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The Rumour Mill

Morning Briefing September 11th 2019

Europe’s data calendar remains quiet Wednesday with the release of Spanish industrial production at 0800BST the highlight of the day. In the US the publication of the producer price inflation at 1330BST will be closely watched.

Spanish industrial production is expected to decline for the second successive month in July with markets pencilling in a 0.3% m/m drop (BBG Consensus). Monthly industrial production declined by 0.2% in June after revealing positive rates in May (0.3%) and April (1.8%). The decline was mainly led by a fall in consumer non-durable and intermediate goods. Annual output is projected to decelerate slightly to 1.5% (BBG Consensus). Yearly industrial production grew for three consecutive month, reaching a two month high in June (1.8%).

US PPI about to slow?

US producer prices are forecast to stagnate in August (0.0%) after growing by 0.2% m/m in July. Final demand prices grew by 0.1% m/m in both June and May.
Markets look for the annual producer price inflation to remain on July’s level of 1.7% in August. Yearly PPI registered at 1.7% for two consecutive months following a growth rate of 1.8% in May. Excluding food and energy, PPI declined by 0.1% on the month in July. However, markets expect prices to rebound to 0.2% in August.

The events calendar takes a break on Wednesday with no speeches scheduled for the day.

Global Economic Trading Calendar

Markets

BOND SUMMARY: A very tight start to the session was seen in T-Notes. Some late pressure crept in as the Editor in Chief of China’s Global Times tweeted “Based on what I know, China will introduce important measures to ease the negative impact of the trade war. The measures will benefit some companies from both China and the US.” Contract last -0-07 at 129-30. Yields 0.5-1.1bp lower across the curve. Eurodlr futures 2.0 ticks lower to 1.0 tick higher thru the reds.- Little to talk about in Aussie bonds with ACGB & corporate supply noted as the main contracts stuck to tight ranges after the SYCOM sell-off. YM -4.0, XM -6.0. YM/XM sits at 26.0 as a result. Bills 2-5 ticks lower through the reds, excluding IRU9 which is +2 ahead of tomorrow’s expiry.- JGBs traded defensively &came under fresh pressure in the wake of a weak round of 5-Year supply & the aforementioned tweet from the Editor in Chief of the Global Times. The tail at the auction widened vs. the prior, with the low price coming in below dealer exp. The cover ratio was the lowest seen at a 5-Year auction since May of 2017. The belly continues to underperform following some concession this morning, with futures -33 ticks at writing.

STOCKS: Tuesday’s late rally in equities leant support to the majority of the major Asia-Pac equity indices, although Chinese stocks underperformed in spite of the removal of QFII & RQFII quotas N.B. we highlighted that while the move will not trigger any notable sharp capital inflows, it does fulfil 1 of FTSE’s 2 outlined criteria to boost the inclusion of A-shares via QFII & RQFII in its relevant indices; namely “an increase in the aggregate QFII & RQFII quota levels.” The remaining criteria was the “availability of Delivery versus Payment via QFII & RQFII.” There was no move to relax restrictions for the outbound Qualified Domestic Institutional Investor (QDII) scheme.- Brokerages were the outperformer in China on the back of the news,

GOLD: Gold has recovered from yesterday’s late session lows, after the rise in U.S. Tsy yields ultimately pressured in NY trade. The yellow metal last trades +$5 at $1,491/oz. Yesterday’s low provides the initial point of support ahead of $1,479.7/oz, the August 13 low. Conversely bulls will look to reclaim yesterday’s peak before setting their sights higher.

OIL: Crude has regained some poise after news that NSA director & foreign policy/trade hawk, John Bolton, had resigned/was removed from his post hit on Tuesday, which pressured the space in NY hours. WTI & Brent last deal ~$0.40 & $0.30 higher, with the modest recovery facilitated by reports pointing to a larger than exp. draw in the latest headline API crude inventory estimate, which was accompanied by a larger than exp. draw in gasoline stocks, a draw in stocks at Cushing and a small build in distillate stocks. Tuesday also provided familiar rhetoric from some of the top names operating under the OPEC+ agreement. OPEC Sec-Gen Barkindo noted “that so far there are no alternative plans for the OPEC+ agreement,” while Russian Energy Min Novak affirmed his country’s cooperation to the new Saudi Energy Minister, AbS. Elsewhere, the EIA cut its ’19 global oil demand growth exp. by 100K bpd to 890K bpd. The agency has now cut that particular forecast across 7 consecutive months.- Finally, it is worth flagging that RTRS sources revealed that “Mexico’s new formula for its oil hedging & pricing of its oil export sales now includes U.S. WTI crude delivered to East Houston.”

FOREX: Another tight Asia-Pacific session for G10 FX with little to report outside of NAB’s more aggressive RBA easing call. The major G10 pairs stuck to tight ranges, with JPY underperforming marginally. USD/JPY traded above yesterday’s highs to Y107.73, with one source pointing to a Japanese megabank aiding demand. Bulls now look to Y108.17, the 76.4% retracement of the Aug 1 – Aug 26 decline.- Elsewhere, KRW traded a touch firmer vs. USD as South Korean unemployment unexpectedly tumbled to 3.1% from 4.0% (median exp. was for a steady 4.0%), representing the lowest level seen since 2013, while South Korean exports for the first 10 days of September rose by 7.2% Y/Y (chip exports were still -33% Y/Y) as imports over the same period rose by 3.3% Y/Y. Elsewhere, BBG noted that South Korea is set to file a WTO complaint vs. the Japanese export curbs later today, which likely aided the paring of the early move lower in USD/KRW.- Little to report in terms of the USD/CNY fix. USD/CNH has edged higher but has failed to trade above CNH7.1200 thus far.- The docket is slim on Wednesday, with U.S. PPI the highlight.

Technical Analysis

BUND TECHS: (Z9) TRENDLINE SUPPORT CLEARED

Z9 BTPS selling pressure dominated again yesterday. The current move lower follows last week’s candlestick reversal signal. Thursday’s close confirmed a 3-day pattern known as an evening star, an early warning sign of a top. Prices have since also cleared trendline support drawn off the Aug 9 low. The move yesterday through 143.84 provides further bearish evidence and the focus is on a move towards 142.30 next, Aug 28 low. 145.23 marks resistance.

EUROSTOXX50: UPTREND INTACT

EUROSTOXX50 is attempting a clear break of 3494.66, the 76.4% retracement of the Jul 25 – Aug 15 decline. Bullish trend conditions remain in place, although Tuesdays doji candle pattern does suggest the recent rally may be close to a more mature stage in the cycle. Support to monitor for now is 3453.99, Sep 5 low. While this holds, look for the index to extend the upside towards 3539.94. A break of 3453.99 would leave a dent in bullish sentiment.

Eurex Futures Market Close

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