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RANsquawk EU Open Rundown 22.05.17

  • Asian equities traded mostly higher despite ongoing geopolitical concerns with outperformance in the ASX amid upside in energy and material names
  • GBP/USD slipped back below 1.3000 as PM May’s lead in the latest YouGov poll narrowed
  • Looking ahead, highlights include Fed’s Kashkari and Harker

ASIA

Asia equity markets sspanugged off the geopolitical concerns from another North Korean missile test over the weekend, with markets mostly higher following the upbeat close on Wall St. last Friday. ASX 200 (+0.8%) was led by energy and mining names after WTI crude futures reclaimed USD 50/bbl and firm gains in Dalian iron ore futures. Nikkei 225 (+0.4%) remained dictated by JPY weakness, while Shanghai Comp. (-0.2%) and Hang Seng (+0.9%) were mixed after the PBoC resumed liquidity operations, although the amount was at a reserved CNY 40bln injection. 10yr JGBs were lower with demand subdued amid gains in riskier assets and after the BoJ kept its Rinban operation on the light side, while the curve steepened amid mild underperformance in the long-end.

PBoC injected CNY 10bln via 7-day reverse repos and CNY 30bln in 14-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.8673 (Prev. 6.8786)

Japanese Trade Balance (Apr) Y/Y 482B vs. Exp. 521B (Prev. 615B). (Newswires)

- Exports (Apr) Y/Y 7.5% vs. Exp. 8.0% (Prev. 12.0%)

- Imports (Apr) Y/Y 15.10% vs. Exp. 14.80% (Prev. 15.80%)

EUROPE

Spain’s main opposition Socialist party (PSOE) voted for former party leader Pedro Sanchez as its leader by a projected margin of 49.6% vs. 40.2% for Susana Diaz. (Newswires/Guardian) Focus now turns to the party Congress on June 16-18th which is aimed at uniting the party. Ideologically, Sánchez is closer than Díaz to Podemos, and the PSOE and Podemos together control 156 seats in parliament, more than the PP, which would enable them to form a blocking minority.

EU Commission is reported to be eager to find fresh sources of financing for the Euro zone and shift more powers away from Eurogroup to EU Parliament, according to press reports. (Newswires)

German Finance Minister Schauble and French Finance Minister Le Maire want a harmonized EU corporate tax rate. (Newswires)

France and Germany are reported to disagree over where the European Banking Authority should be located post Brexit, with the parties arguing between Paris and Frankfurt. (Newswires)

S&P affirmed the Netherlands at AAA; Outlook Stable and affirmed Switzerland at AAA; outlook stable. (Newswires)DBRS affirm Sweden at AAA; stable trend. (Newswires)

UK

YouGov/Sunday Times poll showed the Conservatives at 44% (-5pts) and Labour at 35% (+4pts), while the latest Survation UK election poll showed Conservatives at 43% (-5pts) vs. Labour at 24% (+5pts). (Sunday Times/Newswires)

Note: This is the first poll conducted by YouGov since the Conservative manifesto was published on Thursday. It is the smallest advantage for May this year and suggests that the publication of the general election manifesto has slashed her lead in half since last weekend. (Sunday Times)

UK Brexit Minister Davis stated that UK will quit Brexit talks unless EU drops its demand for a divorce bill of as much as EUR 100bln. (Newswires)

UK Rightmove House Price Index (May) M/M 1.20% (Prev. 1.10%)

- Rightmove Price Index (May) M/M 3.0% vs. Exp. 2.0% (Prev. 1.1)

FX

The USD-index recovered from 6-month lows to the detriment of its major counterparts, which saw EUR/USD fall below the 1.1200 handle. GBP/USD was also pressured below 1.3000 as the latest polls showed the ruling Conservative party’s lead narrowed since the release of its manifesto last week, while USD/JPY was choppy with initial safe-haven flows from geopolitical concerns overshadowed by an increased risk appetite across equity markets.

Brazilian President Temer stated that an audio recording at the centre of a bribery scandal was doctored and therefore asked the Supreme Court to suspend investigations on him until the authenticity of recording can be verified. (Newswires)

COMMODITIES

Gold traded with mild losses amid the positive risk sentiment and firmer USD. Elsewhere, copper pulled back from last week’s gains amid profit taking, while WTI crude futures extended on gains above the USD 50/bbl amid optimism for an extension of the output cut agreement heading into the OPEC meeting this week. (Newswires)

Saudi Oil Minister Al Falih indicated that OPEC and Non-OPEC producers are set to back extension of output deal by 9 months. (Newswires)

GEOPOLITICAL

North Korea conducted another missile test over the weekend which landed off its east coast, with the missile said to be a medium range missile but with a shorter range than its past recent launches. There were also reports that Kim Jong-Un ordered the deployment of a 'missile for combat', while a South Korea Unification Ministry official stated that cut-off between South and North Korea is not desirable for stability and added they are to consider approving contacts and visits to North Korea. (Newswires)

GLOBAL NEWS

Iranian President Rouhani won a landslide victory in the elections over the weekend for a 2nd term, with 57% of the vote. According to reports, the win is also seen to give him a mandate to move ahead on domestic reforms and pursue discussions with the West to build on the nuclear deal. There were also comments from US Secretary of State Tillerson that he hopes President Rouhani will end support for terrorism and missile tests. (Newswires)

US

Treasuries traded in a very narrow range amid a lack of tier-1 data releases or pertinent comments from Fed officials. Qualcomm’s giant 9-part offering did little to move prices with markets looking ahead to next week’s Fed minutes and USD 88bln in supply of 3s, 10s and 30s. Jun’17 10y T-note futures settled at 126.06, down 3 ticks.

Panel officials announced on Friday that Former FBI Director Comey is to testify at the Senate intelligence committee after Memorial Day, while there were also reports that Comey now thinks that President Trump tried to influence him according to a source. (Newswires/CNN)

US President Trump is said to have informed advisors he wants to end payments of key Obamacare subsidies, while there were separate reports that US President Trump's budget is to slash entitlements by USD 1.7tln. (Newswires)

A current White House official close to President Trump is reported to be a 'significant person of interest' in the Russia probe, according to press reports. (Washington Post)

China Commerce Minister Zhong told US Trade Representative Lighthizer they will strengthen cooperation and manage trade related disputes, while Lighthizer stated that trade wars are not in either country's interest. (Newswires)

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