Newsquawk

US Market Open: Negative risk sentiment with equities softer, AUD also hampered by mixed Chinese data, geopols remains in focus for crude; Fed speak due

16 Apr 2024, 11:10 by Newsquawk Desk

Equities are entirely in the red, continuing the negative price action seen in the prior session
DXY holds around 106.30, Antipodeans suffer from the broader risk tone and mixed Chinese data
Bonds are pressured, and Bunds more-so after German ZEW while Gilts gapped lower on wage numbers
Crude is off best levels as focus remains on geopols, XAU lower
Looking ahead, Canadian CPI, New Zealand CPI, Comments from Fed’s Daly, Jefferson, Williams, Barkin, Powell, BoE’s Bailey & BoC's Macklem, IMF World Economic Outlook, Fed Discount Rate Minutes. Earnings from LVMH, United Health, UAL, Bank of America & Morgan Stanley.

EUROPEAN TRADE

EQUITIES

European bourses, Stoxx600 (-1.4%), are entirely in the red, continuing the price action seen in Wall St. from the prior session and following a negative handover from APAC trade as geopols remain in focus and China data was mixed.
European sectors are lower; Telecoms was initially propped by post-earning strength in Ericsson (+3.5%), though this ultimately faded. Basic Resources underperforms, given weakness in metals prices. For Luxury names, LVMH due to report after the European close.
US equity futures (ES -0.1%, NQ -0.1%, RTY -0.3%) are lower, albeit to a lesser magnitude than European counterparts. A busy earnings slate will provide direction for markets today; United Health, UAL, Bank of America & Morgan Stanley are all due.
Click here and here for the sessions European pre-market equity newsflow, including earnings.
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FX

USD is firmer vs. all peers as the hawkish Fed repricing/strong US data continues to provide support. DXY has been as high as 106.43 with the next target via the 2nd Nov'23 peak at 106.51.
EUR/USD clinging onto 1.06 status after printing a 1.0603 low. In a week lacking in key EZ data and ECB speakers continuing to talk up a June cut, it is not obvious to see how price action can reverse.
GBP is flat vs. the USD and holding up better-than-peers with this morning's wage metrics potentially overshadowing a larger-than-expected increase in the unemployment rate. 1.2409 is the base for now.
154.60 is the high watermark for the USD/JPY as the Fed/BoJ divergence play remains the key guiding force. 155 is the perceived line in the sand for the MoF and speculation continues to mount over an intervention by Tokyo.
The current risk environment is continuing to act as a drag for the antipodes. AUD/USD is managing to hold above the 0.64 mark with not too much follow-through at the time from Chinese data.
PBoC set USD/CNY mid-point at 7.1028 vs exp. 7.2475 (prev. 7.0979).
South Korean FX authority says closely monitoring FX market with caution on currency movement, supply and demand; excessive herd-like behaviour in FX market is undesirable.
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Click here for the Option Expiries for today's NY Cut.

FIXED INCOME

USTs are contained in a narrow nine tick band that is entirely within Monday's 107-18 to 108-22 parameters. Newsflow limited thus far as we await Israel's response to Iran, though the docket ahead is filled with several Fed speakers.
Bunds have been directionally in-fitting with USTs. Following the German ZEW data, Bunds were pressured by around 15 ticks to a new 131.55 session low, taking it below Monday's 131.58 base.
Gilts gapped lower by 18 ticks at the open following the latest labour/wage data, with focus on the hotter wage components; benchmark briefly pared as the internals were digested before ZEW hit and pressured the space again. Overall, Gilts continued to drift to a 96.44 base which marks a contract low and has seen the 10yr yield peak at 2.78%.
UK sells GBP 1.5bln 0.75% 2033 I/L Gilt: b/c 3.4% (prev. 2.97x) and real yield 0.440% (prev. 0.634%)
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COMMODITIES

Crude is subdued and off best levels, but still underpinned by geopolitical risks after reports of a potential 'imminent' response by Israel against Iran; Brent June trades between USD 89.82-90.84/bbl range.
Softer trade across precious metals amid a lack of retaliation by Israel thus far whilst the Dollar also edges higher; XAU sits in a USD 2,363-92/oz range.
Base metals are lower across the board amid the risk aversion and stronger Dollar. Chinese data overnight was mixed in which Chinese GDP for Q1 topped expectations, but was negated by disappointing Industrial Production and Retail Sales data.
El Nino weather event has ended, according to the Australian Bureau of Meteorology.
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NOTABLE EUROPEAN HEADLINES

ECB's Rehn says future rate decisions will ensure that policy rates will remain sufficiently restrictive for as long as necessary. If June assessment confirms inflation convergence towards target, could lower rates. Cut assumes there will be no further setbacks in geopolitics or energy prices. At the moment, there is a divergence between the US and European economy; naturally may take different kinds of decision in the coming period; ECB does not pre-commit to any rate path.
BoE's incoming Deputy Governor Lombardelli says decline in inflation is likely to be bumpy; sees two-sided risks. Evidence suggests that Brexit has had a negative economic impact via investment and trade. Inflation may rove more persistent than expected. Wage growth is slowing but remains high. Joins the MPC on July 1st, replacing Broadbent.
EU leaders are set to revive their capital markets union plan in search for defence funding, according to FT.
Morgan Stanley expects the ECB to deliver 75bps interest rate cuts in 2024 (prev. 100bps expected)
Deutsche Bank expects ECB to deliver 75bps of interest rate cuts in 2024 (prev. forecast 125bps)

DATA RECAP

UK Average Earnings (Ex-Bonus) (Feb) 6.0% vs. Exp. 5.8% (Prev. 6.1%); Average Week Earnings 3M YY (Feb) 5.6% vs. Exp. 5.5% (Prev. 5.6%)
UK ILO Unemployment Rate (Feb) 4.2% vs. Exp. 4.0% (Prev. 3.9%)
UK Employment Change (Feb) -156k vs. Exp. 45k (Prev. -21k); HMRC Payrolls Change (Mar) -67k (Prev. 20k, Rev. -18k)
German ZEW Economic Sentiment (Apr) 42.9 vs. Exp. 35.0 (Prev. 31.7); ZEW Current Conditions (Apr) -79.2 vs. Exp. -76.0 (Prev. -80.5); German ZEW says a recovering global economy is boosting expectations for Germany, with half of the respondents anticipating the country's economy to pick up over the next 6 months.
German Wholesale Price Index MM (Mar) 0.2% (Prev. -0.1%); YY (Mar) -3.0% (Prev. -3.0%)
EU ZEW Survey Expectations (Apr) 43.9 (Prev. 33.5)
Italian Consumer Prices Final MM* (Mar) 0.0% vs. Exp. 0.1% (Prev. 0.1%); Consumer Prices Final YY* (Mar) 1.2% vs. Exp. 1.3% (Prev. 1.3%); CPI (EU Norm) Final YY* (Mar) 1.2% vs. Exp. 1.3% (Prev. 1.3%); CPI (EU Norm) Final MM* (Mar) 1.2% vs. Exp. 1.2% (Prev. 1.2%)

NOTABLE US HEADLINES

Fed's Daly (voter) said recent inflation data was not surprising and inflation bumps along the way aren't particularly surprising, while she said don't want to end up with a too-strong or too-weak policy response and that the worst thing to do is act urgently when urgency isn't necessary. Daly also stated that there is no urgency to cut rates and progress on inflation was significant but still not there yet.
US House Republicans plan to try to pass four bills this week to send aid to Israel, Ukraine and Taiwan, while the bills will include a ban on TikTok and to sell off seized Russian assets, according to sources cited by Punchbowl's Jake Sherman. US House Speaker Johnson later confirmed the House will consider separate bills this week to fund Israel, support Ukraine, strengthen allies in the Indo-Pacific, and measures to boost national security, while he added that the voting could come on Friday evening and will honour the 72-hour rule.
Microsoft (MSFT) plans to unveil USD 1.5bln investment in G42, according to NYT.
Tesla (TSLA) global job cuts will reportedly affect China teams, including sales, according to Reuters sources. Sources added that over 10% were losing their jobs.
Intel (INTC) will release two AI chips with reduced capabilities for the Chinese market, in order to comply with US export controls and sanctions, according to Reuters
BofA March Fund Manager Survey (survey carried out between 5-11th April, mostly before US CPI): "most bullish survey since Jan 2022"

EARNINGS

Ericsson (ERICB SS) Q1 (SEK): Net Sales 53.325bln (exp. 54.140bln). Adj. EBIT 4.305bln (exp. 2.807bln). Adj. gross margin 42.7% (exp. 40.2%). Network gross margin 44.3% (prev. 40.6% Y/Y); Sees sales stabilising in H2 2024.

GEOPOLITICS

MIDDLE EAST - EUROPEAN MORNING

"Israel sent a message to the countries of the region that responding to the Iranian attack will not endanger the stability of these countries", according to Sky News Arabia.
The Israeli war cabinet is weighing a response to the recent Iran attacks; and is to meet again on Tuesday for a third straight day, via the FT

MIDDLE EAST

Iran's Foreign Minister said in a call with China's Foreign Minister that Iran is willing to exercise restraint and has no intention of further escalating the situation, according to Chinese state media.
US officials expect a possible Israeli response to Iran’s attack over the weekend to be limited in scope and most likely involve strikes against Iranian military forces and Iranian-backed proxies outside Iran, according to four US officials cited by NBC News.
Iraqi PM confirmed Iraq's interest in obtaining expertise and arms from the US, as well as keenness on security partnership during a meeting with US Defense Secretary Austin, according to Reuters.
Saudi Arabia acknowledged that it helped defend Israel against Iran whereby Saudi Arabia's royal family posted on its website about the country's role in defending Israel against the Iranian barrage, according to Jerusalem Post.

OTHER

US judges North Korea to have the capability to manufacture biological weapons through genetically modified weapons, according to Yonhap.

CRYPTO

Bitcoin price action was choppy overnight, though has since stabilised and holds comfortable above USD 63k.

APAC TRADE

APAC stocks were lower across the board with global risk appetite sapped by geopolitical concerns related to a potential 'imminent' response by Israel against Iran, while markets also digested mixed key releases from China.
ASX 200 retreated with selling across all sectors and consumer discretionary front-running the declines.
Nikkei 225 was among the worst hit and fell beneath the 38,500 level with the index shedding over 800 points.
Hang Seng and Shanghai Comp. conformed to the downbeat mood despite better-than-expected Chinese GDP for Q1 which was negated by disappointing Industrial Production and Retail Sales data, while property sector woes persisted after home prices further deteriorated and with developer Times China (1233 HK) facing a winding-up petition filed by Hang Seng Bank.

NOTABLE ASIA-PAC HEADLINES

Chinese President Xi told German Chancellor Scholz during their meeting in Beijing that bilateral ties will continue to develop as long as both sides respect each other and seek common ground, while he added that they must view and develop bilateral relations in an all-round way from a long-term and strategic perspective.
China's stats bureau said economic conditions are still not stable and the external environment is complex, while it added that uncertainty is increasing and that consumer inflation will recover mildly. China's stats bureau also stated that China's property market is still in the middle of adjustments.
Japanese Chief Cabinet Secretary Hayashi said won't comment on forex levels or currency intervention and reiterated that it is important for currencies to move in a stable manner reflecting fundamentals, while he added that excessive FX volatility is undesirable and is prepared to take all measures on FX.
Fitch revises outlook for Chinese state banks to Negative from Stable; affirms ratings