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RANsquawk EU Open Rundown 03.08.17

Asian bourses lower following soft Chinese Caixin Services PMI

Disappointing trade data sees AUD underperform

Looking ahead, highlights include BoE QIR

ASIA

The momentum from the DJIA’s 22,000 milestone was lost on Asia as the region traded negative across the board, with sentiment dampened amid earnings and weaker than expected Chinese Caixin Services PMI data. ASX 200 (-0.4%) was subdued by commodity names with Rio Tinto (-1.8%) shares down after the Co. missed on H1 underlying profit, while Nikkei 225 (-0.3%) was also lower and eyed a test of the 20,000 level to the downside. KOSPI (-1.6%) was the worst performer on tighter regulation to cool the housing sector, coupled with continued geopolitical concerns after the US told its citizens to leave North Korea by September 1st amid a travel ban and reports the US tested an intercontinental ballistic missile from California, which officials denied was in response to provocation from North Korea. Hang Seng (-0.2%) and Shanghai Comp (- 0.2) also conformed to the down beat tone following the miss on Chinese Services PMI and the PBoC cutting its liquidity injection by half. Finally, 10yr JGBs only saw minimal gains despite the dampened risk sentiment in the region, with upside capped by a weaker 10yr inflation-indexed auction.

Chinese Caixin Services PMI (Jul) 51.5 vs. Exp. 51.9 (Prev. 51.6). (Newswires)

Chinese Caixin Composite PMI (Jul) 51.9 vs. (Prev. 51.1).

PBoC injected CNY 60bln via 7-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.7211 (Prev. 6.7205).

EUROPE/UK

N/A

FX

In FX markets, antipodeans were the worst performers with AUD/USD weighed on by disappointing trade figures and with NZD/USD testing a break below the 0.7400 handle. This spurred flows into their respective JPY-crosses which was further exacerbated following the disappointing Chinese data, while the greenback benefitted from weakness in its commodity-linked counterparts with the USD-index attempting a reclaim of the 93.00 level.

Australian Trade Balance (AUD) (Jun) 856mln vs. Exp. 1,800mln (Prev. 2,471mln). (Newswires)

Australian Exports (Jun) -1.0% (Prev. 9.0%).

Australian Imports (Jun) 2.0% (Prev. 1.0%).

COMMODITIES

The commodities complex traded mixed with WTI crude futures subdued overnight amid a lack of drivers. Elsewhere, copper saw mild upside alongside gains in iron ore, while Gold (-0.4%) wobbled in early trade as the precious metal dropped nearly USD 10/oz in under a minute before paring the majority of its declines. This was despite no immediate news catalyst, although some attributed it to stops being trigged in thin conditions.

US

US treasuries traded in a narrow range, initially trending lower tspanoughout the European morning. However, the long end then pushed higher amid some chunky block buys in 10s and ultras, following the quarterly refunding announcement, which saw 30y sizes kept the same for next week’s auction. Sep’17 10y T-note futures settled at 126.03+, down 4 ticks.

Fed’s Williams (Non-Voter, Hawk) said he sees one more rate hike this year and tspanee next year as appropriate. Williams also stated he is comfortable with starting to wind down balance sheet in September and that the Fed is able to adjust course on policy if there are changes in economy or debt ceiling issues. (Newswires)

Fed’s Rosengren (Non-Voter, Hawk) said markets have appropriately anticipated an announcement to wind down the balance sheet in September and that tight labor markets justify Fed plans to keep increasing rates. (Newswires)

Fed's Mester (Non-Voter, Hawk) said that balance sheet run-off will be gradual and does not expect any large impact on the markets. Mester added she doesn't want to 'over-react' to weak inflation when more data will arrive before September FOMC meeting and that factors are in place for US inflation to rise. (Newswires)
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