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[PODCAST] EU Open Rundown 3rd August 2018

  • Asian equity markets traded mixed as the positive momentum from US failed to sustain ahead of key risk events and more soft Chinese data
  • FX markets were relatively quiet overnight in which the DXY held steady above the 95.00 level as most of its major counterparts took a breather from the prior day’s broad retreat
  • Looking ahead, highlights include UK, EZ & US services PMIs, US employment report, trade balance, ISM non-Mfg, Baker Hughes rig count

ASIA

Asian equity markets traded mixed as the momentum from US, where most majors gained and tech outperformed as Apple became the first ever to reach USD 1tln in market cap, was eventually dampened ahead of today’s NFP jobs figures and a further PMI miss from China. ASX 200 (-0.1%) and Nikkei 225 (+0.1%) both opened higher in which tech names in Australia revelled in the strength of their US peers and Apple’s historical feat, while Tokyo trade remained earnings-oriented. Sentiment then slightly deteriorated as China entered the fray and Caixin Services PMI missed estimates to add to the nation’s streak of disappointing PMI releases for July. The weak data and ongoing trade concerns weighed on Hang Seng (-0.2%) and Shanghai Comp. (+0.1%) from the open, although the latter has since recovered to trade relatively flat. Finally, 10yr JGBs were flat in the first signs of stability after the BoJ’s more flexible policy approach earlier this week, while the Rinban announcement also failed to spur price action as the BoJ kept purchases of 5yr-10yr JGBs inline with yesterday’s unscheduled announcement.

PBoC skipped open market operations for a net weekly drain of CNY 210bln vs. last week's CNY 370bln net drain. (Newswires)
PBoC set CNY mid-point at 6.8322 (Prev. 6.7942)

Chinese Caixin Services PMI Jul 52.8 vs. Exp. 53.5 (Prev. 53.9). (Newswires)
Chinese Caixin Composite PMI (Jul) 52.3 (Prev. 53.0)

BoJ minutes from June 14th-15th meeting stated momentum to achieving price target was being maintained and that most members viewed BoJ would continue with QQE with Yield Curve Control aiming to achieve the price stability target of 2% as long as it was necessary for maintaining that target in a stable manner. In addition, some members said must continue to carefully assess effects of low rates on banks, while one member suggested they must scrutinize positive and negative side effects of policy considering that it will take a while to reach inflation goal. (Newswires)

UK/EU

BoE Governor Carney said that one rate hike a year for the next few years will more or less get inflation back to the 2% target over the horizon, while Carney also commented the BoE is prepared to cut interest rates back again, depending upon how Brexit negotiations go. (Newswires)

The Institute of Directions has called on the UK government to speed up guidance on what companies should expect in the event of a no-deal Brexit. A survey of 800 business leaders showed less than a third made any Brexit contingency plans. (BBC)

EU Chief Negotiator Barnier has signalled that Brussels is prepared to compromise on its demands for a customs border between Northern Ireland and the rest of the UK. (Times)

FX

FX markets were relatively quiet overnight in which the DXY held steady above the 95.00 level as most of its major counterparts took a breather from the prior day’s broad retreat against the greenback. As such, EUR/USD remained near a 1-month low beneath the 1.1600 handle and GBP/USD continued to eye 1.3000 after its failure to launch despite the BoE rate hike, as the central bank also flagged Brexit risks and stressed any future rate rises are likely to be gradual and limited. Elsewhere, USD/JPY was choppy and AUD/USD found support from better than expected Retail Sales data, although this was made brief as CNY fell to levels last seen in May 2017 after the PBoC resumed its devaluation of the reference rate.

Australian Retail Sales (Jun) M/M 0.4% vs. Exp. 0.3% (Prev. 0.4%). (Newswires)
Australian Retail Sales (Q2) Q/Q 1.2% vs. Exp. 0.8% (Prev. 0.2%)
 

COMMODITIES

Commodities were steady with WTI crude futures sideways overnight a sit takes a break from the prior day’s advances in which prices found support at USD 67.00/bbl and eventually reclaimed USD 69.00/bbl. Elsewhere, gold remained subdued as the greenback held firm and with participants tentative ahead of the upcoming US NFP jobs data later, while copper also traded flat amid the indecisive risk tone in the Asia-Pac region.


US

Treasuries were higher and the curve modestly bull-steepened on Thursday. There was some selling action after a weak JGB auction overnight, and after the BOE’s rate decision, the complex also found sellers in the first instance. Analysts at IGM suggested that there was some short-covering ahead of Friday’s payrolls data, while the belly of the curve was bolstered by a block trade in the five-year space. US 10YR T-notes settled higher by 5 ticks at 119-10+.

US announced final duties on imported uncoated groundwood paper from Canada which is used for newspapers, while Canadian government said it is disappointed by the duties and noted that tariffs could hurt smaller communities and cost jobs at local papers. (Newswires)

Mexico Economy Minister Guajardo said NAFTA talks with USTR will cover all outstanding issues in trade talks, while he added there will not be a deal on autos until all NAFTA issues are resolved. (Newswires)

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