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[PODCAST] US Open Rundown 16th January 2020

  • European equities are little changed at present, as newsflow has slowed since the Phase One signing
  • Chinese VP Liu He says it is unwise to rush into the Phase Two negotiations, stating Beijing has little interest in immediately doing so
  • US Senate Majority Leader McConnell said the impeachment trial will begin on Tuesday and the Senate will complete USMCA trade deal today
  • USD is slightly softer as antipodeans benefit on the trade deal, other G10 currencies little changed/mixed at present
  • Looking ahead, highlights include SARB rate decisions, ECB Minutes, US Import & Export Prices, Retail Sales, Weekly Jobs, Philly Fed, Business Inventories, Fed’s Bowman, ECB’s Lagarde, BoE’s Haldane

ASIA-PAC: Phase One Signing Analysis piece available on the Newsquawk feed

Asian equity markets traded mostly higher but with gains capped as the euphoria from the US-China Phase 1 trade deal signing, which had buoyed Wall St to record highs and the Emini S&P to an unprecedented 3300 level, began to wane amid some doubts concerning the implementation of the deal. Nonetheless, ASX 200 (+0.7%) outperformed as it forayed above 7000 for the first time ever led by notable strength in tech and financials, while Nikkei 225 (+0.1%) was indecisive and stalled ahead of 24k despite strong Machinery Orders which showed the first M/M expansion in 5 months, as well as its largest increase on record for the series. Elsewhere, Hang Seng (+0.4%) and Shanghai Comp. (-0.5%) failed to take advantage of another substantial PBoC liquidity injection and the eased tensions from the US-China trade deal, as there were lingering doubts regarding China’s caveat of purchasing agricultural goods “based on market conditions”, while the unilateral dispute settlement mechanism which allows US to reimpose tariffs for non-compliance and doesn’t permit China to retaliate but instead can quit the agreement, fuelled some concerns on whether the deal will hold. Finally, 10yr JGBs were marginally higher and briefly reclaimed the 152.00 level with prices supported as the momentum in stocks began to wane and with the BoJ also in the market for JPY 350bln of JGBs in the belly.

PBoC injected CNY 300bln through 14-day reverse repos. (Newswires)

PBoC set USD/CNY mid-point at 6.8807 vs. Exp. 6.8809 (Prev. 6.8845)

Chinese M2 Money Supply YY* (Dec) 8.7% vs. Exp. 8.3% (Prev. 8.2%)

-        New Yuan Loans* (Dec) 1140B vs. Exp. 1194.0B (Prev. 1390.0B)

-        Outstanding Loan Growth* (Dec) 12.3% vs. Exp. 12.4% (Prev. 12.4%)

US Treasury Secretary Mnuchin said the USMCA and US-China trade deal will contribute 50-70bps to US GDP and that they have data on Chinese subsidies which they will address in Phase 2. (Newswires)

Chinese VP Liu He says it is unwise to rush into the Phase Two negotiations, stating Beijing has little interest in immediately doing so; adding, we may get nothing if we rush Part Two before completing Part One., SCMP. Subsequently added to by remarks that China requires time to assess the Phase One agreement and other factors before beginning Phase Two, and US Officals are getting ahead of themselves claiming talks are underway., Global Times citing a Government Adviser and Expert. (SCMP/Global Times)

US

US Senate Majority Leader McConnell said the impeachment trial will begin on Tuesday and the Senate will complete USMCA trade deal today. (Newswires)

GEOPOLITICS

Russian ruling party has approved's Mushustin's candidacy as PM, according to sources cited by Tass. (Tass)

Turkish President Erdogan says he will be sending troops to Libya. (Newswires)

UK/EU

UK RICS Housing Survey (Dec) -2 vs. Exp. -10.0 (Prev. -12.0, Rev. -11). RICS said agreed home sales turned positive last month which was the first time since May 2019, while it added the housing market is benefitting from increased political clarity post-election. (Newswires)

BoE’s Haldane (Hawkish) has noted that the UK’s decade-long productivity crisis might be partially attributed to labour market laws that make it easy for bosses to hire and fire staff. (Times)

German CPI Final YY* (Dec) 1.5% vs. Exp. 1.5% (Prev. 1.5%); Final MM* (Dec) 0.5% vs. Exp. 0.5% (Prev. 0.5%)

-        HICP Final YY* (Dec) 1.5% vs. Exp. 1.5% (Prev. 1.5%); Final MM* (Dec) 0.6% vs. Exp. 0.6% (Prev. 0.6%)

German BDI Industry Association sees German economic growth at 0.5% in 2020, adds that German industry is stuck in recession and there are no signs of a bottoming out in the sector; BDI's Kempf has called on the German government to go forth with a "massive investment programme" in infrastructure over the next decade to boost GDP. (Newswires)

EQUITIES

Overall a mixed and choppy session thus far in the European equity space [Euro Stoxx 50 -0.2%] following a rather tepid APAC handover, as markets digested the nitty-gritty of the Phase One deal and with Phase Two talks on the horizon. Major bourses are swinging between gains and losses with no clear direction thus far, whilst the FTSE 100 (-0.5%) modestly underperforms regional peers amid unfavourable Sterling action coupled with losses in individual stocks. Sectors are also mixed and do not clearly reflect a specific risk sentiment; although, the energy sector leads the upside as oil prices crawl back from YTD lows. In terms of individual movers: Pearson (-9.8%) plumbed the depths following a profit warning and the announcement of the departure of its CFO. GlaxoSmithKline (-1.5%) extended on losses seen at the open following a negative broker move coupled with the rebuttal of reports that that there will be an IPO of its consumer JV with Pfizer. On the flip side, RWE (+2.0%) sees healthy gains after a German government spokesman said the Co. is to receive EUR 2.6bln compensation for higher electricity costs caused by a coal exit law which is to be drafted this month. Elsewhere Associated British Foods’ (+2.4%) shares remain supported by a lukewarm trading update in which the Co. reaffirmed guidance. Note, auto makers largely side-lined the Washington Post’s report that US President Trump issued a private warning to Germany, France and the UK that the US will impose a 25% tariff on European autos if Europe refused to initiate the dispute mechanism against Iran in the JCPOA deal, according to European sources.

FX

USD - A rather underwhelming response to the official Phase One signing ceremony has left the Greenback languishing near or at new lows against most major counterparts and the DXY trying to defend the 97.000 level again within a 97.263-134 range. Technically, 97.105 and 97.091 supports from earlier in the month are still holding, but the Buck’s fate could ultimately lie with fundamentals and Thursday’s multiple US macro releases including retail sales for the festive period and more timely January Philly Fed survey.

NZD/AUD - Another marked swing in sentiment of change in fortunes down under, as the Kiwi benefits from a short squeeze and paring of oversold positions amidst a less dovish RBNZ rate call via ASB to extend gains above 0.6600 against its US peer towards 0.6650 and through resistance at 0.6620, while paring loss vs the Aussie from 1.0450+ to almost 1.0400. Meanwhile, Aud/Usd is still struggling to overcome 0.6920 after multiple attempts and eyeing Usd/Cnh-Cny moves in wake of the initial trade deal allied to PBoC fixings and policy action ahead of next week’s Chinese Lunar New Year break and Australian jobs data.

GBP/CHF/CAD/EUR - All firmer against the Buck, albeit marginally, as Pound pivots 1.3050 between 1.3025-65 parameters and fades just ahead of the 200 HMA (1.3067) after tripping stops at the aforementioned half round number, but not threatening more said to be poised between 1.3070-75. Elsewhere, the Franc remains firm across the board with Usd/Chf and Eur/Chf both hovering closer to 0.9625 and 1.0735 lows than 0.9650 and 1.0760 highs, even though the single currency is consolidating recent advances vs the Dollar around 1.1150 and more convincingly beyond the 200 DMA (1.1140). Similarly, the Loonie has advanced into a higher 1.3048-32 band vs its NA rival with some traction from comparative stability in crude prices.

JPY/SEK/NOK - Marginally bucking the overall trend, Usd/Jpy has rebounded from Wednesday’s lows to retest offers around 110.00 where a hefty 1.8 bn option expiries roll-off, while Eur/Sek is straddling 10.5500 following 2020 Swedish growth and inflation forecast downgrades by the Government and Eur/Nok is flitting either side of 9.8800 in wake of the latest Norges Bank credit survey revealing little change in loan demand.

EM - In keeping with no real rise in risk appetite post-US/China Phase One trade deal signing, most regional currencies are largely idling, the Try felt some tailwinds in the aftermath of the CBRT rate decision despite a deeper-than-forecast cut to its weekly repo rate, bringing it down to 11.25% from 12.00%, although some vendors were forecasting a 75bps cut – which would be in-line with the Central Bank’s action. The Lira may have derived strength given the slowing pace of the cuts (reductions since July 2019 have each been deeper than 100bps). Further, from an inflation perspective, the Bank also noted that inflation is judged to be broadly in line with the end of 2020 inflation projection. Whereas, in December it was seen that inflation is likely to materialise close to the lower bound of the October inflation projections. Usd/Try immediately fell to test 5.8500 to the downside vs. a pre-announcement level of ~5.8750, albeit the move did largely pare back, potentially on geopolitical developments after the Turkish President announced that troops will be deployed to Libya. Next up, Zar will be eyeing the SARB’s rate announcement from 13:00GMT after somewhat mixed SA gold and overall mining output data.

Major FX Expiries, NY Cut:

-        EUR/USD: 1.1100-10 (1.8BLN), 1.1145-50 (700M)

-        USD/JPY: 110.00 (1.8BLN)

Turkish CBT Weekly Repo Rate* (Jan) 11.25% vs. Exp. 11.5% (Prev. 12.0%)

-        Current monetary policy stance remains consistent with projected disinflation path

-        Extent of monetary tightness will be determined by looking at indications of the underlying trend in inflation

-        Keeping the disinflation process in track with the targeted path will require the continuation of a cautious stance

-        The path of inflation is judged to be broadly in line with the end of 2020 inflation projection

Swedish government looks for 1.1% growth in 2020 (Sept. view was 1.4%), CPI seen at 1.5% (Sept. view was 1.6%); slowdown in the global economy is becoming increasingly clear in the Swedish economy. (Newswires)

FIXED INCOME

Bunds are back in positive territory just shy of a marginal new 171.68 Eurex high and unwinding some underperformance vs Gilts, as the latter continue to take a breather after their recent outsize advances. However, both EU benchmarks are holding a moderately firmer line than US Treasuries ahead of a packed 2nd half kicking off with ECB minutes before US data at 13.30GMT and 15.00GMT then Fed’s Bowman, ECB President Lagarde and BoE’s Haldane. Note also, after the pomp and fanfare of Thursday’s US-China Phase 1 signing ceremony it’s back to earnings for Wall Street that is still broadly on a winning streak and racking up almost daily record highs.

COMMODITIES

IEA Monthly Report: 2020 world oil demand growth estimate unchanged at 1.2mln BPD, due to subdued prices.

-        Global oil demand increased by 955k BPD to 101.1mln BPD in October; supply in December decreased by 780k BPD due to Saudi Cuts

-        OPEC crude production fell in December by 180k BPD to 29.44mln BPD; Demand for OPEC crude to fall to 28.5mln BPD in H1 2020

-        Notes, even in the event OPEC adheres strictly to the output pact a strong global oil inventory build is likely in Q1

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