Stocks slip post-HD earnings, Fed speak & Biden/McCarthy ahead

NS

Tuesday, May 16, 2020 - 10:19 A.M.

The European bourses have remained relatively stable, but are off their best after a mixed/downbeat ZEW

US futures were rangebound this morning, but have also dipped post HD earnings, -4% before the market

McCarthy will meet Biden at 15:00ET/20:00BST. Yellen will speak before.

DXY is still declining despite a brief upswing, G10s are firmer and GBP rises after weak labor data

Soft Chinese data dents the AUD, Yuan, and base metals

The Fed's flurry of Fed talk is not enough to support the core benchmarks; there is a large demand for UK 40yr syndications

Highlights for the coming months include US Retail Sales, Industrial Production, Biden's meeting with McCarthy, and speeches from ECB Lagarde, Fed Williams, Mester, Bostic, Barr, Goolsbee & Logan.

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EUROPEAN TRADE

EQUITIES

The European stock exchanges have not changed much, but there is a slight bias in favor of the positive.

Euro Stoxx 50

+0.1% as macro drivers were limited, and a mixed/downbeat ZEW saw only a modest trimming in initial performance.

Mixed sectors

Tech

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Utilities

Leading while

Consumer Products/Services

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Autos/Parts

The relative laggards.

Futures prices were virtually unchanged in the States ahead of Fed speakers. The focus was on the upcoming Debt Ceiling talks between President Biden and McCarthy.

ES

Just below 4150

The Q1 report for

Home Depot

The (-4.0%) pre-market pressure has led to some modest pressure.

US Futures

After the bellwether report and missed comp sales, we are in negative territory.

Home Depot Inc (HD)

Q1 2023: EPS 3.82 (3.80), revenue 37.25bln (exp. Q1 2023 (USD): EPS 3.82 (exp. 38.28bln); Comp sales -4.5% (exp. 1.7%), US comp sales -4.6% (exp. 1.9%)

Baidu Inc (BIDU)

Q1 2023: EPS 2.34 (1.80 exp. Q1 2023 (USD): EPS 2.34 (exp. 4.33bln);

Tencent Music Entertainment Group

Q1 2023: Diluted EPS of 0.11 (exp. Q1 2023 (USD): Diluted EPS 0.11 (exp. 0.99bln).

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For a summary of the major European updates including:

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FX

Dollar

DXY continues to retreat as it moves from 102.570 down to 102.190, and then through the 50 DMA.

G10

Rivals are generally more firm in their response.

Franc

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The Yen

Also, Treasury yields are softer and trade above 0.8950 and 135.00 respectively.

Aussie

Westpac's consumer sentiment is declining.

Yuan

Weakens as a result of Chinese data below expectations. AUD/USD is capped by good option expirations between 0.6670-10. USD/CNY, and USD/CNH are back above 200 DMAs.

Euro

Probes 1.0900, and the

Pound

eyes 1.2550 after overcoming weak UK labour metrics.

The PBoC has set the mid-point of USD/CNY at 6.9506 vs. 6.9500 (prev. 6.9654)

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For today's NY Cut, here are the important FX expiries.

Fixed Income

Debt

The market is fading, but it remains solidly underpinned in the face of a busy agenda for the evening including US primary data and the latest round of Fed speakers.

Bundles

,

Gilts

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T-note

All peaks are between 136.38-135.81 and 101.15-100.85, with a range of 115-18+/06+.

40-year

UK syndication

The book will be worth almost 10% more than the GBP54bln.

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for more detail.

COMMODITIES

Crude benchmarks

The session began with a firmer tone, but has since slipped into a negative zone. This is only a modest decline as the risk sentiment continues to deteriorate from its initial highs and Chinese activity data remain tainted.

WTI

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Brent

Around. USD 0.40/bbl down on the session, currently pivoting between USD 70.50/bbl & USD 74.50/bbl respectively.

IEA Monthly Oil Market Report

Click here to learn more about oil demand in 2023. It is expected to rise by 2.2mln BPD to a new record of 102mln BPD. (Compared to April's view of 101.9mln BPD). Click

Here is a link to the article

for more detail.

According to NDRC, China will reduce diesel prices by CNY 365/ton.

Spot

gold

The USD rose briefly in early morning Europe, but the USD is still within the familiar parameters.

Base metals

Weakness is affecting the economy in general after the disappointing Chinese activity numbers.

The Kremlin of Russia says that many questions remain unanswered regarding the Russian portion of the

grain deal

Russia must decide whether or not to renew the agreement.

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NOTEABLE HEADLINES

German VCI Chemical Association confirms its 2023 guidance of a 5% decline in production (8% ex-pharma). ).

DATA RECAP

Employment Change (Mar.) 182k vs. 160k (Prev. 169k)

UK Average Weekly Earnings (Mar) 3M YY 5.8% vs. 5.8% (Prev. 5.9%, Rev. 5.8%); Ex-Bonus (Mar) 6.7% vs. Exp. 6.8% (Prev. 6.6%)

ONS reports that there were 556 000 working days lost due to labour disputes in March 20,23. This is up from 332,000 days in February 2023.

Current Conditions (May), -34.8, vs. -37.0 (Prev. -32.5)

NOTEABLE US HEADLINES

Fed Vice-Chairman of Supervision Barr, (voter), said that bank stress is a sign to be vigilant but also noted that the US Banking System remains strong and resilient.

According to Reuters, all deposits made in the banking system should be safe.

US President Biden will meet with US House Speaker McCarthy on Tuesday to discuss the debt ceiling. He will also be meeting with leaders of Congress.

While a senior official stated that President Biden's and House Speaker McCarthy’s

Debt ceiling meeting scheduled for 15:30 BST/20:00 EDT

Sources suggest that the White House and Congressional staff has been meeting on the debt limit for several days, but they are making progress.

Michael Burry, the Big Short investor, bet on regional banks in the first quarter of this year and bought shares of distressed banks

First Republic, before JPMorgan (JPM) bought it.

Click here to read the BofA Global Fund Managers Survey for May. Investors are pessimistic, Fed is done and risk assets will be resilient as long as it's a soft landing. Click

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for more detail.

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Early Morning Note for US

GEOPOLITICS

The head of the Ukrainian Presidential Office said that air defence systems had repelled attacks as early as Tuesday morning, and Twitter sources reported explosions in Ukraine’s capital Kyiv.

Furthermore,

Kyiv officials said later that the Russian attack had been complex and was exceptional in its density. However, they noted that the vast majority of the targets were shot down.

Al Arabiya reported that five Russian border guards had been injured by a Ukrainian drone in an attack on a border observation post.

US senior administration officials said US President Biden’s Asia trip would show that the US could both support Ukraine while maintaining an unprecedented level in Indo-Pacific engagement.

Biden's discussions with Japan and South Korea at the G7 are expected

North Korea, the expansion of military exercise, and economic security are all covered.

According to Reuters.

CRYPTO

According to CoinDesk, the EU Council Finance Ministers unanimously approved Markets in Crypto Assets Regulation (MiCA) as well as anti-money laundering regulations "that could make it the first major jurisdiction to regulate the industry", as expected.

APAC TRADE

APAC stocks

The market traded in a mixed manner and only partly sustained the momentum of Wall St. Stocks were led higher by a short squeeze on US regional banks, but the upside was capped off by a disappointing NY Fed Manufacturing Survey and concerns about the debt ceiling. Markets also digested data from China that was weaker than expected.

ASX 200

The risk appetite was also dampened due to a decline in consumer confidence.

Nikkei 225

The economy strengthened after earnings continued to be the focus in Tokyo, including Japan's major banks and after TOPIX reached a new 33-year high.

Hang Seng

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Shanghai Comp.

Hong Kong's economy was bolstered by the tech sector after reports that investor Michael Burry, known as 'Big Short', increased his bullish bets in e-commerce companies.

JD.com

Alibaba, the mainland suffered from disappointing data on China's activity. Industrial Production, Retail Sales, and Fixed Assets Urban Investments all fell short of analysts' expectations.

Notable Asia-Pacific Headlines

China NBS stated that the national economy maintained recovery momentum in April, and that low prices are temporary. They will continue to be for some time.

While it noted that the low core CPI was due to the service demand still being in a recovery,

As the economy improves, consumer prices may gradually rise in H2.

US senior administration officials said that the US expects the G7 to reach a general consensus on the principles that define the relationship with China. They also expect leaders to make it clear that they are united behind a common strategy grounded in common values regarding China.

According to Reuters, the official also said that there was a consensus between G7 countries about the need to protect technology. Each G7 country will manage its own relationship with China, but they are all aligned on principles to guide their relationships.

The Russian PM will lead a delegation to a Chinese business forum,

According to the Financial Times

RBA meeting minutes from May stated that the board discussed pausing or raising 25bps during the meeting. Further increases in interest rates could still be needed, but it would depend on the way the economy and inflation develop.

RBA has also stated that

The central forecast states that the inflation target range will not be reached until the middle of 2025. It also notes that the risks include higher rents and persistent service inflation.

DATA RECAP

Chinese Industrial Production YY (Apr) 5.6% vs. Exp. 10.9% (Prev. 3.9%); Retail Sales YY (Apr) 18.4% vs. Exp. 21.0% (Prev. 10.6%)

Chinese Urban Investment YTD YY (Apr) 4.7% vs. Exp. 5.5% (Prev. 5.1%)

Australian Westpac Consumer Confidence Index for May (79.0) (Prev. Consumer Sentiment (May): - 7.9% (Prev. 9.4%)

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