Morning Briefing October 2nd 2019
Wednesday quietens down in terms of data releases with the Swiss inflation figures published at 0730BST being the highlight in Europe. In the US the release of the ADP National Employment report will be watched closely at 1315BST.
Swiss inflation is forecast to accelerate marginally to 0.1% on a monthly basis, while annual inflation is projected to remain at 0.3%. The yearly CPI is trending down since Q2 and dropped to 0.3% in July where it remained in August. Meanwhile, core inflation rose to 0.7% in June, its highest since December 2017, before it fell to 0.4% July and August. The report notes that a decline in prices for airfares and international package holidays as well as in patient hospital services was offset by an increase in prices for clothing, footwear and housing rental in August.
August’s ADP report showed an increase of jobs in private sector employment by 195k, which is the largest increase since April. The index rose for three consecutive months, up from May’s nine year low of 46k. Looking at different sectors, employment rose by 184k in the service sector, while it picked up by 11k in the goods producing sector. In September, markets look for an increase of 140k in private sector employment.
The events calendar throws up a quiet schedule as well with speeches by Philadelphia Fed’s Harker and NY Fed’s Williams being the only ones worth noting.
Global Economic Trading Calendar
BOND SUMMARY: Core global FI has edged lower in Asia-Pacific hours, in what has been a very limited session. Brexit headlines remain front and centre, with participants willing to look through the latest missile launch from North Korea.- Light bear steepening was seen in cash Tsys, with T-Notes last -0-03+ at 130-17+ as a result. Little in the way of notable flow was observed, with a 2.0K buyer of a TYX9 call spread providing the highlight.- Australian bonds also edged back from best levels, with the latest round of ACGB supply seeing a luke-warm reception. The IB strip now prices a 45% chance of a follow up cut from the RBA next month. Will the RBA go on Melbourne Cup day? YM +3.0, XM +1.0. Bills unchanged to 3 ticks higher through the reds.- The belly of the JGB curve is outperforming today after yesterday’s sharp, auction-inspired sell off. Little to report otherwise, with futures back from best levels, but still +35 vs. settlement on the back of solid gains in the overnight session. Yesterday’s price action led to 30-day implied JGB vol touching the highest level seen since 2016.
STOCKS: Asia-Pacific equity markets have struggled on the back of Tuesday’s woeful U.S. m’fing print, while U.S. equity index futures have stabilised after yesterday’s data-inspired sell off.- Hong Kong stocks have been subjected to further pressure from the escalation in violence seen at the latest round of protests in the city.- The ASX 200 underperformed as financials proved to be the worst performing sector on a combination of the RBA’s latest cut, a lower yield environment & NAB being slapped with a misconduct charge.- Chinese markets remain closed until Tuesday.- Nikkei 225 -0.7%, Hang Seng -0.8%, ASX 200 -1.3%.- S&P 500 futures +5, DJIA futures +49, NASDAQ 100 futures +12.
OIL: WTI & Brent sit $0.55 & $0.40 above their respective settlement levels, boosted by reports of a surprise, sizeable drawdown in headline crude stocks in the latest weekly API inventory estimates (reportedly accompanied by an in line drawdown in distillate stocks, a larger than exp. build in gasoline stocks & a modest build in stocks at the Cushing hub).- Crude couldn’t escape the grasp of a weak U.S. m’fing ISM print Tuesday, which pressured the major b’marks before a tepid recovery from lows into settlement. Elsewhere, the latest BBG survey, released Tues, suggested that OPEC crude output fell by 1.59mn bpd in Sep (the biggest monthly decline since ’02), a more marked fall than was seen in the RTRS equivalent. The survey estimated that Saudi production fell by 1.47mn bpd in Sep, hampered by the well documented attacks on Aramco facilities. We also learnt that Ecuador will be leaving OPEC.- On the geopolitical front a WSJ reporter has noted that the Saudi Minister of State for Foreign Affairs stated that the Iranian claims that Saudi Arabia has sent messages to the Iranian regime are inaccurate.- DoE Inventory data will likely garner the bulk of attention on Wednesday.
GOLD: Gold has shed a couple of dollars during Asia hours and last trades at $1,477/oz.- This comes after Tuesday’s woeful m’fing ISM print allowed bulls to regain some poise, although they couldn’t force a challenge of the psychological $1,500/oz level.- Fed fund futures now price a ~60% chance of a Fed cut later this month, with the incoming U.S. labour market data (ADP & NFP) & a raft of Fedspeak set to shape the pricing dynamics over the coming days.
FOREX: Sterling is heading towards the London session as the worst G10 performer amid expectations that UK PM Johnson’s new Brexit plan will receive a cold reception from EU leaders. The Telegraph revealed the contents of the proposal, which involves keeping Northern Ireland tied to the EU until 2025. The document has already met criticism from Irish ministers, who deemed it unacceptable. PM Johnson is set to formally submit his divorce plan to the EU later today.- AUD gained amid talk of demand for the currency from local exporters, while JPY slid vs. most of its G10 peers even as local equity benchmarks softened. – KRW was offered as North Korea test-launched projectiles, one of which landed in Japan’s exclusive economic zone. The missiles may have been submarine-based; they were fired hours after Pyongyang pledged to restart talks with the U.S.- Activity was somewhat limited by the ongoing week-long mkt closure in China. Trade in Hong Kong reopened today, but India is shut for a national holiday.
BUND TECHS: (Z9) BOUNCES OFF FORMER TRENDLINE
Z9 Bund traded lower yesterday but did bounce off the day low of 173.31 coinciding with former trendline resistance drawn off the Sep 3 high, breached on Sep 23. While the recovery offers some encouragement to bulls, activity remains below last weeks high of 174.97 and the 61.8% level of Sep 3 – Sep 13 decline. The retracement, at 175.07 is an important pivot point. A break would open 175.62 and higher. Sub 173.31/29 levels would expose the downside.
EUROSTOXX50: REVERSAL OFF THE HIGH
What a difference a day makes! EUROSTOXX50 traded higher yesterday to a fresh trend high of 3588.68 and just above the 3586.16 Fibonacci projection. Heavy selling pressure however followed and the market closed at the day low to confirm a bearish engulfing reversal candle formation. This warns of a top and the focus now shifts to key support at 3480.28, low Sep 25. A break would confirm a reversal. Key resistance for a bull trend resumption is at 3588.68.
Eurex Futures Market Close
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