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[PODCAST] EU Open Rundown 4th July 2018

  • Asian shares traded lower, led by Chinese markets
  • USD mostly lower; USD/CNY steadies despite weaker fix amid reports Chinese state banks were selling USD
  • Looking ahead, highlights include PMIs from Europe and the UK; US markets closed for Independence Day

ASIA

Asia stocks traded lower following a subdued lead from the holiday-shortened US session, where all majors finished in the red and tech underperformed as Micron shares tumbled almost 7% after losing a patent suit in China, which in turn weighed on other chipmakers. As such, ASX 200 (-0.5%) and Nikkei 225 (-0.4%) were negative with Industrials and Financials the laggards in Australia, while a firmer currency weighed on Japanese exporter names including index heavyweight Fast Retailing which had also reported a decline in same-store sales. Elsewhere, Hang Seng (-1.1%) and Shanghai Comp. (-0.7%) conformed to the downbeat tone following another consecutive net liquidity drain and although Chinese Caixin Services and Composite PMIs were more encouraging than the recent misses in the factory gauges, the support from the data was only brief. Finally, 10yr JGBs were marginally higher with mild support seen from the risk averse tone, as well as the BoJ’s presence in the market for JPY 960bln of JGBs ranging from 1yr-10yr maturities. 

PBoC injected CNY 10bln via 7-day reverse repos for a net daily drain of CNY 80bln. (Newswires)

PBoC set CNY mid-point at 6.6595 (Prev. 6.6497)
Chinese Caixin Services PMI (Jun) 53.9 vs. Exp. 52.7 (Prev. 52.9). 4-month high. (Newswires)

Chinese Caixin Composite PMI (Jun) 53.0 (Prev. 52.3)
China is reportedly pressuring EU to issue a strong joint statement against US trade policies at upcoming Sino-European Summit in mid-July, although some EU officials are said to be concerned regarding the proposal. (Newswires)

Chinese state banks were said to be selling USD to support the CNY, according to traders. (FT)

UK

Reports on Tuesday suggest that UK PM May's Brexit Plan seems to be for the “softest possible Brexit”, according to an ITV journalist. (ITV)

Key government papers have acknowledged that establishing a customs system post-Brexit could take up to five years. (Sky News)

UK BRC Shop Price Index (Jun) Y/Y -0.5% (Prev. -1.1%).  (Newswires)

EU

EU officials are said to be considering discussions with the world's largest car exporters regarding a deal to reduce tariffs and avert a full-blown trade war. (FT)

Germany SPD Leader Nahles said that progress has been made with CDU and CSU regarding proposal to set up migration transit centres at the border, although an agreement has not yet been reached. (Newswires)

ECB’s Praet said there has been substantial progress so far towards a sustained adjustment in inflation, while he is said to be confident the sustained convergence of inflation will continue in the period ahead even after a gradual wind down of new asset purchases. (Newswires)

ECB’s Villeroy said the Euro area must be strengthened and that the ECB still see robust economic growth. (Handelsblatt)

FX

In FX markets, the greenback languished after the prior day’s losses against its major counterparts and with participants away for Independence Day. This kept the DXY stuck near Tuesday’s lows while EUR/USD and GBP/USD extended on gains, in which the latter just about reclaimed the 1.3200 handle. Elsewhere, AUD was underpinned by better than expected retail sales data and CNH also firmed against the greenback, with the currency unfazed despite another weaker reference rate setting by the PBoC, to extend on yesterday’s intervention-spurred rebound.

Australian Retail Sales (May) M/M 0.4% vs. Exp. 0.3% (Prev. 0.4%, Rev. 0.5%). (Newswires)
Australian Trade Balance (AUD)(May) 827M vs. Exp. 1,200M (Prev. 977M, Rev. 472M)
Australian Exports (May) M/M 4.0% (Prev. -2.0%)
Australian Imports (May) M/M 3.0% (Prev. 0.0%)

COMMODITIES

Commodities were higher overnight in which WTI crude futures have almost fully recovered yesterday’s aggressive drop from resistance at around USD 75/bbl to briefly below USD 73/bbl, with prices also finding solace from a larger than expected drawdown in headline API crude stockpiles. Elsewhere, gold prices extended on recent gains with the precious metal underpinned by a weaker greenback and due to its safe-haven characteristics, while the strength across the commodities complex also saw copper trade higher but with prices remaining near to YTD lows as upside was capped by the risk-aversion.  

US API Weekly Crude Stocks (29 Jun) -4.50M vs. Exp. -3.50M (Prev. -9.22M). (Newswires)

US

Treasuries were slightly higher on Tuesday and saw moderate bear-steepening with most of the action concentrated in the belly and long end of the curve where yields were lower by c.2bps. 2s5s, 2s10s and 2s30s narrowed by c.3bps but overall action was quiet ahead of the Independence Day holiday on Wednesday.

The US Commerce Department said on Tuesday that it will allow ZTE to temporarily engage in certain business activities as they aim to escape a 7-year export ban. (FT)

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Initial jobless claims are now at their lowest since December 1969 @realDonaldTrump