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[PODCAST] EU Open Rundown 3rd July 2018

  • Asian stocks traded mixed as the region failed to take full advantage of the tail wind from the tech-led recovery on Wall St
  • In FX, DXY remained firm overnight, RBA was a non-event for AUD, USD/CNH higher by over 4 points after the PBoC set the weakest fix since August last year
  • Looking ahead, highlights include Riksbank rate decision, UK construction PMI, US factory orders, APIs, ECB’s Praet

ASIA

Asian stocks traded mixed as the region failed to take full advantage of the tail wind from the tech-led recovery on Wall St and early bargain hunting following the prior day’s hefty declines. ASX 200 (+0.6%) and Nikkei 225 (-0.9%) both opened higher with defensive sectors leading the upside in Australia, although sentiment in Tokyo later deteriorated alongside flows into JPY as markets were startled by a continued currency devaluation by the PBoC. Shanghai Comp. (-1.3%) was negative after PBoC inaction resulted to a CNY 150bln drain from the interbank market and the Hang Seng (-2.6%) was the worst performer with intraday losses of over 3%, as it reacted to the prior day’s declines during its market closure in which the benchmark indices in Japan, mainland China and South Korea all slumped over 2%. In addition, money market rates in Hong Kong continued to surge and China Mobile was another fall-out from the ongoing US-China trade tensions with the Co. slipping after the US Commerce Department and NTIA recommended to deny the telco’s licence request to enter the US the market. Finally, 10yr JGBs were choppy alongside the flimsy risk sentiment in Japan, but with prices kept within a tight range amid a mixed 10yr auction.

PBoC skips open market operations for a net daily of CNY 150bln. (Newswires)
PBoC set CNY mid-point at 6.6497 (Prev. 6.6157); weakest fix since August 2017.

Major state-owned Chinese banks were seen to be exchanging CNY for USD in forwards and then immediately offloading them into the spot market to support the domestic currency, according to sources. (Newswires)

UK

BoE's Haldane said it is important to push inflation back to 2% target and not wait too long, while he reportedly sees 'shaken confidence' in central banks. (Handelsblatt)

UK PM May said they have an agreement or are close to doing so on everything except Northern Ireland. PM May also commented that they want a future customs relationship with the EU in place by 2020 to make sure a backstop is not necessary and that EEA membership for the UK would not deliver on the vote for Brexit. (Newswires) However, the Times reports that tensions have been running high in PM May’s cabinet amid mounting suspicions over a compromise on customs. (Times)

UK Foreign Secretary Johnson has publicly backed Jacob Rees-Mogg who warned Theresa May of a rebellion if she failed to deliver on her Brexit promises. (Telegraph)

UK PM May has asked Chancellor Hammond and BoE Governor Carney to draw up an analysis of the impact of any Brexit deal struck with the UK. The Commons Treasury select committee has also requested research from the FCA on the potential impact of the withdrawal agreement and future framework. (Sky News)

The BCC has warned UK PM May that firms are losing patience over the lack of progress in Brexit talks. (BBC)

1/5 UK companies with between 50 and 500 staff have not initiated planning for Brexit, research suggests, while a further two fifths do not believe they need to plan at all for the nation’s departure from the EU. (Times)

EU

German Interior Minister/CSU leader Seehofer said he'll stay on in the role and that he has a clear agreement on migration with Chancellor Merkel. (Newswires)


FX

In FX markets, the DXY remained firm overnight with the greenback holding on to gains against its major counterparts in which EUR/USD and GBP/USD attempted a breakdown of the 1.1600 and 1.3100 handles respectively during US trade. Both pairs later found support at the aforementioned levels, with EUR also briefly underpinned on reports that German Interior Minister Seehofer will stay on in the role after an agreement was reached with Chancellor Merkel. Elsewhere, USD/JPY and JPY-crosses were choppy with the pair momentarily reclaiming the 111.00 handle to the upside before giving it back as markets were spooked after the PBoC set the weakest fix since August last year. This briefly pushed USD/CNH higher by over 4 points to above 6.7300 and triggered contagion concerns but was then followed by speculated intervention from state-run banks to support the domestic currency. AUD was also indecisive amid poor Building Approvals and the China devaluation, while the RBA rate decision was uneventful as the central bank kept rates unchanged as unanimously expected and mostly reiterated prior comments.

RBA kept the Cash Rate unchanged at the record low 1.50% as expected. RBA reiterated that steady policy is consistent with growth and inflation targets and that low level of rates is supporting the economy. RBA also repeated that Inflation is likely to remain subdued for some time and that it expects gradual pick-up in inflation with CPI expected to be a bit a higher than 2% this year. (Newswires)

Australian Building Approvals (May) M/M -3.2% vs. Exp. 0.0% (Prev. -5.0%). (Newswires)
Australian Building Approvals (May) Y/Y 3.1% vs. Exp. 9.9% (Prev. 1.9%)

New Zealand NZIER Business Confidence (Q2) -20% (Prev. -11%). (Newswires)
New Zealand NZIER Capacity Utilization 92.8% (Prev. 93.5%)


COMMODITIES

Commodities were mixed as oil prices rebounded from the prior day’s losses with Brent crude attempting to reclaim the USD 78.00/bbl following the prior day’s underperformance in which prices slipped over 2% following Trump’s calls for higher Saudi production. Elsewhere, gold was restrained as the greenback held firm, while the uninspired risk appetite in the region and China underperformance kept copper near YTD lows.
 

GEOPOLITICAL

US Secretary of State Pompeo is to visit North Korea on Thursday for nuclear discussions. (Newswires)

US

Treasuries were lower on Monday, breaking their inverse relationship with equities, which also remained in negative territory for most of the the session. The yield curve bear-flattened with most of the selling action concentrated in the front end of the curve where 2yr and 5yr yields were higher by c.2bps, though action and volume was thin ahead of the US holiday this week. 2s10s and 2s30 narrowed by less than 2bps. US 10YR T-notes futures (Sep 2018) 3+ ticks lower at 120-02+.

US President Trump said if the WTO does not treat the US properly we will be doing something, while he also commented that the administration will soon be meeting the EU about trade and that they are 'very close' to making some fair trade deals. Furthermore, US President Trump is said to have spoken with Mexico's election winner AMLO about border security, NAFTA, trade and possibly a separate trade deal with Mexico. (Newswires)

Mexican President-elect Obrador said he spoke on the phone with US President Trump for half an hour and that talks included a comprehensive deal on job-creating development projects to reduce migration and strengthen security. In related news, an economic adviser to the President-elect stated that Mexico should hit back if US imposes auto tariffs and suggested they would be happy for NAFTA renegotiation to conclude before December. (Newswires)

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