Morning Briefing 19th August 2019
Europe’s main data event on Monday morning is the release final inflation data for the Eurozone at 1000BST, while the U.S.’s calendar sees a quiet start to the week.
According to the MNI median, EZ’s final inflation is projected to register in line with the flash estimate, showing a moderation by 0.2pp in July to 1.1%. July’s flash estimate marks the lowest reading since February 2018. The decline was mainly driven by a sharp fall in energy inflation as well as a deceleration in service price growth. As a result, core inflation eased slightly in July to 0.9% after June’s rebound to 1.1%.
The summer break continues and as result there are no speeches or events scheduled on Monday, with many looking forward to the Fed’s Jackson Hole symposium at the end of the week.
Global Economic Trading Calendar
BOND SUMMARY: Friday’s steepening bias spilled over into core FI in Asia with focus on the U.S. Tsy’s latest enquiry re: 50- & 100-Yr issuance & chatter re: German fiscal stimulus. Optimistic overtures from WH econ advisor Kudlow re: the potential for a Sep meeting between the U.S. & Chinese trade negotiators in addition to some hope surrounding the potential for the “U.S. Commerce Dep’t to extend a reprieve given to Huawei” per a RTRS sources piece created some optimism over the weekend. That was before Trump’s latest batch of comments on the matter, which were a little more hard-line, although it is worth reminding that there has been some distinction between the admin’s actions surrounding the matter & what it permits at corporate level. Trump had earlier tweeted “We are doing very well with China, and talking!” T-Notes -0-09+ at 130-20, with the curve bear steepening. Eurodollar futures -2.0-4.0 ticks through the reds. – JGB futures -0.04, cash curve steeper. No real reaction to the latest round of BoJ Rinban ops (1-5 Year), which saw the purchase sizes left unch., cover ratios ease & avg yield spreads move back into +ve territory. – Steepening also in Aus with a poor ACGB ’41 auction helping. YM -2.0, XM -4.0.
STOCKS: Regional equity markets followed on from Wall St.’s positive tone, with some hope surrounding the potential for the “U.S. Commerce Department to extend a reprieve given to Huawei that permits the Chinese firm to buy supplies from U.S. companies so that it can service existing customers,” per a RTRS sources piece. That being said, U.S. President Trump’s latest batch of comments on the matter were a little more hard-line, although it is worth reminding that there has been some distinction between the administration’s own actions surrounding the matter and what it permits at the corporate level. Trump had earlier tweeted “We are doing very well with China, and talking!” – The Hang Seng outperformed on continued “bargain hunting” after tumult surrounding the trade war, local protests and cancelled IPOs plagued the index in recent weeks.
OIL: WTI & Brent trade ~$0.50 above their respective settlement levels at writing. – Crude has drawn support from the uptick in global equity markets as well as weekend news flow, which revealed that a Yemeni drone attack hit the area which contains Saudi Arabia’s Shaybah oilfield (oil production of circa 1mn bbl bpd), although the attack seemingly had no impact on production. – Elsewhere, the Iranian tanker at the centre of the standoff between Tehran and various Western nations seemingly left Gibraltar on Sunday night. This came after Gibraltar knocked back a U.S. request to seize the Iranian vessel. – Broader risk sentiment also supported crude in the final trading session of last week, allowing a recovery in the wake of an OPEC oil market report induced sell off in the middle of the session, as the cartel trimmed its 2019 oil demand growth forecast and suggested that oil market fundamentals seem somewhat bearish for the remainder of 2019.
GOLD: Gold last deals $5 or so softer at $1,509/oz in spot trade. – The Tsy curve steepening evident on Friday & through the early part of today’s session has weighed on the yellow metal, but bears still haven’t managed to mount a test of $1,500/oz, leaving the well-established technical picture intact.
FOREX: It was a fairly quiet start to a busy week. Investors weighed U.S. President Trump’s relatively hard-line remarks re: Huawei (he labelled the firm a “national security threat”) against earlier press reports suggesting that U.S. Commerce Dep’t may extend a reprieve given to China’s tech giant that allows it to buy supplies from U.S. companies. All in all, however, risk sentiment was positive, with participants bearing in mind the distinction between U.S. administration’s actions vs. Huawei, and what is allowed for private enterprise. – NZD was the worst G10 performer, with BBG citing reported AUD/NZD purchases on the perception of easing U.S.-China tensions. CHF fared only slightly better, failing to recover from an early dip driven by broader risk-on flows. – Japanese Jul trade deficit was wider than projected, after a Y589.6bn surplus registered in Jun, while both exports and imports shrunk. JPY shrugged off the release; most JPY crosses oscillate around neutral levels.
BUND TECHS: (U9) DARK CLOUD COVER CANDLE
U9 Bund failed to extend the upside on Friday. A candle pattern known as dark cloud cover has also been confirmed and for the first time in a while, one can consider the potential for either a consolidative pause in the trend, or a correction. Trend support drawn off the Jul 12 low intersects at 177.72 marking the first key support for bulls. A break would signal the potential for a correction, perhaps towards the lower end of 176.00. Key resistance is at 179.66.
EUROSTOXX50: CANDLE PATTERNS SIGNAL A BASE
EUROSTOXX50 sold off sharply last Thursday clearing 3248.54, the Jun 3 low, confirming a resumption of the downtrend. The low on Thursday though provided decent support and price action has since rebounded, confirming two important candle patterns. A hammer on Thursday and bullish engulfing on Friday points to a potential base. The focus shifts to key resistance at 3380.81. Support and bear trigger is at 3239.20, a break would instead resume the downtrend.
Eurex Futures Market Close
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