US JCOS Vice Chair said North Korea has made progress in nuke programme, but has not demonstrated all components of an ICBM. (Newswires)
Some Chinese banks reportedly halted loans to property developers. (Newswires)
US Treasury Secretary Mnuchin said that he supports strong dollar as long-term interest of the US. (Newswires)
Former White House Strategist Bannon will not be appearing before the House Intelligence Committee tomorrow, according to reports. (Newswires)
US Consumer Confidence (Jan) 125.4 vs. Exp. 123.1 (Prev. 122.1, Rev. 123.1). (Newswires)
EQUITIES: S&P 500 -1.09% at 2822, Nasdaq100 -0.82% at 6931 and DJIA -1.38% at 26075
Top sectors: Utilities +0.17%, Telecoms -0.01% and Consumer Discretionary -0.54%
Bottom sectors: Healthcare -2.11%, Energy -2.02% and Financials -1.23%
Month-end equity models were said to favour equity-selling and bond-buying following the series of record gains printed in January. Additionally, analysts were noting that the recent quick rise in yields may not be playing a role in the equity weakness see over the last couple of days. There were also stock specific stories for traders to sink their teeth into: the healthcare sector was slammed after Amazon, Berkshire Hathaway and JPMorgan announced a venture aimed at reducing healthcare costs. Insurer MetLife took a hit from the healthcare news, but was hammered after it said it was placed under an SEC investigation to pay pensions to around 600k customers. The company also said its reserves were not as large as analysts had expected, and would raise those reserves by circa 550mln USD. In earnings, Pfizer fell after its earnings, as did Harley Davidson. Meanwhile, in tech, continued fears that Apple would cut iPhoneX production – possibly due to its staggering price which CNBC says has scared buyers – pressured the company’s shares.
TREASURIES: US T-Note futures settle 5+ ticks lower at 121.20+
Bear-steepening was again the theme on Tuesday, with shorter-dated yields flattish, while longer-yields were around 4-5bps higher. All major curves were wider, with 2s30s up by circa 5bps, 5s30s circa 2bps higher, and 2s10s around 3bps steeper.
Some traders expect the FOMC to hawkishly tweak its language at the conclusion of its policy meeting on Wednesday (preview below), to prepare markets for a rate hike. CME Fedwatch indicates there is only a 5% probability of a hike at this week’s meeting, and a 60% chance of three hikes in 2018 (as the Fed has forecast).
PREVIEW: US Treasury will publish its Quarterly Refunding announcement (Q1 2018) at 1330 GMT/0830 ET on Weds 31 Jan 2018. Barclays estimates that the Treasury will raise the 3-year note issue size by $1bln (to $25bln), and keep the 10-year note and 30-year bond issue sizes unchanged (at $23bln and $15bln respectively). Analysts believe that the Treasury will announce increasing issuance sizes in the coming months, after the debt ceiling negotiations have been completed. “We expect the Treasury to convey that increases in auction sizes will be skewed toward the front to intermediate sector,” Barclays writes, and expects the Treasury to initially focus on 2-year, 2-year FRN, 3-year, and 5-year tenors but at a later date, while raising the 7-year+ issuance sizes as well.
ECB’s Knot said that it’s reasonable to end QE in September, and that he could accept a slow taper. He also suggested that price stability is not at risk and that normalisation is justified. (Newswires)
Ireland has nominated Central Bank Chief Philip Lane for role of ECB vice-president. (Newswires)
German Chancellor Merkel’s CDU/CSU block and SPD may clash on Russian sanctions, according to reports. (Handellsblatt)
EU GDP Flash Prelim QQ (Q4) 0.6% vs. Exp. 0.6% (Prev. 0.6%, Rev. 0.7%). (Newswires)
EU GDP Flash Prelim YY (Q4) 2.7% vs. Exp. 2.7% (Prev. 2.6%, Rev. 2.8%)
German CPI Prelim MM (Jan) -0.7% vs. Exp. -0.6% (Prev. 0.6%). (Newswires)
German CPI Prelim YY (Jan) 1.6% vs. Exp. 1.7% (Prev. 1.7%)
German HICP Prelim MM (Jan) -1.0% vs. Exp. -0.7% (Prev. 0.8%)
German HICP Prelim YY (Jan) 1.4% vs. Exp. 1.6% (Prev. 1.6%)
UK PM May’s Spokesperson told cabinet that the Brexit analysis quoted in the media was initial work, which was not approved by ministers and that analysis did not cover bespoke trade deal arrangements post-Brexit. (Newswires)
UK Trade Minister Fox said that he won’t accept EU deal that keeps the UK in the customs union. (Newswires)
BoE Governor Carney said that wages are picking up, but they are not growing spectacularly. He expects investment in the UK to pick up in 2019 and stressed that the important thing with monetary policy is that as slack in UK’s economy is removed, focus is increasingly on returning inflation to target. (Newswires)
BoE’s Tenreyro said that we have no reason to think that a no deal Brexit scenario will materialise, would prefer a Norway style deal. (Newswires)
BoE’s Vlieghe has been re-appointed to the MPC by government. (Newswires)
FX FOREX: DXY trades 0.10% lower heading into APAC trade
USD trade was choppy on Tuesday; month-end models were said to point towards selling of the buck, but towards the end of the day, and ahead of tomorrow’s FOMC meeting (preview below), the buck began paring back some of the losses seen overnight and through European trade.
Analysts are pointing out, however, that the general narrative of a weaker dollar in 2018 hasn’t shifted very much, and this sentiment will likely get an endorsement from Trump’s State of the Union address overnight (see below for preview).
EUR continues to linger around the 1.24 mark, and will likely take its cue from tomorrow’s Eurozone inflation data, and then in the evening, the FOMC. The EUR did see highs around 1.2450 after news agencies reported positive developments in the coalition talks between the CDU and SPD regarding refugees. Later in the day, the currency looked through a repeat of the hawkish comments ECB’s Knot made over the weekend.
Although analysts have suggested Sterling is a sell-on-rallies, GBP found strength against the USD in month-end dollar selling, and has made its way towards 1.4150 heading into the APAC session (rebounding from beneath the 1.40 level printed overnight), and rose towards .8850 against the EUR. Comments from BOE’s Carney (below) revealed little by way of new information.
Havens were generally bid in overnight Asia trade, inspired by a risk-off tone overnight, and stayed that way in European and US trade. Gold, however, couldn’t rally amid the early USD weakness, likely on the back of rising Treasury yields.
CAD trades flat for the second day ahead of tomorrow’s GDP data for November (0.4% M/M rise pencilled in) and producer prices data for December (seen slipping 0.1% M/M). The Loonie was more resilient to soft crude prices.
Australian CPI data overnight is in focus, and the AUD is lower against other G10 majors heading into APAC trade. The Street looks for a small rise in the Q/Q and Y/Y metrics (from 1.8% to 2.0% Y/Y and 0.7% and 0.6% Q/Q).
COMMODITIES: WTI futures settle $1.06 lower at $64.50 per barrel; Brent futures settle 44c lower at $69.02
US API weekly crude stocks (22 Jan, w/e) 3.229M vs. Exp. 0.100M (Prev. 4.755M)
There wasn’t much by way of fundamental newsflow in the crude space, with oil taking its cue from the macro tone, which was distinctly “risk-off.” Although crude is in the red for the second day, they have put in a run of five consecutive monthly gains. Prices were then further pressured in late trade after the release of the API inventory report which showed a larger than expected build in headline crude stockpiles.
Research from WoodMac was receiving some attention, with the consultancy predicting that the Brent/WTI arb will average $3.90 in 2018, the widest in four years.
Ahead of this evenings API energy inventory data, and tomorrow’s DOE data, analysts expect a small build in crude stocks, 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 1.8mln barrels. Genscape was said to have forecast Cushing stocks will draw by 2.6mln barrels in the latest week.