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[PODCAST] US Open Rundown 2nd January 2020

  • European bourses are firmer this morning in relatively quiet newsflow for the European session
  • USD is firmer this morning, but the DXY remains well off pre-holiday levels after tumbling at year end
  • PBOC has cut the RRR for domestic banks by 50bps, the level for big banks now stands at 12.5%
  • US President Trump says the US-China trade deal will be signed on January 15th at the White House with high level Chinese Representatives
  • North Korean Leader Kim Jong Un has stated that North Korea is no longer bound by previous agreements to halt missile tests
  • Looking ahead, highlights include US Initial Jobless Claims, US and Canadian Manufacturing PMIs (Final)

NOTABLE RECENT NEWSFLOW

PBOC has cut the RRR for domestic banks by 50bps, the level for big banks now stands at 12.5%; this was the 8th cut since early 2018. (Newswires)

US President Trump says the US-China trade deal will be signed on January 15th at the White House with high level Chinese Representatives, additionally President Trump will at a later date visit Beijing for the Phase Two talks. Note, China is yet to confirm the signing will take place on January 15th at the White House and today’s Mofcom press conference has been suspended; although the Ministry of Foreign Affairs will hold their regular briefing (Newswires)

US President Donald Trump may use a trip to China to try to nudge Beijing into committing to changes in its economic model, according to observers. (SCMP)

China Caixin Manufacturing PMI 51.5 vs. Exp. 51.6 (Prev. 51.8)

PBoC sets today’s Yuan Reference rate at 6.9614 (Prev. 6.9762): PBoC skipped reverse repos for the 8th consecutive session, leading to a net drain of CNY 400bln

China has reportedly suspended planned cross-border listings between Shanghai and London amid current political tensions. Subsequently, China's Foreign Ministry are not aware of any specifics relating to the cross-border stock suspension. (Newswires)

2020 has begun in Hong Kong with further protests with tear gas being released in certain areas. (Newsires)

North Korean Leader Kim Jong Un has stated that North Korea is no longer bound by previous agreements to halt missile tests, due to recent US actions alongside their co-operation with South Korea; adding that a ‘new strategic weapon’ would be unveiled soon. (Newswires/KCNA)

UK Labour MP Keir Starmer has opened up a solid lead over his rivals in the race to succeed Jeremy Corbyn, according to the first poll of Labour members seen by Sky News. (Sky News)

Iraqi paramilitary groups who have been protesting against US air strikes in Iraq have called on supporters to withdraw from the perimeter of the US’ embassy in Baghdad. However, it is yet to be confirmed if crowds have begun dispersing. (Newswires)

French CGT union has called on additional strikes across the nation this month amid protests against President Macron’s pledges to push through an overhaul of the pension system. (Newswires)

Austrian’s Conservative Leader Kurz has announced a deal with the Green party to form a Government. Note, full details of the coalition and their relevant plans are to be released on Thursday. (Newswires/Independent)

UK/EU

EU Markit Manufacturing Final PMI (Dec) 46.3 vs. Exp. 45.9 (Prev. 45.9)

-        German Markit/BME Manufacturing PMI (Dec) 43.7 vs. Exp. 43.4 (Prev. 43.4)

-        French Markit Manufacturing PMI (Dec) 50.4 vs. Exp. 50.3 (Prev. 50.3)

-        Italian Markit/IHS Manufacturing PMI (Dec) 46.2 vs. Exp. 47.2 (Prev. 47.6)

UK Markit/CIPS Manufacturing PMI Final (Dec) 47.5 vs. Exp. 47.6 (Prev. 47.4)

-        Output, new orders and new export orders fall sharply, Job losses reported for ninth straight month

EQUITIES

APAC Closing Levels:

·       ASX 200: +0.1%

·       Hang Seng: +1.3%

·       Shanghai Composite: +1.2%

·       Note, Japanese markets were closed

Major European bourses are firmer this morning, Euro Stoxx 50 +1.0%, as more participants return from the Christmas period and after yesterday’s New Years Day close. Newsflow thus far for the session has been extremely light, with the main focus being on the PBoC cutting the RRR by 50bps which lent support to APAC equities overnight and continues to aid European peers and US futures; alongside the updates to the US-China trade deal signing schedule, though this is all largely as expected. Currently there is no clear under/out performer amongst European bourses, though the Dax did initially lag potentially as the bourse was closed on New Years Eve. Turning to sectors, the picture isn’t substantially different from the overall stock performance this morning with all sectors firmly in the green; banking sector mildly outperforms its peers, deriving support from the aforementioned PBoC action. It’s been a relatively quiet morning in terms of stock specific stories but Tullow Oil (-4.5%) are the laggard of the Stoxx 600 after reporting disappointing oil well data. Elsewhere, Osram Licht (U/C) shares are flat after AMS reported a final acceptance level of 59.9% for their takeover of Osram, which is below the final acceptance level of 75% which is necessary for a full takeover. At the other end of the Stoxx 600 spectrum things are a quieter, with stocks largely in-line with indices overall performance, whilst a number of banking names such as Deutsche Bank (+5.0%) reside towards the top of the Stoxx 600. Finally, 3 Axis Advisors states that GSK (+0.4%), Sanofi (1.0%) and Pfizer are to increase prices on over 200 drugs within the US.

FX

USD – The DXY appears to have drawn a line in the sand just off 5 month lows following a sharp slide between Xmas and New Year amidst widespread Greenback declines and positioning for the turn of the year/decade. The index is currently holding a fraction above 96.600 within a tight 96.422-678 range with some support for the Buck gleaned via higher US Treasury yields and a steeper curve on a continuation of improved risk sentiment due to the US and China reaching a Phase 1 trade accord, with added impetus coming via the latter announcing another RRR reduction to take effect from next Monday.

SEK/NOK - The Scandinavian Crowns have kicked off 2020 on the front foot, as Eur/Sek meanders between 10.5000-4500 or so parameters and Eur/Nok hovers within a circa 9.8550-8175 band in wake of a recovery in Sweden’s manufacturing PMI and acceleration in Norwegian activity from an already comfortable 50+ base.

CAD/EUR/JPY/CHF/AUD/GBP/NZD - The Loonie is holding up better than G10 rivals and has retained the bulk of its pre-year end gains vs the Usd after advancing through the key/psychological 1.3000 level, while the Euro is struggling to keep its head above 1.1200 even though Eurozone manufacturing PMIs beat consensus or flash prints, bar Italy. Elsewhere, the Yen and Franc have also succumbed to the broad, albeit partial Dollar bounce, and aforementioned ongoing risk-on environment, with Usd/Jpy edging up towards 108.90 and Usd/Chf pivoting 0.9700. However, the Aussie, Pound and Kiwi have all lost momentum and seem vulnerable to deeper pull-backs/retracement from recent peaks, as Aud/Usd loses grip of 0.7000, Cable creeps closer to 1.3200 again and Nzd/Usd hovers a fraction over 0.6700.

EM - With the exception of Turkey’s geopolitically impaired Lira, most regional currencies are revelling in the PBoC inspired enhanced appetite for risk, as the Yuans consolidate advances beyond 7.0000, Rouble eyes 61.5000 having breached 62.0000 and Rand maintains 14.0000+ status.

FIXED INCOME

It’s been a slow grind, but core EU bonds have embarked on more pronounced recovery rallies and relatively firm if not quite strong rebounds from am session/intraday lows, as the German 10 year debt future trades 40 ticks above the Eurex base and its UK peer pares losses to only 19 ticks from ¾ point at one stage. Bunds and Gilts have decoupled from any inverse correlation with stocks, and may have derived some traction after manufacturing PMIs revealed a degree of improvement, but no major upside surprises, while FX developments look supportive as the single currency loses 1.1200 vs the Greenback and Sterling retreats further towards 1.3200. Note also, chart proponents could have drawn encouragement from the fact that 170.00 and the 130.45 held, as US Treasuries hover just shy of overnight session highs, though still sub-parity ahead of weekly claims and the final Markit manufacturing PMI.

COMMODITIES 

A similarly quiet session in terms of newsflow for the commodity complex, with WTI and Brent firmer by around USD 0.30/bbl; supported by the risk-on tone across markets this morning, particularly in European stocks. Focus for the complex remains on geopolitical issues, with an Iran-backed Iraqi militia leaving their encampment at the US embassy in Baghdad; though this de-escalation is not likely to be a supportive factor for crude. Looking ahead, due to the holiday period the week’s EIA data will be released tomorrow at 16:00GMT with expectations for another headline draw at 3.167mln barrels. Turning to metals, where spot gold is modestly firmer this morning with the yellow-metal comfortable well above the USD 1500/oz mark at USD 1521/oz at best for the session thus far, continuing to be bolstered by the significant downside in the DXY over the holiday period. Separately, China’s largest steel making city Tangshen has issued a level 2 out of 3 smog alert; for reference, this alert requires non-exempt companies to cut emissions and/or output until the alert is reduced.

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