Morning Briefing November 8th 2019
The week ends with several data releases of note, including the publication of French industrial production at 0745GMT. On the other side of the Atlantic, the release of the Canadian Labour Force Survey at 1330GMT and the Preliminary Michigan Sentiment Index at 1500GMT are worth note.
French industrial production is expected to rebound after August’s slump to -0.9% with markets pencilling in a 0.4% uptick. This would leave the quarterly rate at -1.0% in Q3 after two consecutive positive quarters (Q2: 0.2%; Q1: 0.9%). Annual output is forecast to rise by 0.3% in September following a downtick by 1.4% in August. Forward-looking survey evidence provides mixed signals with France’s manufacturing PMI posting a monthly gain in October. Meanwhile, the Insee’s business confidence survey showed manufacturing sentiment dropping to its lowest since March 2015 in October, while the equivalent BOF index cooled to 96 in September. The European Commission’s ESI remained broadly unchanged in October, with industrial confidence ticking up by 0.4pt to -7.
Canada’s unemployment rate is expected to remain unchanged at September’s level at 5.5% in October. The rate ticked down by 0.2pp in September to a three-month low. Meanwhile, employment rose by 53,700 following an increase of 81,100 in August. September’s gain in employment was mainly driven by an uptick in full-time work. This leaves the quarterly rate at 0.6% in Q3 which is equivalent to an employment increase of 111,000.
Consumer sentiment is expected to rise in November with markets calling for the preliminary University of Michigan Consumer Sentiment Index to show an uptick of 0.5pp to 96.0. Last month’s final consumer sentiment number hit a three-month high as household spending increased despite declining manufacturing and investment activity.
Events to look out for in terms of speeches include San Francisco Fed’s Daly and BOC’s Beaudry.
Global Economic Trading Calendar
BOND SUMMARY: Positive headline flow from White House Press Sec Grisham pointing to a “very, very optimistic” outlook re: a phase 1 trade deal with China was quickly flushed out by trade advisor & well-documented hawk Peter Navarro, as he noted that “there is no agreement at this time to remove any of the existing tariffs as a condition of the Phase One deal. And the only person who can make that decision is President Donald J. Trump. And it’s as simple as that.” This resulted in choppy price action for Tsys, TYZ9 +0-03 at 128-15+, just off highs, yields +0.2bp to 2.2bp & light twist flattening apparent.- Aussie bonds followed broader risk sentiment, YM -3.0, XM -7.0, XM briefly showed below its SYCOM lows. The RBA’s SoMP revealed a downgrade to the Bank’s near-term growth profile, a slightly longer exp. re: the time frame for a return to 2% underlying inflation & flat wage growth over the forecast horizon. Easing bias remained, discussion of -ves of easing in Oct seen.- JGBs looked through announcements re: a Japanese stimulus package to combat overseas risk, with details not yet finalised. Futures -34, curve steeper on the day after early belly underperformance.
STOCKS: Conflicting Sino-U.S. trade war related headline flow made for an active start to the session, with choppy price action ensuing, which has left the major regional Asia-Pac equity markets trading mixed in the final session of the week after the early bid faltered.- The Nikkei 225 struggled above technical resistance that we have outlined in previous bullets, fading back below on the back of the aforementioned headline flow.- Consumer staples provided the notable underperformance on a sectoral basis, with energy fairing relatively well across the region.- U.S. equity index futures ultimately edged lower, after they failed to break above their respective all time highs in early trade.- Nikkei 225 +0.2%, Hang Seng -0.4%, CSI 300 +0.4%, ASX 200 -0.2%.- S&P 500 futures -6, DJIA futures -38, NASDAQ 100 futures -22.
OIL: Crude has traded at the whim of broader risk sentiment over the last 24 hours or so, with little in the way of major oil specific headline flow.- WTI & Brent print ~$0.20 & ~$0.10 below their respective settlement levels at writing after lodging sub-$1 gains Thursday.- Stories worth touching on from the last 24 hours include:- A second failed Brazilian oil rights auction in as many days.- Continued interest in matters surrounding the Saudi Aramco IPO.- Saudi Arabia pointed to a ~150K bpd increase in contracts to supply Chinese buyers in 2020.- RTRS source reports pointing to a “reformer and a hydrotreatung unit (HTU) shut down on Thursday at Motiva Enterprises’ 607,000 barrel-per-day (bpd) Port Arthur, Texas, refinery.”
GOLD: Conflicting headline flow re: Sino-U.S. trade matters made for choppy price action in Asia-Pac hours, although gold stuck to a ~$4/oz range, last +$1/oz at $1,469/oz.- Thursday’s Sino-U.S. trade headline inspired flow pressed the yellow metal through the recent range’s base, but bears couldn’t force their way through the Oct 1 low & bear trigger at ~$1459.0/oz.- Headline flow pertaining to trade flow matters will be pivotal ahead of the weekend, with the yellow metal potentially set to lodge its worst round of weekly performance since May of 2017.
FOREX: Enthusiasm surrounding the touted U.S.-China tariff roll-back agreement dissipated as fresh comments muddied the water. Although a round of risk-on flows emerged as White House spokeswoman was “very optimistic” on the trade deal, the reaction was promptly corrected with White House trade advisor Navarro denying that there has been any agreement to remove existing tariffs.- High-beta FX lost ground eventually & safe havens regained some poise as participants grew sceptical toward earlier trade optimism. AUD landed at the bottom of the G10 basket; it slipped as the RBA’s SoMP included a downgrade to the 2020 growth forecast, talk of slow wage growth keeping domestic inflation pressures in check, and a mention of “other policy options” being considered.- The yuan was unfazed by a wider than forecast Chinese trade surplus, underpinned by beats in both exports and imports. Elsewhere in Asia, INR softened after Moody’s lowered India’s outlook to negative from stable.
BUND TECHS: (Z9) SHARP SLIDE
Z9 Bund sold off sharply yesterday. The bearish price action confirmed once again a resumption of the downtrend that has been in place since Sep 3. An attempt last week to clear the 172.00 handle failed and this continues to weigh technically. A number of key supports have been cleared, the most recent being 170.29, a Fibonacci projection. The focus shifts to 168.71 and 168.50 next. On the upside, congestive resistance has been defined at 170.97.
EUROSTOXX50: BULLISH TREND EXTENDS
EUROSTOXX50 retains a clear bullish focus as prices continued yesterday again to extend higher. The clear break of 3637.94, Oct 28 high this week confirmed a resumption of the underlying uptrend, paving the way for strength towards 3748.12 next, now that 3700.00 has been cleared. Momentum studies continue to point north reinforcing the current bullish theme Moving average studies too are firm. On the downside, initial support is at 3637.96l.
Eurex Futures Market Close
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