27th September 2019 

·        Major European indices are firmer following on from a choppy Asia-Pac session

·        FTSE 100 outperforms as Sterling slips and Gilts gain on dovish BoE Saunders

·        Saudi Arabia have reportedly agreed to a partial ceasefire in Yemen, according to the WSJ

·        US-China principal-level trade talks will take place on October 10-11th in Washington DC

·        Looking ahead, highlights include US Personal Income, Core PCE, PCE Price Index, Durable Goods, University of Michigan (F), Baker Hughes Rig Count, ECB’s Lane, Weidmann, Fed’s Quarles and Harker

ASIA-PAC

Asian equity markets were mostly subdued following the weak lead from Wall St where all major indices finished negative on what was a choppy session due to trade uncertainty and as political concerns regarding the whistleblower complaint lingered. ASX 200 (+0.6%) and Nikkei 225 (-0.8%) were mixed in which Australia bucked the overall downbeat trend in the region ahead of next week’s anticipated RBA rate cut although metal names and gold miners lagged as the precious metal eyed the USD 1500/oz level to the downside, while the Japanese benchmark was led lower by losses in Kansai Electric after reports of illicit payoffs and with notable declines in SoftBank due to the ongoing WeWork woes. Hang Seng (-0.3%) and Shanghai Comp. (Unch.) trades lacklustre as participants mulled over the latest trade rhetoric in which an official stated the US is unlikely to extend temporary waivers to supply Huawei although reports later noted no decision has been made and US-China talks are to resume on October 10th-11th, while the latest data provided no comfort as Chinese Industrial Profits contracted by 2%. Finally, 10yr JGBs were higher with mild support seen amid underperformance of stocks in Tokyo but with the gains in bonds capped by predominantly weaker results at the 2yr JGB auction. 

PBoC injected CNY 30bln via 14-day reverse repos for a net daily drain of CNY 10bln. (Newswires) PBoC set CNY mid-point at 7.0731 vs. Exp. 7.0883 (Prev. 7.0729)

Chinese Industrial Profits (Aug) Y/Y -2.0% (Prev. 2.6%). (Newswires)

US-China principal-level trade talks will take place on October 10-11th in Washington DC, according to CNBC citing sources. (CNBC)

US

Fed's Barkin (non-voter, hawkish) said the recent rate cuts does not mean the Fed is in a prolonged easing period and that the economy is giving mixed signals due to the strong labour market but low inflation. Barkin added that not easing could undermine the credibility of the 2% inflation target or leave policy makers behind the curve if growth slows further, but over easing could overstimulate inflation, distort labour markets or fuel an asset price bubble, while he suggested that it is too early in the cycle to determine if another rate cut is needed. (Newswires)

GEOPOLITICS

EU has warned that it may be forced to start withdrawing from the nuclear deal in November if Iran goes ahead its threats to takes new steps away from the deal. (Guardian)

Reports suggested US officials may be in North Korea to lay the groundwork for talks which could take place in the next few weeks. (Newswires/Korea Times)

North Korea said lack of progress casts doubts on prospects for future summit with US and that US failure to implement agreements make breakthrough doubtful but added that it sees US President Trump as different and places hope on his wisdom and bold decision. (KCNA)

Turkish President Erdogan said issues of F-35 jets with US is not yet completely resolved and proposed to US President Trump to buy Patriot defence system if US can match Russia S-400 deal. (Newswires)

UK/EU

BoE's Saunders (Hawk) says "prolonged high Brexit uncertainty" could warrant looser monetary policy if global growth remains disappointing. If the UK avoids a no-deal Brexit, monetary policy also could go either way and I think it is quite plausible that the next move in Bank Rate would be down rather than up. And the adverse effects of high uncertainty are becoming cleare in UK data. (Newswires/BoE)

UK PM Johnson faces a revolt in which 3 Cabinet ministers plan to confront him after the Tory annual conference and demand he drops the strategy of trying to bluff EU with the threat of a no-deal, as well as insist he accept a last-minute deal. (The Sun)

EU diplomatic sources are adamant there will be no negotiations on the Brexit deal at the Oct 17 EU summit, according to Telegraph's James Crisp. (Twitter)

EU's Juncker said we are doing all we can to achieve a deal and that it will be Britain's fault if we don't. (Newswires)

If no effective agreement on digital tax is reached internally by end-2020, the EU should act alone, says EU Economy and Tax Commissioner Gentiloni. (Newswires)

EQUITIES

Major European indices are firmer this morning, with the FTSE 100 (+1.2%) leading the way after dovish comments from BoE Hawk Saunders caused Sterling to slip. Sectors are all in the green bar IT, which is hampered by broad-based downside in European chip names following Micron’s earnings last night where their EPS guidance missed exp. and they noted near term macro and trade uncertainties. Elsewhere, Commerzbank (+1.5%) are subdued as the Co. state they no-longer anticipate an increase in underlying revenue for 2019; although, they have launched a public acquisition offer for Comdirect Bank at EUR 11.44/shr. Sticking with Germany but moving into the DAX (+0.9%) where BASF (+3.0%) have confirmed their mid-term outlook and the additional EUR 2bln in savings by 2021; additionally, the CEO anticipates an Oil and Gas IPO in H2 2020. Separately, Rheinmetall (-2.3%) are weaker after reporting that production in the US, Mexico and Brazil has been severely impacted by a malware attack. Today’s notable in-hours story is from AMS (-7.5%) who have submitted their final offer for Osram Licht (+3.3%) in which they have increased their offer by EUR 2.50/shr for the Co.

Beijing have reportedly rejected reports that Chinese hackers were suspected of being behind a series of cyber attacks on Airbus (AIR FP)., AFP News

Apple (AAPL) plans to bring feature length films to theaters, according to WSJ. (WSJ)

FX

GBP, EUR - The Pound is the marked G10 laggard after BOE MPC-hawk Saunders surprisingly took a more dovish stance as he stated that looser monetary policy could be warranted amid “prolonged high Brexit uncertainty” coupled with disappointing global growth and as the adverse effects of  high uncertainty is becoming clearer in domestic macro data. Saunders also noted that in the even the UK avoids a no-deal, rates could go either way, i.e. a rate cut is still on the table in the event a no-deal Brexit is averted. Cable gave up the 1.2300 handle (from around 1.2330) to an intraday low of 1.2270 ahead of its 50 DMA at 1.2262. Meanwhile the EUR is flat on the day after the earlier softness in the single currency was countered by an even softer Sterling post-Saunders. Meanwhile, the EUR initially felt pressure amid an interview by ECB-dove Lane who stated the ECB has further room to ease and that the stimulus package announced was a relatively smaller one in his opinion. EUR/USD resides around 1.0925 having visited a low of 1.0905 ahead of reported bids at the psychological 1.0900 level, 1.0880-90 and a Fib at 1.0864. EUR/GBP remains firm just under 0.8900 having hit an intraday high of 0.8896.

DXY - Firmer on the day with the index eyeing YTD highs of 99.37 having already reached an intraday peak at 99.31. The Dollar gains seen recently are in the absence of clear catalysts, although market participants point to month and quarter-end as a potential factor. UBS notes that foreign equities, particularly Japanese, have outperformed US stocks in September, which “implies that hedge rebalancing pressures could favor the US dollar”. Meanwhile, the weakening Euro amid further deterioration in the EZ may also be underpinning the Greenback. DXY currently resides just below 99.25 ahead of the YTD peak. USD/JPY meanwhile has breached 108.00 to the upside amid the strength in the Buck (ahead of the September high at 108.48 and the psychological 108.50). Looking ahead, the State-side docket sees the release of the Core PCE metrics alongside Durable Goods with Fed’s Quarles (voter) and Harker (non-voter) due to speak later.

AUD, NZD - The Aussie bucks the trends and remains firm ahead of next week’s RBA rate decision. Money markets are currently pricing in around a 78% chance of a 25bps cut, although support for the currency could be derived from Morgan Stanley’s call for the RBA to stand pat until further economic data is available, whilst firmer copper prices also underpin the currency. AUD/USD is back above the 0.6750 level whilst AUD/NZD tested 1.0750 to the upside (vs. low of 1.0720), in turn pressuring NZD/USD back below 0.6300.

SEK - The Scandi Crown remains weaker against the Euro amid disappointing retail sales which saw the MM and YY figures miss forecasts. EUR/SEK breached its 50 DMA at 10.6898 and now eyes 10.6900 to the upside having printed an intraday low at 10.6520.

FIXED

Bunds are starting the session, and finishing the week, little changed thus far; as news flow for the Continent has been sparse, German debt hovering around the 174.30 mark in the middle of a sub-40 tick range. Gilts, in contrast, have had an eventful morning following the aforementioned comments from BoE Hawk Saunders who exhibited a decidedly dovish tone; following this, Gilts rose from session lows of circa 133.80 to print a session high of 134.48. On the upside there is resistance in the form of recent highs at 134.79; as a reminder Tory Party conference begins this weekend, which will likely see updates on both the domestic and Brexit situation. The remainder of the session is devoid of notable highlights from a European perspective, though comments from ECB’s Lane this afternoon will be of note, particularly given yesterday’s press pieces which were upbeat, though there are some reporting discrepancies over comments regarding further rate cuts. Stateside, a busier end to the week with a number of data prints and speakers ahead. Currently, USTs are slightly softer though similarly to their European counterpart are towards the centre of the days range at 130.04; while the curve is marginally bear steepening at present, though not by a significant magnitude.

COMMODITIES

WTI and Brent futures fell deeper into negative territory as the geopolitical risk premium unwound further amid reports that Saudi Arabia has agreed to establish a partial ceasefire in Yemen which follows reports of US aiding Saudi Arabia bolster its defences. The WSJ article took WTI below the 56.00/bbl mark and under the cluster of DMAs including its 50 DMA (56.02/bbl), 100 DMA (56.63/bbl) and 200 DMA (56.66/bbl), whilst Brent lost the USD 62.00 handle. Elsewhere, gold prices are on the backfoot amid a firmer Greenback as the yellow metal dips below the 1500/oz mark to a current low of 1491/oz. Meanwhile copper prices are firmer with upside attributed to signs of progress in US/China trade talks with a date now set for principal level talks, according to sources. Copper is back above USD 2.58/lb ahead with the next level to the upside the psychological 2.60/lb mark.

Saudi Arabia agrees to a partial ceasefire in Yemen, according to the WSJ

IEA Chief Birol says we may have to cut oil demand growth expectations for 2019 and 2020 if the global economy continues to weaken. (Newswires)