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[PODCAST] US Open Rundown 28th September 2018

  • Italian budget fallout continues, with BTP yields above 3.15%, FTSE MIB Bank Index down over 5%, and EUR underperforming
  • GBP undermined by benign UK GDP and more Brexit-related weakness in business investment
  • Looking ahead, highlights include US personal income, core PCE price index, Canadian GDP, Chicago PMI, Uni. of Michigan and a slew of central bank speakers

ASIA

Asian stocks traded mostly higher following a spur in risk-appetite and an upbeat lead on Wall St where bourses ended the day in the green, and Nasdaq outperformed its peers amid the strength in the IT sector, after Apple rallied on the news that JP Morgan sees a 23% upside in their shares. ASX 200 (+0.4%) was lifted by resources and IT names, while Nikkei 225 (+1.4%) outperformed its peers and breached YTD highs to print levels last seen in 1991 amid currency effects and optimistic retail sales. Elsewhere, Hang Seng (+0.3%) and Shanghai Comp. (+1.0%) also gained as trade concerns faded and the positive sentiment dominated the region ahead of next week’s National Day Golden Week holiday. Finally, 10yr JGBs were lower amid the heightened risk appetite although found support ahead of 150.00 while the 2yr JGB auction was uninspiring.

PBoC skipped open market operations for a net daily drain of CNY 40bln. (Newswires)

PBoC set the CNY mid-point 6.8792 (Prev. 6.8642)

FTSE Russell are said to see USD 2.5tln inflow to the Chinese securities market. (Newswires)

Chinese Commerce Ministry spokesperson said China is open to US negotiations to resolve trade issues, while he added extreme US pressure won't cripple the Chinese economy, while there were also reports that China is said to plan additional policies to support private companies. (Newswires)

BoJ Summary of Opinions stated there is room to mull steps to make policy more flexible and that it is necessary to persistently maintain highly accommodative financial conditions while examining positive effects & side effects, while it added that it is necessary to persistently continue with the current powerful monetary easing as the momentum toward 2 percent inflation is maintained. (Newswires)

Japan Tokyo CPI (Sep) Y/Y 1.3% vs. Exp 1.1% (Prev. 1.2%) (Newswires)

Japan Retail Sales (Aug) Y/Y 2.7% vs. Exp. 2.1% (Prev. 1.5%)

EU/UK/US

Reports initially suggested that President Mattarella had asked Economy Minister to not resign; Tria then followed up these reports by stating that he will stay in the position to avoid ‘chaos’. Italy's new budget sees debt/GDP to fall in 2019 as according to League lawmaker Bagnai. Italian Deputy PM Di Maio said that the new budget includes EUR 15bln in investments, and he is not worried about the market reaction and spread. When asked about the EU rejecting their budget Italian Deputy PM Salvini said that "they will press ahead" (Newswires)

Former UK Foreign Minister Johnson called on PM May to scrap her Brexit proposals in which he stated it would leave UK "half in and half out" of the EU and proposed a six-part alternative plan for Brexit. (Telegraph)

Reports in the Times suggests that Conservative policymakers are struggling to figure out how to counter Jeremy Corbyn’s populist message at their upcoming party conference. (Times)

UK GDP QQ Q2 0.4% vs. Exp. 0.4% (Prev. 0.4%, Rev. 0.1%)

UK GDP YY Q2 1.2% vs. Exp. 1.3% (Prev. 1.3%, Rev. 1.1%)

UK Business invest YY Q2 -0.2% (Prev. 0.8%, Rev. 2.3%)

UK Business Invest QQ Q2 -0.7% (Prev. 0.5%, Rev. -0.5%)

EU HICP Flash YY Sep 2.1% vs. Exp. 2.1% (Prev. 2.0%)

EU HICP-X F, E, A, T Flash MM (Sep) 0.40% (Prev. 0.20%)

GEOPOLITICAL

A Senior Iranian Cleric says US regional bases would not be safe if Washington does something wrong. (Newswires)

CENTRAL BANKS

ECB's Lane states that next summer will see a more detailed rate-hike debate. (Newswires)

Norges Bank's Nicolaisen says that the current assessment of the outlook and balance of risks suggests that the key policy rate will be increased further in Q1 2019. (Newswires)

EQUITIES

European equities are once again being guided by updates from Italy, where the Government agreed to a 2.4% debt/GDP ratio. Italian stocks are leading the losses, with Italian bank stocks (Ubi Banca -6.0%, UniCredit -6.3%, Intesa Sanpaolo -6.3% and BPER Banca -8.0%) dominating the bottom of the Stoxx 600, as Italian 10 year bond yields continue rising above 3%.

This weakness is spreading to banking names in Europe with all of Commerzbank, Credit Agricole and SocGen shares trading at a loss of over 3%, and the financial sector the marked sector underperformer.

RSA (-10%) is at the foot of the index as the insurer provided poor Q3 underwriting results. the FTSE is the index outperformer for the second straight session, and is being aided by a weaker GBP.

FX

USD - The index has extended post-FOMC gains to just over 95.000, but the Greenback is not bid across the board by any means even though some rebalancing models for the end of September are pointing to a mild bid.

CAD/AUD/CHF - All bucking the general trend and up vs the Usd, with the Loonie rebounding towards 1.3000 and perhaps deriving some encouragement from BoC’s Poloz who remains hopeful of a NAFTA deal. Meanwhile, the Aud is outperforming down under and holding above 0.7200 amidst hefty option expiry interest from 0.7215-25 (2.2 bn) to 0.7230-50 (1.1 bn) and the Franc has regained some composure after recent declines to trade within a 0.9755-75 range.

EUR/GBP/JPY/NZD - The major laggards, as the single currency continues to bear the brunt of Italian budget concerns that have intensified following the coalitions Government’s decision to test the EU boundaries with a 2.4% deficit for 2019. Eur/Usd is only just holding around 1.1600 having breached a series of chart supports and the 30 DMA at 1.1646. Cable is also looking precarious close to its 21 DMA and double bottoms all around 1.3055 following a brief dip below on the back of weaker than forecast UK GDP data. Usd/Jpy has broken higher again, and more convincingly through a tech level at 113.24, which could be pivotal on a closing basis given month, quarter and Japanese half year end. The Kiwi looks hampered by ongoing RBNZ policy neutrality and also anchored by a big option expiry at the 0.6600 strike.

NOK/SEK - More upside and outperformance for the 2 Scandi crowns with impetus from solid or even stellar Norwegian and Swedish retail sales data, as Eur/Nok drops towards 9.4750 and Eur/Sek trades just below 10.2900.

FIXED INCOME

Core bonds retreated a tad further earlier amidst some consolidation and respite in BTPs, but it’s back to liquidation if not capitulation in Italian debt as losses in 10 year futures reach almost 4 full points. Hence, Bunds have rebounded firmly from 158.40 to 159.25 and through resistance in the 158.88-90 area that had been capping the upside. 159.36 beckons next, which is a 50% retrace of this month’s move and aside from any further BTP switching the German benchmark may well muster more impetus from positioning for month/Q3/Japanese half year end regardless. Elsewhere, Gilts have also recovered from a new Liffe intraday base of 120.88 to hit 121.32 and US Treasuries are firmer/flatter after Thursday’s part retracement of post-Fed moves, and ahead of a busy data line up including PCE inflation metrics.

COMMODITIES

The oil market is uneventful and trading within a thin range heading in to the week’s end, with Brent and WTI hanging just below the USD 82/bbl and USD 72.50/bbl areas. The gold market is also lacking any major catalysts, with the yellow metal languishing around the 6 week lows set in Thursday’s session.

The most significant moves in commodities markets has been seen in steel and coke, where Shanghai rebar fell by over 2% and both materials hit 2 month lows amid speculation that China has shelved blanket production cuts for winter, stoking the flame for more expected output

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