DOWNLOAD FULL MARKET WRAP REPORT WITH NEWS SUMMARY AND DAY-AHEAD PREVIEW HERE US major equity indices up, Treasuries lower, dollar slightly higher, crude up Trump continues tough trade talk, hitting CAD and MXN EUR neutral as German SPD vote off-sets Italian election uncertainty RBA overnight; BOC, ECB, BOJ later this week; CERA week in focus for energy traders
EQUITIES: SPX +1.1% at 2721, DJI +1.3% at 24880, NDX +1.0 at 6881. Sectors: Energy +1.1%, Materials +1.4%, Industrials 1.2%, Consumer Discretionary +1.1, Consumer Staples +0.9%, Healthcare +0.9, Financials +1.4, IT +0.9%, Telecoms +1.0, Utilities +2.0.
Equity traders ignored the spectre of trade wars, with indices swinging higher in afternoon trade, with the EMINI S&P 500 climbing back to the 2720 level. Gains were broad-based, with all major sectors in the green. Some expect Trump to back-down from his tough trade talk, as senior GOP members, like Paul Ryan today, urge the President to not implement tariffs.
FOREX: DXY +0.2% HEADING INTO APAC TRADE AT 90.084.
The USD was stable on Monday amid trade war rhetoric out of the US, and promises of retaliation from other countries; the buck was supported by Treasury yields, with the curve bear-steepening; there was little action after generally upbeat non-mfg ISM and Markit PMIs. JPY has gradually weakened since the dovish testimonies of BOJ Dep Gov Wakatabe and Amamiya at their confirmation hearing before lawmakers overnight, but action seems capped by 106.20, which was solid support last week. The CAD was the day’s highest profile casualty, and USDCAD printed fresh YTD highs near 1.30 (said to be a barrier in play at the level) after US Pres Trump tweeted about “large” trade deficits with Canada and Mexico, and that NAFTA has been a bad deal for the US. MXN was also on the back foot, though the air seems thin as USDMXN approaches the 19 handle, and the USDMXN dropping to session lows in late trade as the NAFTA press conference was underway (lows around 18.7750 at the US cash close). EUR was battling competing drivers: on the one hand good news from Germany, after the SPD members voted to join a grand coalition, however, weekend elections in Italy raise uncertainty levels, with M5S the largest party, though some note it will be difficult for them to form a coalition; the net effect was EUR trading neutral around the 1.2325 area. AUD trades flat ahead of this evening’s RBA rate decision, where it is expected to keep rates unchanged at 1.50%, while the NZD’s price action was being dictated by the USD-side of the pair. GBP was boosted after solid services PMI in the European morning, which rose above expectations, helping to push cable above 1.38. The currency got a lift before the European close, after reports suggested that the UK is close to a transition agreement, which pushed GBP through the 1.3850-60 resistance; but the currency couldn’t stay at those levels, and after sobering talk from Barnier aide who said a transition agreement is only certain at the end of Brexit talks, GBP began to ease.
CRUDE: WTI FUTURES SETTLE $1.32 HIGHER AT $62.57 PER BARREL; BRENT FUTURE SETTLE $1.17 HIGHER AT $65.54 PER BARREL.
Oil was trading higher pre-US open, after weekend news that production at Libya’s Sharara field had been halted; however, NOC is said to have resumed pumping, with output expected to rise towards 300k BPD on Tuesday. The familiar narrative that has been weighing on crude returned, however, when IEA forecast US production would by 2.7mln BPD to 12.1mln BPD by 2023. This kept crude on the defensive, but oil did catch a bounce after Genscape reported that Cushing may show a draw of 687k barrels this week. This week, analysts expect crude stocks to build by 3.0mln, distillates are seen drawing 1.3mln barrels, and Gasoline is forecast to draw 1.8mln barrels. Attention will also be on comments from CERA week, where some big wigs of the energy industry are speaking.
FIXED INCOME: US 10-YEAR T-NOTE FUTURES SETTLE 4+ TICKS LOWER AT 120-21.
Treasuries were bid in the US pre-market, with concerns about the potential fallout from trade wars keeping traders looking for safe assets, and some traders also cited Italian political risks as being supportive at the margin. Treasuries were also said to be influenced by the impending corporate supply from CVS after its $69bln acquisition of Aetna (could see $40bln of supply from CVS), which has been well telegraphed. The risk tone improved after the US open, when equities and crude began rising, helping the curve to modestly bear-steepen (2s +0.4bps at 2.2418%; 5s +2.6bps at 2.6485%; 10s +3.1bps at 2.8881%; 30s +3.3bps at 3.1646%). Ex-bills, there is no supply out of the US Treasury this week, though it is expected to announce $62bln of 3s/10s/30s to be auctioned next week.
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