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Morning Briefing November 5th 2019

Data events to look out for on Tuesday include the UK’s services PMI which is published at 0930GMT, followed by the release of the EZ’s producer price inflation at 1000GMT. In the US the publication of the ISM Non-manufacturing PMI at 1500GMT will be closely watched.

The UK’s services PMI is forecast to move sideways in October with markets pencilling in a 0.2-point uptick to 49.7. The index shifted below the 50-mark in September for the first time since March and the fifths time in over a decade. The report notes that the employment indicator saw the sharpest drop in over nine years. Both new and outstanding business decreased in the previous month and firms were the least optimistic of future growth of activity since July 2016. The recently released Gfk survey states that UK consumer confidence dropped to -14 in October. Meanwhile, the CBI distributive trades survey and the BRC shop price index reported declining sales in October.

Markets are looking for EZ producer prices to rise by 0.1% on a monthly basis in September, while the annual rate is forecast to deteriorate further to -1.2%. The yearly PPI declined by 0.8% in September, hitting its lowest level since September 2016. September’s decrease was led by a sharp drop in energy prices which fell by 4.9%, the largest drop since August 2016. Meanwhile, prices for non-durable consumer goods were the only category to reveal an annual uptick. The recently published manufacturing PMI survey states that producer prices fell again in October at a rate little changed from September’s 3.5 year low.

ISM Non-manufacturing PMI about to rise?

The ISM Non-Manufacturing PMI is expected to edge up to 53.4 after falling by 3.8 points to 52.6 in September. The report notes that the index grew for the 116th consecutive month in September. September’s downtick was led by a sharp decline in the business activity index and the new orders component. On the other hand, the order backlog indicator revealed the largest monthly increase. Imports fell below the 50-mark in September, marking the only component in contraction.

Tuesday’s highlights in terms of events are speeches by Dallas Fed’s Kaplan and Minneapolis Fed’s Kashkari.

Global Economic Trading Calendar


BOND SUMMARY: Positive reports re: Sino-U.S. trade matters (albeit caveated), a lack fresh dovish impetus from the RBA & and adjustment to the BoJ’s latest round of Rinban ops (designed to steepen the JGB curve) pressured core global FI overnight.- T-Notes last -0-04 at 129-14+, with the Tsy curve steepening as yields print 1.0-2.8bp higher on the day across the curve at writing. – Aussie bond futures struggled post-RBA, with a lack of fresh dovish impulses noted. YM -4.0 at writing, while XM trades 3.5 ticks lower on the day. Bills are running 1-4 ticks lower through the reds.- JGB futures were pressured by a reduction in the size of the BoJ’s latest 10-25 Year Rinban ops, with that area of the curve underperforming in the wake of the move. BoJ Governor Kuroda & his Deputy Amamiya offered up little new re: MonPol in their latest addresses, although Kuroda suggested that the MoF could issue more super-long JGBS to avoid a drop in yields, once again expressing his preference for a steeper yield curve. JGB futures last print 43 ticks lower vs. settlement, with a degree of catch up evident after the long weekend in Tokyo.

STOCKS: A limited session for the bulk of the major regional Asia-Pac equity indices, which looked through the latest, caveated headlines re: Sino-U.S. trade matters.- The Nikkei 225 was the exception, outperforming as traders returned from the long Tokyo weekend.- Also worth flagging that the PBoC lowered the rate applied to its 1-Year MLF ops (by 5bp), providing modest support for the major mainland equity markets.- The 3 major U.S. equity index futures managed to register all-time highs on the back of the trade war related headlines, but follow through was lacking.- Nikkei 225 +1.5%, Hang Seng +0.3%, CSI 300 +0.6%, ASX 200 +0.3%.- S&P 500 futures +6, DJIA futures +57, NASDAQ 100 futures +21.

OIL: A bit of a nothing Asia-Pac session for the major crude benchmarks if we are being honest, with WTI & Brent both ~$0.10 lower than their respective settlement levels at writing. Monday saw the benchmarks settle a touch higher (although still shy of intraday highs) after a negative start, as they benefitted from the risk-on tone that spilled over into U.S. hours.- Supply side factors were also at play. Local reports covered comments from the Iranian Oil Minister, who noted that he expects further production cuts to be agreed at the next OPEC meeting, which is slated for December.- Questions continue to circle re: the length of the outage for the Keystone pipeline owing to the well-documented leak in Dakota, with no estimated time for restart forthcoming at present.- Elsewhere, Monday saw Saudi announce that it will be lifting OSPs for Asian customers for the month of December by $0.40/bbl.- API inventory data will draw attention later on Tuesday.

GOLD: The latest round of trade war related headlines (which were positive, albeit heavily caveated) applied some modest pressure to the yellow metal in Asia hours, but spot has stuck well within the confines of Monday’s range.- Gold last trades $3 or so lower at $1,506/oz after the uptick in risk sentiment & U.S. Tsy yields pressured the yellow metal on Monday.

FOREX: Participants shied away from safe havens, convinced that the U.S. and China are edging towards their initial trade pact. An FT headline suggesting that the White House considers removing some of the tariffs on China inspired a round of risk-on flows, even as the full story was heavily caveated. JPY remained on the back foot since. The Antipodeans shed gains registered of the FT headline, but regained poise after the RBA left its cash rate unchanged (in line with forecasts), while failing to communicate urgency to ease policy further.- The yuan drew support from trade optimism. As a result, USD/CNH yet again probed the water below its 100-DMA & a key support zone, despite posting a knee-jerk higher after the PBoC trimmed the interest rate on its 1-Year MLF. Chinese Pres Xi delivered a speech at the trade expo in Shanghai, pledging to continue opening up the economy, while boosting imports through lower tariffs.

Technical Analysis


Z9 Bund retains a softer tone having last week failed to deliver a clear break of key resistance at 171.96 last week, touching a high of 172.03 Thursday. 172.03 marks key resistance where a break is required to signal a bullish reversal. A break higher would likely also have positive momentum behind it with these indicators having recently unwound an oversold condition. Primary support is at 170.56, the focus is on this support for now as futures trade lower.


EUROSTOXX50 was firmer yesterday as risk-on sentiment continued to dominated. The clear break of 3637.94, Oct 28 high confirms a resumption of the underlying uptrend paving the way for strength towards 3700.00 and 3748.12 beyond. Momentum studies are in a clear bull mode reinforcing the current bullish theme. Moving average studies too are firm. On the downside, support has now been defined at 3593.60.

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