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RANsquawk EU Open Rundown 03.05.18

Fed held Funds Target Rate at 1.50%-1.75% as expected. Fed said inflation moved close to its “symmetric” inflation target of 2% and is expected to ‘run near’ that level over the medium term

Asian equity markets traded mostly negative following the weakness on Wall St post-FOMC

Looking ahead, highlights include Norges rate decision, UK services PMI, EU CPI, US trade, weekly jobs, ISM non-mfg, factory orders, a slew of speakers and earnings

FOMC

Fed held Funds Target Rate at 1.50%-1.75% as expected, with the decision made via unanimous vote.

Fed said inflation moved close to its “symmetric” inflation target of 2% and is expected to ‘run near’ that level over the medium term. Previously it was described as “continued to run below 2%”

Fed stated employment growth has been strong on average and growing moderately, while it added that risks to the economic outlook appear to be roughly balanced.

Note: There was an initial but delayed dovish reaction to the statement with the “symmetric” reference to its inflation target eventually interpreted as the idea that the Fed would be prepared to allow an overshoot of inflation without taking aggressive action to rein in price pressures. However, the dovish reaction seen in the greenback was fully pared shortly after as participants then digested another crucial tweak in which the Fed now characterised inflation as having “moved close” to 2% (previously it was described as “continued to run below 2%”).
ASIA

Asian equity markets traded mostly negative following the weakness on Wall St post-FOMC, with the Fed seen to remain firmly on track for a June hike. Nonetheless, ASX 200 (+0.9%) was the regional outperformer and gained across all sectors with miners underpinned amid upside in metals, while NAB was among the laggards after a decline in H1 cash profit. Elsewhere, Shanghai Comp. (-0.2%) and Hang Seng (-1.7%) declined after a daily net liquidity drain by the PBoC and amid trade concerns ahead of talks between US and China, with tech and telecoms related stocks pressured after reports the US is considering equipment sales restrictions on Chinese telecom firms over national security concerns. As a reminder, Japan is shut for the remainder of the week.

US is said to be considering equipment sales restrictions on Chinese telecom firms over national security concerns. In related news, a Chinese trade official commented that China will not accept pre-conditions in trade discussions and that China is more prepared than the US to cope with a trade war. (Newswires)

PBoC injected CNY 50bln via 7-day reverse repos for a net daily drain of CNY 70bln. (Newswires)
PBoC set CNY mid-point at 6.3732 (Prev. 6.3670).

UK/EU

UK PM May reportedly told a minister the UK will leave the Customs Union, while reports also noted that she acknowledged the customs partnership plan was unfeasible after strong opposition by cabinet ministers. (Telegraph/Newswires)

UK Government saw another defeat in the House of Lords which backed powers to prevent hard border on Ireland. (Newswires)

FX

In FX markets, the greenback has somewhat been on a roller-coaster ride in the wake of the FOMC. However, the weakness in the greenback was then sharply reversed as markets digested the Fed’s reference to inflation having moved close to 2% vs. Prev. rhetoric that inflation continued to run below 2%, while trade since then has mainly consisted of the greenback’s major counterparts nursing losses. Elsewhere, antipodeans also rebounded with AUD/USD underpinned by a larger than expected trade surplus, while NZD/USD reclaimed the 0.7000 handle.

Australian Trade Balance (AUD)(Mar) 1527M vs. Exp. 865M (Prev. 825M). (Newswires)

Australian Building Approvals (Mar) M/M 2.6% vs. Exp. 1.0% (Prev. -6.2%)

COMMODITIES

Commodities were mixed with WTI crude futures sideways just below the USD 68.00/bbl level, which it had earlier tested after the greenback weakened on an initially dovish-perceived FOMC. Gold eventually traded with marginal gains after the bout of FOMC-related confusion settled, with price action at the whim of the USD. Meanwhile copper was flat with trade contained amid opposing forces of rising metal prices in China during early trade and a broad risk averse tone.

Saudi Oil Minister said the oil output production cut agreement will continue until the end of 2018, while he added that oil prices are determined by the market volatility and does not serve either customers or producers. (Newswires)

World Gold Council said Q1 gold demand fell 7% to 973.5 tonnes, which represents the weakest first quarter in a decade. (Newswires)

GEOPOLITICS

US President Trump reportedly has all but decided to end nuclear agreement with Iran, according to sources which added it is unclear how he will withdraw from the agreement. (Newswires)

US

Treasuries were higher on Wednesday after the Treasury’s increased auction sizes announced at Quarterly Refunding weren’t as aggressive as some had anticipated (feared). The package for May was $73bln (versus $66bln previously). Treasury sees the sizes of the 2- and 3-year note auctions being raised by $1bln per month (vs $2bln in Q1), and in addition, it will increase the auction size of the next 2-year FRN auction by USD 1bln in May. The Treasury will also raise the auction sizes by $1bln for each of the next 5-, 7-, and 10-year notes and the 30-year bond auctions in May. It also intends to introduce a new 2-month bill later this calendar year, and is evaluating whether to add a second new 5-year TIPS security to the annual TIPS calendar. Treasuries found buyers after the announcement, before easing a touch heading into the FOMC decision; after the FOMC was interpreted as dovish, the curve found more buyers, leaving yields around c. 2bps lower across the curve at settlement; 2s30s, 5s30 and 2s10s, 5s10s widened by a modest c.2bps. US 10yr T-Notes futures settle 4+ ticks higher at 119-16+.

White House said details have not been finalized regarding agreement for Brazil to avoid steel and aluminium tariffs, while it added President Trump will consider re-imposing tariffs if the agreement with Brazil is not finalized soon. (Newswires)

Trump Legal Advisor Giuliani said US President Trump and his lawyers are inclined to go ahead with the Special Counsel Mueller Interview and that Mueller interview would not occur until beginning of summer. Furthermore, Giuliani later noted that US President Trump said he repaid Michael Cohen for the USD 130k Stormy Daniels payment. (Newswires)

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