US Market Wrap – 25 Sep 2018: Trump renews OPEC criticism

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* SNAP-SHOT: Equities mixed, Treasuries down, crude up, dollar flat/down.
* REAR-VIEW: Trump news OPEC criticism; Navarro expects a final NAFTA vote after November; US Consumer Confidence 18-year high; BoE’s Vlieghe forecasts 1-2 hikes per year; ECB’s Praet plays-down Draghi inflation comments; US 5yr auction tails.
* AHEAD: FOMC, CNB, RBNZ rate decisions; ECB’s Draghi, Mersch; US 7yr notes auction, new home sales.

* TRADE: US Trade Advisor Navarro expects a vote on the final NAFTA deal after November, and said that small things are holding up a big trade deal with Canada. Navarro added that trade will be discussed with the EU at the G20. Additionally, US Trade Representative Lightizer said the US-Mexico trade deal will rebalance US trade deficit with Mexico though an amount of issues remains between Canada and the US, since time is running out and Canada is not making concessions. He also said he will deal with steel and aluminium tariffs after NAFTA is resolved.

* BREXIT: UK PM May reiterated that any deal which breaks up the integrity of the UK is a bad deal adding she would prefer no deal rather than a Canada style outcome. Additionally, an EU document stated that the EU and Britain should have free trade area between them though this cannot extend to the whole of Britain. The document also emphasized that the Chequers proposal would give UK an unfair competitive advantage in the goods market, and that cross border supply chains between EU and UK would not operate seamlessly after Brexit under a free trade agreement. Elsewhere, a Labour Brexit spokesman said it looks like the UK are heading for a bad deal or no deal, and they have not ruled out the option of remain in a second referendum. As a heads up, UK PM May is to meet US President Trump on Wednesday to discuss Brexit and a post-Brexit trade deal; ahead of the meeting May said it is not in the national interest to have a general election, and again ruled out second referendum; says she is not bluffing a that a no-deal is better than a bad deal.

* ECB: ECB’s Praet stated that there was nothing new in ECB Draghi’s speech yesterday (where Draghi stated that he saw a “vigorous” pick-up in underlying inflation – which was a reference to the ECB forecasts, rather than a view about current inflation). Praet noted that instead it will take months before higher wages lift inflation as things are moving slowly but in the right direction.

* BOE: BOE’s Vlieghe said that they are not at the point yet that the BoE would change its smooth Brexit assumptions, claiming his own central forecast, of one/two rate hikes per year, is broadly right assuming wage and productivity growth picks up. Vlieghe added that the QE unwind does not necessarily have a material effect on the yield curve shape or on the economy if it is well communicated and gradual. He vowed that more communication from the BoE can be expected as QE unwind approaches, and expectations are for yield curves to be flat again on average.

* GEOPOLITICS: US President Trump said to be looking forward to having a great relationship with Iran, but Iran must change its rhetoric; Trump added that more Iranian sanctions will follow after resumption of oil sanctions on Iran on 5 November. US National Security Advisor Bolton warned that the US is watching Iran, and “we will come after you” if they cross the US or its allies Trump also announced they are in process of setting a meeting with North Korea. Canada’s Foreign Minister Freeland said she hopes to meet he Saudi counterpart this week to discuss the two nations’ dispute.

* CONSUMER CONFIDENCE rose to a 18-year high at 138.4, higher than the 132 consensus, not far now from its all-time high of 144.7. This suggests consumer spending remains well-anchored in Q3 and signals an encouraging start to Q4, analysts at Oxford Economics said; however, OxEco expects personal consumption to moderate from the strong pace seen in Q2 and expect an average growth rate of 2.5% this year. The differential between jobs plentiful and jobs hard to get widened to 32.5 from 32.0, auguring well for the unemployment rate to keep falling. 

* SPX -0.1% at 2916, NDX +0.2% at 7563, DJI -0.25% at 26495. SECTORS: Energy +0.5%, Materials -0.5%, Industrials -0.3%, Cons Discretionary +0.6%, Cons Staples -0.8%, Healthcare -0.3%, Financials -0.4%, Tech -0.0%, Telecoms +0.1%, Utilities -1.2%.

* STOCK SPECIFICS: Abiomed (ABMD) up on strong performance of Impella heart pumps. Northrop Grumman (NOC) was buoyed with other defence names while US President Trump gave a typically ‘America First’ speech at the UN. Energy names were supported by continued strength of crude (BHGE). McDonald’s (MCD) was higher after Monday announcing a new organisational structure. Nike (NKE) was higher ahead of AMC earnings. Automakers (GM, F, FCAU) were lower after BMW (BMW GY) cut guidance. Some chipmakers – like Intel (INTC), Microchip Technology (MCHP) – were under pressure after a sector downgrade at Raymond James and Keybanc. Centurylink (CL) CFO departed to oversee the Sprint (S) T-Mobile (TMUS) merger, sending shares lower. Financials were trading firmer early doors as yields rose in anticipation of a Fed hike on Wednesday, though struggled to hold on to the highs. Defensive utilities were under pressure. In M&A, sonic Corp (SONC) jumped after Inspire Brands acquired the company for $1.6bln. Square (SQ) introduces Square payroll app, putting pressure on Automated Data Processing (ADP), Paychex (PAYX), eBay (EBAY).

* WTI (X8) SETTLES $0.20 HIGHER AT $72.28/BBL; BRENT (X8) SETTLES $0.67 HIGHER AT $81.87/BBL. Crude continues to tick up, without any major fresh catalysts. US President Trump continued his criticism of OPEC/OPEC+ in his comments at the UN General Assembly, though there was little by way of a sustained/significant price reaction. This has left traders to continue chewing over the impending sanctions on Iranian crude (which kick in on 5 November). “To be clear,” Citi says “we think OPEC’s stance is closer to ‘not now’ than ‘never’, and some additional supply may still be forthcoming after the full OPEC summit in December 3 in Vienna.” But Citi adds that in the meantime the market is posting fresh highs on the assumption that sanctions on Iranian exports will soon reduce overall supply, with the OPEC+ response running behind the curve.”

* US T-NOTE FUTURES (Z8) SETTLE 5+ TICKS LOWER AT 118-14+. The Treasury complex drifted lower on Tuesday, pushing the 10yr yield to a four-month high ahead of the FOMC meeting tomorrow where the MPC is widely expected to hike rate by 25bps. Most of the selling action was concentrated in the front-end and belly of the curve where yields were higher by c.2bps at settlement. 2s10s, 2s30s and 5s30s were all narrower by c1bps. Today’s 5yr note auction tailed by 0.4bps; the bid-to-cover came in at 2.997 showing demand was uninspiring and at the lowest since December. Indirects were awarded the smallest share since May, directs took the highest portion since June and similarly dealers were left with the biggest share since May. On Thursday the US Treasury will auction USD 31bln in 7yr notes.

* G10 FX: Not much additional movement in USD parings, or the DXY that is keeping its head above 94.000, marginally, but the EUR has crept past the GBP at the front of the major pack to revisit resistance ahead of 1.1800, like the 1.1780 Fib, though then found support below that level. With Cable sticky around 1.3150 in comparison, Eur/Gbp is inching back over 0.8950, while Eur/SEK is now probing 10.3600+ levels after the Crown initially held firm on confirmation of Swedish PM Lofven losing a vote of confidence. Elsewhere, the NZD remains a relative performer ahead of NZ trade data tonight and the RBNZ policy meeting on Wednesday, with the OCR expected to be maintained at 1.75%, but some prospect of more upbeat forward guidance given considerably stronger than forecast growth in Q2 – full preview available via the Research Suite.

* AUD, CAD, CHF, JPY: All narrowly mixed vs the Greenback and arguably rotating in tighter concentric circles as the countdown to tomorrow’s FOMC begins in earnest – preview accessible through headline feed or direct for download on the Research suite, but in short another ¼ point hike is all but priced in vs multiple variables via the SEP, policy statement and Fed chair Powell’s presser/Q&A. Aud/Usd is hovering just above 0.7250 awaiting more US-China trade developments and the Loonie is pivoting 1.2950 following latest NAFTA updates via US Trade Advisor Navarro (little issues preventing an accord with Canada, vote on final deal likely after November), USTR Lighthizer (claiming big differences and no concessions from Canada) and Canadian PM Trudeau (potential to build on US-Mexican agreement, but aware of country’s needs and will work to those ends). Conversely, the Franc and Jpy are both still lagging and softer vs the Usd on relative SNB/BoJ vs Fed policy dynamics, with the former 2 firmly in easing mode, but latter all set to continue its normalisation process as noted above. Usd/Chf circling 0.9650 and Usd/Jpy eyeing 113.00 resistance/supply.

* EM: Another rise in Brent prices to just over $82/brl has helped the Rub maintain its recovery momentum (towards 65.5200 at best), but the Ars has been hit hard along with other Argentine assets following the resignation of Central Bank Chief Caputo. In fact, the Peso open was delayed due to a lack of Usd supply and the pair subsequently gapped up over 4.5% to 39.0000+. Elsewhere, the Czk is also awaiting a policy verdict and anticipated 25 bp tightening by the CNB on Wednesday.

* COMING-UP – FOMC RATE DECISION DUE AT 1900 BST/1400 EST ON 26 SEPTEMBER 2018; CHAIR POWELL WILL GIVE A PRESS CONFERENCE AT 1930 BST/1430 EST. A 25bps rate hike is priced in, attention is on December 2018 meeting, as well as the 2019 ‘dots’. Risks that the median ‘dot’ in 2019 may fall given more participants making projections. FOMC forecast horizon will extend through 2021. Click here to access the full RANsquawk preview.

* COMING-UP – RBNZ RATE DECISION DUE AT 2200BST/1600CDT/0500HKT ON 26 SEPTEMBER 2018. RBNZ expected to keep the Official Cash Rate at 1.75%. Expectations for the latest RBNZ rate decision are one-sided for a continued pause with all analysts surveyed forecasting the central bank to maintain the Official Cash Rate at 1.75% where it has been since September 2016. In addition, the central bank is also expected reiterate its view for rates staying expansionary for a considerable period and that the next move could either be a hike or cut. Click here to access the full RANsquawk preview.