Scotia Bank Morning Notes:

Date: 1/02/2020  
     
Events Date: Event Event Comments
  Merry Christmas and Happy New Year *holiday trading volumes this week
  India US trade deal? *India won’t join China backed regional trade agreement
  Hong Kong protest *if Chinese forces move in, will hit emerging market assets
  Rebalancing *traders monitoring equity to bond rebalance activity
Jan EU auto tariffs *Trump to decide after trade investigations
*conflict with France increase likelihood of auto tariffs
06-Jan PBOC RRR cut *cut by .5 ppt
14-Jan Fed REPO ops *mkts monitor if fed scale back support, with current expectation of continued support, mkts will move if fed support fades
15-Jan US China phase 1 deal signing *signing text translations approved, pending official signing in Jan
*signing is important as traders still wait for confirmation of signed deal
*will be signed after translation completed and verified in Chinese and English
31-Jan Extended Extended Brexit deadline  
Markets Ticker Comments
Macro    
    *IMF cites high corporate debt vulnerable for US and China
*US balance sheet is shrinking, but EU and China balance sheet still growing
*BoC highlights risks monitored <- economy capacity, inflation, wage dynamics, sensitivity to higher rates with elevated debt
*BIS says China, HK, Canada most risk of banking issues
Rates    
  TSY *mkts scale back rate cut expectations
*Powell on hold comments didn’t lift rates
*traders closely watch comments of treasury purchase and unwind plans
*FED favouring  shortening balance sheet duration
*FED slowing hikes will avoid inversion repricing
*Fed balance sheet target estimate ~$1700 bb
(Powell: Between USD2,500-3,000bn within three to four years with mainly treasuries on balance sheet: mkts think a bit optimistic)
  IHY *central banks tighten, but balance sheet still expending
  BTP *Italy comment 2020 budget aim between 2% and 2.1% provide support
Equities    
  SPX *hints of QE for equity repricing
*US Congress: traders monitoring hints of gov cooperation going forward
*Trump tweets: mkts pricing out tweets as not always indicative of actual reality
*Earnings: mkts believe 2019 projections pricing conservative levels already
  FXI *China ready for stimulus to offset tariffs, not going to stimulate property sector causing property stocks to sell off
FX    
  USD *Mnuchin says no change to U.S. dollar policy as of now, but may in future
*speculation Trump operations  to sell dollar
  MXN *working to avoid Pemex downgrade, Pemex debt swap helping bid
*mkts think oil industry reforms not enough to help
  EUR *EUR inflation not expected to last
*ECB comments on options to help weak banking sector
*Trump could challenge trade as EUR devalues
*no solid bid expected until negative rates lifted
  GBP *drop as no deal risk reintroduced by PM
  AUD *drop with rate cut, employment data to deteremine further cuts
  CNY *most likely move back to within 6 range after trade deal
*CNY becoming petro ccy will faciliate CNY global use
*gains signal China goodwill on trade deal
  CAD *mkts start to price in cut, failed to bid on oil rally
Commodity    
  USO *gs thinks oil will rebound, traders will eye economic data to confirm
*US supply more than offset Iran output, ample US supply will cap price gains in foreseeable future
Credit    
  RATINGS (RATC) *Ireland upgraded to AA- by S&P
*S&P upgraded Spain to A
*Fitch negative outlook on Chinese banks
     
COT Flows S *slight bid on soybeans
  SPX *slight bid
     
     
Central Banks Announcement Date Comments
FOMC   *unch as expected, dot plots show no cuts for 2020
*US China negotiations maybe key if further cuts
*mkts unwinding futher rate cut expectations
BoC   *unch as expected
*lack of tipping dovish comments have traders unwind bearish CAD bets for now
*fwd guidance hint direction can be either way
*bond mkts start to price in cuts as next move, traders think maybe overreaction
RBZ   *announcement of possible neg rate causes kiwi to fall
RBA   *RBA holds as expected
*mkts expect cut if US China trade deal breakdown
*indicate QE will only be considered when policy rate has been lowered to .25%
ECB   *unch as expected, restarts QE Nov
*QE may lossen ISIN limit restrictions in future
*Germany 50bb fiscal package, but not immediately
*cut as primary stimulus measure comments
BoE 19-Dec *unchg expected
*comments (from hawk) may cut 25 bps even if Brexit deal 
BoJ 18-Dec *unch epxected
*CB targeting low interest rates until 2020
     
Mkt News:    
Norway wealth fund plans to remove emerging corporate bonds and linkers from investment, and sell off energy investments
China fintechs granted banking licences in Hong Kong, with eyes on New York and London
Antitrust probe on big tech  
Brazil state owned banks have poetntial heavy losses from construction conglomerate scandal
China take over of Baoshang bank hs caused liquidity strain for bigger Chinese banks who are now more risk averse
IMF chief replacement: Jeroen Dijsselbloem, Kristalina Georgieva, or Olli Rehn <- Kristalina front runner
GS planning to buy E-trade or a bank  
chatter Microsoft interested to buy Bloomberg  
China tech stocks down as gov allocate less to tech investments