South Korea Manufacturing BSI Index (Feb): 80 (Prev. 83). (Newswires)
North Korea called off a joint Olympic event at Mount Kumgang, according Seoul. (Twitter)
New Zealand Trade Balance (Dec) M/M 640M vs. Exp. -125M (Prev. -1193M, Rev. -1223M)
New Zealand Trade Balance (Dec) Y/Y -2.84B vs. Exp. -3.42B (Prev. -3.44B, Rev. -3.48B)
New Zealand Trade – Exports (Dec) 5.55B vs. Exp. 5.00B (Prev. 4.63B, Rev. 4.61B)
New Zealand Trade – Imports (Dec) 4.91B vs. Exp. 5.10B (Prev. 5.82B, Rev. 5.84B)
NORTH AMERICAN DATA
US Personal Income MM (Dec) 0.4% vs. Exp. 0.3% (Prev. 0.3%)
– US Personal Consumption Real MM (Dec) 0.3% vs. Exp. 0.4% (Prev. 0.4%, Rev. 0.5%)
– US Consumption, Adjusted MM (Dec) 0.4% vs. Exp. 0.4% (Prev. 0.6%, Rev. 0.8%)
US Core PCE Price Index YY (Dec) 1.5% vs. Exp. 1.5% (Prev. 1.5%)
– US Core PCE Price Index MM (Dec) 0.2% vs. Exp. 0.2% (Prev. 0.1%)
– US PCE Price Index MM (Dec) 0.1% (Prev. 0.2%)
– US PCE Price Index YY (Dec) 1.7% (Prev. 1.8%)
US Dallas Fed trimmed mean PCE price index (Dec) +1.8%
US Dallas Fed Manufacturing Business Index (Jan) 33.40 vs. Exp. 25.3 (Prev. 29.70)
EQUITIES: SPX -19 points at 2853, DJI -181 points at 26436, NDX -35 points at 6988
Top sectors: Healthcare +0.02%, Consumer Cyclicals -0.07%, Consumer Non-Cyclicals -0.08%
Bottom sectors: Energy -1.01%, Utilities -0.83%, Materials -0.71%
Stocks retreated from record highs in Monday trade, with losses broad-based across sectors. Energy losses were inspired by weaker crude prices; tech was hit after reports that Apple will slash iPhoneX production in half. Telecoms stocks were also in focus; US officials denied anything had been finalised to nationalise 5G networks on national security fears. In M&A, Keurig Green Mountain said it will but Dr Pepper in a $21bln deal.
The earnings slate has some huge hitters this week: On Tuesday, McDonald’s and Pfizer are the highlights; on Wednesday, Eli Lilly, Lockheed Martin and Anthem stand-out; on Thursday, Apple, Amazon, DowDuPont, Time Warner are on the slate; and on Friday, Exxon, Chevron and Merck are the standouts.
TREASURIES: US 10-Year T-Note futures settle 8 ticks lower at 121-26
Bear-steepening was the theme for the US Treasury curve on Monday, with yields on 10s rising above 2.72% to the highest levels since 2014. Technical analysts were pointing out that 10-year yields had broken key technical trendlines dating back to the 1980s. Major curve spreads were also wider at settlement (2s5s +c.2bps, 2s10s +c.3bps, 2s30s +c3bps). Traders are expecting the US Treasury’s quarterly funding announcement on Wednesday to see UST issuance raised.
Additionally, some are also expecting the FOMC to hawkishly tweak its language at the conclusion of its policy meeting on Wednesday, to prepare markets for a rate hike. CME Fedwatch indicates there is only a 4.1% probability of a hike at this week’s meeting, and a 60% chance of three hikes in 2018 (as the Fed has forecast).
NAFTA: After the sixth round of NAFTA negotiations, US says progress being made to warrant moving forward with a fresh round of talks, but pace needs to pick up. Meanwhile Canada has welcomed a 5-ear NAFTA review, but noted that there is a significant gap with the US’ position. Mexico’s Economy Minister Guajardo says we are at a better moment in this NAFTA negotiation process, says there has been flexibility from the three nations which is leading to constructive proposals, adding negotiations can conclude between February and July, and says we could reach an agreement within this time frame, and said that Mexico does not have the luxury of suspending this NAFTA negotiation process due to elections in Mexico and US. (Newswires)
EU offered to allow the UK to keep membership benefits for 21 months post-Brexit, but the UK would also not be able to block new EU laws during the transition period. (Newswires)
MPs could lose seats in new sexual harassment sanctions, say sources. MPs could lose their seats if found to have engaged in sexual harassment or bullying under proposed new guidelines, the Guardian understands. The proposed sanctions, put together by a cross-party working group set up to formulate a new process for sexual harassment complaints, include the parliamentary commissioner for standards being granted powers to suspend MPs, which could lead to recall – a process whereby MPs can lose their seat. Sources close to the working group said the recommendations would be “serious and heavyweight”. (Guardian)
DXY up 0.3% heading into APAC trade
The USD was supported by a steepening US yield curve, driven by expectations that the Federal Reserve may hawkishly tweak its post-meeting statement at the conclusion of its meeting on Wednesday to prepare markets for an upcoming hike. There is also an eye on employment data at the end of the week, which is expected to show 180k nonfarm payrolls were added to the US economy in January, and AHE Y/Y is seen ticking up to 2.6%. The USD also gained vs the EUR on portfolio rebalancing on month-end, following another rise in spec longs to fresh all time highs for the single currency. The buck was little changed following the mixed PCE data.
The EUR continues to linger just beneath the 1.24 handle against the buck, having fallen to as low as 1.2340 in European trade as the dollar advanced. However, some traders find EUR weakness an opportunity to buy given the narrative of a recovering Eurozone economy, inflation expectations rising (the 5y5y inflation swap forward hit 1.80% last week), as well as a tilt towards righter policy among some ECB policymakers.
GBP was hit by USD strength, but managed to defend the 1.40 level successfully. There was little positive reaction from news that the EU has agreed its position on its Brexit stance, and that stance is aligned with the UK’s own position, though there remains a gap between the EU and the UK on a number of issues regarding the eventual transitional deal. EURGBP advanced to the 0.88 figure.
Havens were lower on USD strength, with gold slopping to the $1340 mark, while the yen is flirting with 109, though USDCHF couldn’t get its head back above 0.94.
CAD was mostly drifted sideways, seemingly caught between positive comments after the conclusion of the sixth round of NAFTA talks, though crude prices slipping kept the Loonie negative against the Buck. EM’s were generally on the back foot in the face of Greenback strength, and the MXN was no different, losing out by 0.66%.
WTI futures settle 58 cents lower at $65.56 per barrel; Brent futures settle $1.06 lower at $69.46 per barrel
With little fundamental newsflow, the dollar strength was being attributed to commodity weakness on Monday, though crude is still likely to put in the best January showing in five years. The Street looks for a small build in crude stocks this week, the first build in 11 weeks; headline crude stocks are seen rising by 100k barrels, distillates are expected to drawdown by 1.5mln barrels, gasoline is seen building by 1.4mln barrels. Genscape was said to have forecast Cushing stocks will draw by 2.6mln barrels in the latest week.