[PODCAST] US Open Rundown 11th November 2021
- European bourses are contained with newsflow minimal given Veteran's Day and the light docket; ES +0.3%
- In FX, the DXY has eclipsed 95.00 with peers pressured across the board with Cable losing 1.3400 and EUR/USD approaching 1.1450
- WTI and Brent have been choppy but come under further pressure as the USD picks-up ahead of the OPEC MOMR
- US Senator Manchin could reportedly "punt" Biden's Build Back Better agenda to next year amid inflation concerns
- USTR Tai said she is optimistic that engagement with China on the Phase 1 trade agreement will lead to better outcomes
- Looking ahead, highlights include Banxico rate decision, OPEC MOMR (13:00GMT/08:00EST), ECB's Lane, Schnabel. Veteran's Day (US cash Bonds closed)
German Finance Minister Scholz says that Germany needs further COVID-measures to get through this winter; Chancellor Merkel will meet with state premiers next week to discuss the situation. (Newswires)
Dutch outbreak management team reportedly advises ‘short lockdown’, AFP's Kemp; PM Rutte to update tomorrow. (Twitter)
Beijing, China has imposed new curbs on conferences and events after confirming six locally-transmitted COVID-19 cases on Thursday. (Newswires)
EMA says there is currently insufficient evidence of a possible link between Pfizer (PFE)/BioNTech (BNTX) vaccine and MIS; additionally, insufficient evidence of a link between Moderna's (MRNA) Spikevac and MIS; CVST to be added as an AstraZeneca (AZN LN) side-effect. (Newswires)
Asian equity markets traded mixed as positive Chinese developer headlines including news of Evergrande payments, helped the region partially shrug off the losses seen stateside where duration sensitive stocks underperformed as yields surged following a hot CPI print and a soft 30yr auction. ASX 200 (-0.6%) declined with the index led lower by tech and energy which followed suit to the heavy losses in their US counterparts and with disappointing jobs data adding to the headwinds. Nikkei 225 (+0.6%) coat-tailed on the advances in USD/JPY which briefly climbed above the 114.00 level and with a slew of earnings releases providing a catalyst for individual stock prices. Hang Seng (+1.0%) and Shanghai Comp. (+1.2%) were varied with notable strength in property names after Evergrande was reported to have paid the overdue interest on three bonds to avoid a default and with China said to be considering moderating property curbs to help troubled developers unload assets. In addition, the PBoC continued with its mild liquidity efforts and it was also reported that the Biden-Xi virtual meeting is tentatively scheduled for next Monday, although weakness in tech capped upside in the Hong Kong benchmark with shares in index heavyweight Tencent pressured post-earnings as the Beijing crackdown decelerated revenue growth to the slowest pace since the Co. listed in 2004. Finally, 10yr JGBs suffered spillover selling from global peers including T-notes which declined by a point to below 131.00 and with prices also hampered after a weak 30yr auction, while focus in Japan shifted to the enhanced liquidity auction for longer dated government bonds which printed a lower b/c although the highest accepted spread returned positive.
PBoC injected CNY 100bln via 7-day reverse repos with the rate at 2.20% for a CNY 50bln net injection. (Newswires) PBoC set USD/CNY mid-point at 6.4145 vs exp. 6.4110 (prev. 6.3948)
USTR Tai said she is optimistic that engagement with China on the Phase 1 trade agreement will lead to better outcomes but cannot predict the result and noted that the Biden administration is getting traction with Chinese counterparts on trade talks. Tai added talks aim to hold Beijing accountable to the Phase 1 trade deal, while familiarity between Biden and Xi will help manage the complex relationship during a challenging period. Furthermore, she stated that it is not in her interests for talks on the Phase 1 deal to take a very, very long time and said that easing tariffs on Chinese goods could help tame inflation, while the USTR is focused on the bigger picture and US competitiveness. (Newswires)
Reported in Axios that Senator Manchin could punt President Biden's Build Back Better agenda to next year amid inflation concerns. (ABC/Axios)
UK GDP Prelim YY (Q3) 6.6% vs. Exp. 6.8% (Prev. 23.6%); QQ (Q3) 1.3% vs. Exp. 1.5% (Prev. 5.5%)
- UK RICS Housing Survey* (Oct) 70 vs. Exp. 65 (Prev. 68, Rev. 69)
Belarus Defence Ministry says two Russian nuclear-capable bombers are rehearsing bombing runs in a training exercise in Belarus. Additionally, EU Ambassadors have discussed sanctioning Minsk airport and that after the fifth round of sanctions is approved on Belarus a sixth should be prepared, Diplomats. Prior to this, Belarus' Leader Lukashenko says Belarus will respond robustly to any new sanctions and suggests closing gas and goods via Belarus. (Newswires)
European equities (Eurostoxx 50 -0.1%) broadly trade mixed following on from this week’s firm inflation reports from the US and China. The handover from APAC was also mixed with focus on China amid notable strength in property names after Evergrande was reported to have paid the overdue interest on three bonds to avoid a default. Furthermore, the PBoC continued with its mild liquidity efforts and it was also reported that the Biden-Xi virtual meeting is tentatively scheduled for next Monday. Stateside, futures are a touch firmer (ES +0.2%) in the wake of yesterday’s cash market losses which saw duration sensitive stocks underperform as yields surged. From a macro perspective, Axios reported overnight that inflation concerns could see US Senator Manchin “punt” President Biden's Build Back Better agenda into next year. Eyes on the Wall St. open will be on Tesla after CEO Musk offloaded USD 5bln of stock in the Co. Back to Europe, Goldman Sachs outlook for 2022 sees a price target for the Stoxx 600 of 530 (vs. current 483) which would deliver a total return of around 13% and mark a continuation of the current bull market, albeit at a slower pace. Sectors in Europe are somewhat mixed with Basic Resources a clear outperformer amid broad strength in mining names and following earnings from ArcelorMittal (+2.9%) which sent the Co.’s shares to the top of the CAC. Banking names are also on a firmer footing amid the favourable yield environment post-CPI with Lloyds (+1.3%) and Commerzbank (+3.0%) supported by broker upgrades at Keefe Bruyette and Morgan Stanley respectively. To the downside, Oil & Gas names are softer as the crude complex struggles to recoup recent losses. Retail names have been weighed on by Burberry (-6.2%) post-earnings with the Co. noting that performance in Europe remains under pressure. Renault (-3.1%) sits at the foot of the CAC after Daimler opted to sell its stake in the Co. for USD 364mln. Finally, Johnson Matthey (-16.3%) is the clear laggard in the region after its CEO announced his decision to step down and the Co. announced it is to exit the battery materials business.
DXY - The Dollar took some time out for reflection and a rest after extending yesterday’s post-US CPI gains with the additional thrust of a supply-related ramp up in Treasury yields following a poor new long bond auction. However, the index could not quite muster enough bullish momentum to touch 95.000 until APAC buyers got a chance to respond to the strength of the inflation data and bear-steepening reaction in debt markets that evolved after initial bear-flattening. The DXY subsequently reset, refuelled and cleared the psychological barrier more convincingly, at 95.101 before fading again as several basket components found underlying bids and technical support around key levels, but still seems bid and upwardly mobile in thinner trading volumes due to Veteran’s Day.
NZD/AUD - Perhaps perversely given overnight macro fundamentals, the Kiwi is lagging down under with Aud/Nzd cross elevated near 1.0400, though this could be in recognition of a sharp retreat in NZ food prices and mitigating factors leading to Aussie labour metrics missing consensus by some distance right across the board. Whatever the rationale, Nzd/Usd is lower than Aud/Usd in absolute terms even though the former is holding above 0.7100 and latter has now lost 0.7300+ status.
CAD - Weaker WTI crude (in relative terms rather than on the day per se) is not helping the Loonie’s cause after it managed to contain losses on Wednesday, as Usd/Cad hovers near the top of a 1.2535-1.2473 range awaiting the BoC’s Q3 Senior Loan Officer Survey tomorrow for further direction from a Canadian perspective.
CHF/EUR/JPY/GBP - All giving up more ground to the Greenback, but to varying degrees with the Franc trying to keep sight of 0.9200, the Euro defend 1.1450 having closed below 1.1500 and a key Fib retracement just shy of the round number, the Yen stay within touching distance of 114.00 and Sterling stop the rot after letting go of the 1.3400 handle again. On that note, a late December 2020 low in Cable at 1.3361 remains intact ahead of 1.3350 for semi-sentimental reasons and then a deep channel trendline from 1.3330-20, while Usd/Jpy has scope to be drawn to decent option expiry interest at 113.70 (1.6 bn) if not similar size spanning 113.60-00.
SCANDI/EM - The Nok may still be feeling some after-effects from soft Norwegian inflation prints yesterday along with the pullback in Brent prices, while the Sek is striving to stay above 10.0000 vs the Eur in wake of a decline in Sweden’s registered jobless rate and Riksbank remarks that seem less convincing on the inflation front from the standpoint that higher prices are likely to be transitory (via Governor Ingves). Elsewhere, the Try is also trying to stem the tide into 10.0000, albeit against the Usd, having slumped to yet another new record low, but the Zar has bounced ahead of 15.5000 irrespective of significantly weaker than forecast SA mining production as Gold continues to shine, and the Mxn is off worst levels in the run up to Banxico when a 25 bp hike is anticipated.
Australian Employment Change (Oct) -46.3k vs. Exp. 50.0k (Prev. -138.0k)
- Australian Full Time Employment (Oct) -40.4k (Prev. 26.7k)
- Australian Unemployment Rate (Oct) 5.2% vs. Exp. 4.8% (Prev. 4.6%)
- Australian Participation Rate (Oct) 64.7% vs. Exp. 64.9% (Prev. 64.5%)
Notable FX Option Expiries, NY Cut:
- USD/JPY: 113.00-05 (1.4BLN), 113.35-45 (1.5BLN), 113.50-60 (1.7BLN), 113.70 (1.6BLN), 114.00 (315M)
Choppy trade in the aftermath of Wednesday’s meltdown in debt markets on a bearish combination of hot US inflation data and a frosty reception for new 30 year issuance, as Bunds and Gilts take turns to lead a recovery effort and the US Treasury curve stabilises somewhat. The core Eurozone bond and its UK equivalent are both just above par and off fresh highs of 170.78 and 126.43 respectively (+9 and +18 ticks on the day vs -48 and -32 ticks at the Eurex and Liffe lows), while the 10 year T-note is meandering midway between 130-26/130-15 overnight extremes in advance of a cashless and blank Veteran’s Day session in terms of data and events, leaving the focus on remaining EU Central Bank speakers and the OPEC MOMR for the crude complex.
WTI and Brent have been choppy this morning with catalysts limited and conditions thinner than normal on account of Veteran’s Day. Price action thus far has seen the benchmarks print a range in excess of USD 1.00/bbl in a narrow timespan, note, that these parameters remain comfortably within yesterday’s levels; currently, both WTI and Brent are at the lower-end of this band as any initial attempt at a recovery has fizzled out with the USD likely a factor. While newsflow directly for the complex has been sparse attention remains on the monthly oil surveys, COVID-19 and geopolitics. Firstly, the OPEC MOMR is scheduled for release today and as a reminder the EIA STEO, under greater focus given US crude/SPR watch, raised 2021 world oil demand growth forecast by +60k BPD to 5.11mln BPD Y/Y increase this week, but cut its 2022 forecast by 130k BPD to 3.35mln BPD Y/Y increase. On COVID, the demand-side is attentive to increasing cases in areas such as Germany with the effective Chancellor-in-waiting Scholz saying further measures will be needed through Winter; additionally, the Netherlands outbreak team are recommending a short lockdown and Beijing has implemented various local measures. Finally, geopolitics is attentive to the situation in Belarus after Lukashenko said they will respond to any sanctions and has suggested closing gas and goods transit through the area. Moving to metals, spot gold and silver remain towards the top-end of yesterday’s parameters, but are only modestly firmer on the session, as newsflow has been slim and the USD’s more gradual upside and lack-of cash UST action is providing a respite from yesterday’s upside. Action that saw spot gold supported by almost USD 40/oz from opening levels. Elsewhere, ArcelorMittal’s earnings update featured a forecast for global steel demand to increase between 12-13% this year excluding China given a softening of real demand.
OPEC MOMR to be released at 13:00GMT/08:00EST.
Kuwait set December KEC crude OSP for Asia at Oman/Dubai + USD 2.15/bbl and Iran set December light crude to Asia at Oman/Dubai +USD 2.50/bbl. (Newswires)