Markets decline as Huawei fall out threatens escalation of US-China trade war

Notes/Observations

Asia:

-Various US Tech names including Google, Intel and Xilinx are said to halt supply to China's Huawei with certain critical software and components following recently announced executive order by Trump

- China to wait and see to decide on counter measures; reports indicate actions could include suspending business with all suppliers who halt dealings with Huawei and a temporary tariff hike on Apple.

- All US-China trade talks are said to be halted

- Japan Q1 GDP beats forecasts, Imports see the biggest fall since 2009

- Australia Election Results: PM Morrison and center right coalition retain power (not expected); Labor Party leader Bill Shorten is expected to step down after the loss, and his deputy Tanya Plibersek is likely to take over party leadership

Europe/Mideast:

- Italy's Dep PM Salvini reiterates push for lower Taxes; Lower taxes is the only way to spur growth and reduce debt

- Infineon reportedly has also stopped shipments to Huawei, various other European tech names evaluating options

- (IR) US President Trump: If Iran wants to fight, that will be the official end of Iran. Never threaten the United States again! – tweet; Tweet in response to reports that a rocket was fired into Baghdad’s Green Zone less than a mile away from the US Embassy.

Energy

- (SA) Saudi Energy Minister al-Falih said there was consensus among OPEC and allied oil producers to lower crude inventories 'gently, possible rollover in H2 2019 of previously agreed output curbs was discussed at Sunday's ministerial panel - financial press

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.66% at 379.00, FTSE -0.62% at 7,303.34, DAX -0.75% at 12,147.31, CAC-40 -0.85% at 5,392.19, IBEX-35 -0.23% at 9,259.07, FTSE MIB -2.03% at 20,677.50, SMI -0.74% at 9,587.20, S&P 500 Futures -0.15%]

Market Focal Points/Key Themes:

Equities

European Indices trade negative across the board erasing earlier gains amid trade tensions again weighs after Google suspended business with Huawei that requires the transfer of hardware and software products and China promises to retaliate. U.S. futures trade broadly slightly negative also erasing initial gains on press report that China may temporarily hike tariffs on Apple.
On the corporate front, various European chipmakers such as Infineon, STMicro and AMS trade sharply lower following Google story over the weekend and as Infineon said to suspend shipments to Huawei and others declining to comment at the moment.
On the earnings front, Ryanair trades approximately 6% lower after reporting weakest full-year profit in 4 years and remaining cautions regarding coming year guidance. Low & Bonar in the U.K. trades down almost 30% after providing trading update and CEO stepping down.
In other news, Deutsche Bank fell 2% on comments regarding New York Times report over the weekend. Thomas Cook fell another 17% on company's liquidity concerns.
Looking ahead, notable earners SpartanNash Company, AZZ Inc. and Tata Motors.

- Consumer discretionary: Thomas Cook [TCG.UK] -17% (liquidity discussions), Ryanair [RYA.UK] -6% (earnings), Low & Bonar [LWB.UK] -26% (trading update; CEO steps down), Eniro [ENRO.SE] +18% (divestment)

- Industrials: Bacanora Lithium [BCN.UK] +14% (investment), Braemar Shipping Services [BMS.UK] +8.5% (earnings)

- Financials: Deutsche Bank [DBK.DE] -1% (comments on NYT report), Commerzbank [CBK.DE] -2% (analyst action), Foxtons Group [FOXT.UK] -5% (trading update)

-Technology: Infineon [IFX.DE] -3.5%, ASML [ASML.NL] -2%, AMS [AMS.CH] -3%, STMicroelectronics [STM.FR] -4% (Infineon reportedly among companies to suspend shipments to Huawei)

 

Speakers

- (CN) China Foreign Min Spokesman Lu Kang: Wait and see for China's countermeasures on Huawei

- (IT) Italy's Deputy PM Salvini says cabinet meeting due Monday; EU limits must be changed for 15% flat tax

- Sensitive data cannot be controlled by China which is nor a democracy and has "certain spirit of imperialism and control", National security is the key

- (CZ) Czech PM Babiis: Although public finance seen in slight Gap in the coming years, we don't see substantial problems

 -(UK) UK Financial Services Min Glen: City has made Modest Brexit contingency plans, investors want more clarity on Brexit

- (JP) Japan LDP Secretary General Nikai: no especially urgent need for fiscal stimulus

- (ES) Spain's Economy Min: plan to reduce fical deficit to 2% this year, expect to keep reducing debt issuance

 

Currencies/ Fixed Income

The USD seen weaker against most major FX pairs, following comments over the weekend where Trump tweeted that if Iran wants a fight that will be the end of Iran.as well as the Huawei fall out and China threatening to increase tariffs on Apple products.

- GBP/USD With Brexit talks stalling and inflation report out tomorrow we could get a bit of volatility in the cable. A new low reached on Friday as the cable trades between 1.27 and 1.28

- AUD/USD The Australian elections over the weekend has sent the Aussie trading higher back up above the 0.69 handle.

- EUR/USD The euro making a new weekly low on Friday coming up to a level of support around the 1.1170 area, with ECB Knot saying that Euro zone inflation is not where the ECB want it yet.

 

Economic Data

(DE) Germany Apr PPI M/M: 0.5% v 0.3%e; Y/Y: 2.5% v 2.4%e

(CZ) Czech Apr PPI Industrial M/M: 0.7% v 0.3%e; Y/Y: 4.3% v 3.9%e

(NG) Nigeria Q1 GDP Y/Y: 2.0% v 2.6%e

(EU) Euro Zone Mar Current Account (Seasonally Adj): €24.7B v €27.9B prior

(CH) Swiss Weekly Total Sight Deposits (CHF): 578.3B v 578.1B prior

(IT) Italy Mar Current Account: €4.0B v €3.3B prior

 

Fixed Income Issuance

- None seen

 

Looking Ahead

- 06:00 (PT) Portugal Apr PPI M/M: No est v 0.0% prior; Y/Y: No est v 1.5% prior

- 07:00 (BR) Brazil May IGP-M Inflation (2nd Preview): No est v 0.8% prior

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey

- 08:00 (PL) Poland Central Bank (NBP) Jun Minutes

- 08:00 (UK) Daily Baltic Dry Bulk Index

- 08:30 (US) Apr Chicago Fed National Activity Index: No est v -0.15 prior

- 08:30 (CL) Chile Q1 GDP Q/Q: No est v 1.3% prior; Y/Y: No est v 3.6% prior; Current Account Balance: No est v -$3.6B prior

- 09:00 (BE) Belgium May Consumer Confidence Index: No est v -7 prior

- 09:00 (IL) Israel Central Bank (BOI) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.25%

- 09:00 (BR) Brazil May CNI Industrial Confidence: No est v 58.4 prior

- 16:00 (US) Weekly USDA Crop Report