RANsquawk Daily European Opening News – 26th September 2018

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Asian equities traded mostly higher despite a mixed lead from Wall St. where the Dow and S&P closed with losses In FX markets, antipodeans stole the limelight as an improvement in New Zealand’s business outlook and activity lifted NZD/USD to near weekly highs UK PM May again states that it is not in the national interest to hold another general election or second referendum Looking ahead, highlights include, Czech, US and NZ interest rate decisions, US new home sales, ECB’s Mersch, Draghi and Fed’s Powell, supply from Germany ASIA

Asian equities traded mostly higher despite a mixed lead from Wall St. where the Dow and S&P closed with losses amid cautiousness ahead of the FOMC. ASX 200 (+0.1%) gains were led by the strength in commodity names amid the bounce in base metals, while Nikkei 225 (+0.2%) initially lagged but remained in close proximity to test the 24,000 level to the upside. Elsewhere, Hang Seng (+1.7%) and Shanghai Comp (+.1.3%) outperformed as trade tensions took a backseat amid reports that MSCI will consider increasing the weight of China A-shares in its indices to 20% from 5% and with bluechip energy names frontrunning the gains in Hong Kong. Finally, 10yr JGBs saw a slight rebound and printed fresh weekly highs as yields marginally declined across the curve but with gains capped amid weaker than previous 40yr auction results.

PBoC skipped open market operations today for a net daily drain of CNY 40bln. (Newswires)

PBoC set the CNY mid-point at 6.8571 vs. Prev. 6.8440. (Newswires)

PBoC is reportedly to release rules related to foreign company bond sales in the interbank market. (Newswires)

China banking liquidity is to be loose at the end of September; according to a PBoC-run newspaper. (Newswires)

Chinese Senior Diplomat Yi said China and US should avoid falling into a zero-sum game trap; while he added China hopes US can meet China halfway to prevent the spread of negative momentum. (Newswires)

Asia Development Bank sees China growth 2019 growth at 6.3%, slower than July’s forecast of 6.4%. (Newswires)

Japan and US are said to have reached a basic agreement on ways to promote trade. (Newswires)

UK/EU

UK PM May said it is not in the national interest to have a general election, and again rules out second referendum and she is not bluffing a that a no-deal is better than a bad deal or a Canada-style deal. (Newswires)

Sky News’ Faisal Islam tweeted (citing Sky sources) that there are plans for Labour leader Corbyn to meet with EU’s Chief Negotiator Barnier in the coming days. (Twitter)

French Finance Minister Le Maire said UK PM May’s Chequers plan “doesn’t add up” in its current form as it would send a damaging signal to the rest of Europe. (FT)

UK PM May is said to lay out a speech on Wednesday regarding plans to cut UK corporate tax rates to the lowest in G20 in an attempt to make UK “one of the most business-friendly economies in the world”. (Newswires)

Italy’s Deputy PM Di Maio says the budget is to raise lowest pensions to EUR 780/month while he added he his group will not back 2019 budget targets if requests are not met adding citizens income and pension reform must be accounted for. (Newswires)

Riksbank’s Jansson said if the central bank moves too quickly ahead of the ECB, SEK would strengthen too quickly, while he added the Riksbank may have to raise unemployment forecasts slightly in October. (Newswires)

FX

In FX markets, antipodeans stole the limelight as an improvement in New Zealand’s business outlook and activity lifted NZD/USD to near weekly highs and gave AUD/USD a boost in sympathy, while CAD nursed some of its intra-day losses to trade around 1.2950 against the greenback. Elsewhere, JPY was choppy in which it initially weakened before USD/JPY stalled around the 113.00 level and DXY remained flat just above the 94.00 level, while EUR/USD and GBP/USD traded little changed amid a lack of fresh catalysts and ahead of the upcoming FOMC meeting.

New Zealand NBNZ Business Outlook Sep -38.3% (Prev. -50.3%) (Newswires)

New Zealand NBNZ Own Activity Sep 7.8% (Prev. 3.8%)

New Zealand Trade Balance Jun -1484.0M vs. Exp. -930.0M (Prev. -143.0M, Rev. -193.0M) (Newswires)

New Zealand Trade Balance Jun Y/Y -4.05B vs. Exp. -4.62B (Prev. -4.44B, Rev. -4.50B)

New Zealand Trade – Exports Jun 4.05B vs. Exp. 4.40B (Prev. 5.35B, Rev. 5.34B)

New Zealand Trade – Imports Jun 5.54B vs. Exp. 5.50B (Prev. 5.49B, Rev. 5.54B)

COMMODITIES

Commodities traded mixed as Brent and WTI nursed some of the losses from a surprise build in API crude inventories which led to the former slipping further below the USD 82.00/bbl level. With regards to Iran, there were reports that India is said to cut oil imports from Iran to zero in November (later denied), while Goldman added the initial decline in Iran could bring prices to USD 82.50/bbl and that price risks are skewed to the upside given the elevated geopolitical tensions among oil producers and robust oil demand. Elsewhere, gold breached USD 1200/oz as the USD eased off from weekly highs while copper traded marginally higher on an improvement in risk sentiment.

US API Weekly Crude Stocks (21 Sep) +2.903M (Exp. -1.300M, Prev. +1.249M)

US Special Envoy to Iran said “will ensure we have a well-supplied oil market” ahead of the November 5th oil related sanctions. (Newswires)

NHC said Tropical Storm Rosa (located in the Eastern North Pacific) is quickly strengthening and is expected to become a hurricane overnight. (NHC)

Goldman Sachs said the initial decline in Iran output could bring prices to USD 82.50/bbl; while Goldman continues to expect that production from other OPEC producers and Russia will offset losses out of Iran. (Newswires)
 

GEOPOLITICS

US National Security Advisor Bolton said the enforcement of sanctions will be aggressive and unwavering and will not be undermined by Europe or anybody else. (Newswires)

Iranian President Rouhani questioned how Iran can enter into an agreement with the US President when it violates the policies of its predecessor, he also added dialogue is important and invited the US back to the negotiating table it left. (Newswires)

Japanese PM Abe said he is open to a summit with North Korean leader Kim. (Newswires)

South Korean President Moon said North Korea’s Kim wants a second summit with US as soon as possible. (Newswires)

EU Commissioner Hahn rejected financial aid to Turkey. (Newswires)

US

The Treasury complex drifted lower on Tuesday, pushing the 10yr yield to a four-month high ahead of the FOMC meeting tomorrow where the MPC is widely expected to hike rate by 25bps. Most of the selling action was concentrated in the front-end and belly of the curve where yields were higher by c.2bps at settlement. 2s10s, 2s30s and 5s30s were all narrower by c1bps. Today’s 5yr note auction tailed by 0.4bps; the bid-to-cover came in at 2.997 showing demand was uninspiring and at the lowest since December. Indirect were awarded the smallest share since May, directs took the highest portion since June and similarly dealers were left with the biggest share since May. On Thursday the US Treasury will auction USD 31bln in 7yr notes. * US T-NOTE FUTURES (Z8) SETTLE 5+ TICKS LOWER AT 118-14+.

(RANsquawk)