US futures gain on US-China trade optimism, Fed repo operations

The US equity futures kicked off the week on a positive note, as the Federal Reserve (Fed) announced further overnight repo operations to release the pressure on short-term borrowing costs, in addition to renewed optimism regarding the US – China trade talks which could eventually lead to an interim deal.

But there might be a mounting tension in China when it comes to Donald Trump’s request from Chinese companies to buy US farm products. Though a Chinese newspaper said that the Chinese visit to the US farmlands had nothing to do with the trade discussions, those who have closely followed the recent talks could tell that this week’s visit may have been encouraged by a goodwill action amid Trump accused Xi of not being true to his word after he apparently promised his peer to purchase US farm products at the latest G20 meeting, and put new tariffs on Chinese imports on China’s failure to do so.

Shanghai’s Composite slid 1.30% in the early hours of trading, the Hang Seng (-0.86%) extended losses.

Sovereign bonds gained, as gold spiked to $1520 an ounce on the back of a limited risk appetite in Asia.

Silver jumped to $18.35 an ounce, the highest since September 12.

Oil, energy stocks advance as Aramco recovery could take longer than thought

Australia’s ASX advanced 0.36%, as the preliminary PMI read hinted that the Australian economy may have expanded in September, after last month’s dip below the 50 level, which distinguishes expansion from contraction.

Gains in Sydney were led by energy stocks (+1.15%), as oil prices rose past 1% on news that the full production recovery in Aramco plants will likely take more than the ten weeks initially promised by executives.

Meanwhile, the US strengthened its troops in Saudi Arabia as a response to escalating tensions with Iran amid last weekend’s drone attacks on Aramco that erased nearly 5% of the global oil supply.

The temporary supply-side crisis in Saudi Arabia, which also revived geopolitical tensions in the Middle East, combined to the optimism of a possible interim trade deal between the US and China should continue giving support to the oil prices.

WTI crude advanced to $59.40 a barrel on Monday, as Brent crude rose to $65.50.

A sudden disruption in trade talks is the major downside risk to the up-trending oil prices.

FTSE futures (-0.03%) were quiet in Asia, as the pound traded a touch below the 1.25 mark against the US dollar.

Cable trades near 1.25 ahead of this week’s Brexit negotiations in NY and Supreme Court decision

Pound traders are faced with two-sided volatility this week, as PM Boris Johnson flies to New York on Monday for the UN General Assembly. He will try to re-negotiate a Brexit deal with key names including Donald Tusk, Angela Merkel, Emmanuel Macron and Leo Varadkar. Although Johnson is not expected to resolve a more-than-three-year-old Brexit headache with his European peers to reach a comprehensive deal that could happen by the October 31st deadline, any positive or negative comments could impact the sterling up or down respectively.

But more importantly, the Supreme Court’s decision due this week, on whether Johnson’s most controversial suspension of parliament was legal and whether British MPs could return to parliament before the initially announced five-week deadline, should be decisive in pound’s overall direction this week.

Investors trimmed their net short speculative positions in sterling during the week to September 17th in anticipation of a further pound recovery, if MPs are allowed to return to parliament sooner than expected. Support to the pound’s September rebound against the US dollar could be found at 1.2440, the minor 23.6% retracement, and 1.2350, the major 38.2% retracement.

PMI in focus, as Fed continues pumping liquidity to ease fears of renewed jump in short-term borrowing costs

Preliminary PMI data in the US and the Eurozone could hint at a slight improvement in economic activity in September on Monday.

But the US dollar remains under the pressure of the liquidity crisis in the repo markets. The Fed announced that it will conduct overnight repo operations of at least $75 billion to ease the worry of a renewed hike in short-term borrowing costs in the upcoming Treasury auctions.

The US 10-year yield retreated below 1.72% after hitting 1.90% a week earlier.

The euro rebounded from the 1.10 support against the US dollar on Friday, and the pair advanced to 1.1025 in Asia on the back of a broad-based weakness in the greenback.

Opening calls

FTSE to open 3 points lower at 7342

DAX to open 30 points lower at 12438