European Morning Briefing 15.05

European Morning Briefing 15.05

• Asian equities traded with no firm direction as the region digested mixed Chinese data and mounting geopolitical tensions

• In FX, JPY was supported by safe-haven flows while NZD was supported by upbeat domestic retail sales

• Looking ahead, highlights include US NY Empire State Manufacturing Index and ECB’s Praet

ASIA

Asian equity markets traded mixed amid renewed geopolitical concerns after North Korea conducted another missile test, while participants also digested a slew of varied Chinese data. Nikkei 225 (-0.3%) and ASX 200 (-0.3%) were weighed following the missile test which was said to be a new type of missile capable of carrying a large nuclear warhead. Shanghai Comp. (+0.3%) and Hang Seng (+0.7%) were positive with sentiment underpinned by strong lending data and after China pledged USD 124bln investment for the Belt and Road initiative, although upside was capped after Industrial Production and Retail Sales disappointed.

Chinese Industrial Production (Apr) Y/Y 6.5% vs. Exp. 7.1% (Prev. 7.6%); YTD 6.7% vs. Exp. 6.9% (Prev. 6.8%). (Newswires)
Chinese Retail Sales (Apr) Y/Y 10.7% vs. Exp. 10.8% (Prev. 10.9%); YTD 10.2% vs. Exp. 10.2% (Prev. 10.0%)

Chinese New Yuan Loans (CNY)(Apr) 1100bln vs. Exp. 815bln (Prev. 1020bln). (Newswires)
Chinese Aggregate Financing (CNY)(Apr) 1390bln vs. Exp. 1150bln (Prev. 2118.9bln)

PBoC skipped open market operations today. (Newswires)
PBoC set CNY mid-point at 6.8852 (Prev. 6.8948)

EUROPE

German Chancellor Merkel’s CDU party took victory in the state elections at the most populous state of North-Rhine-Westphalia with 34.5% vs. 30.5% for the incumbent SPD party. (Newswires)

Austrian Chancellor Kern said he sees an early election "in the autumn" after the breakdown of the coalition in which coalition partners abruptly dropped their alliance. (Newswires)

DBRS affirmed Greece at CCC (High), stable outlook. (DBRS)

UK

UK Brexit Minister Davis said that UK has a view that talks with the EU should begin as soon as possible and added that the time sequencing of discussions could be used by EU to pressure UK. (Newswires)

The EY Item Club expects a slowdown in the consumer sector to result in companies such as retailers, which have been hard hit by higher inflation since the referendum, cutting jobs. (Times)

FX

JPY was initially supported at the reopen on safe-haven flows triggered by the North Korean provocation, although USD/JPY and JPY crosses then rebounded throughout the session on short-covering. NZD was propped up by better than expected Retail Sales and AUD/USD was resilient as it shrugged off disappointing Australian Home Loans and Chinese Industrial Production to eye 0.7400 to the upside, while CAD benefited from the overnight gains in oil which saw USD/CAD decline below 1.3700.

New Zealand Retail Sales (Q1) Q/Q 1.5% vs. Exp. 0.9% (Prev. 0.8%); Y/Y 4.6% vs. Exp. 4.4% (Prev. 4.2%). (Newswires)

COMMODITIES

WTI crude futures surged following reports that both Russia and Saudi Arabia have agreed that oil output cuts should be extended for 9 more months which saw prices break above USD 48/bbl. Elsewhere, gold (+0.2%) prices remained amid increased geopolitical concerns following the North Korean missile test, while copper also gains amid a positive risk tone in its largest consumer China.

Russia Energy Minister Novak said that Russia and Saudi Arabia agree output cuts need to be extended for 9 months. Novak also commented that more countries are invited to the May meeting in Vienna, while Saudi Energy Minister Al-Falih stated that they recommend extending at the same terms. (Newswires)

Some OPEC members are pushing for deeper cuts or including new participants to join the cuts, including Turkmenistan & Egypt, according to sources. There were also source reports that Venezuela told other OPEC members that it wants deeper cuts of up to 5mln BPD, which didn’t gather support. (WSJ)

GEOPOLITICAL

North Korea conducted a ballistic missile test which travelled 435 miles and landed in the sea between North Korea and Japan, but closer to Russian land. North Korea said that the missile test was aimed at carrying a large and heavy nuclear warhead, while South Korean President Moon is said to have expressed deep regret that this ‘reckless provocation’ occurred just days after South Korea’s change in leadership. (Newswires)

Twitter sources reported that North Korea’s leader Kim Jong Un said the US should not forget its mainland is within sighting range for a strike. (Twitter)

US

Fed's Harker (Voter, Neutral) said that an acceleration in inflation could mean more than two more rate hikes this year. Harker also commented he prefers to begin balance sheet shrink after two more Fed hikes and could move after one further hike. (Newswires)

US President Trump is said to be mulling a major reshuffling of his cabinet, according to press reports. (Axios)

The North American data led to some emerging bulls in treasury markets, finding some buying pressure at the end of the week, amid a week of poor auction results. Prices were supported near session highs throughout the session were rangebound trade was seen. Dovish comments from Fed’s Evans stating that he could be okay with one more hike if there are more uncertainties about the inflation outlook, did see that US treasurys settled near session highs, with the 10y T-note Jun’17 future settling at 125.15 up 17+ ticks.

 

(tfx)

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