DAILY US OPENING NEWS: ECB is reported to mull reducing QE to EUR 30bln/month from January and extending it until at least September 2018

ASIA-PACIFIC

Asia-Pac equity markets shrugged off the pullback in US stocks from record levels, although upside was somewhat capped as the region digested the latest Chinese trade figures. ASX 200 (+0.45%) and Nikkei 225 (+1.0%) were mildly positive with Australia underpinned by defensive stocks, while Nikkei 225 tested 21,200 and was led by strength in index heavyweight Fast Retailing after the Co. reported its FY net more than doubled. Elsewhere, Shanghai Comp. (+0.1%) and Hang Seng (+0.1%) traded indecisive after the PBoC skipped open market operations but then offered funds via its MLF facility and as participants mulled over mixed Chinese trade data. Finally, 10yr JGBs were initially subdued with demand sapped amid a positive risk tone in Japan, before an improved enhanced liquidity auction result for longer-dated JGBs supported in late trade.

PBoC refrained from market operations today, but offered CNY 498bln through 1yr MLF operations. (Newswires)

PBoC set CNY mid-point at 6.5866 (Prev. 6.5808)

Chinese Trade Balance (CNY)(Sep) 193.0B vs. Exp. 266.05B (Prev. 286.50B). (Newswires)

Chinese Exports (CNY)(Sep) Y/Y 9.0% vs. Exp. 10.9% (Prev. 6.9%)

Chinese Imports (CNY)(Sep) Y/Y 19.5% vs. Exp. 16.5% (Prev. 14.4%)

Chinese Trade Balance (USD)(Sep) 28.47B vs. Exp. 38.00B (Prev. 41.99B). (Newswires)

Chinese Exports (USD)(Sep) Y/Y 8.1% vs. Exp. 10.0% (Prev. 5.5%)

Chinese Imports (USD)(Sep) Y/Y 18.7% vs. Exp. 14.7% (Prev. 13.5%)

MAS kept the appreciation of SGD NEER unchanged at 0%, while it also maintained the width and level of the policy band. MAS made a reference to neutral policy being appropriate for an extended period of time from the October 2016 Monetary Policy Statement and said that it sees Singapore economy likely to expand at a steady, but slightly slower pace in 2018 compared to 2017. (Newswires)

Singapore GDP (Q3 P) Q/Q 6.3% vs. Exp. 3.7% (Prev. 2.2%). (Newswires)

Singapore GDP (Q3 P) Y/Y 4.6% vs. Exp. 3.8% (Prev. 2.9%)

US

Fed's Rosengren (Non-Voter, Soft Hawk) said a December hike is appropriate and that 3 rate hikes next year seems appropriate, while he added that low inflation gives the Fed the luxury of being gradual. (Newswires)

Fed's Bostic (Non-Voter, N/A) repeated he is unsure if Fed will hike rates in December and said US is moving quickly towards full employment. (Newswires)

US President Trump is planning to stop critical subsidies to insurers offering Obamacare cover. (Politico)

UK/EU

ECB is reported to mull reducing QE to EUR 30bln/month from January and extending it until at least September 2018, while sources also stated policymakers are in agreement of extending asset purchases at the October meeting but still debate on the size of purchases. (Newswires)

GEOPOLITICAL

The White House will keep the Iran nuclear deal for now, but wants Congress to make a list of actions that would prompt sanctions, according to NYT. (NYT)

EQUITIES

Indecisive trade in major EU bourses this morning with the Eurostoxx 50 relatively flat. Focus in the session will be on the slew of central bank speakers and US data later in the session. Energy names have been supported by the upside in WTI and Brent crude futures, in which Brent briefly made a break above USD 57. In stock specific news, Bayer shares are outperforming in the DAX after reports that BASF is to purchase the company’s seed unit for EUR 5.9bln. FTSE 100 the laggard today, slipping 0.4% amid the move higher in GBP, while the worst performing stock in the FTSE, GKN, has seen a sharp drop after a profit warning.

FIXED INCOME

Bunds bolstered by latest ECB source reports and a technical short squeeze, which lifted the core 10 year bond future through this week’s previous peak and a new high for the month. EZ periphery debt also benefiting from suggestions that QE could be extended by 9 months at least (longer end of the previously touted 6-9 month range), and seemingly unperturbed by talk that the monthly pace of asset purchases could be scaled down relatively sharply to Eur30 bn from January 2018.

Conversely, some signs of compromise in the form of a contingent 2-year Brexit transition offer from the EU, per media reports, has left UK Gilts languishing and underperforming again, with similar divergence seen at the short end of the curve (ie Short Sterling contracts down vs firmer Euribor and Eurodollar peers).

US Treasuries largely holding modest gains made in wake of a solid 30 year auction, and braced for Friday’s key data (CPI and retail sales, latter possibly carrying an upside skew on above consensus PPI).

FX

GBP: Much of the latest FX volatility occurred post European close yesterday, as reports from Handelsblatt circulated, stating that EU Brexit negotiator Barnier could offer the UK a two-year transitional deal, with the offer tied to the UK meeting its exit obligations to the EU.

Sterling has recovered all and more of the losses prompted by Barnier’s earlier comments on Thursday, as Cable breaks through 1.33, and above October’s previous highs to resume this week’s overall bullish trend.  Comments could continue to dictate Sterling direction as many will await BoE’s Carney this evening.

EUR: EUR/GBP initially followed the trend of the bullish pound, however, marginal support was seen on reports that the ECB is set to mull reducing QE to EUR 30bln/month from January and extending it until at least September 2018, while sources also stated that policymakers are in agreement about extending asset purchases at the October meeting, but are still debating the taper size. EUR 30bln over nine months was initially perceived by markets as marginally hawkish. 

Nevertheless, the Euro has been offered against most of its major counterparts in early European trade, amidst comments from ECB’s Weidmann, stating again that he is against softening the capital key, and thus favouring Bunds.

EUR/GBP now below 0.89, EUR/USD through yesterday’s lows and EUR/JPY continuing its bearish attack, looking toward the 131.80 support level.

JPY: The Yen has outperformed generally, up 0.37% for the session vs the Usd, despite this week’s option expiries closing with just short of 2bln between 112.65 – 113.00. The pair trades sub-112.00, looking at the 200 DMA at 111.82.

USD: The dollar index has been muted, with much of the trade impetus coming from the other major currencies, as anticipation turns to tier 1 data (CPI and retail sales), then Yellen who is set to speak over the weekend.

COMMODITIES

WTI and Brent crude futures hovering near intra-day highs this morning. Participants will be keeping an eye out on President Trumps remarks over the Iran nuclear deal, where it is expected that he will refuse to certify Iran’s compliance with the accord and as such this may lead to sanctions on Iran yet again. Additionally, Chinese trade data out last night showed that Chinese imports of crude oil climbed to the second highest level on record.

13 Oct 2017 - 10:37- Research Sheet- Source: Newswires

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