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[PODCAST] US Open Rundown 18th March 2019

  • Mixed start to the week for Major European Indices [Stoxx 600 +0.1%] following a relatively optimistic lead from Asia
  • A summit between US President Donald Trump and Chinese counterpart Xi Jinping could be delayed to June according to sources
  • Antipodeans outperform as the dollar is generally subdued, GBP choppy ahead of another crucial week for Brexit
  • Amidst conflicting reports, Iraqi Energy minister confirms next OPEC+ JMMC in June; although sources indicate May is also on the cards
  • Looking ahead, highlights include ECB’s Praet & de Guindos Speaking

 

ASIA  

Asian stocks began the week mostly higher after last Friday’s tech-led upside on Wall St, but with early cautiousness observed ahead of the week’s plethora of central bank activity and amid uncertainty with the Trump-Xi summit said to be pushed back to June. ASX 200 (+0.3%) eked marginal gains as underperformance in telecoms and financials offset some of the commodity-driven strength in the Australian bourse, while the Nikkei 225 (+0.6%) was underpinned by a weaker currency following mixed data in which Trade Surplus topped estimates but both Exports and Imports contracted more than expected. Elsewhere, Hang Seng (+1.4%) and Shanghai Comp. (+2.5%) were both positive after the PBoC increased its liquidity efforts and as mainland China shrugged off an early whimsical tone caused by uncertainty from the delay of the Trump-Xi summit. Finally, 10yr JGBs were relatively unchanged with demand dampened by the gains in riskier assets and with downside also restricted by the BoJ’s presence in the market.

A summit between US President Donald Trump and Chinese counterpart Xi Jinping could be delayed to June according to sources who noted they will not be able to finalise an agreement by April. In related news, a source reportedly suggested that there was a divergence within the Trump administration regarding the deal with China. (SCMP/Twitter)

Chinese President Xi is set to visit Europe this week in efforts to bolster trade relationships. The Chinese President will travel to France, Italy and Monaco from March 21st to 26th; according to Chinese Foreign Ministry Spokesman Lu Kang. (Newswires/Xinhua)

China's assistant Commerce Minister says China's foreign trade situation is becoming more uncertain and more complicated. (Newswires) 

PBoC injected CNY 60bln via 7-day reverse repos. (Newswires) PBoC set CNY mid-point at 6.7088 (Prev. 6.7167)

Japanese Trade Balance Total (JPY)(Feb) 339.0B vs. Exp. 310.2B (Prev. -1415.2B, Rev. -1415.6B). (Newswires) Japanese Exports (Feb) Y/Y -1.2% vs. Exp. -0.9% (Prev. -8.4%) Japanese Imports (Feb) Y/Y -6.7% vs. Exp. -5.8% (Prev. -0.6%, Rev. -0.8%)

US

Iran's President Rouhani says Tehran will file legal case against US officials for imposing sanctions which are 'crimes against humanity'. (Newswires)

UK/EU            

UK PM May received backing by some staunch Brexiteers after she personally lobbied MPs but still remained significantly short of the number she needs to win a vote this week. Furthermore, it was separately reported that 40 Tory rebels told PM May they would only support her deal if she quits as PM. (Times/BuzzFeed)

Various UK ministers suggested PM May could cancel this week's 3rd Brexit vote if there is not enough support. In related news, former UK Foreign Minister Johnson called for a delay in the 3rd Brexit vote and said it is not too late to get a real change regarding backstop. (Telegraph)

The DUP reportedly want a seat in trade negotiations with the EU in exchange for supporting PM May and there were also reports citing senior DUP figures that they held constructive Brexit talks with ministers, while sources close to the DUP also said that the regulatory alignment offer may have won over the DUP. (Newswires/Telegraph/Times)

UK opposition Labour Party leader Corbyn is to hold cross-party talks in an attempt to solve the Brexit deadlock, while he warned that PM May cannot keep bringing back an unchanged deal. Furthermore, there were reports that the labour leader signalled that his party would back an amendment aimed at securing a second Brexit referendum, set to be tabled this week. (Sky News/Guardian)

UK Eurosceptic Lawmaker Redwood states that a lot of people are still opposed to UK PM May's deal, which goes beyond the ERG. (Newswires)

30 Eurosceptic Tory MP's are still opposed to UK PM May's deal & ERG calls over the weekend suggests that positions have hardened; Telegraph's Swinford. (Twitter)

A senior Cabinet minister says the chance of a Meaningful Vote 3 passing is "Not yet above 50% but heading in the right direction”, according to Times Columnist Matt Chorley. (Twitter)

German Foreign Minister Maas says it is worth having another round of talks before it comes to a hard Brexit. (Newswires)

German Chancellery Chief says the issue of a delay is not uncontroversial amongst EU states, and that they cannot rule out that Italy or another country may thwart the delay; BILD. Following this, an Official stated that Italy has no plans to block an Article 50 extension. (Newswires)

A Senior EU Diplomat said last week that the EU was resigned to not having clarity from the UK and PM May by this Wednesday, according to Daily Telegraph's Europe Editor Peter Foster. (Twitter)

British Chambers of Commerce cut its 2019 growth forecast to 1.2% from 1.3% and cut 2020 growth forecast cut to 1.3% from 1.5%, while it sees UK business investment this year to decline by most in a decade of 1.0% Y/Y due to Brexit. (Newswires)

EU & China are to agree to conclude bilateral investment pact in 2020., Draft Statement for April Summit

- Are to agree to list main barriers to trade by this summer, and to set removal deadlines by 2020

- To commit to begin negotiations on industrial subsidies, and a new set of guidelines for government-supported export credits.

Following this, Chinese Governments top diplomat Wang Yi says competition with Europe may be inevitable. (Newswires)

 

Moody’s affirmed Italy at Baa3. (Newswires)

S&P raised Portugal sovereign rating from BBB- to BBB; Outlook Stable. (Newswires)

Fitch affirmed Switzerland at AAA; Outlook Stable and affirmed Norway at AAA; Outlook Stable. (Newswires)

GEOPOLITICAL

Russia President Putin stated that Japan-Russia peace treaty talks need a short rest if Japan is unwilling to exit security cooperation pact with US concerning disputed islands. (Newswires)

EQUITIES

Mixed start to the week for major European indices [Stoxx 600 +0.1%] following a relatively optimistic lead from Asia where China outperformed amid liquidity efforts by the PBoC coupled with the Chinese government’s steps to enhance the country’s economy. UK’s FTSE 100 (+0.6%) is the marked outperformer and major beneficiary from the surge in base metal prices with heavyweight miners all sitting comfortably at the top of the index (Rio Tinto +2.5%, Anglo American +2.3%, Antofagasta +2.1%, Glencore +1.8%). Sector-wise, material names initially outperformed (for the aforementioned reason) but was later overtaken by financial names ahead of a plethora of central bank rate decision including FOMC and BOE. Financial names may also feel support from the Deutschebank (+3.1%)/Commerzbank (+5.8%) saga, with the latest reports confirming merger talks between the two banks after the German government approved the tie-up, although, German union Verdi warned that merger could put up to 30k jobs at risk, to which the government replied that jobs at stake are being examined. On a broader front for European banks, GS notes that the sector has been amongst the weakest performers in the Stoxx 600 YTD as the banks continue to battle with concerns over long term growth. In terms of strategy, GS noted that Japanese banks trades at an even lower multiple than the European, but the latest TLTRO move (although positive for sector liquidity) “further erodes the competitive advantage of European banks”. GS is taking a neutral stance on the European equity market over the next three months.

Boeing (BA) - the US Transportation Department are reportedly probing FAA approval of the 737 Max, according to WSJ citing sources (WSJ)

FX

AUD/NZD – Off overnight highs, but the Aussie and Kiwi remain elevated and ahead of their G10 counterparts on a combination of renewed risk appetite, short covering and for the former also a supply-related rise in iron ore prices following further production problems for Brazil’s Vale. Aud/Usd has extended its rebound to 0.7100+ and Nzd/Usd to around 0.6875 as the Aud/Nzd cross pivots 1.0350 ahead of Westpac’s NZ Q1 consumer survey later today and Q4 GDP on Wednesday. In terms of options, large expiries in Nzd/Usd run off later, including 1 bn at 0.6825 and 1.5 bn at 0.6925.

GBP – In contrast to the outperformance down under noted above, the Pound has handed back gains vs a generally soft Dollar and weakened relative to the Euro amidst ongoing Brexit uncertainty after last week’s string of UK Parliamentary votes, as PM May strives to drum up DUP support for the current Withdrawal Agreement in the hope that this may entice enough of the ERG to back the deal in time for a pre-EU Summit 3rd MV. Cable has backed off from another 1.3300 venture to sub-1.3250 and Eur/Gbp has bounced to around 0.8570 vs circa 0.8510 at one stage, with a hefty 1.7 bn option expiry at the 0.8500 strike now looking pretty safe.

EUR – Aside from benefiting from Sterling’s Brexit angst, the single currency has taken advantage of the aforementioned Greenback weakness post-recent soft if not quite downbeat US data and pre-FOMC. Indeed, the headline pair has rebounded further from early March lows (in wake of the dovish ECB) to establish a firmer footing above 1.1300 and briefly touched 1.1350, with the next bullish targets at 1.1367 and 1.1373 (100 DMA and 50% Fib of the 1.1570-1.1177 move respectively).

CHF/CAD/JPY – All narrowly mixed vs the Greenback, as the Franc attempts to break resistance at the psychological parity level in the run up to the SNB and FOMC, but holds steady vs the Eur on the 1.1350 pivot, while the Loonie sits midway between 1.3300-50 ahead of Canadian securities data for January and the Jpy straddles 111.50 in wake of mixed Japanese trade figures and reports suggesting that some BoJ members are not even sure if the 2% inflation target is attainable by 2021. Note also, decent option expiry interest could be influential given 1.1 bn rolling off from 111.55-60 today.

FIXED INCOME

It was relatively abrupt and did roughly coincide with a downturn in EU equities, but not really enough to suggest asset-reallocation, so it looks like the recovery in Bunds, Gilts and US Treasuries from earlier session lows was prompted by something else or a mixture of factors. Given the UK benchmark’s outperformance and especially strong bounce from worst levels to trade 30 ticks above the previous 126.90 close, Brexit seems a valid supportive impulse as the clock ticks down to either another MV or returning to Brussels to request an A 50 extension, or more likely both. Meanwhile, its German equivalent has been 22 ticks above par at 164.36 and a bit less hampered by outperformance across the Eurozone periphery after positive ratings reviews for Italy and Portugal in particular, and USTs have nudged fresh, albeit marginal overnight highs awaiting the Fed on Wednesday.

COMMODITIES

WTI (-0.4%) and Brent (-0.2%) futures are marginally lower as participants digest the latest from the meeting of the OPEC cartel in Baku, although there seems to be some discrepancy as to when the next JMMC meeting will take place. Energy futures saw a marginal leg lower, with WTI losing more ground below its 100 WMA (USD 58.46/bbl) after sources stated that the JMMC panel recommended no meeting in April, but the Kazakh Energy Minister said nothing was set in stone. Furthermore, the Iraqi Energy Minister reportedly confirmed that the next JMMC meeting will take place in June, however sources later came out with a May meeting in Riyadh. Prices were little affected by developments over the weekend wherein the Saudi Energy Minister stated that the Kingdom’s March and April output is to drop to around 9.8mln BPD vs. February level of 10.09mln BPD (January 10.24mln BPD). Recalling some comments from last week, a Saudi official stated that March an April output is to be “well below” 10mln BPD. Saudi did however mention that OPEC’s job from rebalancing is far from over whilst signalling that output curbs need to be extended to H2 2019.

Elsewhere, the metals complex is bolstered by a pullback in the Greenback with gold reclaiming the USD 1300/oz level and breaching its 50 DMA to the upside at 1304.10 whilst copper prices benefit from the overall risk appetite. Finally, Dalian iron ore futures surged over 3% on supply concerns after a Brazilian court ordered Vale halts operations at another mine and as the miner suggested a 12mln ton decline in annual output due to dam suspensions.

Saudi’s February production stood at 10.09mln BPD vs. 10.24mln BPD in January, according to sources. (Newswires) 

Saudi Energy Minister Al-Falih said OPEC and its allies remain ready to continue monitoring supply and demand and doing what we have to do in H2 to keep the markets balanced. (Newswires)

- Says we are not under pressure from the US to increase supply, adding that they are guided by oil inventories and will not change course until a decline in inventory is observed

- Needs to consider if there is a need for a OPEC+ April meeting

- There is a general consensus regarding the need for an extension of the cuts, is confident that oil producers will reach full conformity with the cuts and even exceed them in the upcoming weeks

Russia Energy Minister Novak said that a decision will be made on the future steps of an oil output by May-June, while he also commented that Russia has begun lowering oil output as part of the OPEC+ agreement. (Newswires)

Iraqi Energy Minister confirmed that the next OPEC+ JMMC will take place in June. Following this, the Kazakh oil minister says that no final decision has been made regarding the April meeting and the Saudi proposal will be considered later. While sources state that OPEC+ are planning JMMC meeting in Riyadh in May. (Newswires)

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