Morning Briefing December 4th 2019
Wednesday highlights are multiple services PMI surveys, including from Italy (0845GMT), France (0850GMT), Germany (0855GMT), Eurozone (0900GMT) and the UK (0930GMT), with US ISM non-manufacturing also due (1500GMT).
Italy’s services PMI is expected to slip to 51.2 from 52.2, leaving the composite figure at 50.6 against the prior 50.8. In France, the services index is forecast to register at 52.9, unchanged from the previous reading, with composite PMI also expected to print unchanged at 52.7. Likewise, German services and composite PMIs are projected to stay unchanged, at 51.3 and 49.2 respectively. Finally, market consensus sees Eurozone figures unchanged at 51.5 (services PMI) and 50.3 (composite PMI).
In the UK, services PMI is forecast to register at 48.6, unchanged from the previous reading, with composite PMI also unchanged at 48.5.
US Markit services PMI is expected to come in at 51.6, just like the prior month. ISM non-manufacturing survey is expected to flag a slight cooling in the rate of expansion and print at 54.5 vs. the prior 54.7.
The events calendar throws up speeches from ECB’s Villeroy, Visco, Makhlouf and de Cos, as well as Fed’s Quarles. The main event, however, will be the announcement of the BoC monetary policy decision at 1500GMT.
Global Economic Trading Calendar
BOND SUMMARY: Tsy market participants were happy to sell into strength on the back of the news that the U.S. House voted to sanction Chinese officials over human rights matters surrounding Xinjiang, which was exp. T-Notes turned +ve on the headlines, but last sit -0-05 at 129-28. Yields 0.6-1.1bp higher across the curve. The highlight flow-wise was a block seller of the wings of the TU/FV/TY futures fly, a 10.0K screen buyer of the TYG0 127.50 puts & a ~8.5K buyer of the TYF0 130.00/131.50 call spread. Eurodollar futures 1.0-3.0 ticks lower thru reds. Consistent buying of the EDU0U1 spread provided the highlight there.- Aussie bonds drew support from the weaker than exp. local Q/Q GDP data, with h’hold consumption sitting at a disappointing +0.1% Q/Q, despite rises in house prices & tax cuts. No surprise that gov’t consumption did most of the heavy lifting. H’hold consumption will be a key point of assessment when judging the RBA’s gentle turning point analogy in the coming months. YM +8.5, XM +13.0.- JGB futures drifted lower in Tokyo trade, but still sit +22. 10-Years outperform in cash trade after yesterday’s weakness. Tomorrow’s 30-Year JGB supply presents the next local test for duration.
STOCKS: The major Asia-Pac equity indices struggled in the wake of Tuesday’s trade war developments, which resulted in a negative lead from Wall St. (although the U.S. cash indices closed off of worst levels), with the space looking through the U.S. House passing the bill re: Chinese human rights surrounding goings on in Xinjiang as it was widely expected.- The ASX 200 finds itself underperforming for a second consecutive day.- The IT/tech sector generally struggled across the region.- U.S. equity index futures were contained.- Nikkei 225 -1.3%, Hang Seng -0.2%, CSI 300 -0.2%, ASX 200 200 -1.5%.- S&P 500 futures +1, DJIA futures +5, NASDAQ futures +4.
OIL: WTI & Brent print ~$0.40 & ~$0.50 above their respective settlement levels, aided by reports of a larger than expected drawdown in the weekly API crude inventory headline estimate, with the reports also pointing to a drawdown at the Cushing hub, a smaller than expected build in distillate stocks and a larger than expected build in gasoline stocks. The DoE’s weekly inventory release is due later today.- Participants remain focused on goings on in Vienna, with OPEC+ officials in town. BBG sources suggested that that the OPEC+ JTC did not discuss deeper output cuts on Tuesday, and made no recommendation re: a specific length of extension to the current production pact, per the same sources. BBG sources also noted that the JTC sees overall pact compliance at ~140%.- Russia has flagged that it expects a constructive meeting, while Tuesday also saw Iraq’s oil minister note that “a deeper cut is being preferred by a number of key members within OPEC… my understanding is that they (Saudis) do (prefer it).” The Iraqi oil minister then reiterated that countries are talking about a 400K bpd cut, although he noted that there was no final decision as of yet.
GOLD: Another extremely tight Asia-Pac range for the yellow metal, which trades little changed at $1,478/oz, consolidating yesterday’s trade war angst inspired rally.- Bulls eye a break above yesterday’s high to open the way towards $1492.2/oz, the high from Nov 7
FOREX The Aussie helps bring up the rear in the G10 basket after Australian Q3 GDP report tilted bets for a rate cut at the next RBA meeting to the dovish side. Q/Q rowth was slower than exp., while uninspiring household consumption cast doubt on he supposed merits of tax cuts and rising house prices. On the news front, attention was drawn to U.S.-China squabbles re: the Xinjiang bill passed by U.S. House of Reps, which added to the mounting evidence of a snag in bilateral trade talks, limiting the Antipodeans and bolstering JPY.- A weaker than expected PBoC fix made room for the yuan to soften amid trade war concerns. USD/CNY touched the highest levels in more than a month, even as USD CNH struggled to break out of yesterday’s range. Pessimism re: global trade matters prompted decent KRW sales. This allowed USD/KRW to rally sharply after opening above the 100-DMA, which kept a lid on price action yesterday.- CAD fared quite well ahead of today’s monetary policy decision from the BoC.
BUND TECHS: (Z9) PRESSING AGAINST CHANNEL RESISTANCE
What a difference a day makes! Z9 Bund reversed Monday’s sell-off with an even more impressive rally Tuesday. If futures are going to confirm a resumption of the uptrend that began on Nov 8, we will need to see prices trade through 171.60, Nov 28 high. A break would also confirm a breach of the bearish channel resistance at 171.13 drawn off the Sep 3 high. On the downside, weakness below yesterday’s 169.74 low would see a bearish theme resume.
EUROSTOXX50: TESTING TRENDLINE SUPPORT
EUROSTOXX50 is heavy. This weeks move lower confirms a top in the trend at 3733.45, Nov 19 high. An early signal was provided by a shooting star candle on this day. Furthermore, the break of 3651.51, Nov 21 low and 3637.94, Oct 28 high reinforces the bearish theme that has been established. Attention is on trendline support at 3599.08, drawn off the Aug 15 low where a break would highlight a more significant reversal. Key resistance is 3733.45.
Eurex Futures Market Close
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