RANsquawk Daily US Opening News – 7th November 2018

To download the report, please click here
If you would like to subscribe to receive the research sheets directly in your inbox, you can now do so under the Research Suite section of the portal.
To subscribe simply check the box next to “Email these reports” under the desired category.

Democrats have taken control of the House, while the Republicans retain control of the Senate, as expected European equities are positive across the board as investors digest the consequences of a split Congress, with US equity futures edging higher DXY lost the 96.00 handle as currency markets factor in the prospect of policy protraction and a more difficult passage for President Trump’s fiscal agenda through a divided Congress Looking ahead, highlights include weekly DoE crude inventories, RBNZ rate decision, and supply from the US US MID-TERMS

Democrats have taken control of the House after having currently gained an estimated 27 seats, while the Republicans retain control of the Senate after picking up a projected net 2 seats. (Newswires) Note, the outcome of Democrats taking control of the house and Republicans of the Senate was the market consensus.

ASIA

Asian equity markets traded cautious as all focus centred on the US mid-term election results. A strong start for the Democrats weighed on US equity futures in early trade, although stock futures then recovered after further results and projections trickled in which suggested the unlikelihood of a Blue Tsunami (Democrat-controlled House and Senate) as the Republicans won in key Senate battlegrounds such as Indiana and tightly-contested Texas. As such, there was a non-committal tone in most Asia bourses with ASX 200 (+0.4%) and Shanghai Comp. (-0.7%) choppy, while Nikkei 225 (-0.3%) was initially bolstered by recent favourable currency moves before dipping into the red. Hang Seng (+0.1%) briefly outperformed amid a tech-led surge, before slipping into the red. Finally, price action in 10yr JGBs reflected the non-committal risk tone as participants second-guessed the election results and amid jittery trade in T-notes.

PBoC skipped open market operations for a net neutral daily position. (Newswires)

PBoC set CNY mid-point at 6.9065 (Prev. 6.9075)

China is planning new tax-cut measures. (Economic Information Daily)

UK/EU

UK PM May has created five new business councils to advise on how to create the best business conditions in the UK after Brexit. (BBC)

DUP Chief Whip Donaldson says we don’t want a no deal, and the backstop is about annexing Northern Ireland from Britain; adding that it is in the public’s interest for UK government legal advice on the backstop to be published. (Newswires)

Irish PM Varadkar says that we are entering what he hopes will be the final few weeks of striking a deal on Brexit; the objective of avoiding a hard border is more important than the mechanism and is willing to consider a backstop review clause. Adding that it is possible to come to an agreement on Brexit in November, with the view of having a summit in December. (Newswires)

BBC Political Editor Laura Kuenssberg tweets that chatter that an amendment calling for Irish border legal advice may be laid next week, and would have the support of the DUP and Brexiteers. (Twitter)

Swiss government states that following talks with SNB’s Jordan, the CHF remains highly valued, inflation is too low, the FX market is fragile and are ready to intervene in FX markets. (Newswires)

ECB’s President Draghi told Italian Finance Minister Tria to stick to fiscal discipline beyond EU rules at the closed-door EZ Finance Minister meeting; according to sources. Italy’s Finance Minister Tria told EZ finance Ministers that he acted as a politician rather than an economist in budget talks. (Newswires)

EQUITIES

European equities are positive across the board as investors digest the consequences of a split Congress, with US equity futures edging higher as some traders see the Democratic House majority as a prospect for trade policies to be reeled in slightly, albeit a lot of powers will still be retained by Trump. It is also worth noting the split Congress may translate to less fiscal stimuli as US tax reforms would face greater obstacles when passing through Congress.

In terms of how the results could affect specific sectors, infrastructure names may be impacted as a split in Congress could further delay the process to pass Trump’s ambitious spending boosts, while healthcare names may also take a hit as Democrats pledged to lower drug prices in a response to US citizens’ concerns about healthcare. On the flip side, automakers and miners may fare better if markets believe the Democrat win might be able to water down Trump’s trade reform. Finally, clean-energy names may also be supported as a  greater Dem influence would benefit these companies given Trump’s scepticism on global warming.

Going back to Europe, sectors are largely experiencing broad-based gains, while IT names lag. Spain’s IBEX outperforms as banking names (Caixabank +3.8%, Sabadell +2.9%, Santander +2.8%, BBVA +2.4%) benefit from reports the Supreme court ruled that banks are not required to pay mortgage stamp duty, which saves the banks from potentially having to reimburse billions of EUR to borrowers, although source reports noted that the Spanish government is to propose a law change so banks pay mortgage stamp duties, which contradicts the ruling. In terms of individual movers, Adidas (-1.9%) is the laggard in the German benchmark after revenues missed expectations, while Fresenius Medical (+9.0%) and Mediclinic (+5.0%) rose to the top of their respective indices after voters in California rejected a proposal to cap profits on dialysis companies.

FX

DXY – A relatively marked retreat in the index amidst broad Greenback losses in wake of the US mid-term elections, as currency markets factor in the prospect of policy protraction and a more difficult passage for President Trump’s fiscal agenda through a divided Congress. The DXY has lost grip of the 96.000 handle and also breached pre-NFP lows to test support/underlying bids around 95.700.

NZD – The Kiwi is just outperforming G10 peers with the added incentive of strong Q3 NZ jobs data in the run-up to tonight’s RBNZ policy meeting following an acceleration in Q2 inflation. Nzd/Usd has flown through 0.6750 and now approaching 0.6800, with the possibility of a more upbeat accompanying statement from the RBNZ likely to provide more momentum.

CHF/EUR/AUD/GBP – Also firmly ahead vs the Usd, with the Franc back above parity and almost testing 0.9950 resistance despite latest SNB assurances that an accommodative and proactive stance is necessary due to fragile FX moves. The single currency has put aside persistent Italian budget concerns to clear some key upside technical levels, including 21 and 30 DMAs (1.1453 and 1.1479 respectively) to test a Fib just a fraction below 1.1500 where a whole host of orders are anticipated ranging from stops, option expiry and barrier hedging. The Aud is partially piggy-backing its antipodean counterpart, as the cross holds above 1.0700, but also extending post-RBA gains after upgrades to the 2018 and 2019 growth outlooks to probe offers/resistance ahead of 0.7300. Meanwhile, Cable continues to climb on Brexit hopes as well as the indirect bid via Buck weakness, and has now advanced above 1.3150 to circa 1.3175.

JPY/CAD – Both lagging other majors amidst the post-midterm Dollar demise, but still well ahead and rebounding from recent lows around 113.00 and 1.3075 respectively, with the Loonie also benefiting from a recovery in oil prices amidst reports that Russia and Saudi Arabia may discuss crude output cuts in 2019.

EM – Everyone’s a winner vs the increasingly down-trodded Usd, and even the Rouble that could yet face more US sanctions – Usd/Rub sub-66.0000.

COMMODITIES

Brent (+1.0%) and WTI (+0.9%) are both higher on the day due to dollar weakness and general market sentiment, with a recent uptick in prices attribute to sources noting that Russia and Saudi Arabia are to begin discussing production cuts in 2019. In regards to Iran, the Nigerian oil minister stated that OPEC needs data on Iranian oil production ahead of the 6th December meeting, while adding that Iranian sanctions may not lead to a “nose dive” in Iranian oil output.

Last night’s API crude inventories showed a build of 7.8mln barrels, which was more than three times the expected 2.4mln barrels. Traders will be mindful of the weekly DoE crude inventories for any signs of rising US crude production.

Gold (+0.7%) hovering near session highs of USD 1235.4/oz as a weaker dollar boosts the yellow metal. Elsewhere, copper prices have increased on the back of dollar action and risk sentiment as market fears were alleviated by the GOP’s retention of the senate

Russia and Saudi Arabia are to start discussing oil production cuts in 2019; according to sources (Newswires).

OPEC + countries are to discuss oil output cuts for 2019, due to concerns about increases in oil inventories. (Newswires)

Nigerian Oil Minister says OPEC needs data on Iranian oil production ahead of the 6th December meeting; adding that Iranian sanctions may not lead to a “nose dive” in Iranian oil output. (Newswires)

US API Weekly Crude Stocks (Nov 2) +7.8mln vs. Exp. +2.4mln (Prev. +5.69mln). (Newswires)

FIXED INCOME

More choppy price action in bonds vs broadly one-way Dollar selling in FX, as core debt futures succumb to renewed downside pressure and BTPs continue to outperform (not far from 123.00 at best). Bunds just hit a new Eurex low at 159.56 (-14 ticks vs +19 ticks at best), while Gilts are retesting their intraday base having briefly extended to the topside and reaching 121.65 earlier (+17 ticks) and fading fast amidst strength in EU stocks and more Brexit headlines touting progress in talks between the UK and EU, but little else concrete. Turning to US Treasuries, futures remain firm and the curve flatter on the more taxing and less fiscally expansive outlook for policy post-midterms rather than the prospect of 30 year supply and a still relatively hawkish FOMC.

(RANsquawk)