Original insights into market moving news

[PODCAST] US Open Rundown 23rd January 2019

  • European equities nursed opening losses and moved into positive territory as risk sentiment improved
  • DXY trades within a relatively tight range while GBP extends gains on hopes for an Article 50 extension
  • Looking ahead, highlights include Canadian Retail Sales, EZ Consumer Confidence (flash) and weekly API inventories
  • EARNINGS: Abbott Laboratories, Kimberly-Clark Corp, Procter & Gamble, Progressive, Texas Instruments, Ford Motor, Raytheon, Comcast Corp


Asian equity markets were choppy as the region attempted to shrug off the headwinds from Wall St, where stocks declined as the risk averse tone and lingering global growth concerns caught up with the major US indices on return from their extended weekend. Furthermore, it was also reported that the US turned down China’s offer for preparatory trade talks, which was later denied by NEC Director Kudlow. Nonetheless, ASX 200 (-0.3%) was subdued with underperformance in the energy sector after crude prices slipped by over 2% and Nikkei 225 (-0.1%) was dampened by disappointing trade data including the sharpest drop in exports since October 2016. However, sentiment in Tokyo was later propped up by a weaker currency, while Japan Display shares surged on reports it is in investment discussions with TPK and Silk Road Fund. Hang Seng (U/C) and Shanghai Comp. (U/C) conformed to the indecisiveness after mixed actions by the PBoC as it conducted a Targeted Medium-term Lending Facility for the first time ever which was at a lower rate than MLF rates and is aimed at spurring lending to small firms, but conversely refrained from reverse repo operations which resulted to a daily drain of CNY 350bln. Finally, 10yr JGBs traded sideways throughout most the session amid the indecisive risk tone in stocks and with participants side-lined prior to the BoJ policy announcement, but then saw  choppy trade in reflection of sentiment in the region and following an unsurprising BoJ decision to keep policy setting unchanged.

PBoC skipped reverse repo operations for a net daily drain of CNY 350bln, although it conducted a CNY 257.5bln 1yr Targeted Medium-term Lending Facility with rate at 3.15% in its first use of TMLF vs 3.30% rate at last MLF. (Newswires)
PBoC set CNY mid-point at 6.7969 (Prev. 6.7854)

BoJ kept monetary policy settings unchanged as expected with NIRP held at -0.1% and 10yr JGB yield target at around 0%. Furthermore, the BoJ extended its lending scheme for 1 year and stated that economic momentum for reaching price goal is sustained but lacking strength, while it added that risks to price and economic outlooks are skewed to the downside. BoJ reduced Real GDP forecasts for FY18 but raised Real GDP forecasts for FY19 and FY20, while it reduced Core CPI forecasts on all years through to FY20. (Newswires)

BoJ Governor Kuroda says the downward revision to price outlook is due to the temporary decline in oil prices, Kuroda expects inflation to pick up towards the 2% target. Adding that downside risks from overseas are heightening due to US-China trade friction and European problems.

Japanese Trade Balance (JPY)(Dec) -55.3B vs. Exp. -29.5B (Prev. -737.7B). (Newswires)
Japanese Exports (Dec) Y/Y -3.8% vs. Exp. -1.9% (Prev. 0.1%)

Japanese Imports (Dec) Y/Y 1.9% vs. Exp. 3.7% (Prev. 12.5%)


Axios reports "A new immigration idea has been circulating over the past 24 hours at senior levels inside the White House and on Capitol Hill: Give a path to green cards to the 700,000 current DACA recipients, according to sources"

US BLS: The January 2019 Employment Situation will be published as scheduled on February 1, 2019, at 1330GMT/0830ET


UK PM May is reportedly set to force ministers to keep a no deal Brexit on the table despite threats of ministerial resignations. (Huffington Post) This has been seen as a defence mechanism against the Labour Party’s potential support for the Cooper-Boles Brexit delay plan. (Newswires)

UK Tory party Brexiteers concerned about prospects of a delay, have suggested they could be won over if UK PM May can get a serious concession from the EU on backstop. (Guardian) Following this, ITV's Paul Brand tweets "Jacob Rees-Mogg will say in a speech today that the backstop remains “the one absolute obstacle” to backing PM’s deal BUT he’s “encouraged by signs of movement”. (Twitter)

Sun's Steve Hawkes reports "Labour has told second referendum campaigners it is backing the Cooper-Boles Amendment". Has subsequently been confirmed by a Labour party source, stating it is ‘highly likely’ they will back the amendment. (Twitter/Newswires)

Irish PM Varadkar said the UK and Ireland would have to negotiate a bilateral agreement on the full alignment of customs to avoid a hard border in the case of a no-deal Brexit. (The Guardian)

UK Trade Department said Trade Minister Fox is to discuss replicating EU trade agreement with ministers from around the world at Davos. (Newswires)


Major European equities are mostly higher [Euro Stoxx 50 +0.2%], after recovering from opening losses, taking the lead from Wall Street. US stocks were affected by growth concerns, alongside subsequently denied reports that the US turned down an offer by two Chinese vice-ministers to attend preparatory trade talks in the US. Sectors have strengthened somewhat from their negative opening, and are now mixed with underperformance in energy names and outperformance in utilities. Tech names have been underperforming following ASML (-1.8%) cutting Q1 sales guidance, with the likes of STMicroelectronics (-1.4%) down in sympathy. Other notable movers include Carrefour (+6.7%) are at the top of the Stoxx 600 following earnings where they confirmed all targets for their 2022 transformation plan. Separately, RPC Group (+4.6%) are firmly in the green after recommending a final cash offering of GBP 7.82/shr; with Co’s directors seeing the acquisition terms as fair and reasonable. In contrast, at the bottom of the Stoxx 600 are Ingenico (-13.2%) after reporting a FY18 EBITDA miss.


DXY – Relatively muted session for the Dollar thus far with the index hovering around the middle of a tight 96.268-378 range after NEC Director Kudlow dismissed reports that US turned down an offer from China for trade talks. The US government shutdown is now rolling onto its 33rd day, although there were reports overnight that US Senate are to vote on two separate bills on Thursday which could potentially bring an end to the shutdown. Meanwhile, BLS stated the January 2019 Employment Situation will be published as scheduled on February 1, 2019, at 1330GMT. ING noted that the 800k workers affected by the shutdown represent only 0.5% of the total US NFP, noting that the impact to the US economy will be modest but noticeable.

JPY – On the backfoot in early EU trade following the BoJ rate decision in which the Central Bank kept the NIRP at -0.1% and the 10yr JGB yield target around 0% as expected while also reducing inflation forecasts, which was widely touted beforehand. Furthermore, Japan logged the first trade annual deficit in three years, as the cost of energy imports surged. As such USD/JPY breached its 100 and 50 HMAs (at 109.45 and 109.53 respectively) to a high of 109.73 (vs low of 109.33) with little to report on the options expiry front.

NZD, AUD, CAD – A sigh of relief for the Aussie and Kiwi amid the release of above-forecast NZ inflation figures following the decline in the New Zealand currency in the last six out of seven sessions. NZD/USD spiked higher from lows of 0.6743 to a high of 0.6793 ahead of its 50 DMA at 0.6796 and the psychological 0.6800. Meanwhile the Aussie moved in sympathy to its antipodean counterpart as AUD/USD gained further ground above 0.7100 to a high of  0.7143 point before stabilising around its 50 HMA at 0.7140. Meanwhile, the CAD takes full advantage of the consolidating oil prices as USD/CAD gave up the 1.3350 handle and breached its 50 DMA to the downside at 1.3319 ahead of the release of Canadian retail sales.

GBP, EUR – The Pound continues on its upwards trajectory amid ongoing hopes of an Article 50 extension despite the UK Governments constant dismissal of the option, though the latest suggests that support for the Cooper amendment (to give Parliament power to extend Article 50) is stacking up, with reports of the Labour party also supporting the amendment. Lloyd’s notes that the recent Sterling strength was more than they anticipated, though a clean break through 1.3000 is still needed for “re-energised momentum” to the upside. GBP/USD  remains closer to the top of a 1.2945-1.3000 range ahead of its 200 DMA at 1.3081. Meanwhile the EUR remains flat within a tight 1.1350-75 band amid no catalysts ahead of the ECB interest rate decision tomorrow.


The initial gap open in 10-year Bund and Gilt futures, that saw highs for the session of 164.77 and 122.89 respectively, has been pared back in recent trade with a marginal sentiment turnaround to positivity as EU equities pick up some steam. UK 10-year futures trade in close proximity to session lows of 122.49 despite suggestions that UK PM May looks set to keep no-deal on the table, despite the looming threat of resignations, in an effort to defend against the oppositions’ support of the Cooper-Boles amendment. In the periphery, 10-year Bono futures are extending on the syndicated bond-driven gains seen in yesterday’s session and outperform in the EZ, with the Spanish benchmark hitting heights not seen since last July (145.65). On the supply side,

In the US, the overnight risk averse moves in treasuries, driven by the FT’s suggestions that the US had turned down a Chinese offer for preparatory trade talks, have been largely eliminated after Kudlow’s denial with the futures curve wholly in the red. The majority of the action is in the long end, with 10-yr futures trading at lows of the day at 121-12+ as traders look ahead to further direction from the Richmond Fed Manufacturing data and the FHFA house price index scheduled for later in the day.


Brent (+0.8%) and WTI (+0.8%) prices have nursed initial losses and moved into positive territory due a turnaround in risk sentiment. Following on from Saudi Energy Minister Al Falih’s withdrawal from the WEF at Davos, Russian Energy Minister Novak has also cancelled his trip; Novak was due to speak on Friday on the Great Energy Race alongside IEA’s Birol. Separately, IEA’s Birol has stated that oil demand will grow by at least 1mln BPD. In terms of forecasting DNB have cut their 2019 Brent forecast to USD 70/bbl vs. Prev. USD 75/bbl. Of note API’s have been rescheduled to today due to Monday’s US market holiday.

Gold (Unch) has marginally benefitted from the risk sentiment, with the yellow metal trading at the top of it’s narrow USD 4/oz range; currently just under USD 1285/oz. Elsewhere, China’s December scrap metals imports increased to 510k tonnes, their highest figure since May, ahead of China tightening waste imports in 2019.

DNB cuts 2019 and 2020 Brent forecasts to USD 70/bbl (Prev. USD 75/bbl) and USD 75/bbl (USD 80/bbl) respectively, while maintaining 2020 forecast at USD 76/bbl. (Newswires)

IEA’s Birol says oil demand will grow by at least 1mln BPD; adding that China is a demand uncertainty and there is more to come from US Shale oil. (Newswires)

ITV’s Peston relaying comments from a senior official says, "Given that the majority of two thirds [of the Commons] by which the Withdrawal Agreement [or Brexit deal] was defeated is composed of Unionists, hard Brexiteers as well as Remainers, it would take very clear evidence that it is 'only' the backstop that prevents passage of the WA”

*HQ saying toodle pip for the week* Much love guys, as always, see you on the other side! (don't worry about him…