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{PODCAST] US Open Rundown 7th January 2020

  • European bourses are firmer as risk-sentiment strengthens on signs of a possible tempering of tensions in the Middle-East
  • USD remains firm ahead of ISM, while the AUD is weighed on post-data and with the ongoing environmental crisis
  • Iran is reportedly assessing 13 scenarios for retaliation against the US and is prepared to "come back to full compliance in the Nuclear deal"
  • US Defense Secretary Esper said the US does not have plans to pull out of Iraq
  • China-US Phase One trade deal is on track and could be signed in the near future, sources told the Global Times
  • Looking ahead, highlights include US ISM-Non-Manufacturing, Factory Orders & International Trade, Canadian Trade Balance. Fed Discount Minutes, supply from US

GEOPOLITICS

Iran is reportedly assessing 13 scenarios for retaliation against the US., Fars; Shamkhani, secretary of the Supreme National Security Council, states the weakest option will turn into a historic nightmare for the US., AJA. (Twitter). Additionally, Iran is prepared to "come back to full compliance in the Nuclear deal", according to a senior Iranian official. (Newswires)

US Defense Secretary Esper said the US does not have plans to pull out of Iraq. This follows reports that US Army told Iraq it is preparing to "move out", according to AFP citing an official letter. The Pentagon could not immediately confirm the authenticity of the letter, but AFP later confirmed the legitimacy. (AFP/Newswires) US Chief of Staff later stated the letter circulating regarding US troops pulling out of Iraq was an unsigned draft and should not have been published. A Pentagon spokeswoman said there is no change in US policy on its troops' presence in Iraq. (Newswires) The Trump administration has begun drafting sanctions against Iraq, according to sources cited by Washington Post. Sources stressed that no decision has been made on whether to implement penalties. One of the officials said the plan was to wait “at least a little while” on the decision in order to see whether Iraqi officials follow through on their threat to push U.S. troops out of the Iraq. (Washington Post)

US Defence Secretary Esper, when asked whether US will strike Iranian cultural sites, said US will follow the laws of armed conflicts. (Newswires) US Chief of Staff noted that according to intel he has seen, IRGC Commander Soleimani was coordinating and preparing simultaneous combat actions against US forces in the region, according to Al-Jazeera. (Al-Jazeera)

US has reportedly barred Iran's Foreign Minister Zarif from entering the US this week to address the UN Security Council about the assassination of General Soleimani, according to diplomatic sources. (Foreign Policy) This was later confirmed by a US official who stated that the US has denied Iranian Foreign Minister Zarif a visa to travel to US for the UN Security Council meeting. (Newswires)

US has issued a warning to ships across Mid-East waterways, regarding the possibility of Iranian action being taken against the US' maritime interests., Associated Press. (Newswires)

Senior IRGC Commander Soleimani's body has arrive at his hometown for burial, according to IRNA. (Newswires) Commander of the Iranian Revolutionary Guard said Iran's response will be strong and humiliating to those who assassinated IRGC Commander Soleimani and "we will avenge the enemy", and added that there is no safe place for Americans in the region, reported via Al-Jazeera. (Twitter) Iranian Parliament has passed a draft bill labelling US military as a terror organisation, via ELINT News. (Twitter)

US Democratic leaders are considering holding votes on two provisions that they had dropped from a compromise defense authorization bill last month amid opposition from the White House and Senate Republicans, according to Al-Monitor. Anti-war activist groups are lobbying Democrats to revive legislation defunding offensive military action against Iran and to repeal the 2002 military authorization that allowed President George. W. Bush to invade Iraq. (Al-Monitor) This would come alongside the anti-war bill that is expected to be voted on later this week which would limit US President Trump's military capability in the Middle East

ASIA-PAC

Asian equities posted gains across the board following a less pronounced but positive handover from Wall Street in which the major indices experienced a modest recovery from the prior session’s losses. ASX 200 (+1.4%) was propped up by its largest-weighed financials as yields recouped from recent downside. Nikkei 225 (+1.6%) retraced some of the prior session’s hefty losses whilst welcoming recent favourable currency moves. Elsewhere, Hang Seng (+0.4%) and Shanghai Comp (+0.7%) conformed to the overall risk appetite - and with the former supported by gains in large-cap financial stocks.

China-US Phase One trade deal is on track and could be signed in the near future, sources told the Global Times. (Twitter)

China Vice Agricultural Minister said China will not increase annual grain import quotas to accommodate higher US farm purchases. This refutes rumours that China may raise or scrap its corn import quota following a phase one trade deal with the US (Newswires/Global Times)

PBoC set USD/CNY reference rate at 6.9690 vs. Exp. 6.9697 (Prev. 6.9718) (Newswires) PBoC skipped open market operations for a net neutral daily position

Chinese FX Reserves (Monthly)* (Dec) 3.108Trl vs. Exp. 3.103Trl (Prev. 3.096Trl). (Newswires)

Indian Government is likely to cut 2019/20 expenditures by INR 1.5-2.0tln whilst increasing borrowing by INR 300-500bln, according to sources. (Newswires)

UK/EU

No-deal Brexit plans were stood down “with immediate effect” just before Christmas, according to letter seen by Sky News, as UK PM Johnson’s deal is expected to be approved by MPs, but officials worry about cliff edge in December, according to Sky News' Cohen. (Twitter/Sky News)

UK Chancellor Javid has set March 11th as the date for the first budget since the general election. (BBC)

EZ HICP Flash YY (Dec) 1.3% vs. Exp. 1.3% (Prev. 1.0%); HICP-X F&E Flash YY (Dec) 1.4% vs. Exp. 1.5% (Prev. 1.4%)

-        HICP-X F,E,A&T Flash YY (Dec) 1.30% vs. Exp. 1.30% (Prev. 1.30%)

-        EZ Retail Sales YY (Nov) 2.2% vs. Exp. 1.3% (Prev. 1.4%, Rev. 1.7%); MM (Nov) 1.0% vs. Exp. 0.6% (Prev. -0.6%, Rev. -0.3%)

EQUITIES

European bourses are firmer this morning, in a turn-around from yesterday’s dismal start to the week (Euro Stoxx 50 +0.5%). Notably, the Dax, which gave up the 13000 handle yesterday, has stayed well-clear of this mark to the downside; with the bourse having printed a cash high of 13266 and a future peak at 13260. Similarly, in contrast to yesterday, and indeed Friday, sectors are all firmly in positive territory with exception of energy names, where yesterday’s outperformers such as Shell (-0.8%) and BP (-0.7%) are under pressure; although, this is to the benefit of airlines such as Air France (+1.5%) and eastJet (+1.4%). Additionally, this downside in the aforementioned energy names is weighing on the FTSE 100 (+0.1%) this morning; with the bourse relatively flat at present. Other notable movers this morning include, Morrisons (+2.5%) after issuing their Christmas sales update and noting that PBT and exceptionals is likely to be within analyst forecasts for FY19/20. At the other end of the Stoxx spectrum are Standard Life Aberdeen and Man Group with both weighed on by broker moves.

FX

AUD/NZD - Already feeling the adverse effects of natural disaster, anecdotal data overnight revealed a sharp decline in the number of Australian jobs advertised on the web and in newspapers to highlight the economic impact of the raging bushfires, with dovish RBA implications. Hence, the Aussie has weakened appreciably across the board, with Aud/Usd slipping through 0.6900 and the 200 DMA (0.6897), while Aud/Nzd has also breached a key chart level at 1.0367 (18 December 2019 low) as the Kiwi contains contagious losses against its US counterpart within 0.6642-80 parameters.

USD - Aside from gleaning traction from the underperformance in Antipodean peers, the Greenback is consolidating off recent lows vs major rivals on a combination of technical and other factors awaiting further developments on the geopolitical front (namely Iran’s response to the US airstrike targeting and killing a top IRGC leader). The DXY has pared declines towards 96.500 and appears more settled in a 96.620-835 range ahead of the upcoming services ISM that could be pivotal for near term Fed policy given the disappointing manufacturing survey and expectations for a firmer headline than previous.

CHF/EUR/CAD/JPY/GBP - As noted above, all weaker against the Buck with the Franc back below 0.9700 and not really inflated by Swiss CPI returning to positive territory in y/y terms, Euro fading ahead of 1.1200 and Loonie losing momentum alongside oil prices in advance of 1.2950 in the run up to Canadian trade data due alongside the US balance for direct comparison. Meanwhile, having met stiff resistance at 108.00 on several occasions of late the Yen is now deriving support from offers said to be capping the headline pair at 108.50, but the Pound has waned markedly after a stop driven rally in Cable on a break of 1.3180 (just above Monday’s peak) to 1.3200+ that pushed Eur/Gbp back under 0.8500 with more gusto and just under 0.8470 before the cross retraced some lost ground.

SEK - Some respite for the Swedish Crown via a less contractionary services PMI, but Eur/Sek is still elevated above the 10.5000 level in contrast to Eur/Nok holding shy of 9.8500.

EM - Although the Dollar has made advances elsewhere, Yuan strength off a marginally firmer PBoC midpoint fix has bucked the general trend, as Usd/Cnh eases back towards mid-December lows not far from 6.9200 and a series of key chart supports closer to 6.9000 amidst reports from the Chinese side alluding to the signing of Phase 1 in the not too distant future.

FIXED INCOME

UK debt remains weak or soft relatively speaking, but well-off worst levels on the back of a solid 2029 DMO Gilt offering that clearly came with a more appealing yield concession for investors to counter some concerns about more issuance to absorb the end of Q1. Indeed, the 10 year benchmark just bounced to a fresh Liffe intraday high of 131.76 to pare net declines on the day to 19 ticks compared to 65 ticks at one stage, while Bunds are hovering just shy of their 172.21 Eurex best (-3 ticks vs -33 ticks) and US Treasuries sit fractionally above parity ahead of a pretty packed pm docket, including the non-manufacturing ISM.

COMMODITIES

The crude complex has dropped into negative territory, with WTI and Brent down by around USD 0.30/bbl at present and approximately USD 1.0/bbl at worst in overnight APAC trade. Newsflow from the Middle-East continues to emerge with the latest pertinent reports noting that Iran is, according to a Fars report, considering 13-scenarios as retaliation against the US. Additionally, a Senior Iranian Official has stated that Iran is prepared to come back to full compliance with the Nuclear Deal. Note, Iran has following the assassination of Soleimani made clear that they are to conduct nuclear related operations on their own accord, disregarding the Nuclear Deal; as such, these remarks potentially indicate a pivot in Iran’s stance against the US and Western powers. However, its worth highlighting that the conditions around their potential return to the deal are not known and previously Iran has indicated sanction relief is a pre-requisite for this type of action. Looking ahead, today sees the funeral of Soleimani and as such participants will now be more actively anticipating/awaiting a response from Iran as the initial mourning period comes to an end. Elsewhere, turning to metals, spot gold is back in positive territory after dipping overnight to a low of USD 1555/oz, prices are now comfortably back above the USD 1560/oz mark; but remain well off yesterday’s multi-year high at USD 1582/oz. Separately, iron ore prices are bolstered following on from China’s main steel making city of Tangshan lifted its level 2 smog alert which was implemented late last week.

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