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[PODCAST] EU Open Rundown 8th August 2018

  • Asian stock markets traded mostly positive as they sustained the momentum from the US. Shanghai Comp lagged after the US finalized its 2nd tranche of tariffs
  • DXY was subdued and eyes a retest of the 95.00 level to the downside. EUR/USD gained a firmer footing above the 1.1600 handle and GBP/USD rebounded from near 11-month lows
  • Looking ahead, highlights include US DoEs, RBNZ rate decision and supply from the UK and US

ASIA

Asian stock markets traded mostly positive as they sustained the momentum from the US where the majors eked modest gains with the DJIA led by strength in energy and industrials, while the S&P 500 inched closer towards all-time highs. ASX 200 (+0.3%) was led higher by miners and surprisingly financials despite weaker earnings from Australia’s largest lender CBA and scandal-ridden AMP. Elsewhere, Nikkei 225 (-0.2%) was initially supported throughout most the day by earnings and a weaker currency but then pared gains in late trade, while Hang Seng (+0.4%) and Shanghai Comp. (-0.3%) were mixed with underperformance in the mainland amid increased trade tensions after the US finalized the 2nd tranche of tariffs in which it will impose 25% tariffs on USD 16bln of Chinese goods from August 23rd. Finally, 10yr JGBs were higher for most the session despite as prices rebounded from this week’s pressure and support near the 150.00 level, while the BoJ were also in the market for nearly JPY 1tln of government bonds concentrated in 1yr-10yr maturities.

China NDRC said they will use monetary policy including targeted RRR reductions to support debt-to-equity swaps, while it added it will require banks to be stricter in limiting corporate debt and restrict high leverage firms from borrowing too much. (Newswires)

Chinese Trade Balance (CNY)(Jul) 176.9B vs. Exp. 227.1B (Prev. 261.9B). (Newswires)
Chinese Exports (CNY)(Jul) Y/Y 6.0% vs. Exp. 5.6% (Prev. 3.1%)
Chinese Imports (CNY)(Jul) Y/Y 20.9% vs. Exp. 12.5% (Prev. 6.0%)

PBoC skipped open market operations for a net neutral daily position. (Newswires)
PBoC set CNY mid-point at 6.8313 (Prev. 6.8431)

BoJ Summary of Opinions from July 30th-31st meeting stated it is necessary to persistently continue with the current powerful monetary easing as the momentum toward 2 percent inflation is maintained. There was also the opinion that it will likely take more time than expected to achieve 2% inflation and that is time for BoJ to strengthen commitment to reaching price target due to weak price moves. Furthermore, it was suggested that the BoJ should permit long-term rates to move around -0.25% to 0.25% and should expand monetary stimulus and adopt forward guidance to spur demand and inflation expectations. (Newswires)


FX

In FX markets, the DXY was subdued after the prior day’s softness and eyes a retest of the 95.00 level to the downside, while its counterparts were eventually underpinned after the Chinese trade data in which EUR/USD gained a firmer footing above the 1.1600 handle and GBP/USD rebounded from near 11-month lows. Antipodeans also benefitted in the aftermath of the release which some attributed to the surge in Chinese imports which could benefit other nations given the increasing US-China trade tensions and with NZD also lifted on increased inflation expectations, while USD/JPY and JPY-crosses held on to most its recent gains but have pulled back from intraday highs as risk sentiment in Tokyo subsided.
 

RBA Governor Lowe reiterated that the board sees no strong case for near-term change in rates and that next move is likely to be higher if economy evolves as expected. Lowe added it is natural for rates to eventually move back to more normal levels and that financials risks are moving in correct direction but stated he has not found arguments for a hike in rates convincing. (Newswires)

New Zealand 2yr Inflation Expectations (Q3) 2.04% (Prev. 2.01%). (Newswires)


COMMODITIES

Commodities were marginally higher overnight with WTI crude futures edging mild gains after support held at USD 69.00/bbl and following the weekly API report which showed a larger than expected draw in crude stockpiles, although the support from the inventory data was only brief given amid a surprise build in gasoline. Elsewhere, metals were also modestly higher as gold benefitted from a weaker USD, while copper extended on gains amid the Chinese trade data which showed imports of copper concentrates and ores were at the highest on record in July.

US API Weekly Crude Stocks (03 Aug) -6.00M vs. Exp. -3.30M (Prev. 5.59M). (Newswires)
US API Weekly Gasoline Stocks (03 Aug) +3.10mln vs. Exp. -1.70mln (Prev. -0.791mln)

EIA cut its 2018 world oil demand growth forecast by 60k BPD to 1.66mln BPD Y/Y increase, while it cut 2019 world oil demand forecast by 140k BPD to 1.57mln BPD Y/Y increase. (Newswires)
 

US

Treasuries were lower for the session amid an improvement in the risk-tone. Most of the selling action was in the belly of the curve where 5yr yield was up by c.4bps whilst yields at the front and end of the curve were higher by c.3bps. The US sold $34bln in 3yr notes, tailing for the fifth consecutive time, by 0.2bps (in line with recent averages) at a high yield of 2.765%, the highest yield at a 3s auction since May 2007. Overall an unpleasant auction, analysts said: cover was softer than recent averages, and internals were also non-eventful, indirects took the smallest share since December 2016, directs took the smallest portion and dealers were left with the highest share also since December 2016. US 10YR T-notes settled 8+ ticks lower at 119-15.

US Trade Representative Lighthizer said 2nd tranche of tariffs on USD 16bln of imports from China has been finalized which includes 279 out of the 284 tariff lines proposed in June, while he added the US will begin to collect the additional 25% duties on the Chinese imports from August 23rd. (Newswires)

US President Trump said GDP growth could be in 5% range next quarter and is said to make an announcement to bring down drug prices next week. (Newswires)

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