[PODCAST] US Open Rundown 18th November 2021
- Major bourses in Europe are choppy; US equity futures have been grinding higher in early European hours
- In FX, the DXY pulled back modestly from the 96.00 mark whilst the NZD/USD outperforms; EUR/USD and GBP/USD trade sideways
- New COVID-19 restrictions for Germany are to be announced around lunchtime today, Sky's Parson's
- China National Food and Strategic Reserves Administration stated that it was working on the release of crude reserves
- Russian Kremlin says Security advisor's Patrushev and Sullivan held discussions as a framework for a potential Biden-Putin meeting
- Looking ahead, highlights include US Initial/Continued Jobless Claims, Philadelphia Fed, SARB policy announcements, Fed's Williams, Bostic, Daly, Evans, ECB's Lane
Australia's Victoria state Premier Andrews announced restrictions will be lifted in Victoria state from midnight in which there will be no density or capacity limits and no restrictions on the number of people visiting households. (Twitter)
New COVID-19 restrictions for Germany are to be announced around lunchtime today, Sky's Parson's; follows a recommendation from STIKO that everyone over 18yrs of age should receive a vaccine booster. (Twitter/Newswires) German Bundestag and negotiating coalition parties have approved intensified COVID-19 rules. (Newswires)
Asia-Pac stocks traded mostly negative with sentiment in the region subdued amid a lack of significant macro drivers and following the uninspired lead from the US - where the major indices finished a choppy session in the red and the DJIA gave up the 36k status. Nonetheless, the ASX 200 (+0.1%) remained afloat with notable strength in gold miners, as well as some consumer stocks, although advances in the index were limited by losses in the financial and energy sectors after similar underperformance stateside amid a decline in yields and oil prices. The Nikkei 225 (-0.3%) was initially dragged lower by unfavourable currency inflows which overshadowed reports that Japan wants to enhance tax breaks for corporations that raise wages, while shares in Eisai were hit after EU regulators placed doubts regarding the approval of Co. and Biogen’s co-developed Alzheimer’s drug and SoftBank also declined after the US regulator raised concerns regarding Nvidia’s acquisition of Arm. However, the index then briefly returned flat in late trade on reports that the Japanese stimulus package is to require JPY 55.7tln of fiscal spending which is higher than the previously speculated of around JPY 40tln. The Hang Seng (-1.3%) and Shanghai Comp. (-0.5%) weakened after another liquidity drain by the PBoC and with the declines in Hong Kong exacerbated by tech selling, while the losses in the mainland were to a lesser extent with China said to be mulling additional industrial policies aimed to support growth and SGH Macro sources suggested the US and China agreed there would be some substantial progress on trade such as the removal of some punitive tariffs by the US and increased purchases of US products by China, although the report highlighted that it was unclear if this would be from a high-profile announcement or a discrete relaxing of tariffs. Finally, 10yr JGBs were initially flat as prices failed to benefit from the subdued risk appetite in Japan and rebound in global peers, while firmer metrics at the 20yr JGB bond auction provided a mild tailwind in late trade although the support was only brief and prices were then pressured on news of the potentially larger than anticipated fiscal spending in PM Kishida's stimulus package.
- PBoC injected CNY 50bln via 7-day reverse repos with the rate at 2.20% for a CNY 50bln net daily drain. (Newswires)
- PBoC set USD/CNY mid-point at 6.3803 vs exp. 6.3785 (prev. 6.3935)
Japan stimulus package will require fiscal spending of JPY 55.7tln, according to Nikkei. (Nikkei)
Fed's Evans (2021, 2023 voter) said he had expected a more resilient supply chain than what has been seen and is looking for inflationary pressures to recede, while he will be monitoring them well into the middle of next year and would not be surprised if the unemployment rate is 4.5% by year-end. Evans added that it will take until the middle of next year to complete taper and at that point, they will be thinking about when to raise rates, while he is optimistic there will be a vibrant labour market next year. (Newswires)
US President Biden said it is good news that jobs and wages are increasing, while he added that the federal fleet will be converted to EVs and new infrastructure law will help jumpstart EVs but noted China has been leading the EV race. (Newswires)
EU is proposing a 50% cut in customs formalities on goods moving from Great Britain to N. Ireland becomes a legal obligation instead of a general aspiration, RTE's Connelly; adds that this would come with conditions. EU sources say the legal weighting should show the EU is serious about reducing checks. (Twitter)
EU proposes reform to improve capital markets in light of Brexit; proposes making it mandatory for exchanges to hand over stock and bond traction data for investors; proposes scrapping clearing houses requirements to clear derivatives on rival exchanges. (Newswires)
UK PM Johnson is to unveil a new GBP 96bln Integrated Rail Plan today, although he risks anger from northern MPs due to the watered down investment plan. (FT)
UK Conservative MP highlights that there are "People are in the tea room who aren’t normally there unless there’s a leadership bid", Guardian's Allegretti. (Twitter) Such an observation is made in the context of backlash against UK PM Johnson within parliament, the Conservative party and from the public in relation to his handling of the Paterson situation and the broader focus into paid second jobs.
CBRT cuts Weekly Repo Rate by 100bps as expected to 15.00%; other rates also reduced by 100bps; CBRT may ease policy again in December. The Committee will consider to complete the use of the limited room implied by these factors in December. (CBRT/Newswires)
Norges Bank will reduce its foreign exchange sales on behalf of the government in November 2021. With effect from Friday, 19 November, Norges Bank will reduce its daily foreign exchange sales on behalf of the government from. (Norges)
PBoC says yuan rate could appreciate or depreciate in the future; goal for yuan rate will be reasonable and balanced. Financial institutions should actively provide exchange rate hedging services for companies. Financial institutions should not help companies speculate in currency. (Newswires)
Saudi-led coalition said it conducted military operation on targets in Yemen's Sanaa, Dhamar, Saada and Al-Jawf provinces. (Newswires)
Russian Kremlin says Security advisor's Patrushev and Sullivan have discussed cybersecurity, Ukraine and the refugee situaiton. Talks took place in the framework of a potential President's Biden and Putin meeting, though no date has been set yet. (Newswires)
US and China could start a "Track II" dialogue regarding arms, among non-government defense analysts and academics. (WSJ)
Major bourses in Europe are choppy, although sentiment picked up following a subdued APAC session but despite a distinct lack of fresh catalysts. US equity futures have also been grinding higher in early European hours, with the NQ (+0.6%) outpacing the ES (+0.3%), RTY (+0.2%) and YM (+0.2%). Back to European cash – broad-based gains are seen across the Euro bourses – which lifted the CAC, DAX and SMI to notch record intraday highs, whilst upside in the UK's FTSE 100 (-0.2%) has been hampered by hefty losses in today's lagging sectors– the Energy and Basic Resources - amid price action in the respective markets. Tech names also see a strong performance thus far as chip names cheer NVIDIA (+6% pre-market) earnings yesterday. Overall, sectors have maintained a similarly mixed picture vs the cash open, with no overarching theme. In terms of individual movers, Swatch (+2.8%) and Richemont (+0.6) piggyback on the increase in Swiss Watch Exports vs 2020 and 2019. Metro Bank (-20%) plumbed the depths after terminating takeover talks with Carlyle.
EU's Antitrust Commissioner Vestager says the European Commission will announce the extension of looser state aid rules today and it is their aim to keep the power of dominant digital platforms at check; follows on from overnight reports that EU lawmakers agreed on regulations to target big tech and plan to introduce curbs on companies such as Apple (AAPL) and Google (GOOG) in 2022. (FT)
JD.com Inc (JD) Q3 2021 (CNY): EPS 3.16 (exp. 2.05), Revenue 218.7bln (exp. 216.71bln); annual active customer accounts +25% Y/Y
NZD/AUD - The Kiwi has extended its recovery on heightened RBNZ tightening expectations prompted by significant increases in Q4 inflation projections, with some pundits now assigning a greater probability to the OCR rising 50 bp compared to the 25 bp more generally forecast and factored in. Nzd/Usd is eyeing 0.7050 and the 50 DMA just above (at 0.7054 today) having breached the 100 DMA (0.7026), while the Aud/Nzd cross is probing further below 1.0350 even though the Aussie has found some support into 0.7250 against its US rival and will be encouraged by news that COVID-19 restrictions in the state of Victoria are on the verge of being completely lifted.
GBP/EUR/DXY - Notwithstanding Kiwi outperformance, the Dollar has lost a bit more of its bullish momentum to the benefit of most rivals, and several of those that compose the basket. Indeed, Cable has popped above 1.3500, while the Euro is looking more comfortable on the 1.1300 handle as the index retreats further from Wednesday’s new y-t-d peak and away from the psychological 96.000 level into a 95.840-642 range. Ahead, IJC and Philly Fed are due amidst another decent slate of Fed speakers, while Eur/Usd will also be eyeing the latest ECB orators for some direction and Eur/Gbp is back around 0.8400 where decent option expiry interest resides (1.1 bn), but perhaps more focused on latest talks between the UK and EU on the NI dispute.
CHF/CAD/JPY - The Franc has pared more declines vs the Buck from sub-0.9300 and remains firm against the Euro near 1.0500 in wake of Swiss trade data showing a wider surplus and pick-up in key watch exports, but the Loonie looks a bit hampered by a more pronounced fall in the price of oil as the US calls on other countries for a concerted SPR tap and China is said to be working on the release of some crude stocks. Usd/Cad is tethered to 1.2600 and highly unlikely to threaten 1.1 bn option expiries at the 1.2500 strike in contrast to the Yen that stalled above 114.00 and could be restrained by 1.4 bn between 113.90 and the round number or 1.3 bn from 114.20-25, if not reports that Japan’s stimulus package may require Jpy 55.7 tn of fiscal spending compared to Jpy 40 tn previously speculated.
SCANDI/EM - The Nok, Rub and Mxn are feeling the adverse effects of deeper downturns in Brent and WTI, but the Sek seeing some downside protection from declines in Swedish jobless rates and the Zar heads into the SARB cushioned by Gold to an extent, while the Try strengthened heading into the CBRT rate decision, which delivered on the expected 100bps but suggested it could ease policy again next month. Usd/Try rebounded to session highs just shy of 11.0000 from a 10.4539 pre-announcement low.
- New Zealand 2yr Inflation Expectations (Q4) 2.96% (Prev. 2.27%). (Newswires)
Notable FX Expiries, NY Cut:
- EUR/GBP: 0.8400 (1.1BLN), 0.8450-60 (1.1BLN)
- USD/JPY: 113.50 (427M), 113.90-114.00 (1.4BLN), 114.20-25 (1.3BLN), 114.40-50 (797M), 115.00 (510M)
Debt futures hit best intraday levels fairly early in the EU session and then recoiled alongside a rebound in crude benchmarks from deeper lows, but also as a few equity indices registered fresh record peaks. However, Bunds and Gilts have regained composure again to sit comfortably above par between 171.21-170.88 and 126.27-06 extremes vs 170.77 and 125.81 prior settlement levels, in contrast to US Treasuries that remain closer to overnight troughs in the run up to jobless claims, the Philly Fed and more Fed speakers. Meanwhile, data continues to highlight rising price pressures in the main, but from an overall risk perspective geopolitical tensions are weighing and the COVID-19 situation is becoming more divergent as restrictions are getting lifted in some parts, but being reimplemented elsewhere.
WTI and Brent front-month futures are off worst levels but still under pressure amid the prospect of looming crude reserves releases, with reports suggesting China is gearing up for its own release. There were also prior source reports that the US was said to have asked other countries to coordinate a release of strategic oil reserves and raised the oil reserve release request with Japan and China. Furthermore, the US tapping of the SPR could be either in the form of a sale and/or loan from the reserve, and the release from the reserve needs to be more than 20mln-30mln bbls to get the message to OPEC, while a source added that the US asked India, South Korea and large oil-consuming countries, but not European countries, to consider oil reserve releases after pleas to OPEC failed. This concoction of headlines guided Brent and WTI futures under USD 80/bbl and USD 78/bbl respectively with early selling also experienced as European players entered the fray. On the geopolitical front, US National security adviser Jake Sullivan raised with his Israeli counterpart the idea of an interim agreement with Iran to buy more time for nuclear negotiations, according to sources. However, two American sources familiar with the call said the officials were just "brainstorming" and that Sullivan passed along an idea put forward by a European ally. Next, participants should continue to expect jawboning from the larger economies that advocated OPEC+ to release more oil. OPEC+ is unlikely to react to prices ahead of next month's meeting (barring any shocks). Elsewhere, spot gold and silver have been choppy within a tight range. Spot gold trades under USD 1,875/oz - with technicians flagging a Fib around USD 1,876/oz. Spot silver trades on either side of USD 25/oz. Base metals are on a softer footing amid the broader performance across industrial commodities – LME copper remains subdued under the USD 9,500/t level, whilst some reports suggest companies are attempting to arbitrage the copper spread between Shanghai and London.
China's National Food and Strategic Reserves Administration stated that it was working on the release of crude reserves. There were also prior source reports that the US was said to have asked other countries to coordinate a release of strategic oil reserves and raised the oil reserve release request with Japan and China. Furthermore, the US tapping of the SPR could be either in the form of a sale and/or loan from the reserve and the release from the reserve needs to be more than 20mln-30mln bbls to get the message to OPEC, while a source added that the US asked India, South Korea and large oil-consuming countries, but not European countries, to consider oil reserve releases after pleas to OPEC failed. (Newswires)