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RANsquawk EU Open Rundown 11.05.18

Asian stocks traded mostly positive after sentiment rolled over from the US

In FX markets, USD languished around the 92.50 level after a pullback from the YTD highs.

Looking ahead, highlights include Canadian jobs report, Uni of Michigan, Baker Hughes, Fed’s Bullard and ECB’s Draghi

ASIA

Asian stocks traded mostly positive after sentiment rolled over from the US where soft CPI data spurred hopes the Fed may have to slow the pace of hikes, while all sectors in the S&P 500 finished in the green with gains led by tech, telecoms and pharmaceuticals, which in turn underpinned NDX outperformance. ASX 200 (+0.2%) and Nikkei 225 (+1.0%) were positive with earnings also a key driver of price action and the top performing stocks in Japan spurred by corporate updates including KDDI, Panasonic and Suzuki. Hang Seng (+1.5%) and Shanghai Comp. (-0.2%) were mixed as Hong Kong sustained its outperformance streak, while the mainland lagged after the PBoC refrained from open market operations and widened the amount of liquidity it drained for the week. Finally, 10yr JGBs were quiet amid similar flat trade witnessed in T-notes and heightened appetite for riskier assets, while the BoJ’s rinban announcement also failed to spur demand with the amounts kept unchanged and at paltry JPY 285bln total for the day.

PBoC skipped open market operations for a net weekly drain of CNY 140bln vs. last week’s net drain of CNY 110bln. (Newswires)

PBoC set CNY mid-point at 6.3524 (Prev. 6.3768)

UK/EU

UK Environment Secretary Michael Gove is said to be concerned the EU could use the Northern Ireland border issue to hold the UK at ransom to keep it in the customs union. (Telegraph)

PM May has delayed key Brexit legislation due to fears of defeat while her allies played down the prospect of any imminent deal over future customs policy. Allies to may believe that next Tuesday’s meeting is unlikely to provide a solution to the Irish border issue. (FT) Furthermore, after a meeting of the Brexit cabinet sub-committee last week broke down without agreement, May has appointed two new working groups on each of the rival solutions. (Times)
FX

In FX markets, USD languished around the 92.50 level after a pullback from the YTD highs seen mid-week and in the wake of the softer than expected CPI data. This kept its major counterparts firm, while GBP/USD was also off the post-BoE lows seen after the central bank kept policy unchanged and lowered Q2 2018 GDP forecasts as well as CPI forecasts through to Q2 2020. Elsewhere, commodity-linked currencies held on to the recent energy-triggered upside, while the greenback’s NAFTA-counterparts have also stayed near the prior day’s best levels after the broad USD-weakness and some optimism regarding a near-term deal.

COMMODITIES

Commodities traded sideways overnight as the complex took a breather from the recent upside in prices. As such, WTI crude future are marginally weaker but remain above the USD 71/bbl level with gains of over 2% for the week after the US withdrawal from the JCOPA. Elsewhere, gold prices were slightly softer overnight but remained near its best levels in nearly 2-weeks after recent USD weakness due to soft inflation data, while copper traded flat and failed to benefit from the overall positive risk appetite in the region. Conversely, Chinese metal prices were more eventful with early gains in iron ore and steel prices on expectations of increased demand amid declining rebar stockpiles.
GEOPOLITICS

Iran Foreign Minister Zarif is to meet with Chinese Foreign Minister Wang on Sunday, Russian Foreign Minister Lavrov on Monday and EU officials on Tuesday to discuss preserving nuclear agreement. In related news, US President Trump commented that he hopes to strike a better deal with Iran, while the US Treasury issued fresh sanctions on Iran in which it blacklisted several individuals and entities. (Newswires)

US

Treasuries finished slightly higher for the day, following the miss on CPI which alleviated fear of inflation gearing up in the economy. Yields on the long-end of the curve were lower by c.3bps at settlement. The 5s30s spread was the lowest since 2007 and narrower by c.4bps following the solid 27bln 30yr bond auction, which stopped-through by 0.8bps. The stop-through was the largest for a new bond at auction since November 2015. US 10yr T-Notes futures settle 4 ticks higher at 119-15+.

US President Trump is to give speech on reducing drug prices at 1400EDT today, while President Trump had also commented that he has great health plans to be announced over the upcoming 4 weeks. (Newswires)

US Commerce Secretary Ross said he thinks China ‘agreed to the concept’ of reducing the trade deficit, while he also commented that there is a reasonable chance the US will reach a tariff deal with the EU. (Newswires)

US is said to set May 17th or May 18th for a NAFTA deadline, while House Speaker Ryan commented that Congress must receive the final NAFTA text by May 17th to be able to vote on it this year prior to the expiry of the fast-track Trade Promotion Authority in July and US mid-term elections in November. In related news, Canadian Foreign Minister Freeland said they will work as long as necessary for NAFTA and that she remains optimistic about reaching a deal, while she added they are definitely approaching the final objective. (Newswires/iPOLITICS)

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MOC: * SPX 850mln to sell (vs at 650mln to sell at 1549 EDT) * Dow 50mln to sell (vs 100mln to buy at 1549 EDT)