DAILY US OPENING NEWS: Optimism over tax reform buoys sentiment in Europe

18th December 2017

 

ASIA

Asia equity markets began the week mostly positive following Friday’s gains on Wall St. where tax reform optimism buoyed all major indices to record levels after reports Republican Senators Rubio and Corker were to support the tax bill. ASX 200 (+0.7%) was higher as miners gained after an early 6% surge in Dalian iron ore prices, while Nikkei 225 (+1.6%) outperformed on JPY weakness and after encouraging Japanese Trade Data in which Exports rose a 12th consecutive month. Elsewhere, Hang Seng (+0.7%) was positive and Shanghai Comp. (-0.1%) traded indecisive after a significant CNY 300bln injection by the PBoC, and as some property names lagged after the latest China House Price data continued to show the effectiveness of government measures to cool the property sector. India markets were volatile on election risk during vote counting day with the NIFTY (+0.7%) down 2% at the start of trade as early results suggested a closer race in Gujarat between the ruling BJP and the opposition Congress Party than what was seen in Friday’s exit polls. However, stocks later pared losses and then some, after the BJP pulled ahead and trends pointed to a comfortable majority win. Finally, 10yr JGBs were uneventful with prices flat as pressure from the heightened risk appetite in Japan was counterbalanced by a respectable Rinban announcement by the BoJ for nearly JPY 1tln of JGBs in 1yr-10yr maturities.

PBoC injected CNY 120bln in 7-day, CNY 110bln in 14-day and CNY 70bln in 28-day reverse repos. (Newswires)
PBoC set CNY mid-point at 6.6162 (Prev. 6.6113).

Chinese House Prices YY (Nov) 5.1% (Prev. 5.4%). (Newswires)
Chinese Property Prices rose M/M in 50 out of 70 cities (Prev. 50) and rose Y/Y in 59 out of 70 cities (Prev. 60).

Japanese Trade Balance (JPY)(Nov) 113.4B vs. Exp. -40.0B (Prev. 285.4B). (Newswires)
Japanese Exports (Nov) Y/Y 16.2% vs. Exp. 14.7% (Prev. 14.0%)
Japanese Imports (Nov) Y/Y 17.2% vs. Exp. 18.0% (Prev. 18.9%)

 

CENTRAL BANK

Fed's Williams (2018 voter, hawk) says 2017 is ending with good momentum and that three rate hikes in 2018 seems like a reasonable view. (WSJ)

ECB's Liikanen says that an ample degree of monetary stimulus is still needed for underlying inflation pressures to continue to build up. (Newswires)

 

EU/UK

EU Brexit Chief Michel Barnier said the EU is not prepared to come up with a makeshift trade deal for the UK that knits together all the best bits of existing models. (Independent) Following this, the Telegraph have reported that this will lead to a cabinet row in the UK. The Telegraph have also reported that leading Remain campaigners plan to utilize the 'meaningful vote' on final Brexit deal with the aim of keeping UK in the EU. (Telegraph) On the subject of trade, Britain’s banks have written to Theresa May and Philip Hammond warning that a Canada-style free trade agreement with the EU post-Brexit is not ambitious enough and that alignment with EU rules on finance is crucial. (Guardian)

EU Inflation Final MM (Nov) 0.1% vs. Exp. 0.1% (Prev. 0.1%)
Inflation, Final YY (Nov) 1.5% vs. Exp. 1.5% (Prev. 1.5%)

 

EQUITIES

European equities (Eurostoxx 50 +1.0%) trade higher across the board in the wake of further record highs on Wall St. last week and a broadly positive Asia-Pac session. Sentiment has largely been buoyed by ongoing tax reform optimism with the latest reports suggesting that Republican Senators Rubio and Corker are to support the tax bill. In terms of what lies ahead, the House is due to vote on the bill tomorrow, whilst US Senator Cornyn has stated that Senate will most likely pass the bill tomorrow. In terms of sector specifics, gains are relatively broad-based with individual movers including Gemalto (+6%) and Thales (+4.3%) in the wake of their tie-up at the expense of Atos (-1.3%).

 

FX

The Greenback is off late Friday and overnight peaks, but underpinned on latest tax reform bill developments. GBP is holding up relatively well despite latest tests for PM May as she consults with the Cabinet on the Brexit ‘end game’, while the EU top brass stresses that the UK won’t be given any preferential treatment when it comes to trade deals. Cable is keeping tabs on the 1.3350 level, above the recent range base, albeit moderately softer vs the Eur with the cross back over 0.8800. The antipodeans continue to outperform on supportive Central Bank, macro and fiscal impulses, with the Kiwi reclaiming 0.7000 status vs the US Dollar after an improvement in the Performance of NZ Services. JPY is still trapped in a range vs the USD, albeit trending more recently towards the upper end of the 112.00-113.00 band

 

FIXED INCOME

Bunds have succumbed to more downside, and inter-market spread activity coupled with some asset-switching seems the obvious catalysts as Portuguese bonds in particular continue to bask in the glory of becoming investment grade at Fitch, while EU equities have latched on to latest Wall Street records and mostly firmer leads from Asia-Pac bourses overnight. The 10 year Eurex bond has been 20 ticks off-side at 163.27, but now back near the upper end of the range as the focus turns to Eurozone data in the form of final CPI. In contrast, UK Gilts have recovered well from their early Liffe base to trade up at 125.65 (+18 ticks vs -7 ticks at one stage) and ongoing Brexit uncertainty with inferences for BoE policy seems to be the prop. Elsewhere, US Treasuries remain a few ticks underwater on heightened tax reform bill passage prospects, and with the curve re-steepening a little after spreads contracted to fresh multi-year levels late on Friday.


COMMODITIES

WTI and Brent crude futures trade with modest gains alongside the broadly softer USD with energy news flow otherwise relatively light after the Baker Hughes oil rig count posted a decline to 747 from 751 on Friday. In metals markets, gold has seen little in the way of notable price action alongside the broad positive risk tone, with price action in the metals complex mainly centred around China in which Dalian iron futures surged around 6% on the back of recent gains in global prices.

 

18 Dec 2017 - 10:55- Research Sheet- Source: Newswires

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