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RANsquawk EU Open Rundown 07.05.18

Asian stocks began the week mostly positive as the region took its first opportunity to digest Friday’s gains on Wall St. In FX, the greenback was slightly weaker against its main counterparts

UK PM May is prepared for a blacklash from Brexiteers after pushing ahead with her hybrid customs plan

Looking ahead, highlights include Fed’s Bostic, Barkin, Harker, Kaplan and ECB’s Praet. UK markets are closed

ASIA

Asian stocks began the week mostly positive as the region took its first opportunity to digest Friday’s gains on Wall St despite the miss on NFP data, as well as the US delegate visit to China last week which ended with minimal progress although both sides agreed to keep talking. ASX 200 (+0.4%) was lifted by commodity names following recent upside in the complex and with big 4 bank Westpac underpinned after reporting a 6% increase in H1 cash earnings, while Nikkei 225 (-0.1%) underperformed on return from last week’s holiday closures amid a firmer JPY. Elsewhere, Shanghai Comp. (+1.2%) and Hang Seng (+0.5%) shrugged off PBoC liquidity inaction to trade in the green and although a lack of progress was made during the US delegation visit, the consensus to keep on talking provided hope that an escalation to a full-blown trade war will likely be avoided. Finally, 10yr JGBs were quiet and failed to benefit from a subdued tone in Japan, as well as the BoJ Rinban announcement for JPY 840bln of JGBs across the curve with the amounts left unchanged.

China proposed to the US it would increase US goods imports and lower tariffs on products including cars as a part of the bilateral negotiations, according to sources. (Newswires)

PBoC skipped open market operations. (Newswires) PBoC set CNY mid-point at 6.3584 (Prev. 6.3521)

BoJ meeting minutes for March 8th-9th meeting stated that the BoJ should maintain easy policy as inflation target still a distance. Furthermore, most members agreed that momentum towards hitting price goal is being maintained and most members also viewed that exports have been on an increasing trend due to firm growth overseas. (Newswires)

UK/EU

UK PM May is prepared for a blacklash from Brexiteers after pushing ahead with her hybrid customs plan. Greg Clark, the Business Secretary, claimed that 3,500 jobs at Toyota could be at risk if the Prime Minister bowed to pressure from other members of her Cabinet and dropped the plans. (FT/Telegraph)

Britain faces restrictions on post-Brexit trade and draconian measures to enforce free-market policies because the European Union fears a future Jeremy Corbyn government, according to EU officials. (Times)

EU and UK are said to have a list of topics for talks about the future relationship which include financial services, energy, customs and security, while there were also reports that a backup plan to impose border checks on trade between Northern Ireland and the rest of the UK has been drafted by Senior Civil Servants. (Newswires)

EU is said to be considering settling the row over US metal levies with quotas, while there were also reports that the EU are open to a ‘limited’ US trade deal according to a top official. (Newswires)

Italian leaders will meet today for a potentially final round of negotiations aimed at forming a government. The League has not yet responded to an offer by the 5SM which saw its leader drop its demand to become PM on the condition that The League cuts any ties with Berlusconi. (Newswires)

Moody’s affirmed France at Aa2; outlook revised to positive from stable. (Newswires)

FX

In FX markets, the greenback was slightly weaker against its main counterparts for the majority of the session following the mixed US jobs data. This provided some mild support to EUR/USD and GBP/USD, while USD/JPY briefly slipped below the 109.00 handle. Commodity-linked currencies were kept afloat by recent gains in the underlying complex, although the gains in AUD were later pared amid cross-related flows in which AUD/NZD pulled-back to test 1.0700 to the downside.

COMMODITIES

Commodities were higher with WTI crude futures the forerunner in the complex as it rose to above USD 70.00/bbl for the first time since 2014 amid ongoing geopolitical tensions surrounding Iran, as well as reports that Saudi Arabia are said to be eyeing higher prices this year. Elsewhere, gold was largely dictated by USD-movements while copper also saw marginal gains amid a broad positive risk-tone led by China outperformance.

Saudi Arabia is maneuvering to push oil prices up to at least USD 80 a barrel this year, in a shift from policy of stabilising the market. (WSJ) However, Iran Deputy Oil Minister Zamaninia said Iran thinks oil output cut agreement will be extended into next year and that prices at USD 60-65/bbl is suitable. (Newswires)

US Baker Hughes Total Rig Count (27 Apr) 1032 (Prev. 1021). (Newswires)

GEOPOLITICS

US National Security Advisor Bolton said US President Trump and Kim Jong Un are to meet in Singapore mid-next month. (Newswires)

US

US yields shifted higher after the Nonfarm Payrolls report, to close the session little changed on the day. The equity surge helped push treasuries lower and the curve saw some flattening with the 2-year yield up over 1.5bps. The pull back also came as markets position for next week’s monster supply, as the Treasury is set to issue USD 73bln in 3-, 10- and 30-year paper next week. US 10yr T-Notes futures settle 0.5 ticks higher at 119-22.

US yields shifted higher after the Nonfarm Payrolls report, to close the session little changed on the day. The equity surge helped push treasuries lower and the curve saw some flattening with the 2-year yield up over 1.5bps. The pull back also came as markets position for next week’s monster supply, as the Treasury is set to issue USD 73bln in 3-, 10- and 30-year paper this week.

Fed’s Dudley (Voter, Neutral) Said economic outlook looks pretty good; made progress on inflation, while he added that inflation being slightly higher than 2% is not an issue. (Newswires)

Fed’s Williams (Voter, Hawk) said wage growth is on an upward trend but not picking up fast and that wage growth figures are moderate as are inflation figures, while he also does not see a rapid increase in inflation coming. (Newswires)

Fed’s Bostic (Voter, Dovish) said he still expects three hikes this year and could see 2 to 4 hikes depending on data. (Newswires)

Fed’s Kaplan (Non-Voter, Neutral) said everything he sees tells him there’s a little more wage pressure and that best estimate of neutral rate is 2.50%-2.75%, while Fed’s Kaplan also stated that the Fed should continue gradually removing accommodation. (Newswires)

Fed’s George (Non-Voter, Hawk) US has attained goals of full employment and price stability for now. (Newswires)

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