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Good Morning: The Long & the Short of it and The Bigger Picture - 16 May 2019 - ADM ISI





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Ostwald, Marc
08:29 (13 minutes ago)

to Marc





- Quieter day for scheduled data and events, as trade and politics
continue to rule the roost: digesting Australia jobs, Japan PPI,
US blacklisting of Huawei; awaiting US weekly claims, Philly Fed
& Housing Starts, plenty of central bank speakers, French auctions,
as Walmart tops corporate earnings run

- US/China - chatter around China actively selling USTs remains idle
and too often overlooks other key aspects

- US Housing Starts: solid gain expected predicated on strength of
Permits; NAHB uptick also supports

- US Philly Fed Manufacturing seen little changed, NY Fed uptick
imparts some upside risk, but follows poor Industrial Production

- Audio preview:
https://www.mixcloud.com/MOstwaldADM/adm-isi-morning-call-16-may-2019/

- Charts: WTI / Brent futures spread; CNY / CNH spread

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** EVENTS PREVIEW **
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As yesterday's price action in many asset classes in response to US/China trade negotiations & Huawei, delayed US auto tariffs, USMCA Steel & Aluminium tariffs, and the heightened security situation in the Persian Gulf, along with Brexit and Italy headlines underlined - politics is everything and macro data points are very much a passing distraction. Today's schedule of data and events is rather more modest than yesterday's, and per se runs the risk of being little more than roadkill. Japan PPI, Australian labour data and China Property Prices are on the 'to digest' list, while the afternoon brings US weekly joblewss claims, the Philly Fed Manufacturing survey and Housing Starts along with Canada Manufacturing Sales. A busy day for central banks has Coeure, Weidmann, Kashkari, Ingves and Poloz on the speakers list, while Bank Indonesia and Banco de Mexico are expected to hold policy rates at 6.0% and 8.25% respectively. France auctions shorter-dated conventional OATs and a mix of (inflation linked) OATeis, with corporate earnings highlights in Europe likely to include Bouygues, National Grid, Wienerberger in Europe, along with Nvidia and Walmart in the US. In passing we note in the context of US/China trade tensions and the wake of the US TIC Portfolio data yesterday, which showed both China and Japan as net 'sellers' of US Treasuries that markets are once again talking about China actively selling down its US Treasury holdings. This is and always was very idle thinking. What China (and Japan) has been doing for a protracted period is running down its holdings by not reinvesting maturing holdings, and that will likely continue. But actively selling down its holdings is a different proposal which would damage China as much as the US as its remaining holings would a) be devalued, and b) IF the dollar proceeds were repatriated, this would see the CNY appreciate. Indeed the more interesting aspect of the TIC data is that it has above all over the past year signalled that US investors have been repatriating offshore investments, in part due to the corporate tax cut, but also doubtless due to USD strength and higher rates in the US.

** U.S.A. - April Housing Starts / May Philly Fed **
- Following on from the better than expected NAHB Housing Market Index (66 vs. April 63), today's Housing Starts are expected to pick up 6.2% m/m to 1.209 Mln SAAR, in part seasonal, but also reflecting strength in Permits (last 1.269 Mln, exp. 1.290 Mln) over recent months. While yesterday's Industrial Production -0.5% made for rather dire reading, above all given the breadth of the drop, the NY Fed Manufacturing survey (17.8 vs. prior 10.1) offered some glimmers of hope that things may start to pick up, even if the region is generally not a great proxy for national trends, with today's Philly Fed survey expected to remain subdued at 9.0 vs. April 8.5.
 
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