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[PODCAST] EU Open Rundown 13th July 2018

  • Asian equity markets were mostly higher as the region took impetus from the upside in Wall St
  • US President Trump has warned UK PM May that a soft Brexit would probably kill a potential future trade deal between UK and US
  • Looking ahead, highlights include Uni. of Michigan Sentiment, Baker Hughes, BoE’s Cunliffe, Fed’s Bostic, earnings from Wells Fargo, JP Morgan and Citi

ASIA

Asian equity markets were mostly higher as the region took impetus from the upside in Wall St where all majors extended on gains after China’s lack of retaliation and in which tech outperformance pushed the Nasdaq to a fresh record high. This led to a positive open for ASX 200 (-0.1%) and Nikkei 225 (+2.1%) although the Australia index then floundered amid weakness in its top-weighted financials sector, while the Japanese benchmark sustained its outperformance as exporters cheered a weaker currency and with a surge in Fast Retailing on strong earnings. Elsewhere, Hang Seng (+0.6%) conformed to the predominantly positive risk tone in the region, while Shanghai Comp. (-0.1%) was negative after the PBoC refrained from reverse repo operations and with some jitters ahead of Chinese Trade Data, although the mainland index has since moved off its lows after the PBoC later announced an MLF operation and after data printed mixed with a larger than expected surplus, which eased some of the data-related fears. Finally, 10yr JGBs were flat with demand sapped amid outperformance of riskier assets in Japan, although downside was also stemmed by the BoJ’s presence for JPY 670bln of JGBs in the belly to super-long end.
 

PBoC refrained from reverse repos, but later announced to lend CNY 188.5bln via 1yr Medium-term Lending Facility. (Newswires)
PBoC set CNY mid-point at 6.6727 (Prev. 6.6726)
 

Chinese Trade Balance (CNY)(Jun) 261.9B vs. Exp. 182.5B (Prev. 156.5B).
Chinese Exports (CNY)(Jun) Y/Y 3.1% vs. Exp. 4.1% (Prev. 3.2%)
Chinese Imports (CNY)(Jun) Y/Y 6.0% vs. Exp. 13.1% (Prev. 15.6%)

Chinese Trade Balance (USD)(Jun) 41.6B vs. Exp. 27.2B (Prev. 24.9B).

Chinese Exports (USD)(Jun) Y/Y 11.3% vs. Exp. 9.5% (Prev. 12.6%)
Chinese Imports (USD)(Jun) Y/Y 14.1% vs. Exp. 21.3% (Prev. 26.0%)

China's Customs said China trade stability faces challenges from increasing external instability and uncertainty, while it also commented that China will not impose special regulatory measures on US goods nor will it delay US goods at ports. (Newswires)

UK/EU

US President Trump has warned UK PM May that a soft Brexit would probably kill a potential future trade deal between UK and US as they would be dealing with the EU instead of the UK. (Telegraph) This also comes amid reports that UK PM May could suffer the defeat of a crucial Brexit bill as early as Monday after Eurosceptics reacted angrily to the white paper she published yesterday. (Times)

French finance minister Le Maire said if the US trade war persists, EU will take new decisions and commented that specific deal on autos with the US threatens jobs. (Newswires)

FX

FX markets remained uneventful during Asia-Pac trade with the DXY flat but in proximity to retest the 95.00 level to the upside, while EUR/USD consolidated at yesterday’s levels below 1.1700 and GBP/USD mildly underperformed after reports that US President Trump is said to warn UK PM May a soft Brexit would probably kill a potential future UK-US trade deal. Elsewhere. USD/JPY and JPY-crosses were underpinned by the risk appetite, which also helped high-beta currencies hold on to recent gains.

COMMODITIES

WTI crude futures were relatively unmoved alongside quiet overnight trade across commodities and ahead of the contract rollover this weekend, although prices are back above USD 70/bbl after having briefly slipped below it on Thursday in a mild extension of the aggressive pullback seen mid-week. Elsewhere, gold was slightly dampened and the greenback held steadfast and copper traded flat as the mostly positive risk tone provided a base for prices.

CME raised RBOB gasoline futures margins to USD 4000 per contract from USD 3450 per contract for August. (Newswires)

US

The treasury complex moved sideways on Thursday. The yield curve modestly bear-flattened with most of the yields higher by under 2bps. Major curve spreads saw another session of flattening by c.1bps; 2s10s fell to as low as 25bps for another fresh low, while 2s30s and 5s30s also narrowed by 2bps and 1bps respectively. US 10YR T-notes futures (u8) settled 3 ticks lower at 120-05.

Fed’s Powell (Chair, Neutral) reiterated the Fed is hearing concerns regarding trade wars and that sustained high tariffs could be a negative for the economy. Furthermore, Powell said low wage growth is a puzzle, but added the labour market is strong by any measure and the US economy is in a really good place. (Marketplace)

Fed’s Harker (Non-Voter, Dove) stated he welcomes 4 rate hikes this year if inflation accelerates, but added he still sees 3 hikes this year and that Fed rate hikes could lift policy rate to 3.00%-3.25%. Furthermore, Harker said inflation is moving towards the 2% target, while he also noted the inflation goal is symmetric and he would be comfortable for inflation to move to 2.5%. (Newswires)

US Treasury Secretary Mnuchin said many of the US trade talks with China have broken down. (Newswires)

US Commerce Secretary Ross said will sell all his equity holdings and buy US Treasuries. (Newswires)

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EU Mid-Session update: : Gove one of the loyal 5, but 48 remains the magic number https://t.co/xK5JqIoqbY