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[PODCAST] US Open Rundown 11th September 2018

  • European equities sold off amid reports China is to ask WTO for trade sanction authorisation vs. the US
  • UK Employment Report beats expectations, with Cable then volatile amidst various reports about 1.3100 barrier defence offers in decent size, stops, technical selling and even ‘fat finger’ trades
  • Looking ahead, highlights include US Wholesale Inventories, APIs, OPEC meeting, supply from the US

ASIA

Asian equity markets eventually traded mostly higher amid a similar performance in US where most majors finished positively as tariff concerns took a back seat with sentiment supported by news of the GOP releasing plans for a fresh round of tax cuts and as participants also focused on Brexit-related optimism. ASX 200 (+0.6%) was lifted by broad strength across telecoms, tech, energy and financials, while Nikkei 225 (+1.3%) outperformed amid currency moves and M&A news with Renesas to purchase US chipmaker IDT for over USD 6.7bln. Elsewhere, Shanghai Comp. (-0.2%) and Hang Seng (-0.7%) were choppy in which the latter flirted with bear market territory amid ongoing trade uncertainty and continued liquidity inaction by the PBoC. Finally, 10yr JGBs were relatively flat as focus centred on outperformance of riskier assets in Japan and as a mixed 30yr auction also failed to drive price action.

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.8488 (Prev. 6.8389)

China are to ask the WTO to authorize trade sanctions on the US because of the US non-compliance in 2017 trade dispute ruling. (Newswires)

EU/UK/US

UK Conservative Party Brexiteers are said to have failed to reach an agreement on an alternate Brexit plan with one Eurosceptic close to the matter stating that the group was not a homogenous one. (FT) An earlier story in the Times had reported that Jacob Rees-Mogg believes that a no-deal Brexit would lift the UK economy by GBP 1.1trl over 15 years and that such a plan is preferable to PM May’s Chequers plan. (Times)

Former UK Foreign Minister Johnson will continue to “throw rocks” at PM May’s Chequers plan ahead of the Tory conference but has no plans to launch an immediate leadership bid amid the fallout from his personal life, his close allies have claimed. (Guardian)

UK Average Earnings (Ex-Bonus) Jul 2.9% vs. Exp. 2.8% (Prev. 2.7%)

UK ILO Unemployment Rate Jul 4.0% vs. Exp. 4.0% (Prev. 4.0%)

UK Claimant Count Unemployment Change Aug 8.7k vs. Exp. 10.0k (Prev. 6.2k, Rev. 10.2k)

UK Employment Change (Jul) 3k vs. Exp. 28k (Prev. 42k)

UK Average Weekly Earnings 3M YY Jul 2.6% vs. Exp. 2.4% (Prev. 2.4%)

German ZEW Current Conditions Sep 76.0 vs. Exp. 72.0 (Prev. 72.6)

German ZEW Economic Sentiment Sep -10.6 vs. Exp. -14.0 (Prev. -13.7)

Mexico is prepared to sign a bilateral trade deal with US if a US and Canada cannot reach an agreement, according to Finance Minister Anaya. (FT)

GEOPOLITICAL

US is said to have conducted discussions with UK and France regarding potential Syria strikes. (WSJ)

North Korean Leader Kim offered to dismantle nuclear weapons program within 2 years, according to reports citing US National Security Adviser Bolton. (Yonhap)

CENTRAL BANKS

Riksbank's First Deputy Governor Af Jochnick says the Swedish economy is doing well however it is difficult to get inflation to 2%; adding the Riksbank is getting closer to the point policy normalisation could begin. (Newswires)

EQUITIES

European equities trade on the backfoot (Euro Stoxx 50 -0.5%) as losses in the continent accelerated amid rising trade tensions following reports China are to ask the WTO to authorise trade sanctions on the US. UK’s FTSE 100 is subdued by a firmer pound as GBP/USD sits above 1.3000. Sectors are broadly in the red with material names hit the hardest. One to watch on the M&A front, UniCredit (-1.3%), source reports suggest that the company could consider a tie-up with BBVA (+0.2%) or ABN AMRO (+0.5%).

FX

G10 - It’s a dead heat between the single currency and Sterling in terms of gains relative to the Dollar and other rival currencies, with the former buoyed by more promises from the Italian Government to adhere to the EU budget limits, and the latter still riding high on rising Brexit deal expectations. Eur/Usd gained momentum above 1.1600 after several failed attempts, but faded just ahead of 1.1650 and subsequently slipped back below the figure, as Eur/Gbp pivots around 0.8900 and Cable tests chart resistance around 1.3083-85 that stands in the way of 1.3100. Note, the Pound got a further fleeting boost from above forecast UK wage data over sub-consensus jobs readings on balance, but then slumped aggressively to just under 1.3000 amidst various reports about 1.3100 barrier defence offers in decent size, stops, technical selling and even ‘fat finger’ trades (in spot and futures) before some calm was restored.

JPY - The major laggard after breaching support vs the Greenback around 111.25 overnight and the headline pair now probing offers circa 111.50 amidst bullish M&A flows following the Usd6.7 bn offer for IDT from Japan’s Renesas. From a technical standpoint, 111.55 forms the top of a daily cloud pattern ahead of a 61.8% Fib around 111.88 and then 112.00, but hefty option expiry interest at the 111.25 strike (1.7 bn) may hamper further gains.

CAD/CHF/AUD/NZD - All benefiting from the broadly softer Usd, as the DXY dips below 95.000 again before recovering, with the Loonie pivoting 1.3150 ahead of more NAFTA talks scheduled for later today and Canadian housing starts data, while the Franc has pared losses from 0.9750+, but remains under 1.1300 vs the perky Eur. Looking down under, the Aud and Nzd continue to withstand tests of respective big figure support at 0.7100 and 0.6500 as the cross probes either side of the 1.0900 handle, and with leverage accounts said to remain active in Aud/Usd on dips due to short covering.

SEK/NOK - The Scandi crowns are not slipping too far from recent peaks vs the Eur or Usd, as the Riksbank maintains a broadly upbeat tone, albeit after adjusted rate hike guidance last week, and the latest Norges Bank regional survey reveals a robust outlook for output following strength in the latest quarter.

EM - Somewhat out of the limelight for once, but far from out of sight and clawing back more losses vs a generally soft Usd, with the underperforming Rub also firmer even though sanctions loom and the Russian Government continues to urge the CBR to hold fire on rate hikes. Rouble now pivoting 70.0000 vs circa 70.8400 at one stage on Monday.

FIXED INCOME

Price action and volatility has picked up considerably, though still pales in comparison to the fast and frantic moves in FX after the UK labour report, with Gilts seeing a fresh Liffe low and peak at 121.62 and 121.85 respectively vs their previous 121.98 settlement. Initially, bears seized on the stronger than expected wage components, but then as the Pound beat a hasty retreat the 10 core bond rebounded relatively firmly, and Bunds went along for the ride (within narrower confines on the upside) and bounced off a new Eurex intraday base of 159.34 (-35 ticks). Interestingly, market contacts note stops on a break of that level and just below support at 159.37 (continuation and June low), which would expose deeper downside levels ahead of 159.00. Meanwhile, US Treasuries have slipped to marginally lower overnight session troughs ahead of the first of this week’s auctions.

COMMODITIES

WTI and Brent futures trade marginally higher with the latter dipping below USD 78/bbl in recent trade. Participants will be closely monitoring hurricane developments in the Atlantic with Hurricane Florence prompting mandatory evacuations in the southern East Coast in the US as it nears a category 5 strength. Russian Energy Minister Novak stated overnight that OPEC and allies are to discuss cooperation after 2018 in Algeria while adding OPEC+ members may sign a new long-term cooperation deal in December. Traders will also keep an eye on the latest API crude inventory figures released later today. Elsewhere, Gold pared back earlier gains, currently trading flat, while copper takes a breather from recent losses.

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