US Futures Slide On Lack Of New "Trade Deal Optimism"; Dollar Ramps Higher

Market Snapshot

  • S&P 500 futures down 0.2% to 2,786.50
  • STOXX Europe 600 unchanged at 375.63
  • MXAP down 0.04% to 159.45
  • MXAPJ up 0.1% to 526.46
  • Nikkei down 0.6% to 21,596.81
  • Topix down 0.3% to 1,615.25
  • Hang Seng Index up 0.3% to 29,037.60
  • Shanghai Composite up 1.6% to 3,102.10
  • Sensex up 0.6% to 36,646.46
  • Australia S&P/ASX 200 up 0.8% to 6,245.62
  • Kospi down 0.2% to 2,175.60
  • German 10Y yield fell 1.5 bps to 0.153%
  • Euro down 0.04% to $1.1303
  • Brent Futures down 0.6% to $65.46/bbl
  • Italian 10Y yield fell 3.1 bps to 2.349%
  • Spanish 10Y yield fell 1.7 bps to 1.137%
  • Brent Futures down 0.6% to $65.46/bbl
  • Gold spot down 0.1% to $1,286.42
  • U.S. Dollar Index up 0.05% to 96.92

Top Overnight News by Bloomberg

  • President Donald Trump is pressuring U.S. trade negotiators to cut a deal with China soon in hope of fueling a market rally, as he grows increasingly concerned that the lack of an agreement could drag down stocks, according to people familiar with the matter
  • Wall Street could face fresh restrictions on bonus payments as regulators appointed by President Trump consider dusting off post-crisis rules that have long been on the back burner, according to two people familiar with the matter
  • The global economy is suffering more than expected from trade tensions and political uncertainty which are clouding prospects particularly in Europe, according to a gloomy report from the OECD
  • Japan’s economy is at risk of sliding into a recession after a demand-sapping sales tax hike planned later this year, despite a raft of government measures to limit its impact, according to Bank of Japan board member Yutaka Harada
  • China’s yuan has been the hottest carry trade in Asia this year, thanks to its rapid advance and muted price swings
  • When Qatar sells debt, it sells big. The gas-rich nation is planning a three-part issuance less than a year after raising $12 billion in one of the largest offerings in emerging markets. It’s joining a host of borrowers across developing nations that raised $336 billion in 2019, a record on a year-to-date basis, according to data compiled by Bloomberg

Asian stocks were mixed following a muted lead from Wall Street in which the Dow, S&P and Nasdaq all closed just below breakeven. ASX 200 (+0.7%) shrugged off poor economic data and advanced as the material and mining sectors lead the gains, while Nikkei 225 (-0.6%) underperformed as the index is weighed on by a marginally firmer domestic currency alongside China-exposed sectors after China’s announcement of tax cuts yesterday. Elsewhere, Shanghai Comp. (+1.6%) and Hang Seng (+0.2%) gained momentum following yesterday’s NPC announcement alongside effects from the MSCI upgrade last week. RBA Governor Lowe reiterated his neutral stance; RBA has flexibility to adjust monetary policy in either direction, probabilities of a rate hike or cut are evenly balanced. He also stated it is hard to imagine a rate hike this year, and it is unlikely inflation will be a problem anytime soon. Lowe added that he is confident inflation will get back to the middle of 2-3% target range, Q3 and Q4 GDP likely to be significantly below trend. Australian Real GDP QQ SA Q4 0.2% vs. Exp. 0.3% (Prev. 0.3%) Australian Real GDP YY SA Q4 2.3% vs. Exp. 2.5% (Prev. 2.8%).

Top Asian News

  • Trump Is Said to Push for China Deal With Market Gains in Mind
  • U.S., China Trade Deal Leaves Currencies as Fighting Ground
  • Midea Is the Latest China Stock to Near Foreign Holding Limit

Major European indices are moving towards being unchanged [Euro Stoxx 50 -0.1%] after opening lower and subsequently extending losses; in spite of largely stronger performance overnight. The FTSE 100 (+0.1%) is marginally outperforming its peers boosted by strong performance in DS Smith (+4.1%) after the Co. announced they are selling their plastics division for GBP 585mln. Additional support for the index stems from heavyweights British American Tobacco (+3.8%) and Imperial Brands (+1.3%) in the green following FDA Chief Gottlieb resigning, as his tenure was highlighted by a high-profile push to lower youth smoking including e-cigarettes; this may have also result in some upside for US tobacco names such as Phillip Morris. Other notable movers include Schaeffler (-8.4%) at the bottom of the Stoxx 600 following the announcement of a restructuring program and issuing a warning about a challenging and demanding auto market ahead. Separately, Subsea 7 (+3.7%) are higher after they were awarded 3 contracts by Woodside, describe as major contracts, which may exceed USD 750mln in value.

Top European News

  • Not Enough Votes Yet as Brussels Talks Continue: Brexit Bulletin
  • Greek Stocks Party Like It’s 1999 as No-Growth Era Seen Over
  • L&G Tumbles as Cash Boost From Retirement Business Disappoints
  • Biggest Fortune in EU’s East Gets Caught Up in Huawei Scandal

In FX, the DXY hovers just shy of the 97.000 handle and Fib resistance a whisker above (97.004 vs Tuesday’s 97.017 peak). Usd/Jpy is back below 112.00 after what appears to have been a false break-out to circa 112.12 yesterday (and also a fleeting Fib breach), but the pull-back could be shallow given 1.2 bn option expiries running off from 111.80-112.00 at the NY cut. The Franc is holding just off 1.0055 lows and pivoting 1.1350 vs the single currency, while Eur/Usd remains anchored around 1.1300 with 1.1305 eyed as a key chart point on a closing basis and expiries also in the mix as 1 bn resides at the 1.1300 strike.

  • AUD/NZD – No respite for the Aussie as a disappointing Q4 growth update extends the run of mainly sub-forecast data releases and adds more justification for the RBA’s shift to neutral policy mode. In fact, comments from Governor Lowe in the run up to the GDP update could be construed as more dovish on balance given that he effectively ruled out any prospect of tightening this year, while reiterating equal odds of a hike or cut in terms of the next rate move, and the market certainly took heed as Aud/Usd collapsed from just under 0.7100 to circa 0.7024 amidst a cascade of calls for 2 OCR eases of 25 bp by the end of 2019 in line with Westpac’s pre-emptive downgraded forecasts in February. Predictably, the Kiwi saw some contagion to a low not far from 0.6750 at one stage, but Nzd/Usd has rebounded relatively firmly to 0.6780+ on favorable cross-winds as Aud/Nzd extends losses through 1.0400 to 1.0360. Note, however, Aud/Usd may yet derive some traction and get a reprieve to stave off a more concerted test of 0.7000 via decent option expiry interest between 0.7045-50 (1 bn).
  • GBP/CAD – The Pound continues to be buffeted by fluctuating Brexit sentiment after a brief boost courtesy of hawkish-leaning remarks from BoE Governor Carney late yesterday, with Cable back down near 1.3100 and a recent double-base a few pips short of the big figure, while Eur/Gbp has rebounded to the 0.8600 area again. Back to Brexit, and the bottom line remains no further progress after latest high-level talks between UK and EU officials and apparently quite terse negotiations in Brussels as the baton passes to less senior personnel today. Turning to the Loonie, another downturn in crude prices and ongoing angst between Canada and China has culminated in Usd/Cad creeping up further towards the 1.3400 level, as offers said to be layered from 1.3375 to the next round number are soaked up, but the looming BoC policy meeting will likely provide more impetus. On that note, options pricing suggest a break-even of 67 pips for the impending event.
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