European Morning Briefing 12.04

European Morning Briefing 12.04

12th April 2017
• Asian equities slip amid the rising geopolitical concerns, while Chinese CPI misses analyst estimates.
• JPY the notable beneficiary from the risk off tone with USD/JPY at its lowest level since Nov’16.
• Looking ahead, highlights include UK Jobs Data, BoC Rate Decision, and DoE Crude Report.

ASIA

Geopolitical concerns continued to weigh on markets with the Nikkei 225 (-1.2%) the underperformer amid JPY strength. The downbeat tone was evident across the region, with the Shanghai Composite (-0.3%) and Hang Seng (-0.2%) finding themselves in negative territory not helped by the 0.90%, vs. Exp. 1.00% CPI Y/Y miss, while ASX 200 (-0.2%) was also subdued, although strength in the materials sector and mining names stemmed downside. Finally, JGBs followed European and US fixed income markets, finding bullish pressure throughout the session. Noticeably, the BoJ lowered its 3yr-5yr purchases by JPY 30bln which had no effect on the 10yr or the flight to safety, with the 10yr JGB Jun’17 contract higher by around 20 ticks.

Chinese CPI (Mar) Y/Y 0.9% vs. Exp. 1.0% (Prev. 0.8%). (Newswires)
Chinese PPI (Mar) Y/Y 7.6% vs. Exp. 7.6% (Prev. 7.8%)

PBoC refrained from open market operations again for a net daily drain of CNY 40bln. (Newswires)

PBoC set CNY mid-point at 6.8940 (Prev. 6.8957)

BoJ Governor Kuroda stated BoJ easing is not targeting an FX level and that JPY weakness could help inflation reach target quicker. Kuroda further stated that he sees no problem with asset purchases or expansion of monetary base. (Newswires)

EUROPE/UK

German Police have stated that security is at high levels due to the blasts that occurred in Dortmund yesterday and have stated that this was a terror attack. (Newswires)

FX

JPY was the main mover throughout the session as the downbeat tone spurred safe-haven flows, which saw USD/JPY extend further below the 110.00 level and to its lowest level since Nov’16. Elsewhere, the USD-index mildly recovered from yesterday’s lows, while antipodeans were mildly pressured with AUD/USD relinquishing the 0.7500 handle following the miss on Chinese CPI data.

COMMODITIES

Energy markets were once again dictated by oil, as the slight draw in the APIs aided the bullish pressure, with slow gains the story of the Asian session. Natural Gas markets also saw some reprieve, managing to trade off lows and with support evident at 3.14. Gold followed the other metal markets, seeing subdued trade, despite the growing geopolitical concerns as the greenback rebounded off lows.
US API Crude Oil Inventory Report (Apr 7) W/W -1300K (Prev. -1834K)
Saudi Arabia wants OPEC to extend production cuts and is pushing for a six-month extension. (WSJ)

GEOPOLICTICAL

US President Trump stated that the US is sending an ‘armada’ to North Korea, while he added that the US is not going into Syria and that the strike should have occurred long ago. (Newswires)
Chinese President Xi stressed for a peaceful resolution to the situation in the Korean peninsula during a call with US President Trump, while Xi also called for a political settlement on Syria. (Newswires)

US

Treasuries moved higher as markets fret over the increased global tensions that have engulfed the US, Russia, China, Syria and North Korea among others. The 10y note auction was again soft with a 1 bps tail but dip buyers emerged in the 10y and it closed below the WI with the yield at 2017 lows. Jun’17 10y T-note futures settled at 125.15+, up 18+ ticks.

Fitch affirmed the USA at AAA; outlook stable. (Newswires)

Fed’s Williams (non-voter, soft hawk) said the Fed may partially end some balance sheet reinvestments and continue the remainder for a period. (Handelsblatt)

US President Trump stated he expects both healthcare and tax reform this year and that he is still trying on healthcare legislation and has nominated John Sullivan for the Deputy State Secretary role. (Newswires)

The US House Financial Services Chairman, Hensarling stated they will unveil the Dodd-Frank overhaul bill by the end of the month. (Newswires)

White House is said to be mulling how to best reduce taxes as it concedes it no longer has a set timeframe to produce its tax cut plan, according to press reports. (Fox Business)


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