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RANsquawk EU Open Rundown 06.03.17

  • Asian equities pared some of their opening losses that were triggered by China lowering their GDP target and North Korean led geopolitical tensions
  • FX price action was relatively light with USD nursing some losses against counterparts, although still remained subdued from last Friday’s Yellen comments
  • Looking ahead, highlights include US Factory Orders, Durable Goods and Fed’s Kashkari (not set so speak about monetary policy)

ASIA

Asia equity markets saw a mixed session after having sspanugged off the early cautious tone triggered by events over the weekend in which China lowered its GDP growth target and North Korea launched 4 missiles into the East Sea. This pressured ASX 200 (+0.1%), and Nikkei 225 (-0.5%) in early trade, although Australian stocks recovered led by commodity names amid prospects of further Chinese capacity reductions in the steel and coal sectors. Shanghai Comp (+0.3%) and Hang Seng (+0.3%) remained afloat despite the weaker growth target, as hopes for future stimulus measures increased while there were also several positive profit alerts by several firms ahead of the upcoming blue chip earnings. 10yr JGBs were flat despite the weakness in Japanese stocks with demand dampened amid the absence of BoJ in the market, while the curve flattened amid outperformance in the super-long end.

China lowered its GDP growth target for this year to about 6.5% from last year's 6.5%-7.0% target range. (Newswires)

PBoC Deputy Governor Yi Gang stated that there is currently no need for China to increase rates or reduce RRR and that the PBoC needs to assess market conditions prior to altering rates. (Newswires)

PBOC injected CNY 20bln via 7-day reverse repos, CNY 10bln via 14-day reverse repos and CNY 10bln via 28-day reverse repos, PBoC set CNY mid-point at 6.8790 (Prev. 6.8896).( Newswires)

Japan’s ruling LDP Party endorsed changes to party rules that would permit PM Abe to stay until 2021. (Nikkei)

EUROPE

French presidential candidate, Le Pen, was summoned by a judge for allegations regarding misuse of EU funds, according to AFP. (AFP)

Fillon announced he will not withdraw from the presidential run, while there were separate reports that French conservative politician Juppe is expected to announce he will not run for president if candidate Fillon steps down. (Les monde)

Note: Alain Juppe tweeted that he will be making a press statement this morning.

Fitch affirmed France at 'AA'; outlook stable. (Fitch Ratings)

German banking association BdB stated that due to economic growth and prices outlook, ultra-loose monetary policy by ECB is no longer needed, but it added there is concern less expansive policy would lead to an overreaction in bond markets. (Newswires)

UK

UK Chancellor Philip Hammond will use this week’s budget to build up a GBP 60bln Brexit war chest to boost Britain’s “resilience” to economic turbulence as the UK withdraws from the European Union. Furthermore, the Office for Budget Responsibility (OBR) will push up its growth forecast for this year, largely on the back of the stronger economy at the end of 2017. (Sunday Times)

UK PM May is reported to face renewed pressure regarding the rights of EU nationals living in the country, with the Commons Exiting the EU Committee calling for the PM to immediately guarantee future rights instead of waiting for similar assurance for UK nationals living in the EU. (Sky News)

EEF survey showed UK factories grew at its fastest pace in over 3 years during Q1 amid a surge in orders, although economists expect the growth to unlikely be sufficient to offset the impact on the economy of slower consumer spending. (Newswires)

FX

FX price action was relatively light with USD nursing some losses against counterparts, although still remained subdued from last Friday’s Yellen comments in which the Fed Chair was somewhat less hawkish than anticipated as she stated that a rate increase in the next meeting will likely be appropriate if the Fed determines inflation and employment data remain in line with expectations, while she also commented that US growth potential looks a little lower than 2%. Elsewhere, KRW was slightly pressured amid increased geopolitical concerns triggered by North Korea’s multiple launches, while safe-haven JPY was firmer amid a risk averse tone in Japan.

COMMODITIES

A lack of price action was observed across the commodities overnight with WTI crude futures remaining range-bound to hold above the USD 53/bbl level. Elsewhere, the metals complex also traded in a sideways fashion with gold and copper prices virtually unchanged as participants look ahead to the key risk events later this week.

OPEC Secretary General Barkindo stated “so far so good” in regards to oil output reductions and added it is too early to discuss an extension of the output cut. (Newswires)

GEOPOLITICAL

North Korea launched 4 ‘projectiles’ over the East Sea, of which 3 landed in Japan’s exclusive economic zone. Following the launches, South Korea stated there was little chance the projectiles were intercontinental ballistic missiles and acting President Hwang urged the military to maintain readiness, while Japan was also on highest possible alert. (Newswires)

US

Fixed income markets saw a bid tspanoughout Yellen’s Q&A and as a result, the 10y Jun’17 T-note managed to regain earlier losses and closed the session at 123.19+ up 3+ ticks, however, still remaining in the range 2017 has become so familiar with. The complex as a whole was mixed, with outperformance in the front end as the 2y was 4bps lower, alongside 5/30yr 3bps steeper.

Fed Chair Yellen (Voter, Dove) stated that a rate increase at the next meeting will likely be appropriate, if the Fed determines that data on employment and inflation are continuing to move in line with expectations. The Chair went on state that the pace of tightening is likely to be faster this year than in 2015 and 2016. In Friday’s Q&A Yellen did however say US growth potential looks a little lower than 2% and there is a lot of uncertainty over fiscal policy and we must be patient. (Newswires)

Fed's Fischer (Voter, Neutral) stated that there has been a conscience Fed effort to move market expectations on a possible rate hike. (Newswires)

Fed's Bullard (Non-Voter, Dove) stated that economic conditions have not changed since January to justify a March increase and that the March statement could be used to set up May. (Newswires)

FBI Director Comey called for the DoJ to reject President Trump's claims that he was wiretapped under Obama administration last year. (NYT)

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