DAILY US OPENING NEWS: The GOP’s US Senate majority was trimmed to 51-49 seats after Doug Jones won the race to be Alabama’s first Democratic Senator in 25 years, while BTPs underperform

13th December 2017

 

ASIA

Asia equity markets head into the closes mostly positive on what was an indecisive trading day with the region cautious throughout most of the session ahead of the looming FOMC and amid the Alabama Senate election results, in which the GOP’s US Senate majority was trimmed to 51-49 seats after Doug Jones won the race to be the state’s first Democratic Senator in 25 years. ASX 200 (+0.1%) was kept in a tight range and Nikkei 225 (-0.5%) was dampened by a firmer JPY, as focus centred on the developments in US which was a blow for President Trump and effectively tightens the passage for tax reforms. Hang Seng (+1.1%) outperformed and Shanghai Comp. (-0.1%) was choppy as liquidity efforts by the PBoC were counterbalanced amid the backdrop of the risk events stateside. Finally, 10yr JGBs were range-bound with early support seen amid weakness in Japanese stocks and after the BoJ Rinban announcement for JPY 960bln in 1yr-10yr JGBs, although this was later pared in 2nd half of trade in which prices returned flat.

PBoC injected CNY 70bln via 7-day reverse repos and CNY 60bln via 28-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.6251 (Prev. 6.6162)

CASS official Yin said Chinese interbank liquidity will remain tight until the Lunar New Year due to wealth management business restrictions and expected Fed hikes, while Yin added the solution to liquidity problems is to lower RRR. (Newswires)

 

US

Democrat candidate Jones won the Alabama US Senate seat with 49.9% of votes vs. 48.4% for Republican Moore, which means Republicans will now only have a 51-49 seat majority in the Senate (Prev. 52-48). (Newswires)

 

UK/EU

UK PM May is being urged by some of her allies to consider the possibility of a cabinet reshuffle in order to build on her recent Brexit success. (FT)

The BoE should leave interest rates unchanged this month following November’s historic increase, The Times’s panel of experts has said in 9-0 unanimous vote. (Times)

Italian PM Gentiloni said the next Brexit talk phase will be more challenging and called for a tailor-made trade deal between EU and UK. (Newswires/FT)

Labour will back Dominic Grieve's amendment giving Parliament a proper say on the Brexit deal if he pushes it to a vote tonight. The terms of our future are not for the government alone to determine, according to the shadow Brexit secretary

According to reports in La Repubblica, Italian parties have agreed to hold elections on March 4th. (La Repubblica)

 

EQUITIES

European equities (Eurostoxx flat) trade with little in the way of firm direction with the reduction in the GOP’s Senate majority following Democrat Doug Jones’ victory in Alabama seeing little follow through into European trade. The FSTE MIB (-0.4%) lags its peers amid political concerns after Italian parties have agreed to hold elections on March 4th, subsequently reinvigorating concerns over the rise of anti-establishment sentiment in the nation via the 5Star movement. In terms of sector specific performance, consumer discretionary names are the notable outperformers, bolstered by Spanish heavyweight Inditex which had been up as much as 4% in the wake of their latest earning release.

FIXED INCOME

Another relatively tame reaction to UK data, and this time for good (fundamental) reason as the latest labour and wage update is somewhat contradictory. Gilts have slipped to a marginal new Liffe low at 124.63 (13 ticks under yesterday’s close, albeit 23 ticks below best levels seen so far) and the Short Sterling strip has reversed earlier gains of 1 tick and a tad more. However, these losses are far more contained compared to the downside seen in the Eurozone where Bunds appear to have been dragged down by more pronounced selling in peripheral bonds, and especially Italian BTPs on political jitters – president to dissolve Government at the end of the month and elections to be held in early March 2018. The 10 year German benchmark has been down to 162.91 (-36 ticks vs +13 ticks at best), while its Italian peer traded at 138.90 (-85 ticks) and the yield 5+ bp higher pushing the spread to Germany over 4 bp wider. From a tech perspective, Bunds may look towards 162.79-74 next. Elsewhere, US Treasuries are inching lower (through Tuesday’s lows) and the curve is fractionally steeper in typically defensive pre-FOMC fashion.

China and UK are said to discuss the potential of a UK Panda-bond sale, adding that they are to start feasibility study on bond connect. (Newswires)

FX

In FX markets, the USD Index is just clinging on to the 94.000 marker and paring broad basket losses made in the wake of Alabama’s election result. However, the next major directional move (towards 94.500 or 93.500) will likely come from the FOMC tonight, notwithstanding CPI data after Tuesday’s firmer than forecast PPI readings. GBP is Holding above lows vs the USD and EUR with GBP not swayed too much by the latest UK jobs report which saw a slightly higher unemployment rate and an unexpected uptick in ex-bonus earnings. Focus for GBP will likely continue to centre on politics with today’s parliamentary vote on the Brexit bill, with the opposition Labour Party affirming that it will side with Tory rebels wanting a say on the divorce deal. AUD continues to outperform (just) after upbeat survey news overnight (Westpac consumer index at 100+ multi-year high and sentiment rebounding to positive territory).

UK Claimant Count Unem Chng (Nov) 5.9k vs. Exp. 3.2k (Prev. 1.1k, Rev 6.5k)
- Avg Earnings (Ex-Bonus) (Oct) 2.3% vs. Exp. 2.2% (Prev. 2.2%)
- Avg Wk Earnings 3M YY (Oct) 2.5% vs. Exp. 2.5% (Prev. 2.2%, Rev. 2.3%)
- ILO Unemployment Rate (Oct) 4.3% vs. Exp. 4.2% (Prev. 4.3%).

 

COMMODITIES

In the commodities complex, energy prices trade modestly higher in the wake of yesterday’s API report which showed a larger than expected drawdown in headline crude stockpiles (-7.382mln vs. Exp. -3.8mln). Elsewhere, spot gold trades with little in the way of notable direction, whilst copper has seen some support from the broadly softer USD during London trade in what was otherwise a relatively subdued session overnight for the complex.

US API weekly crude stocks (Dec 8) -7.382M vs. Exp. -3.800M (Prev. -5.481M). (Newswires)
- API weekly dist. stocks (4 Dec, w/e) 1.538M vs. Exp. +0.900M (Prev. 4.259M)
- API weekly gasoline stk (4 Dec, w/e) 2.334M vs. Exp. 2.500M (Prev. 9.196M)
- API Cushing number (4 Dec, w/e) -2.704M vs. Exp. -3.100M (Prev. -1.951M).

13 Dec 2017 - 10:43- Research Sheet- Source: RANsquawk

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