6th March 2018
North Korea is said to be open to denuclearisation if regime safety is guaranteed, and added they are willing to freeze nuclear and missile activities during discussions with the US European equities mimicked the lead seen on Wall St. and overnight in Asia, with all major bourses now firmly in the green (Eurostoxx 50 +0.9%) Looking ahead, highlights include API Inventories, New Zealand GDT Auction and a slew of speakers ASIA
Asian stocks were mostly higher after sentiment rolled over from Wall St where all majors gained at least 1% after trade war fears somewhat abated and amid encouraging data releases. This positive momentum gathered pace across Asia-Pac bourses with ASX 200 (+1.1%) also underpinned by strength across the energy sector, and Nikkei 225 (+1.8%) outperformed as exporters cheered a weaker JPY. Elsewhere, Hang Seng (+2.1%) joined in on the elation, while the Shanghai Comp. (+1.0%) initially retreated amid a glum tone in the mainland after the PBoC refrained from liquidity operations, but then later conformed to the region. Finally, 10yr JGBs were subdued with demand sapped amid gains across riskier assets and a mixed 30yr auction result.
PBoC skipped open market operations. (Newswires)
PBoC set USD/CNY mid-point at 6.3386 vs. Prev. 6.3431
RBA Interest Rate Decision (Mar) 1.50% vs. Exp. 1.50% (Prev. 1.50%). RBA reiterated that it judged holding policy rates was consistent with sustainable economic growth and reaching the inflation target, while it also repeated that a strengthening exchange rate could slow pace of economic activity and inflation. Furthermore, RBA also stated that low level of rates continues to support domestic economy and that the outlook is for faster growth this year than last year, while it added that wage growth is to remain subdued for some time and gradually pick up. (Newswires)
Australian Current Account Balance (Q4) -14.00B vs. Exp. -12.30B (Prev. -9.10B, Rev. -11.0B). (Newswires)
Australian Retail Sales MM (Jan) 0.1% vs. Exp. 0.4% (Prev. -0.5%)
Australian Net Exports Contribution (Q4) -0.50% vs. Exp. -0.60% (Prev. 0.00%)
BoJ Governor Kuroda said BoJ is keeping policy accommodative and that the central bank cannot weaken extent of monetary easing nor end easing when inflation hasn’t yet reached the target. However, Kuroda added that they will obviously debate on exit strategy once target is achieved and that the central bank is brainstorming how a future exit could impact the balance sheet. Later adding that he only said an exit strategy may be debated if inflation reaches 2% during 2019. (Newswires)
Riksbank Governor Ingves stated that weaker inflationary pressures creating uncertainty, adding that monetary policy needs to proceed cautiously. Furthermore, saying that inflation will be near 2% even though forecasts have been adjusted downwards. It’s too early and too big a risk to raise rates now. (Newswires)
Riksbank’s Ohlsson said that inflation has remained close to the target and now is the time to begin normalising monetary policy.
North Korea is said to be open to denuclearisation if regime safety is guaranteed, according to the South Korean Envoy. North Korea added they are willing to freeze nuclear and missile activities during discussions with the US. (Yonhap)
US Trade Representative Lighthizer said that Canada and Mexico will get a tariff exclusion with a new NAFTA agreement which will be an incentive to conclude a deal. (Newswires)
US Republican Senator Cochran (Maine) is to resign on April 1st amid health complications. (Newswires)
EU is said to consider tariffs of US steel, denim and bourbon, according to sources. Total worth of imports subject to tariffs is EUR 2.8bln. Commission proposes a tariff of 25% on these products. (Newswires)
As trade war fears are easing, the European cash open mimicked the lead seen on Wall St. and overnight in Asia, with all major bourses now firmly in the green (Eurostoxx 50 +0.9%). FTSE MIB (1.4%) and DAX 30 (+1.1%) are clear outperformers today following the underperformance seen yesterday in both indices. Materials sector outperformance has been supported by firmer commodity prices. Smurfit Kappa (+18.9%), a noticeable mover today following news of the company rejecting an unsolicited offer from US based International Paper. Telecom Italia (+5.6%) are seen at the top of the FTSE MIB amid news Elliott Management have increased their stake in the company. Just Eat (-7.2%), a major laggard in focus today after the company failed to deliver on earnings.
Not much net movement in Usd/majors, but an overall improvement in risk appetite has sapped some strength from the traditional safe-havens, with the Jpy also taking on board comments from BoJ Governor Kuroda who clarified that easy policy will remain in place until such time that inflation reaches the 2% target level, which is currently forecast during fy 2019. Usd/Jpy back below 106.00 and Usd/Chf nearer the top of its 0.9385-0.9420 trading parameters with little reaction Swiss CPI data that was firmer than expected m/m, but bang in line with consensus in y/y terms. Usd/Cad remains firmer having just crossed over 1.3000 yesterday amidst ongoing NAFTA and US import tariff concerns, and with the options market indicating more Loonie depreciation ahead. The Kiwi is still benefiting from relative Aud weakness down under after some Aussie data misses overnight (Q4 current account and January retail sales vs a tad smaller decline in Q4 net exports) and a largely unchanged RBA on rates and in the accompanying statement (growth to pick up vs 2017, but inflation and wages still lagging). Nzd/Usd just over 0.7250 and Aud/Usd retreating from a brief 0.7800 test, as Aud/Nzd pulls back towards 1.0700. Elsewhere, some divergence in Eur/Scandi crosses, with the Nok up near 9.6250 highs on an upbeat Norwegian regional survey, but the Sek down to fresh 10.2000+ multi-year lows on more cautious Riksbank policy guidance from Governor Ingves and shrugging off reasons to start normalisation now from rate hike dissenter Ohlsson. Back to Usd/G10 pairs, Eur/Usd looks more supported above 1.2300, but perhaps capped by its 30 DMA around 1.2363, and Cable is holding the bulk of Monday’s gains over 1.3800 on UK PM May’s claims that a transition deal is getting closer (and notwithstanding more reports of hard-line EU demands).
Somewhat belatedly, but in the aftermath of German and UK auctions Bunds and Gilts witnessed another bout of selling, this time starting on Eurex where stops were triggered on a break of near term support around the 159.40 area (that encompassed Monday’s intraday low). The core bond is now just off a fresh 159.12 base (-76 ticks) and now eyeing the next downside chart level at 159.03. Gilts have fallen to 120.68 (-63 ticks), with support seen at 120.48 (February 27’s Liffe session low). Risk back on flows come amidst very conciliatory talk attributed to North Korea. Elsewhere, previously resilient US Treasuries have not been able to escape the latest fallout in core EU bonds with futures now all underwater and the curve steeper.
WTI and Brent crude futures trade little changed but in close proximity to yesterday’s highs after the IEA took an upbeat view on global oil demand and OPEC Sec-Gen continued to show support for the solidity of the global supply cut agreement. Further newsflow will likely emanate from the Houston energy conference. In metals markets, spot gold trades with modest gains alongside a slightly softer USD with the move in the yellow metal capped to the upside by this morning’s risk appetite. Elsewhere, zinc prices saw their largest declines in three months in China following rising inventories whilst steel saw further selling pressure overnight as soft demand continues to hamper prices.