DAILY US OPENING NEWS: USD gains ground, as markets await Yellen

 

ASIA-PACIFIC

Asia equity markets lacked any solid direction after the weak momentum from US where all 3 major indices closed negative due to geopolitical concerns, while the Nasdaq took the brunt of the worst day for the tech sector in over a month. This pressured ASX 200 (-0.22%) and Nikkei 225 (-0.33%), although strength in energy names following a 3% rally in crude later helped stem downside in Australia. Hang Seng (+0.05%) and Shanghai Comp. (+0.06%) also conformed to the lacklustre, indecisive tone amid a lack of drivers and a weaker PBoC liquidity operation. Finally, 10yr JGBs were relatively flat with only minimal support seen from the cautious risk tone in Japan, while today’s 40yr auction also failed to spur firm demand despite the b/c at the highest since 2015, as this was relatively stable from the prior.

PBoC injected CNY 40bln via 14-day reverse repos and CNY 10bln via 28-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.6076 (Prev. 6.5945)

BoJ Minutes from July 19th-20th meeting stated that Japan's economy was expanding moderately and that financial conditions were highly accommodative. The minutes also stated that exports are on an increasing trend and that momentum towards achieving the 2% price stability target was being maintained. (Newswires)

RBA's Bullock says high levels of debt leave households vulnerable and that RBA will take this into consideration for monetary policy.

GEOPOLITICAL

US Pentagon said if North Korea does not stop its provocative actions, it will make sure the President is presented with options. (Newswires)

North Korea is reported to be moving airplanes and boosting its east coast defence after recent dispatch of US bomber which flew over waters near its east coast. (Newswires)

US

Fed's Kashkari (voter, doves) said the Fed should be under no pressure to increase rates and that there is time for inflation to move back towards target, while he added he does do not see signs that US economy is near to overheating. (Newswires)

The Graham-Cassidy healthcare bill failed to move forward at the Senate as at least 3 Republican Senators opposed the bill following the CBO estimate which stated the healthcare bill would reduce deficit by USD 133bln between 2017-2026 and the number of insured people would be cut by millions. (Newswires)

EQUITIES

European equites started the session on the backfoot, albeit modestly so (Eurostoxx 50 -0.1%) with lingering geopolitical tensions continuing to act as a source of concern for investor sentiment. In terms of sector specific performance, healthcare names sit at the bottom of the pack with Swiss heavyweight Roche trading lower after being downgraded at Exane. To the upside, energy names lead the way higher amid yesterday’s surge in crude prices, with RBC’s downgrade of Total failing to place too much pressure on the sector.

FIXED INCOME

From a fixed income perspective, the 10yr Bund trades relatively flat after initial losses have been pared throughout the morning. However, analysts at IFR highlight that paper could be halted at 162.05 which marks the 50% retracement of the 8th-21st September move. In the periphery, yields continue to remain resilient to the fallout of the German election with RBC downplaying the concerns for peripheral markets in a research note this morning. That said, investors will continue to remain wary over potential Catalan-related headlines over the coming days.

FX

JPY remains at better levels after yesterday’s comments from the North Korean Foreign Minister in which he stated that the war of words from President Trump has been deemed as a declaration of war. Additionally, PM Abe also called a snap election which will likely be held around late October, as such uncertainty heading into the event could suggest that risks are skewed to the downside in USD/JPY.

With regards to the USD itself, the USD-index is broadly higher as participants await comments from Fed’s Yellen and look for any further clarity on the train of thought at the Fed after last week’s meeting very much left a Dec hike on the table. Additionally, broader USD strength has also likely been supported by EUR softness which was initiated by a break of September’s lower in EUR/GBP.

NZD notably weaker overnight with NZD/USD slipping 0.45%, as political uncertainties, alongside poor overnight data weighed on the Kiwi. As it stands, the RBNZ are not seen lifting interest rates until Sep’18, according to OIS markets. Focus will be on the comments from the RBNZ where there may be an air of caution given the latest election results.

COMMODITIES

In the commodities complex, both WTI and Brent have given back a small percentage of yesterday’s noteworthy gains which were largely triggered by tensions surrounding the Kurdish independence referendum. As such, WTI has briefly moved back below the USD 52/bbl level in early European trade. However, markets will likely remain sensitive to any Turkish involvement in the matter after President Erdogan threatened to cut off the pipelines that transfer oil from Northern Iraq. Elsewhere, copper was seen higher during Asia-Pac trade while safe-haven gold was mildly underpinned as geopolitical concerns lingered.

Local press reports state that ASX will likely suspend most of Australian listed gold sector if WA government budget with new gold royalty increases is passed. (Newswires)

26 Sep 2017 - 10:39- Fixed IncomeBank Speaker- Source: RANsquawk

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