DAILY US OPENING NEWS: European equities trade with little in the way of firm direction. Energy names outperform in the wake of yesterday’s Forties pipeline outage

ASIA

Asia equity markets traded subdued as momentum from Wall St where S&P 500 and DJIA posted fresh record closes, was lost on the region. ASX 200 (+0.3%) and Nikkei 225 (-0.3%) were mixed in which strength in commodity related stocks kept the Australian benchmark afloat. This was after copper rose to above USD 3/lb and Brent crude rallied to a 2-year high on reports the Forties pipeline, which carries 40% of UK North Sea oil production, will be shut for weeks due to repairs. Hang Seng (-0.6%) and Shanghai Comp. (-1.3%) were subdued on plans of further regulatory steps for insurers to help curb risks and reports of possible contingency measures such as higher interest rates and tighter capital controls to combat possible outflows and support CNY from the impact of US tax reform and Fed hikes. Finally, 10yr JGBs traded relatively flat, although some mild support was observed following a 5-yr auction in which the b/c and accepted prices were higher than previous.

China's insurance regulator plans to revise certain guarantee fund rules for insurance industry as China seeks to strengthen insurers' capability to curb risks. (Newswires)

PBoC injected CNY 80bln via 7-day reverse repos and CNY 70bln via 28-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.6162 (Prev. 6.6152)

EQUITIES

European stocks trade modestly higher/flat in what’s been a relatively choppy session thus far. Shares have seen some support from M/A activity, alongside the strength in energy names. Gemalto shares surged some 30% after Atos’s EUR 4.3bln takeover proposal. Energy names gaining on the back of Brent crude futures rising to the highest level since 2015 amid reports of the outage in the Forties North Sea pipeline, which carries 40% of UK North Sea oil & gas production.

FIXED INCOME

It seems the path of least resistance remains south for fixed, with fresh losses made in recent trade, albeit in a gradual and measured manner. Bunds are just off a 163.27 base, and with the 10 year cash yield back above the 0.30% level that has been sticky despite a brief dip below on Monday, and even 2 year Schatz futures are retesting worst levels (112.130) despite a solid auction, but chart support around 112.120 could stall further declines. Elsewhere, Gilts just printed a tick below the initial post-UK inflation data low, at 124.69 before regrouping and USTs have also recovered some composure to sit just off worst levels awaiting the 2nd half and PPI data, plus the long bond offering.

FX

In FX markets, EUR and JPY are a tad firmer vs the Dollar, as the DXY struggles to stay within touching distance of the 94.000 level into day 1 of the December FOMC. Sterling saw a push higher with inflation rising by 3.1% above analyst estimates which is also against the peak that the BoE had estimated for October. However, the move was short-lived and GBP then proceeded to lose ground against its major counterparts with Brexit still at the forefront after European Parliament’s Verhofstadt stating that David Davis made an own goal with Brexit deal remarks. Elsewhere, we have seen a sharp reversal and retreat in EUR/SEK on the back of Swedish inflation data beats with CPI at 1.9% y/y in November vs 1.7% expected and last, while the Riksbank’s targeted CPIF index came in at 2% against the 1.8% forecast and the same previously. Finally, Kiwi continues to outperform its G10 peers, with NZD/USD forming a firmer base above 0.6900 and the rebound on less dovish RBNZ expectations pushing the pair just over 0.6950 at one stage.

COMMODITIES

Brent crude futures are trading at 2015 levels after breaking above USD 65/bbl amid reports of an outage in the Forties North Sea pipeline. Subsequently, this saw the WTI/Brent widen to USD 7, while UK gas futures saw its largest rise since 2011 with support also coming from an explosion at OMV’s gas facility in Baumgarten. In metals markets, gold is currently trading relatively flat whilst base metals in China continued to be supported overnight by domestic supply cuts.

Goldman Sachs says on a long term basis expects commodities to outperform other asset classes even as policy makers are forced to hike rates, most bullish copper and most bearish aluminium. (Goldman Sachs)

Protesters in Nigeria claim they have halted flows from 3 of Eni's (ENI IM) wells. (Newswires)

Ineos who operate the Forties pipeline state that the crack in the pipeline is 5-6 inches and they will know within the coming days whether the pipeline will be closed for 2 or 3 weeks. (Newswires)

Libya's Waha Oil Co. state that they are producing around 217k bpd. (Newswires)

12 Dec 2017 - 11:07- Research Sheet- Source: RANsquawk

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