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RANsquawk EU Open Rundown 04.12.17

  • Asia stock markets traded mixed and lacked the firm conviction seen across US equity futures which were buoyed after the Senate voted to pass the tax bill
  • Safe-haven JPY weakened on outflows after the US Senate passed the tax plan which saw USD/JPY advance to within a whisker of the 113.00 handle
  • Looking ahead, highlights include US durables revisions, factory orders and UK PM May meets with Juncker and Barnier

ASIA

Asia stock markets traded mixed and lacked the firm conviction seen across US equity futures which were buoyed after the Senate voted to pass the tax bill. The passage by the Senate spurred a risk on tone at the open of electronic trade in which DJIA futures gained over 200 points and safe-havens were pressured. However, this momentum was somewhat lost on the ASX 200 (-0.1%) and Nikkei 225 (-0.4%) which were cautious ahead of a risk-packed week and as Asia markets also got their 1st opportunity to digest last week’s developments in the Flynn-Russia saga. Hang Seng (+0.5%) outperformed amid declines in money market rates, while Shanghai Comp. (-0.2%) was choppy on further news on regulatory reform and after the PBoC skipped open market operations for a 2nd consecutive day. Finally, 10yr JGBs were lower alongside pressure in Tnotes which gapped down following the Senate tax breaktspanough, while the BoJ was also absent in the market with no Rinban announcement for today.

PBoC skipped open market operations again due to high liquidity, for a net daily drain of CNY 90bln. (Newswires)

PBoC set CNY mid-point at 6.6105 (Prev. 6.6067)

UK/EU

Reports stated that UK and EU are on the brink of a Brexit divorce deal, while separate press reports also noted that Brexit discussions regarding the role of the European Court of Justice are nearly there. (FT / Times)

EU’s Tusk said EU will reject opening talks with UK on Brexit transition and future trade if border offer is unacceptable to Ireland. (Newswires) Reports in the Guardian suggested that PM May and the Irish government have failed to reach a deal on the matter. (Guardian)

Fitch affirmed Belgium at AA-, Outlook Stable. S&P affirmed Republic of Ireland at 'A+/A-1'; Outlook Stable. DBRS Confirmed the European Union at AAA, Stable Trend. (Newswires)

FX

Safe-haven JPY weakened on outflows after the US Senate passed the tax plan which saw USD/JPY advance to within a whisker of the 113.00 handle. GBP/USD initially outperformed and briefly broke above 1.3500 amid reports the UK and EU were on the brink of a deal, although these gains were then gradually pared tspanoughout the session. Elsewhere, CNY and HKD were pressured after the PBoC weakened its reference rate and amid declines in money market rates, as well as ongoing concerns in the domestic bond market.

COMMODITIES

Commodities were mixed as WTI crude futures continued a mild pull-back to trade back below USD 58/bbl, while gold was pressured from the open with the safe-haven weighed after the Senate’s tax reform passage spurred risk appetite. Elsewhere, copper prices naturally benefitted from the positive risk tone and amid gains in Chinese commodity prices in which Dalian iron ore rose over 6% shortly after the open.

US Baker Hughes Rig Count (Total) 929 (Prev. 923). (Newswires)

GEOPOLITICAL

US and South Korea began their largest ever air combat drills which will last for 5 days, while North Korea accused President Trump of "begging" for nuclear war with these drills. (Newswires)

US National Security Adviser McMaster said President Trump will "take care of" the increasing nuclear tspaneat from North Korea by taking unilateral action if necessary. (Yonhap)

US Senator Graham urged Americans to evacuate from South Korea and stated that we're moving close to military conflict. (Newswires)

US

Treasuries bull-flattened on Friday, surging in risk-off price action as it was reported that Michael Flynn was to testify against other Trump “inner circle” members. Before the news broke, yields were steeper on optimism that tax reform was set to advance in the Senate. Furthermore, Tnotes were pressured at the reopen of futures trade for the week, as markets reacted to the developments from over the weekend in which the Senate passed the tax reform bill which underpinned risk appetite and triggered safe-haven outflows.

US Senate passed the tax reform bill tspanough a vote of 51 vs 49 over the weekend. This now pushes the bill to the next phase in which the House and Senate will have to reconcile their 2 bills, while the House is said to vote on Monday night for motion to go to conference on tax bill reconciliation. (Newswires)

Source reports stated that majority of House Republicans back a short-term continuing resolution to keep the government open until December 22nd and that a vote is expected this Wednesday. (Newswires)

Former National Security Adviser Flynn pleaded guilty to lying to the FBI on Friday and was reportedly prepared to testify against US President Trump, in which he could say Trump directed him to contact the Russians. However, reports later suggested that Flynn was directed to contact Russia by a senior transition team member as opposed to US President Trump himself. (Newswires)

White House said Flynn's false statements to the FBI "Mirror the false statements to White House Officials" which led to his resignation and that the guilty plea doesn’t implicate anyone but Flynn. (Newswires)

US President Trump tweeted over the weekend that he fired Flynn for lying to Vice President Pence, but that his actions during the transition period were lawful. (Newswires)

US Democrat Senator Feinstein stated that she thinks that an obstruction of justice case against US President Trump is beginning to build related to investigations into Russia interference during the election. (The Hill)

Richmond Fed could chose Thomas Barkin as President as soon as today. (Newswires)
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