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[PODCAST] US Open Rundown 12th February 2020

  • European bourses are firmer on little direction-changing newsflow for risk sentiment thus far
  • New Hampshire Democratic Primary results projected Bernie Sanders to win as expected with 26.0%, Buttigieg 24.4%, Klobuchar 19.8%, Warren 9.3% and Biden 8.4%
  • RBNZ left rates unchanged at 1.0% and lifted their rate path, as such the NZD significantly outperforms
  • Riksbank left rates unchanged at 0.0% and cut 2020 CPIF projections; albeit, Governor Ingves does not see a cut as likely from this
  • Looking ahead, highlights include OPEC Monthly Oil Report (12:05GMT/07:05EST), Fed’s Powell, Harker & Daly, supply from US
  • Earnings: Cisco Systems, NVIDIA, CME Group


China reported an additional 2015 coronavirus cases and 97 deaths as of February 11th vs. Prev. 2478 additional cases and 108 deaths on Feb. 10th, to bring total confirmed cases to 44653 and death toll at 1113. (Newswires)

China's Communist Party Standing Committee is to implement prudent monetary policy; including differentiated virus-curbing measures. Are to enhance the strength of macro-policy adjustments, according to State TV. (Newswires)

Japan confirmed another 39 from the cruise ship off Yokohama tested positive for coronavirus including 1 quarantine officer. (Jiji)


Asian equity markets were mostly higher but with gains initially limited as coronavirus fears lingered and following the lack of conviction on Wall St. where US stocks notched fresh record highs at the open before gradually fading the moves throughout the day. ASX 200 (+0.5%) traded positively with the biggest movers driven by earnings releases including the largest of the Big 4 banks CBA, resulting in outperformance in the top-weighted financials sector, while Nikkei 225 (+0.7%) was also lifted as it played catch up on return from holiday and with SoftBank sitting on double-digit percentage gains following the federal court approval of the merger between its unit Sprint with T-Mobile. Elsewhere, Hang Seng (+0.9%) and Shanghai Comp. (+0.9%) were kept afloat but with the mainland initially indecisive after the PBoC refrained from liquidity operations for a neutral daily position and as participants contemplated over the ongoing outbreak in which the number of cases and death toll continued to mount albeit at a slower pace with the additional number of cases at 2015 which is the lowest since January 30th. Finally, 10yr JGBs were lower amid the gains in Japanese stocks and following the mixed results at the 10yr inflation-indexed auction, while pressure was also seen in New Zealand bonds in the aftermath of the less dovish statement from the RBNZ.

PBoC skipped open market operations for a daily net neutral position. (Newswires) PBoC set USD/CNY mid-point at 6.9718 vs. Exp. 6.9719 (Prev. 6.9897)

US President Trump National Security Adviser O'Brien said coronavirus could have an impact on the phase one deal in which it could affect the size of Chinese purchases of US agriculture goods. (Newswires)


New Hampshire Democratic Primary results projected Bernie Sanders to win as expected with 26.0%, Buttigieg 24.4%, Klobuchar 19.8%, Warren 9.3% and Biden 8.4% after 93% of votes were accounted for, while Andrew Yang dropped out of the Democrat Presidential candidate race. (Newswires)


UK PM Johnson's Cabinet reshuffle tomorrow will not be "a revolution", according to sources, with ministers prepared for a limited shake-up that will see several Remainers promoted at the expense of Leavers. (Telegraph)

EU Industrial Production MM (Dec) -2.1% vs. Exp. -1.6% (Prev. 0.2%); YY (Dec) -4.1% vs. Exp. -2.3% (Prev. -1.5%, Rev. -1.7%)


US Army is planning to set up a new military command post to cooperate with European allies in countering potential threats from Russia. (WSJ)

US is prepared to sign a deal with the Taliban that would see the withdrawal of US troops and the start of peace talks between the insurgents and the Afghan government, although a deal would only proceed if the Taliban adhere to a pledge to reduce violence over a 7-day period. (NBC)

Turkish President Erdogan will do whatever is necessary; includes air and ground means - Erdogan accuses Russian forces of a massacre in Idlib - Erdogan and Russian President Putin discussed the situation via a phone call. Erdogan adds that Turkey will hopefully see inflation below 8.5% year-end target, trend of falling interest rates will continue. (Newswires)


European equities are mostly higher [Eurostoxx 50 +0.6%] following on from a similar APAC session, which saw Japanese markets return from yesterday’s holiday and close with firm gains. Bourses are largely in the green with the exception of the SMI (-0.2%), led lower by heavyweights Roche (-0.7%), Nestle (-0.6%) and Novartis (-0.3%) - which together account for ~55% of SMI – as sectors reflect risk appetite (healthcare, consumer staples lag and utilities lag). In terms of individual movers – dismal earnings see ABN AMRO (-7.0%) at the foot of the pan-European index after net income and dividend printed sub-par, with interest income falling and impairments rising. On the flip side, Heineken (+6.2%) stands as a top Stoxx 600 gainer following their earnings in which net profit and consolidated beer volume topped estimates, leading to the best performance in over a decade. Kering (+2.2%) shares also benefit from their numbers after metrics beat estimates across the board including the much-watched Gucci Q4 comparable sales growth. Kering also noted that the uncertainties in China do not call into question the Co’s fundamentals in the luxury industry. Thus, European luxury stocks receive tailwinds: Swatch (+1.5%), Richemont (+1%) and LVMH (+0.6%) all trade higher in tandem.


NZD/AUD - The Kiwi is flying and leaving G10 rivals far behind on the back of another shift from the RBNZ towards ending its easing cycle. Nzd/Usd has rebounded sharply following February’s policy guidance tweaks and updated OCR projections that signal no change for the foreseeable future compared to 10 bp easing previously. In fact, the rate path is now pointing to a 1.10% benchmark price by mid-2021 vs 0.9% out to March next year last time, and the only caveat appears to be severe economic contagion from China’s virus. Nzd/Usd is now eyeing resistance ahead of 0.6500 from sub-0.6400 lows and the Aud/Nzd cross has snapped back towards 1.0400 following transitory forays just above 1.0500 of late. However, the Aussie is also outpacing its US peer that is largely consolidating after failing to extend its winning run when the DXY hit a brick wall inches before 99.000, as Aud/Usd probes firmer ground on the 0.6700 handle with some independent impetus from improved Westpac consumer confidence overnight.

GBP/CHF/CAD/EUR - All benefiting from the aforementioned flagging Greenback, albeit to varying degrees, with Cable also capitalising on Tuesday’s UK GDP data rather than any dovish BoE nuances and extending recovery gains beyond 1.2980 towards 1.3000 and the 10 DMA that falls just shy of the big figure (1.2997). Meanwhile, Eur/Gbp is hovering a few pips above 0.8400 as the single currency remains leggy around 1.0900 against the Buck after yet another Eurozone data miss via pan IP and Eur/Usd runs into headwinds at 1.0925. Note also, heavy option expiry interest between the round number and 1.0910 in 1.6 bn may be capping the headline pair ahead of the NY cut. Elsewhere, the Franc is still straddling 0.9750, but trending bullishly vs the Euro around a 1.0650 axis that prefaces multi-year peaks or troughs for the cross, while the Loonie is gleaning more underlying support from oil’s revival to hold above 1.3300 against its NA neighbour.

SCANDI - In contrast to the RBNZ, nothing new at all emanated from the Riksbank’s latest policy meeting as the repo trajectory matched December’s (flat) profile and accompanying statement underlined the likelihood that zero percent will prevail until the end of the forecast horizon. Nevertheless, Eur/Sek has drifted down towards 10.5000 as none of the regular Board dissenters entered reservations and Governor Ingves reiterated the on hold message in the ensuing press conference. However, Eur/Nok has fallen further on the crude price rebound noted above to test bids/support in front of 10.0500.

EM - Ongoing recovery gains across the region and the Rand only partially hampered by another SA data miss (retail sales), but no respite for the Lira as Turkish President Erdogan ramps up his verbal threats to repel attacks by Syrian Government sources to prevent the Try maintaining an attempt to regain 6.0000+ status.

RBNZ kept the Official Cash Rate unchanged as expected at 1.00%. RBNZ noted that policy has time to adjust if needed, that low interest rates remain necessary and inflation is close to the mid-point. Furthermore, the RBNZ added that employment was at or slightly above maximum sustainable level and sees the overall impact from coronavirus will be of a short duration. Furthermore, the RBNZ adjusted forecasts of the rate path in which it sees OCR at 1.00% in June 2020 1.10% in June 2021 vs. Prev. forecasts of 0.9% through to March 2021. (Newswires) RBNZ Governor Orr said there are many signs household spending growth is increasing and noted that coronavirus is a risk which could have a larger impact although the central bank has time to respond, while it added they are looking at the assumption of 6-week disruption due to coronavirus and have taken half of the expected GDP growth for Q1 off the table in projections amid the coronavirus outbreak. (Newswires)

Riksbank kept rates unchanged at 0.0% as expected, additionally they did not make any changes to their repo path which sees rates on hold until 2022 where the path sees rates at 0.1%. The Riksbank did acknowledge that falling energy prices are expected to dampen inflation this year, after which, they will return to near target. As such, 2020 CPIF target was cut to 1.3% vs. December’s forecast of 1.7%. Subsequently, Governor Ingves stated it is hard to see a rate cut as falling inflation is predominantly on low energy prices.

Major FX option expiries for today's NY cut

-        EUR/USD: 1.0900-10 (1.6BLN), 1.0920 (327M), 1.0955-60 (700M), 1.0980 (250M)

-        USD/CHF: 0.9700 (1.1BLN)

-        AUD/USD: 0.6700 (2.1BLN), 0.6750 (820M)

-        GBP/USD: 1.2890 (281M), 1.2925 (386M), 1.2975 (209M), 1.3000 (820M), 1.3020 (200M)

-        NZD/USD: 0.6450 (500M)

-        USD/JPY: 109.00 (1BLN), 110.00-05 (1.2BLN)


A spirited if not quite compelling or complete comeback from worst levels by Bunds, Gilts and US Treasuries as the 10 year debt futures recently rebounded to/towards 147.17, 131.14 and 130-30 vs 173.72, 133.82 and 130-20+ respectively amidst a modest fade/stall in EU stocks as a proxy for risk sentiment in general. The German benchmark may have forged some support via a solid 2030 offering, all things considered, but nowhere near as much as BTPs following bumper demand for Italy’s 2036 syndication with orders almost reaching Spanish record levels. Ahead, more issuance via the Usd32 bn 10 year sale, earnings and the 2nd instalment from Fed chair Powell after colleagues Harker and Daly.

COMMODITIES – OPEC Report will be released at 12:05GMT/07:05EST

WTI and Brent front-month futures continue their upward trajectories with the contracts piggy-backing the broad risk appetite across the market, amid the slowing rate of COVID-19 cases/deaths coupled with reports of positive therapies and resumptions in Chinese operations. WTI Mar’20 futures reside north of USD 50.50/bbl with prices eyeing USD 51.00/bbl ahead of potential resistance at the USD 51.50/bbl mark, which coincides with the 7th Feb high. Brent Apr’20 futures came across mild resistance in early EU trade at USD 55.38/bbl (7th Feb high) ahead of further potential resistance around USD 55.55/bbl (6th Feb high). On the OPEC front, a definite OPEC+ meeting date remains in question, with desks noting that the longer we wait, the more likely that the meeting will take place in March as opposed to late-February. Russian Energy Minister Novak will today be meeting with domestic oil companies to discuss Moscow’s stance on deeper/prolonged output reductions. Elsewhere, yesterday’s APIs, which showed a larger-than-forecast build (+6mln vs. Exp. +3mln), did little to provide sustained pressure in prices as sentiment underpins the benchmarks – participants will be on the lookout to see if the weekly DoE numbers align with those of the API. Yesterday also saw the release of the EIA STEO ahead of today’s OPEC monthly oil report. The STEO cut 2020 oil demand growth by 310k BPD, downgraded US crude output forecasts and noted the uncertainty surrounding the virus outbreak, again little sustained reaction. Next up, OPEC’s monthly report will garner interest as this is the report that will encapsulate coronavirus forecasts as well as OPEC output since the December meeting. In terms of metals, spot gold trades lacklustre on either side of the 21 DMA (USD ~1566/oz), in-fitting with the current risk appetite. Copper prices remain supported by the risk tone but within yesterday’s ranges awaiting the next catalyst. Finally, Dalian iron ore futures hit three-week highs as coronavirus cases/deaths slowed and following a 22.4% YY drop in Vale’s Q4 iron ore production.

US Private Inventory Crude Stocks (w/e 7th Jan) +6.0mln (exp. +3.0mln, prev. +4.18mln). (Newswires)

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