Global Macro APAC Morning Brief - China, back in from Golden Week holidays

Happy Macro Tue 8 Oct 2019

APAC Global Macro Morning Brief – China, back in from Golden Week

China finally back in after Golden Week & post the 70^th Anniversary celebrations. Key focus will be next steps on US/CH trade front, as well as if strategy in HK changes with protestors.

KVP continues to believe that Trump is likely going to run a 2020 Re-Election campaign on Tariffs, so highly sceptical of any real deal happening - with that said, Trump did sign trade pacts with Japan yesterday.

Going back to China, bear in mind that second round of tariffs from the US on Chinese goods hits on Oct 15. A delay or cancellation of that would be viewed quite positively by the markets.

At the same time, a break up in talks – now that we are on the other side of the 70yr anniversary – could see decent -3% to -5% pullback in the S&P 500.

At the end of the day, based on the economic data out of the US last wk (with its slew of key misses), that pillar of US consumer strength is now coming under question.  

The (o/n) also had Fed Chair Powell speaking, whilst nothing was publicly said in regards to the economy or markets, he did wave the flag in regards to the independence of the Federal Reserve – no doubt a counter, to the constant barrage that has come from the White House on the need for the Fed to do more.

So far Powell has been reserved, respectful & eloquent in discussing Trump’s reach – perhaps not surprising given that Powell is a lawyer by training & earlier by profession. Still you cannot help but wonder what he’d love to say after a whiskey sour or three.


Cross-Assets Snapshot:

Reversal in Dollar Weakness that saw the likes of USDJPY 107.26 pop by +0.30% & the likes of the Aussie 0.6733 & Kiwi 0.6289 pull back by -0.56% & -0.49% respectively. The DXY closed at 98.9670 up +0.16% for the session. The Swedish kroner was the worst G10 performer with USDSEK up +0.78% to close at 9.9163

YTD the Swedish kronor is by far the worst G10 performer vs. the USD with a total return of -10.76%. The CAD & JPY continue to be the outliers on outperformance vs. the greenback at +3.92% & +2.10% in total returns.

On the emerging currencies front, the dollar steam rolled against Brazil & Turkey, with USDBRL 4.1074 +1.25% & USDTRY 5.8407 +2.34%. The latter had a lot of noise around Trumps lack of clarity on what the US 7 Turkey are doing around Northern Syria, and the implications for the Kurds (US allies)

US bond yields have quite a move o/n, after dropping lower & hitting a low of 1.5034% they closed close to the highs of 1.5648%, resulting in s a -0.30% pullback in US 10yr bond futures. Its worth noting the 2/10 yr curve has gone from c. -6bp a few weeks back, to steepening to these c. +9-10bp

This move up  in yields saw a text book pullback in Gold 1493 -0.74% & silver 17.42 -0.62%

US equities closed lower with the S&P 2939 -0.45%, despite a positive green session across the European equities for the longs. The VIX continues to be bid, with a c. +5% uplift to just under the 18 handle.

Focus today will be where do China equities go? The S&P is down c. -1.3% since China went off-line for Golden Week holidays

This early morning Tuesday, we have US equity futures flattish & Asia equity futures looking strong on the open.

Today:

• CH: Caixin Services PMI also due at 52.1e/p

• JP: Average Cash Earning, Current Account, Household Spending

• AU: Consumer Sentiment Indicators, Note we also had daylights savings change in Australia over the wkd so they go ahead an hour (i.e. now 3hrs difference to Singapore, as opposed to 2hrs)

• UK: Carney speaking at 12:10 SGT/HKT, 00:10 ET, Also have a few MPC members of the BOE speaking later  

• EZ: German Industrial Production

• CA: Housing Starts, Building Permits

• US: Core PPI, Powell @ 01:50 SGT/HKT [13:50 ET], Evans @ 01:35 SGT/HKT [13:35 ET]

  
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