Newsquawk

US Market Open: Antipodeans bid, JPY lags & equities steady with Fed's Goolsbee due

31 Jul 2023, 11:01 by Newsquawk Desk

European bourses are mixed/steady around the unchanged mark, with US futures following suit
Action which follows mostly firmer APAC trade given Wall St. momentum, Chinese stimulus and despite mixed PMIs
DXY is on the front-foot despite some month-end model predictions; JPY standout laggard while Antipodeans outperform
Fixed income remains pressured though JGBs have steadied after unscheduled 5-10yr purchases, EGBs unreactive to Flash data
Crude benchmarks continue to benefit from the risk tone/Chinese stimulus, while metals are more mixed given the USDs influence
Looking ahead, highlights include US Chicago PMI; Fed's Goolsbee, SLOOS & Treasury Estimates.

EUROPEAN TRADE

EQUITIES

European bourses are mixed/steady around the unchanged mark on month-end, Euro Stoxx 50 +0.3%.
Action which follows a mostly firmer APAC handover given Friday's Wall St momentum and the latest Chinese stimulus, with mixed Chinese PMIs failing to offset the tone.
Within Europe, sectors feature underperformance in Construction/Materials, perhaps after the latest HS2 update while Food, Beverage & Tobacco also lags after Heineken's -6.0% Q2 update featuring downbeat sector commentary.
Stateside, futures are essentially unchanged with specifics limited and the earning docket sparse in the pre-market ahead of a relatively busy PM agenda.
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Click here and here for a recap of the main European equity updates.

FX

The Dollar Index is kicking off the last trading day of July on the front foot and going against some month-end models, albeit likely on the back of BoJ-induced JPY weakness overnight.
JPY resides as the marked laggard following the BoJ’s back-door YCC tweak last week, which was undermined by an unscheduled JGB operation as the 10yr JGB yield topped 60bps.
Antipodeans are the standout outperformers amid Chinese stimulus optimism, with a string of recent reports suggesting China is focusing on its ailing domestic consumption, whilst China’s Manufacturing PMI marginally topping expectations could be providing some tailwinds.
EUR saw little reaction on the EZ Flash CPIs, which headline print in-line whilst core and super-core marginally topping forecast, with another inflation report due before the ECB's next meeting.
PBoC set USD/CNY mid-point at 7.1305 vs exp. 7.1524 (prev. 7.1338)
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FIXED INCOME

Core benchmarks are under pressure this morning with JGBs continuing their post-BoJ selling in APAC trade, which prompted Japan to step in with an unscheduled purchase; action which seemingly settled the complex.
EGBs are pressured with Bunds at the lower-end of 132.45-132.82 parameters while Gilts reside at the 95.47 trough which is 36 ticks above Friday’s base.
Bunds saw limited two-way action on the EZ Flash data points, ultimately settling around pre-release figures with market pricing little changed.
Periphery in-fitting but, as is often the case, slightly more contained with BTPs and Bonos digesting their own incremental updates.
USTs following suit to the above though a packed agenda ahead including Fed’s 2023 voter Goolsbee, the SLOOS and Treasury estimates ahead of Wednesday’s quarterly refunding.
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COMMODITIES

-WTI and Brent futures have been trending higher since after the Chinese equities open overnight, with participants attributing the initial softness in prices to mixed Chinese PMIs, whilst the recovery has been partially pinned on continued Chinese efforts to boost its domestic consumption.

Spot gold is modestly softer amid the Dollar's strength and ahead of this week’s key risk events including the BoE, US ISM PMIs, and the US Jobs Report. Spot gold sees its 100 DMA at USD 1,967.72 today and the DMA seen at 1,946.02/oz.
Base metals are mixed in tandem with the broader mood across the market. 3M LME copper has waned from best levels around USD 8,739/t to levels just under USD 8,700/t with the red metal underpinned by Chinese stimulus hopes. It’s also worth noting Chinese export controls on key chipmaking material will come into effect on Tuesday 1st August
Iran’s Oil Minister Owji said Tehran will pursue its rights in the Durra Field if other parties shun cooperation, according to Shana.
Russian President Putin said he agreed to have talks with Turkish President Erdogan on Wednesday and that a Turkish gas hub is still on the agenda, while he noted that they want to set up an electronic platform for gas sales in Turkey and don’t want to store gas there, according to Reuters.
Oman Crude OSP was calculated at USD 80.54/bbl for September (prev. USD 74.78/bbl August), according to DME data.
UK PM Sunak will today commit to going ahead with oil and gas exploration and production in the North Sea, according to the Times. Subsequently confirmed
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NOTABLE US HEADLINES

Fed’s Kashkari (voter) said he is not sure when the Fed will be done raising rates and they are making good progress, while he added will let the data guide the Fed and they may or may not hike in September. Kashkari also noted that it currently appears the US will avoid a recession which he hopes will remain true and the overall inflation outlook is quite positive but cannot prejudge it and it would not surprise him to see unemployment tick up slightly, according to a CBS interview
Trucking giant Yellow shut down operations which put 30,000 jobs at risk including around 22,000 Teamsters members, according to WSJ.
Tesla (TSLA) to cut prices in Hong Kong for some Model 3 and Model Y units from August 4, according to Hong Kong Economic Times.
Click here for the US Early Morning note.

NOTABLE EUROPEAN HEADLINES

UK’s financial regulator is under increasing pressure to overhaul rules governing the bank accounts for politicians amid the Farage ‘debanking’ fallout, according to FT.
ECB’s Lagarde reiterated that the ECB is to assess the situation on a meeting-by-meeting basis and a pause would not mean that there would not be any rate hikes after, while she also stated that Q2 GDP figures for France, Germany and Spain are encouraging, according to an interview in Le Figaro.
Bundesbank's deputy head Claudia Buch said the ECB needs a more critical mindset on banks and warned the sector still faces significant risks from major macroeconomic upheaval, according to FT.

DATA RECAP

EU HICP Flash YY (Jul 2023) 5.3% vs. Exp. 5.3% (Prev. 5.5%); Ex-F&E Flash YY (Jul 2023) 6.6% vs. Exp. 6.4% (Prev. 6.8%); Ex-F,E,A&T Flash YY (Jul) 5.5% vs. Exp. 5.4% (Prev. 5.5%)
EU GDP Flash Prelim QQ (Q2 2023) 0.3% vs. Exp. 0.2% (Prev. -0.1%); YY (Q2 2023) 0.6% vs. Exp. 0.5% (Prev. 1.0%)
German Retail Sales MM Real (Jul 2023) -0.8% (Prev. 0.4%); YY Real (Jun 2023) -1.6% vs. Exp. -2.6% (Prev. -3.6%)
German Import Prices MM (Jun 2023) -1.6% vs. Exp. -0.7% (Prev. -1.4%); YY (Jun 2023) -11.4% vs. Exp. -10.7% (Prev. -9.1%)
UK Mortgage Lending (Jun 2023) 0.136B GB vs. Exp. 0.054B GB (Prev. -0.092B GB); Approvals (Jun 2023) 54.662k vs. Exp. 49.718k (Prev. 50.524k)

GEOPOLITICS

Russian President Putin said that they do not reject talks on Ukraine but noted a ceasefire is hard to implement when the Ukrainian army is on the offensive, while he added there should be agreement on both sides and that there are no significant changes on the Ukrainian front for now. Furthermore, Putin also commented that no one wants a direct clash between NATO and Russian forces in Syria and that the Russian Navy is to get 30 new ships this year, according to Reuters.
Russian Foreign Ministry spokeswoman said Russia has received around 30 peace initiatives on Ukraine, according to TASS.
Two skyscrapers in Moscow’s premier business district were damaged by drone strikes, while Moscow’s Mayor said Ukrainian drones caused damage although there were no casualties, according to FT.
Ukrainian President Zelensky has warned war is coming back to Russia following the drone attack on the Russian capital Moscow on Sunday, according to the BBC.
Ukrainian Chief of Staff said Ukraine will start negotiations on security guarantees with the US next week.
Polish PM Morawiecki said a group of Wagner mercenaries in Belarus have moved closer to the Polish border and may stage a ‘hybrid attack’ inside Poland, while he added that Wagner fighters may pose as migrants to enter the EU and that the situation is getting increasingly dangerous, according to Politico.
Russia’s embassy in Moldova announced it will temporarily stop providing appointments for consular matters in what Moldovan officials said is a situation linked to the order by the country’s officials to cut staff, according to Reuters.
Saudi Arabia will host a Ukrainian-organized peace summit in early August in an effort to find a way to start negotiations over the war in Ukraine, according to an official cited by Politico. Furthermore, it was reported that Ukraine, Brazil, India and South Africa are expected to attend but Russia is not.
US Secretary of State Blinken said China has repeatedly assured the US that it is not providing material, lethal assistance in Ukraine.
US President Biden’s administration believes China implanted malware in key US power and communications networks in a ‘ticking time bomb’ that could disrupt the military in the event of a conflict or if China were to move against Taiwan, according to NYT.
US is to provide Taiwan with military aid of up to USD 345mln, according to the White House.
Senior Israeli lawmaker said it is too early to speak of a Saudi normalisation deal being in the works, according to Reuters.

CRYPTO

SEC reportedly asked Coinbase (COIN) to halt trading in everything aside from Bitcoin prior to suing the exchange, according to the CEO cited by FT.

APAC TRADE

APAC stocks headed into month-end mostly on the front foot as the region sustained last Friday’s tech-led momentum from Wall St and as participants digested the latest support efforts from China and mixed PMI data.
ASX 200 lagged with strength in the commodity-related sectors offset by weakness in consumer stocks and financials, with the mood cautious ahead of tomorrow’s RBA rate decision where there is a discrepancy between money markets pricing and analysts’ median expectations on whether the central bank will hike or pause.
Nikkei 225 was boosted from the open and rose back above the 33,000 level amid a weaker currency and as markets digested the BoJ’s recent shift to a more flexible approach which provided early tailwinds for financials, while the central bank announced unscheduled bond purchases and participants also shrugged off disappointing Industrial Production data.
Hang Seng and Shanghai Comp were higher amid stimulus-related optimism as Chinese officials are set to announce more measures for consumption, recovery and expansion, while the NDRC said it will solidly promote development and reform, as well as stick to the general principle of making economic stability a top priority. Furthermore, mixed official PMI data from China failed to dampen the mood in which headline Manufacturing PMI slightly topped forecasts but remained in contraction territory and Non-Manufacturing PMI disappointed with the slowest pace of increase since December 2022.

NOTABLE ASIA-PAC HEADLINES

China issued measures to recover and expand consumption including expanding consumption in NEVs and reasonably boosting consumption credit, while it will enhance financial support on consumption, according to a State Council document.
Chinese officials from several agencies will hold a press conference on Monday at 08:00BST/03:00EDT to announce more measures for consumption, recovery and expansion, according to Bloomberg.
China's NDRC said it will solidly promote development and reform, as well as stick to the general principle of making economic stability a top priority and pursuing progress while ensuring stability, according to Xinhua.
Major Chinese cities including Beijing, Shenzhen and Guangzhou vowed to better meet rising housing needs after China’s housing minister called for more efforts to strengthen the property market with measures such as lowering payment requirements and mortgage rates for first-time homebuyers, according to Global Times.
Chinese Vice Premier He Lifeng said at the China-France economic and financial dialogue that the Chinese side appreciates the French side’s decision to extend 5G licences in some cities to Huawei and the two sides will sign a cooperation agreement on grape cultivation and wine production. Furthermore, the two sides welcomed the recent trial certification of an Airbus (AIR FP) helicopter and aircraft, according to Reuters.
French Economic Minister Le Maire said China must remain a key partner for all European countries specifically France in tackling climate change and said they need China as a key partner for global growth, while he added that they are totally opposed to the idea of decoupling and want to get better access to Chinese markets, according to Reuters. Furthermore, Le Maire said the European car industry can withstand cheap Chinese EVs, according to FT.
Italy’s Defence Minister Crosetto said Italy made an improvised and atrocious decision when it joined China’s Belt and Road Initiative under a previous government in 2019, according to Reuters.
Alibaba (9988 HK) affiliate Ant Group’s listing is unlikely to occur in the short term, according to a Chinese state media report.
Japan’s Labour Ministry is reportedly proposing a record increase in the minimum hourly wage to lift it above JPY 1,000 to help low-income households tackle inflation, according to Bloomberg.
Japan LDP Senior Official Seko says BoJ policy tweak sends a message to exit from easing finally, according to Jiji; BoJ decision could throw cold water on the Japanese economy and needs high attention.
China's NDRC Deputy Director says we should give full play to the decisive role in the market of resource allocation. Will improve long-term mechanisms for expanding household consumption.
China Commerce Ministry issues export controls on drone-related equipment; effective September 1st.