[PODCAST] US Open Rundown 24th January 2019
- Major European equities are in the green [Euro Stoxx 50 +0.7%] with outperformance in Italian banks on ECB day
- DXY firmer this morning after EUR was dented by disappointing PMIs
- Looking ahead, highlights include US Flash PMI's, ECB Rate Decision, US Jobless Claims, BoE's Carney, Riksbank's Skingsley
- EARNINGS: American Electric Power Co, Bristol-Myers Squibb, Freeport-McMoRan, Intel, Norfolk Southern Co, Starbucks, Union Pacific, Western Digital, Discover Financial Services, American Airlines
Most Asian bourses eventually followed suit to the gains stateside where the DJIA led the majors higher on better than expected earnings from several of its components, although trade was far from smooth sailing in the Asia-Pac region and upside in the other US majors were also capped amid ongoing shutdown concerns and trade uncertainty. ASX 200 (+0.4%) and Nikkei 225 (-0.1%) were mixed throughout the majority of the session as corporate updates dictated price action and in which energy names kept Australia afloat after Santos reported an increase in Q4 output and revenue, while Japanese exporters lacked unison amid an indecisive currency. Hang Seng (+0.4%) and Shanghai Comp (+0.4%) were initially lacklustre amid ongoing trade uncertainty and following another substantial daily liquidity drain by the PBoC of CNY 250bln, but then gradually improved as money market rates declined ahead of the 2nd phase of the PBoC’s 100bps RRR taking effect tomorrow. Finally, 10yr JGBs were flat with price moves contained by the indecision across riskier assets throughout the sessions and amid mixed results at this month’s 20yr JGB auction.
PBoC skipped open market operations for a net daily drain of CNY 250bln. (Newswires)
PBoC set CNY mid-point at 6.7802 (Prev. 6.7969)
In addition, there comments from Director of the Center for Chinese Strategy at the Hudson Institute Michael Pillsbury, who is US President Trump's outside China advisor and a noted China hawk, that there will not be a breakthrough in trade talks soon. (Newswires)
US House Speaker Pelosi said she would not pass a resolution allowing President Trump to deliver the State of the Union address from the House chamber until the government reopens. However, Trump then later said he will deliver State of the Union Address when shutdown is over. (Newswires)
BoE's Haldane said BoE is likely to increase rates if economy keeps growing but will be flexible in the event of a downturn. (Newswires)
UK opposition Labour Party leader Corbyn is said to likely back bill to force government to request extension of Article 50 (Newswires)
EU's Chief Negotiator Barnier says he think we need decisions not more time; the question is why to extend negotiations and how much time is needed. (Newswires)
Sky News' Political Correspondent Cohen tweets "No10 source on whether Yvette Cooper Bill would mean they’ll ask EU for extension: “It’s not a case of us asking. We wouldn’t have a choice. It would be an instruction from Parliament written in law.” (Twitter)
Daily Mirror's Political Editor tweets "NEW: Cross-party MPs including Wollaston and Umunna announce they will NOT be tabling an amendment for a second referendum for now. "Labour MP Berger appeals to Corbyn to "do the right thing" as plan doesn't have the numbers without him." (Twitter)
French Finance Minister Le Maire says France is looking for ways to cut public spending and will stick to the 1.7% growth forecast for this year. (Newswires)
French Markit Services Flash PMI (Jan) 47.5 vs. Exp. 50.5 (Prev. 49)
French Markit Comp Flash PMI (Jan) 47.9 vs. Exp. 51 (Prev. 48.7)
German Markit Manufacturing Flash PMI (Jan) 49.9 vs. Exp. 51.3 (Prev. 51.5)
EU Markit Manufacturing Flash PMI (Jan) 50.5 vs. Exp. 51.4 (Prev. 51.4)
Norges Key Policy Rate 0.75% vs. Exp. 0.75% (Prev. 0.75%)
US and North Korea may agree to a complete denuclearisation by 2020; as according to reports. (Yonhap/Dong-A)
Major European equities are in the green [Euro Stoxx 50 +0.7%]. The FTSE MIB (+1.2%) is outperforming its peers bolstered by strong performance in banking names after Italian PM Conte said the Italian banking system is well capitalised and stable; with markets also looking out for any potential signals from the ECB on TLTROs. Sectors are mixed, with outperformance in tech names following STMicroelectronics (+8.8%) earnings release; other tech names such as Infineon (+4.9%) are up in sympathy. Other notable movers include, Novozymes (-3.5%) who are at the bottom of the Stoxx 600 after missing on Q4 sales.
EUR, GBP- The EUR is ultimately on the backfoot as dismal French PMIs triggered the decline in the single currency in which the composite output pointed to the quickest contraction in the French private sector output for over four years, according the IHS. Meanwhile, Germany’s manufacturing PMI fell into contractionary territory and to a 50-month low while the manufacturing output index slid to a 69-month low. In terms of the Eurozone, ING highlights that the below-forecast metrics indicates Q1 is off a disappointing start, heavily influence by France. Furthermore, IHS Markit’s Chief Economist notes “The disappointing survey data indicate that [Eurozone] GDP is rising at a quarterly rate of just 0.1%.” As such, EUR/USD fell further below its 200 DMA at 1.1384 to test the intraday low 1.1330 to the downside before stabilising just above its LOD ahead of the ECB interest rate decision later where focus will be on the EZ growth outlook (full preview available in the Research Suite). In terms of option expiries, a sizeable EUR 2.2bln are scatter at strike 1.1395-1.1405. Meanwhile, Sterling is largely side-lined following days of gains as the ECB decision comes into focus, Cable is heavily dictated by dollar action as the pair resides near intraday lows below 1.3050 (vs high of 1.3094)
DXY – Back on an upward trajectory follow the prior session’s declines in which the index tested 96.000 to the downside at one point. In early EU trade, DXY gained more ground above psychological level and currently resides near intraday highs of 96.400 with upside exacerbated by the release of overall downbeat EZ PMIs. In terms of technicals, the index has breached its 100 DMA to the upside at 96.100 and sees its 200 DMA around 96.550.
AUD – The marked underperformer amid the release of Australian jobs numbers, where the Aussie initial felt support as headline employment change and the unemployment rate were better-than-expected, thought gains were pared as the growth in employment was mostly fuelled by part-time jobs which coincided with the decline in participation rates. Additionally, reports of NAB hiking mortgage rates exacerbated downside in the AUD as some suggest this could aid the RBA to push back a rate hike, especially given the decline in house prices, subsequently, interest rate futures are pricing a 60% chance of a rate cut by December 2019. As such AUD/USD lost more ground below its 100 DMA at 0.7171 to levels below 0.7100 vs. a high of 0.7166. Furthermore, HSBC sees AUD/USD declining to 0.6600 this year and Rabobank sees the pair at 0.6800 citing 'doom loop' of debt which threatens to weigh heavily on the currency.
NOK – A firmer Crown in the aftermath of a hawkish Norges interest rate decision in which the CB left its key policy rate unchanged as expected. Focus was more on whether a rate hike will be pushed further into H1 given the recent decline in oil, which the Central Bank left unchanged. Norges also noted that the domestic economic growth and labour market development appear to be broadly in-line with forecasts while inflation has been slightly above expectations. Subsequently, EUR/NOK fell through the 9.7500 to a low print of 9.7130 (vs high of 9.7600) and currency hovers closer to the bottom of the intraday band.
JPY – More influenced by Dollar action, though moves in USD/JPY could be muted amid the decline is the single currency as EUR/JPY falls below 124.50 (vs. high 124.90). Meanwhile, USD/JPY trades with modest gains and resides around the top of an intraday 109.44-80 band ahead of the Tokyo inflation release overnight.
European and UK fixed income futures have kicked off the session higher across the board. German 10-year futures trade in close proximity to session peaks of 164.97 and eye the 165.00 level after some disappointing flash PMI figures that saw German manufacturing fall into contractionary territory. The uninspiring figures from France, which saw the services and composite measures also fall into contraction, has lifted OAT 10-year futures to a contract high of 152.29. In the UK, 10-year Gilt futures are in the green but trade near session lows of 122.64 as the gap higher on the open has been slowly but surely eliminated as focus remains on updates from Whitehall on Brexit, with the possibility of some direction to be found from multiple scheduled speeches from BoE Governor Carney later in the day at Davos.
Over in the US, debt futures have rebounded after yesterday’s lows of 121-07 with futures higher across the curve and the majority of the action in the belly of the curve. The suggestions that the White House is preparing for the shutdown lasting up to March has helped the bid in US futures, which has seen the 10-yr print session highs of 121-19, with 121-20 eyed as resistance. Further direction may be found from the upcoming manufacturing and services PMI releases scheduled for later in the day.
In recent trade Brent (-0.4%) and WTI (-0.1%) have pared back some of the downside seen after yesterday’s unexpected API crude stocks build of +6.55mln vs. Exp -0.4mln; with markets now looking to today’s EIA release. According to reports several Libyan oil ports are closed due to poor weather. Separately, US President Trump has stated that oil sanctions could be imposed this week on Venezuela if the political situation deteriorates further.
Gold (-0.2%) has been subdued due to the improved risk tone following updates to the US-China trade front. Recent news flow has seen China’s commerce ministry stating that Vice Premier Lie He will travel to the US on January 30th; adding that the US and China are to have an in-depth negotiation on economic and trade issues. Elsewhere, Anglo America have reported Q4 copper production of 184Kt vs. Prev. 149KT, a 5-year high; Co’s CEO stating this is largely due to efficiency and productivity improvements.