[PODCAST] US Open Rundown 15th November 2021
- European bourses and US futures remain contained after an indecisive APAC session on mixed data ahead of Biden-Xi meeting
- Releases included better than expected Chinese activity data and a miss on Japanese GDP
- Biden-Xi meeting is aimed at setting the terms of trade to avoid future conflict, tariffs not expected to be on the agenda
- DXY remains softer on the session but holds onto 95.00 after briefly losing it overnight, peers are broadly contained though antipodeans outperform
- EU Commission President von der Leyen says there will be further sanctions on Belarus this afternoon
- Looking ahead, highlights include US NY Fed Manufacturing, ECB's de Guindos, BoE's Bailey, Pill, Saunders and the Biden-Xi meeting at 19:45EST today
Australian Chancellor Shallenberg announced a national lockdown will be imposed on those that are not fully vaccinated from Monday. (Newswires)
UK PM Johnson says we do not see anything in the data that suggests we need to got to a 'Plan B', re. COVID-19. (Newswires)
Asian equity markets began the week with a lack of firm direction as the region digested varied tier-1 economic releases including better than expected Chinese activity data and miss on Japanese GDP, with attention also on a slew of earnings results and corporate updates. ASX 200 (+0.4%) and Nikkei 225 (+0.6%) both opened higher and took impetus from last Friday’s gains on Wall Street but with upside in Australia capped as financials and energy lagged, while Japanese participants weathered the weak GDP data which showed a wider than expected quarterly contraction during Q3, when the economy was still mired by widespread state of emergency declarations in key areas including Tokyo and its surrounding prefectures. Nonetheless, Japanese stocks have taken the disappointing economic growth within their strides as it justifies the incoming stimulus package which was said to have been increased to over JPY 40tln in fiscal spending and with Japan reportedly to resume its Go To Travel campaign in mid-January. Conversely, Hang Seng (+0.2%) and Shanghai Comp. (-0.2%) were initially moderately pressured despite stronger than forecast Industrial Production and Retail Sales data from China, as well as the PBoC’s CNY 1tln MLF announcement which matched this month’s expiring MLF loans and further dampened prospects of PBoC easing. Today also saw the launch of the Beijing Stock Exchange which aims to help SMEs raise capital and included 81 companies in the first batch of listings, while participants await the Biden-Xi virtual meeting which is set to take place Monday evening at 19:45EST or Tuesday morning in Asia and with US Treasury Secretary Yellen and Secretary of State Blinken set to join in on the call. Finally, 10yr JGBs are higher as they tracked a marginal rebound in T-notes and following the disappointing Japanese GDP release, but with gains capped as stocks in Tokyo remained afloat and amid the absence of BoJ purchases in the market today.
PBoC announced to conduct CNY 1tln of 1-year MLF lending vs. CNY 1tln maturing with the rate kept at 2.95%, while it also injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a net daily drain of CNY 90bln. (Newswires) PBoC set USD/CNY mid-point at 6.3896 vs exp. 6.3930 (prev. 6.4065)
US President Biden-Chinese President Xi meeting is aimed at setting the terms of trade with china to avoid conflict in the future, according to a senior US admin official; tariffs are not expected to be on the agenda. Biden will raise concerns over economic coercion, human rights practices and behavior towards Taiwan. Meeting is not expected to yield any further deliverables or dialogues. Additionally, Chinese President Xi is directing his U.S. strategy to damage control rather than resetting the relationship, according to sources; priority is to ensure the 'road is smooth' willing to re-establish communication channels to prevent military conflict. (Newswires/WSJ)
US President Biden’s administration was highly critical of and opposed Intel’s (INTC) plan to boost semiconductor output in China due to security concerns. In relevant news, the Chinese embassy in Washington D.C. is reportedly lobbying US firms and executives to oppose the China sanctions bill, while it was also reported that China accused the EU of threatening global trade by throwing up regulatory and trade hurdles for foreign businesses, according to FT. (Newswires/FT)
Hong Kong is preparing a high-level cooperation mechanism with the mainland’s Hubei province which would be the first province in the central region of China to establish a cooperation plan with Hong Kong. (Global Times)
Joint US/Japan statement says a US-Japan commercial partnership (JUCIP) has been established. (Newswires)
Chinese Industrial Production YY (Oct) 3.5% vs. Exp. 3.0% (Prev. 3.1%)
- Chinese Retail Sales YY (Oct) 4.9% vs. Exp. 3.5% (Prev. 4.4%)
- Chinese House Prices YY (Oct) 3.4% (Prev. 3.8%)
- Japanese GDP QQ (Q3) -0.8% vs. Exp. -0.2% (Prev. 0.5%, Rev. 0.4%)
- Japanese GDP Annualised (Q3) -3.0% vs. Exp. -0.8% (Prev. 1.9%, Rev. 1.5%)
Fed’s Kashkari (2023 voter) stated the Fed has taken appropriate steps in the face of inflation and sees higher inflation continuing over the next few months but suggested to not overreact to temporary factors. Kashkari also stated that families are experiencing high prices and pain right now but reiterated it is transitory. (Newswires)
US Treasury Secretary Yellen stated that labour force participation was quite depressed in comparison with pre-pandemic levels although thinks it will normalise when they really get COVID-19 under control, while Yellen also stated that inflation will stay high until the virus is brought under control. (Newswires/FT)
White House Economic Adviser Deese said the Biden infrastructure plan will reduce costs and help reduce inflation, while he added that there is an urgency to act on President Biden’s domestic spending plan to assist with inflation. Deese also stated that the US government is monitoring gas prices and working against gouging although does not think it is wrong to say that inflation would be short term. Furthermore, he said inflation is linked to the pandemic with prices increasing globally and that there is no doubt inflation is currently high but added that the US economy is showing signs of a recovery. (Newswires)
Some of the CBO analysis may not be ready until Thursday or later, which could push a BBB vote to the weekend or even to next week, via Punchbowl; do still expect a BBB vote in the house this week, though that does include the weekend. Highlight the possibility that this could continue into next week. (Punchbowl)
Index that measures costs of used tractors and farming equipment reportedly matched a record high which suggested further inflation in that key sector of the economy. (Newswires)
Logjam of container ships outside ports of LA and Long Beach in California increased to a new record in which the queue of ships rose to 83 on Friday. (Newswires)
UK PM Johnson said the global accord to speed up action to contain climate change was historic and beginning of an end to coal power but added the deal was ‘tinged with disappointment’ after a failure to secure an agreement from all countries to phase out hydrocarbons, while there were also comments from COP26 President Sharma who stated that they have kept the 1.5 degrees within reach although its pulse is weak and that this was a fragile win. (Newswires/Barron’s)
UK ministers are to announce a new annual export target of GBP 1tln by 2030, although the report added that prior Tory governments had failed to reach that target by 2020. (FT)
Private sector employers in Britain expect to raise staff pay by an average of 2.5% during the next 12 months, according to the latest quarterly survey by the Chartered Institute of Personnel and Development. It was also reported that a study conducted by the London School of Economics and the Resolution Foundation think tank suggested that the main reasons behind a large productivity shortfall in Britain was due to low business investment, weak management and a lack of innovation/commercial patents. (Newswires)
- UK Rightmove House Price Index MM (Nov) -0.6% (Prev. 1.8%)
- UK Rightmove House Price Index YY (Nov) 6.3% (Prev. 6.5%)
ECB President Lagarde says GDP still expected to exceed pre-pandemic level around end of the year; growth momentum moderating to some extent due to supply bottlenecks; three conditions for rate lift-off unlikely to be satisfied next year.. (Newswires)
EU Commission President von der Leyen says there will be further sanctions on Belarus this afternoon. (Newswires) Echoing commentary from other EZ officials Additionally, Belarus Leader Lukashenko says Belarus will retaliate against any fresh sanctions. (Newswires)
European equities (+0.1%) trade with minor gains which have nudged the Stoxx 600 to a high of 487.21 in what has been a quiet start to the week. The desk will continue to monitor further lockdown restrictions across the region, however, updates from the Netherlands and Austria have done little to dent sentiment thus far. The handover from the APAC region was a mixed one as the soft GDP data from Japan was overshadowed by forthcoming stimulus efforts whilst Chinese equities were unable to garner much upside from stronger than forecast Industrial Production and Retail Sales data. Participants were also awaiting the Biden-Xi virtual meeting which is set to take place Monday evening at 19:45EST or Tuesday morning in Asia. Stateside, futures are trading with gains of a similar magnitude to their European counterparts (ES +0.1%) with not a great deal on the docket beyond the NY Fed Manufacturing print at 13:30GMT/08:30EST. Back to Europe, sectors are relatively mixed with Travel & Leisure top of the leaderboard amid gains in Deutsche Lufthansa (+1.7%) after the Co. was upgraded to neutral from sell at UBS. Oil & Gas names have been granted some reprieve following the selling pressure seen towards the latter half of last week. To the downside, Basic Resources is the standout laggard amid underlying price action in the metals space. In terms of individual movers, Ahold Delhaize (+2.4%) is one of the best performers in the Stoxx 600 after announcing a EUR 1bln buyback as of 2022, accelerated its growth/investment plan and will explore an IPO of Bol.com. Shell (+1.8%) is seen higher on the session after announcing that it is looking to implement a simplified structure and move its tax residency to the UK from the Netherlands. To the downside, Philips (-12.1%) sits at the foot of the Stoxx 600 as concerns continue to mount over its ventilator recall issues in the US. Finally, BBVA (-3.7%) is seen lower on the session after launching a tender offer to acquire the remaining 50.2% of Turkiye Garanti Bankasi.
AUD/NZD/SEK/NOK - The Aussie and Kiwi are outperforming their major peers, or making the most of ongoing Greenback consolidation off last week’s new y-t-d highs, with the former also gleaning encouragement from Chinese data overnight as ip and retail sales beat consensus. Aud/Usd is back above 0.7350 and Nzd/Usd has reclaimed 0.7050+ status as the Aud/Nzd cross hovers in the low 1.0400 zone and eyes an unusually large 1 bn option expiry at the round number. Similarly, the Norwegian and Swedish Krona are both firmer vs a somewhat leggy/lethargic Euro, but with assistance from macro releases in the form of trade and inflation respectively. Eur/Nok is probing 9.9200 and Eur/Sek is testing bids and support around 10.0000 compared to peaks near 9.9600 and 10.0330.
CAD/DXY - No lasting support from crude prices for the Loonie as WTI retreats through Usd 80/brl from Usd 81.20 at best, but Usd/Cad has reversed from 1.2550+ ahead of Canadian manufacturing sales and wholesale trade that are out alongside the more timely Empire state survey. Meanwhile, the index is meandering either side of 95.000 within a 95.152-94.963 band having ‘topped out’ at 95.266 in wake of US CPI and a far from well received new 30 year issue.
GBP/EUR/CHF/JPY - All narrowly mixed against the Buck and seemingly awaiting clearer direction from their US counterpart or independently, as Cable continues to straddle a key Fib level (1.3412) in advance of testimony from the BoE on the latest MPR and top tier UK data from tomorrow. Eur/Gbp is sitting even tighter around 0.8530 before talks intensify to try and resolve differences on NI Protocol, while Eur/Usd is pivoting 1.1450, Usd/Chf is rotating around 0.9200 and Usd/Jpy is holding mostly below 114.00. Note, the Euro has ECB speakers to digest (see Headline Feed at 10.01GMT for remarks from President Lagarde) and look forward to, while the Franc has not really responded to small rises in weekly Swiss sight deposits and the Yen has largely brushed aside much weaker than expected Japanese GDP and a draft document saying that the government and BoJ share a strong sense of urgency about supply shortages, whilst maintaining an appropriate combination of monetary and fiscal policies.
EM - Predictably, the Cnh and Cny are benefiting from the aforementioned upbeat industrial output and consumption updates, plus a firmer PBoC fix, while the Try has pared some declines under 10.0000 with the aid of a narrower Turkish budget deficit, and the Rub is firm amidst hawkish rhetoric from CBR Governor Nabiullina, underlining that tightening will be considered at the next policy meeting and rates will be kept above neutral for some time.
Notable FX Expiry, NY Cut:
- AUD/NZD: 1.0400 (1BLN)
UK bonds remain bid, but well off best levels after the 10 year benchmark retreated to a new 126.53 low (+18 ticks vs +47 ticks at one stage) and appeared to drag Bunds back, albeit amidst ongoing strength in the Eurozone periphery. However, the German debt future is still comfortably above 171.00 within a 171.40-01 range and US Treasuries are hugging overnight session highs with the curve flatter ahead of a relatively busy pm agenda for a Monday, including NA data and more Central Bank speakers, with the focus probably on BoE testimony to the TSC given that markets were caught out by the on hold MPC.
WTI and Brent are softer this morning, with losses in excess of 1.0% on the session thus far. Such pressure stems from demand-side updates in the wake of further COVID-19 measures being announced/implemented, most recently that Austria is entering a lockdown for the un-vaccinated and the Netherlands is to reimpose social distancing from Saturday. Furthermore, given the surge in cases seen in Germany in recent weeks the three-parties in coalition discussions intend to put forward proposals to Parliament on Thursday for renewed measures, which will reportedly include contact restrictions. On the other hand, the supply-side of the equation is cognisant of the looming imposition of further restrictions on Belarus by the EU, particularly as Leader Lukashenko last week said they would respond to any sanctions and suggested closing gas/goods transit through Belarus. Additional sanctions are, currently, scheduled to be announced this afternoon. Separately, and perhaps adding pressure, is commentary from various oil ministers the most pertinent of which has seen the UAE representative announce they are to increase production to over 5mln BPD from the current 4mln by 2030, alongside expecting a Q1-2022 oil surplus. Currently, the benchmarks are in proximity to the sessions trough which resides around USD 0.10/bbl below Friday’s low of USD 79.78/bbl in WTI, for instance. Moving to metals, spot gold and silver have been grinding higher throughout the European morning but are yet to retrace the downside seen overnight in-spite of the stronger Chinese data though this failed to spur regional or base-metal performance either. In terms of bank views, the Head of Energy Research at Goldman Sachs predicting the precious metal is set for a boom to the USD 2k level.
US Senate Majority Leader Schumer called for the Biden administration to utilise emergency reserves to reduce gas prices, while he stated that utilising the SPR could ease prices ahead of the holidays and is a tool worth using. (Newswires)
Russian gas flows towards Germany via the Yamal-Europe pipeline increased during the weekend, according to preliminary data from German network operator Gascade. Subsequently, Russia's Gazprom has not booked additional gas transit capacity for exports via the Yamal-Europe pipeline for December. (Newswires)