitter/Axios)
White House National Security Adviser O'Brien said the Trump administration has reached out to North Korea to ask them to resume diplomacy, while there were separate reports over the weekend from North Korea state media that the country will not trade its nuclear weapons for lifting sanctions. (Axios/KCNA)
Libya's GNA PM Al-Sarraj said they will sign a ceasefire with Haftar's LNA out of a position of strength and that Libya will continue on path to democracy with the leaders set to meet in Moscow today for a possible signing, while other reports over the weekend noted the sides had agreed to a ceasefire but then blamed each other on breaking the ceasefire hours after. (Newswires)
4 Iraqi soldiers were reportedly wounded following a rocket attack on a base in Iraq. (Newswires)
BoE’s Vlieghe said he is prepared to lower rates if the data doesn’t get better. Furthermore, Vlieghe thinks it has been a close call and wouldn’t take much to swing it one way or the other, while he suggested the upcoming few meetings are live. (FT) Note, this comment follows recent dovishly perceived rhetoric from MPC members Carney and Tenreyro last week; neither of which were two of the dissenters at the December meeting. The next meeting and MPR is on January 30th.
UK GDP Estimate MM (Nov) -0.3% vs. Exp. 0.0% (Prev. 0.0%, Rev. 0.1%)
- YY (Nov) 0.6% vs. Exp. 0.6% (Prev. 0.7%, Rev. 1.0%); 3M/3M (Nov) 0.1% vs. Exp. -0.1% (Prev. 0.0%, Rev. 0.2%)
o ONS says September and October GDP revised higher due to recent late survey data and seasonal adjustments to construction
- Goods Trade Balance GBP (Nov) -5.256B GB vs. Exp. -11.7B GB (Prev. -14.486B GB, Rev. -10.947B GB)
o ONS says trade data was distorted by movements in non-monetary gold
- Manufacturing Output MM (Nov) -1.7% vs. Exp. -0.3% (Prev. 0.2%, Rev. 0.5%); YY (Nov) -2.0% vs. Exp. -1.7% (Prev. -1.2%, Rev. -0.3%)
- Industrial Output MM (Nov) -1.2% vs. Exp. -0.1% (Prev. 0.1%, Rev. 0.4%); YY (Nov) -1.6% vs. Exp. -1.4% (Prev. -1.3%, Rev. -0.6%)
CBI/PwC survey showed sentiment among UK financial firms improved in Q4 for the first time in 4 years. (Newswires)
Germany 2019 budget surplus reportedly in the low double-digit billion Euro area, according to Süddeutsche Zeitung. (Süddeutsche Zeitung)
A tentative start to the week for European equities thus far [Euro Stoxx 50 +0.1%], following on from a similarly mixed APAC session ahead of the looming US-China Phase One deal signing. UK’s FTSE 100 [+0.5%] outperforms its regional peers as a weaker GBP bolsters exporters in the index following further dovish comments from BoE MPC members – this time Vlieghe – in the run up to the Jan 30th BoE confab; as well as UK today’s poor UK GDP numbers. Sectors are relatively mixed with no clear under/outperform in a reflection of the broad overall sentiment. The tech sector [+0.6%] outperforms with some tailwind heading into the Phase One deal signing as US business executives suggest the deal shows some advances on some sticking points such as intellectual property protection, significant agricultural purchases and recued export barriers. In terms of individual movers, UCB (+3.1%) remains one of the winners in the Stoxx 600 after the Co. upgraded its FY19 core EPS and revenue outlooks. Wirecard (+1.7%) is the top gainer in the DAX after Chairman Matthais and the supervisory board chairman stepped down. On the other end of the spectrum, Renault (-3.8%) shares fell to the foot of the pan-European index amid reports that Senior Nissan executives have stepped up the contingency planning regarding a possible split from Renault.
GBP - The Pound was already under pressure and underperforming G10 peers after BoE’s Vlieghe joined the growing ranks of dovish MPC members by signalling his leaning towards a rate cut as soon as this month barring an imminent and significant pick-up in UK growth. However, November GDP fell 0.3% m/m vs the flat consensus to lift January and 2020 easing expectations and push Sterling down further through 1.3000 vs the Dollar and through 0.8570 against the Euro, with the former testing December 27 lows circa 1.2970 and latter approaching Xmas Eve peaks after breaching the 55 DMA (0.8534) and 0.8550.
JPY - The next weakest major link, as stops set around mid and early December highs were tripped to leave the Yen eyeing lows not seen since May 30 last year (109.93) ahead of big 110.00 barriers and technically bearish having fallen below the 200 WMA (109.70). From a fundamental perspective, broadly risk on sentiment awaiting the signing of US-China trade pact Phase 1 and no further US-Iran hostilities has prompted Jpy selling, while Usd/CNH has continued its downtrend to multi-month lows under 6.9000.
AUD/EUR/NZD/CHF/CAD - All narrowly mixed vs the Greenback, as the DXY regains more composure off post-NFP lows within a 97.327-535 range, albeit partly on the aforementioned Pound and Yen depreciation. Aud/Usd is pivoting 0.6900, Eur/Usd is hovering above 1.1100 flanked by hefty options (1.6 bn between 1.1095-1.1100 and the same size from 1.1120-40), Nzd/Usd is meandering within 0.6625-52 parameters in the run up to NZIER confidence and building consensts, Usd/Chf is sitting tight in a 0.9723-36 band and Usd/Cad is equally restrained between 1.3046-67 ahead of Canada’s LEI and the BoC’s outlook survey.
SCANDI/EM - The Norwegian Krona has weakened further alongside oil prices and from a chart perspective as Eur/Nok trades above the 200 DMA to 9.9100+ at one stage, while its Swedish counterpart is also on the back foot close to 10.5900 in wake of comments from Riksbank’s Jansson reiterating his opposition to December’s 25 bp repo hike. However, the Turkish Lira is consolidating recovery gains vs the Buck through 5.9000 even though the current account balance swung into arrears in November and the CBRT is widely forecast to ease again this week, with the Try still cheering cheaper crude costs and the overall appetite for risk noted above.
Notable FX Expiries, NY Cut:
- EUR/USD: 1.1095-1.1100 (1.6BLN), 1.1120-40 (1.6BLN)
- GBP/USD: 1.3100-10 (1BLN), 1.3170 (800M), 1.3200 (712M)
- NZD/USD: 0.6590 (227M), 0.6610 (885M)
Gilts have recovered well from a downturn that pushed prices back below 132.00 to sit much closer to the 132.25 Liffe high vs 131.94 low in wake of some worrying GDP and production figures that have lowered the bar for BoE rate cuts this month and for the year as a whole. Conversely, Bunds remain nearer their 170.95 Eurex trough after topping out at 171.43 overnight alongside weaker/steeper US Treasuries post-NFP and pre-Fed speak from Bostic and Rosengren who is scheduled at the same time as Employment Trends.
Commodities are largely mixed with WTI and Brent front-month futures choppy but ultimately flat in intraday trade, following last week’s vehement price action amid the heating and then cooling of geopolitical tensions in the Middle East. Over the weekend, focus somewhat shifted from the US/Iran conflict after Iran admitted it unintentionally shot down the Ukrainian Boeing 737-800 – which prompted mass protests in Tehran. WTI futures oscillate on either side of USD 59.0/bbl having already dipped below its 50 DMA at USD 58.81/bbl. Meanwhile, Brent Mar’20 contracts fell below the USD 65/bbl level and briefly dipped below Friday’s low of USD 64.88/bbl ahead of the current 2020 low-print at USD 64.58/bbl. SocGen notes that if the 200DMA (~USD 64.30/bbl) fails to hold, then oil will be put in ranges seen last September- after Saudi managed to put production back online surprisingly quickly after the attacks on Aramco facilities. Elsewhere, spot gold continues to trickle lower and prices temporarily lost the USD 1550/oz psychological figure amid a firmer Buck. Technicians will be eyeing USD 1540/oz for support marks the current YTD low. The firmer Dollar also provoked copper prices, which eased from highs north of USD 2.81/lb+ back to ~USD 2.80/lb – with the red metal on standby for the US-Sino deal signing later this week.
Saudi Energy Minister says it is too early to discuss whether OPEC+ cuts are to be continued post-March; adds, Iraq's compliance has improved in December - looking for full compliance in January. (Newswires)