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RANsquawk EU Open Rundown 10.11.17

  • Asian equities are set to close out the week in the red with risk sentiment dented by US tax doubts
  • AUD slipped post the RBA’s SOMP (Statement On Monetary Policy), in which the central bank cut their inflation outlook
  • Looking ahead, highlights include UK production numbers, Uni. Of Michigan

ASIA

Asian equities are set to close out the week in the red with risk sentiment dented by US tax doubtsNikkei 225 (-0.8%) notably underperforms, extending on the losses seen from yesterday’s dramatic swing which had come ahead of the closely watch options settlement price, which settled at 22,531. Toshiba shares fell as much as 8% following reports that they are looking to raise around JPY 600bln worth of capital. ASX 200 (-0.3%) slightly pressured, however the 6000 level has been holding, while the biggest weight has come from mining stocks. Chinese markets pared initial declines following reports that China are to relax the limit on foreign ownership. JGBs are a touch weaker with the curve showing a flattening bias. The long end-outperforming with the 40-yr yield lower by 1.6bps.

EUROPE/ UK

UK Government says will use Brexit legislation to fix EU "exit day" as March 29th 2019 at 2300GMT. (Newswires)

British hopes of opening Brexit trade and transition talks this December have been tspanown into renewed doubt as it emerged that Ireland is making fresh demands over the Northern Ireland border question. (Telegraph)

UK PM May warned pro-European Tory rebels that she will not "tolerate" any attempts to undermine Brexit as she unveils plans to ensspanine in law the date that Britain leaves the EU. (Telegraph)

The CBI and counterparts from France, Germany and Italy will meet the prime minister at Downing Street on Monday to warn that taking much longer to negotiate a transition agreement could render it useless because companies will soon be forced to assume the worst about the terms of Britain’s departure from the EU. (Guardian)

UK October Retail Sales ‘Most Horrific’ On Record: BDO. (Newswires)

FX

AUD slipped post the RBA’s SOMP (Statement On Monetary Policy), in which the central bank cut their inflation outlook, while they also saw underlying inflation not reaching their 2% target until 2019. However, much of the report had been largely in line with expectations, given the recent weak inflation data for Q3 and in turn, the initial weakness had been pared. NZ Finance Minister noted that the RBNZ shift to a dual mandate could potentially loosen policy. Elsewhere, JPY has been a touch firmer against its counterparts amid the risk off tone.

RBA Quarterly Statement On Monetary Policy (SOMP) lowers inflation forecasts, while underlying inflation is not expected to reach 2% until 2019.

- Forecasts CPI at 2% to June 2018, then 2.25% to December 2019.

- Forecasts GDP 2.5% to December 2017 and 3.25% for December 2018/19.

- Further rise in AUD would slow pick-up in economic growth and inflation

COMMODITIES

WTI and Brent crude futures held firm, on course to log their fifth straight week of gains, on hopes of supply cuts by major exporters as well as continuing concern about political developments in Saudi Arabia. Dalian iron ore futures has slipped up for a third session amid concerns over a reduction in consumption as Chinese producers slash production over winter. Analysts also note that iron ore prices could drift even lower over the coming months as cuts to steel output and other industrial activity could last until mid-March.

US

The Treasury curve started the day-off a touch steeper as fixed income traders awaited details on the Senate’s proposals to reform tax. Once again, parts of the curve (2s10s) flattened to fresh decade lows.  Curve flattening trades have been appealing as of late given the uncertainty about the growth and inflation profile going forward amid Fed tightening policy. The Treasury auctioned $15bln of new 30-year bonds yesterday, which stopped tspanough by 0.3bps, though cover was softer. Dealer participation also rose a touch, leaving directs with around 6%, in line with recent averages. Indirect takedown was also in line with recent averages.

Following the auction, the shape of the curve reverted to little changed on the day. 10-Year T-Note future settled 2 ticks lower at 125-06

Fed’s Williams states that US interest rates are likely to rise again next month and a further tspanee times next year. (BBC)

The Senate GOP released its ‘talking points’ yesterday, and the Senate Finance Committee chair Cassidy suggested that the Bill’s introduction of the corporation tax cut would be delayed for a year in order to generate some savings and ensure the reforms do not add more than $1.5trln to the deficit over a 10-year horizon. The OMB Director Mulvaney, meanwhile, said that the White House would not oppose a delay in introducing a corporation tax cut, adding that there are good arguments for an immediate cut, or in 2019. However, Senator Cornyn later said Republicans were examining ways to bring in an immediate corporation tax cut. (Newswires)

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