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[PODCAST] US Open Rundown 29th July 2019

  • European Indices [Euro Stoxx 50 U/C] are little changed thus far, though the FTSE 100 (+1.1%) outperforms as sterling is subdued
  • Iranian Official said a meeting with parties relating the to 2015 nuclear deal was constructive, though unresolved issues remain
  • US & Japan are to have ministerial level talks in Washington on August 1st-2nd
  • Looking ahead, today’s calendar sees a lack of tier 1 highlights
  • Earnings: Simon Property Group, Baidu, Anadarko Petroleum

 

ASIA-PAC

Asian equity markets began the week tentative as the upcoming slew of key risk events such as the resumption of US-China trade talks, heavy central bank activity including the FOMC and the latest US NFP jobs data, clouded over last Friday’s record highs on Wall St where tech earnings and better than expected US GDP underpinned stocks. As such, ASX 200 (+0.5%) and Nikkei 225 (-0.2%) were mixed with tech and telecoms front-running the gains in Australia to push the benchmark index to record all-time high, while Tokyo sentiment was subdued by a firmer currency and with earnings in focus. Hang Seng (-1.0%) and Shanghai Comp. (-0.1%) weakened amid modest expectations regarding the US-China trade talks in Shanghai this week and following a decline in Chinese Industrial Profits, with underperformance in Hong Kong after violent clashes over the weekend in protests that entered an 8th consecutive week. Finally, 10yr JGBs traded flat despite the weakness in Tokyo stocks, with demand for bonds subdued as participants were sidelined ahead of tomorrow’s BoJ policy announcement in which it is expected to maintain its policy settings of QQE with YCC control and NIRP at -0.10%.

PBoC skipped open market operations for a net daily drain of CNY 50bln. (Newswires) PBoC set CNY mid-point at 6.8821 (Prev. 6.8796)

Chinese Industrial Profits (Jun) Y/Y -3.1% (Prev. 1.1%). (Newswires) Chinese Industrial Profits YTD (Jun) Y/Y -2.4% (Prev. -2.3%).

As a reminder, US and China are to resume face-to-face trade talks in Shanghai this week, although reports noted expectations are modest and that no major breakthrough is anticipated. (Newswires/WSJ)

- China’s Foreign Minister hopes that the US will follow their commitment and create an enabling environment for upcoming discussions

Thousands of Hong Kong protesters clashed with police over the weekend in which dozens were arrested as protests regarding the extradition bill continued. (Newswires)

- China’s Hong Kong Affairs Office says no one should sit by and allow a few individuals to trample on the rule of law, and the central Government firmly support Chief Executive of Hong Kong Carrie Lam and the Hong Kong police. (Newswires)

US

US and Japan to have ministerial-level talks in Washington on August 1st-2nd, according to Japanese Economy Minister Motegi. (Newswires)

US Supreme Court ruled in favour of the Trump administration to permit it to shift military funds to use to construct the border wall. (Newswires)

GEOPOLITICS

Iranian Official Araqchi said emergency meeting with parties related to 2015 nuclear deal was constructive and unresolved issues remain, while he added Iran will continue to reduce its nuclear commitments if the EU cannot save the deal. (Newswires)

Iran Vice President says Iran's foreign policy is to protect multilateralism and confront US hegemony. (Newswires)

Chances are high that top diplomats from South Korea and Japan could have talks on the margins of a regional forum in Thailand this week., according to Yonhap citing sources. (Yonhap) 

UK/EU

UK Cabinet Minister Gove stated the government will make intensive efforts to get a better Brexit deal, but added we must operate on assumption we will not and that there will be a no-deal Brexit which we must be ready for. (Sunday Times) Further reports suggest that PM Johnson is to launch the largest advertising campaign since WW2 to get Britain ready for a no-deal Brexit, with an unprecedented marketing blitz on billboards, radio and television. (Telegraph) FT reports that UK chancellor of the exchequer, Sajid Javid, is preparing to announce more than GBP 1bln in increased funding for a no-deal Brexit, according to people familiar with the matter. (FT)

Institute for Government (IfG) has warned that there is no such thing as a managed no deal, and that predictions of a clean break from the EU made by hard Brexiteers will not occur. (Guardian)

UK Trade Minister Truss said the main priority is agreeing a FTA with the US and that she will be travelling to the US in the next few weeks for trade discussions, while there separate comments from US President Trump that they are already working on a US-UK free trade deal and that he will spend time with UK PM Johnson. (Newswires/Telegraph)

Confederation of British Industry report stated the EU have taken less action and are just as poorly prepared as the UK to cope with a no-deal Brexit, while it added the impact of crashing out will be felt for years. (FT)

ECB's Nowotny sees rates to be lower in the long-term than they have been historically and states that the ECB should strive for normalization. (Newswires)

Fitch affirmed Czech Republic at AA-; Outlook Stable and affirmed Finland at AA+; Outlook Stable. (Newswires)

 

EQUITIES

European indices have largely started the week off mixed/flat [Euro Stoxx 50 U/C], though the FTSE 100 (+1.1%) is outperforming as sterling has continued to move lower throughout the session. Sectors are similarly mixed with some underperformance in the Auto sector, with auto names down in sympathy with Peugeot/PSA Group (-2.6%) afflicted by reports that the Co. are to move all production from their UK, Ellesmere Port to mainland Europe in the event that Brexit makes the plant unprofitable. Other notable movers include, Just Eat (+24.1%) and LSE (+14.9%) who are at the top of the Stoxx 600 and FTSE 100 after the confirmation of takeover discussions with Takeaway.com and sources indicating that the merger with Refinitiv is to be finalised within a week respectively. In contrast, at the bottom of the Stoxx 600 are Heineken (-5.3%) after the Co. reported operating profits of EUR 1.78bln vs. Exp. EUR 1.90bln for H1, though consolidated beer volume increased by 3.1% for the period. Finally, Novartis (-1.4%) are lower after the Co’s Paragon study just missed the statistical significance levels on its primary endpoints.

Pfizer (PFE) is expected to announce that they will combine their off-patent drug business with Mylan (MYL) resulting in a market value of around USD 9.5bln. (Newswires) For reference, Mylan are higher by around 25% in pre-market trade.

Ford (F) is to cut approximately 12k jobs in its European division by the end of 2020, with the Co. aiming for the majority of these to be through voluntary redundancy. (BBC)

A former engineer at Boeing (BA) has reportedly stated that work on the Co’s production line for the 737 Max was not sufficiently funded. (BBC)

FX

DXY - Another day of mild gains for the broad Dollar and index in a continuation from Friday’s GDP-induced momentum and ahead of an action packed week for the Buck, which will see the currency tackle US-China trade talks in Shanghai, the FOMC’s latest monetary policy decision, US ISM and jobs data. DXY gains more ground above 98.00 having eclipsed last week’s high (98.09) ahead of the YTD high at 98.37, meanwhile today’s docket sees a lack of Tier 1 data and no notable scheduled speakers (with the Fed on blackout until Wednesday evening)

GBP, EUR, JPY - The Pound has succumbed to further Brexit angst and has given up the psychological 1.2350 mark to the downside, with the move lower coinciding with usual punchy language from UK’s newly appointed Foreign Minister Raab, who reiterated hard lines on Brexit negotiations. As the prospect of a no-deal exit intensified, some desks are observing the declining GBP/USD 3-month risk reversals, which indicate that options skewing leans more towards Sterling weakness in the near-term. Cable has fallen to fresh 2yr lows and currently hovers just under 1.2325 with little by way of immediate tech levels to the downside. Elsewhere, the rising EUR/GBP cross has somewhat cushioned the single currency from Dollar headwinds, with EUR/GBP gaining further tractions above the 0.9000 level. Meanwhile, EUR/USD sees a cluster of options around 1.1100-10 (800mln) and 1.1135-50 (800mln) ahead of today’s NY cut. USD/JPY action is largely dictated by the Dollar ahead of this week’s key risk events and with the BoJ set to publish its latest monetary policy decision overnight. USD/JPY trades closer to the top of a 108.42-70 intraday range with 1bln in options expiring at strikes 108.95-109.05.

AUD, NZD - The antipodeans are somewhat resilient to an extent against the firmer Dollar and remain in tight intraday parameters following last week’s losses. Participants are keeping a close eye on US-Sino trade developments as delegates convene in Shanghai in an attempt to restart talks where it was left off, although officials from US have downplayed expectations of a breakthrough. AUD/USD currently trades a whisker away from 0.6900, with the next support level to the downside highlighted at 0.6890 ahead of the psychological 0.6850 while NZD/USD keeps its head above 0.6600.

TRY - Further gains for the Lira in the aftermath of the CBRT’s deeper-than-forecast rate cut as the prospect of a normalising economy seemingly materialises. Analysts at SocGen also speculate that yield-seekers may be bypassing G10 currencies and instead chasing EM yields. USD/TRY trades around 5.6370 and nearest to the bottom of a 5.6240-6710 parameter

South African President Ramaphosa must place strict limits on a plan to seize land without payment under policies to speed up transfers to the country’s black majority, a panel advising the South African president has said. (FT)

FX Expiries of Note:

- EUR/USD: 1.1100-10 (800M), 1.1135-50 (800M), 1.1200-15 (1BLN) 

- GBP/USD: 1.2400 (770M), 1.2535 (220M) 

- USD/JPY: 107.50 (1.8B), 108.0 (530M), 108.75-80 (460M), 108.95-109.05 (1B)

FIXED INCOME

A quiet start to the week for Bonds, as a lack of Tier 1 data points, central bank speakers or supply leaves a stimulus void ahead of a crucial week for central banks with both the Fed and BoE rate decisions occurring. Nonetheless, the Bund is firmer/flat this morning potentially deriving some respite from the quiet start after coming under pressure following Friday’s US GDP beat. Regarding the German 10-year, ING note that the short-term outlook is bullish with resistance levels ahead at 174.80; however, the bank adds that there is strong resistance between 175.20-30. Similarly, Gilts are firmer but generally little changed this morning just above 132.30 within a 15-tick range, amidst the lack of catalysts and ahead of Thursday’s BoE rate decision. Finally, and in-line with EU counterparts, USTs are experiencing a lacklustre start ahead of this week’s FOMC meeting, where expectations are in favour of a 25bps cut though focus will be on policy guidance; prior to Wednesday’s decision we have PCE and ADP data points while the US jobs release ends the week.

COMMODITIES

WTI and Brent are also posting a relatively subdued start to the week, with prices little changed though they have regained the USD 56.00/bbl and USD 63.00/bbl levels to the upside respectively after a brief dip in the complex took them below these levels this morning. Some are attributing this dip to comments from Iran referring to emergency talks on a nuclear agreement as ‘constructive’ which may indicate a easing of tensions in the region which; though the dip was short-lived as there is no sign of respite for UK-Iranian tensions as a second UK warship arrives in the Gulf after Iran seized a UK tanker last week. On the complex, PVM notes that due to the lack of a convincing bullish move on Friday, WTI still has a viable objective to the downside as such a move below near-term support levels in todays session would be sufficient to move the complex lower. In terms of metals, Gold (U/C) is unchanged but towards the bottom of the days range on a lack of catalysts thus far ahead of this weeks aforementioned risk events, similarly copper prices are little changed on the lacklustre risk sentiment.

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Busy week ahead, via Danske: https://t.co/AN4oC6jgiD