9^th November 2017

• Risk on sentiment had been in full swing in Asia as stocks continued to edge higher at the beginning of the session, before later paring initial advances
• NZD at better levels after the RBNZ monetary policy decision, where the central bank kept the OCR at 1.75% as expected
• Looking ahead, highlights include US weekly jobs, ECB’s Coeure, Mersch, Lautenschlaeger and Constancio

ASIA

Risk on sentiment had been in full swing in Asia as stocks continued to edge higher at the beginning of the session, before later paring initial advances, particularly in Japanese assets. Nikkei 225 had been the notable outperformer although reversed gains of 2% as US equity futures dipped, subsequently sparking safe haven flow in the JPY, while some investors also touted profit taking. Elsewhere, the ASX 200 hovered around 10yr highs with iron ore prices seeing another day of gains, consequently supporting miners. Chinese markets traded in mixed fashion with the Hang Seng keeping afloat after encouraging Chinese CPI and PPI data which tops analyst estimates, while the Shanghai Comp fluctuated between gains and losses. 10yr JGBs are a tad lower, while underperformance has been observed in the belly of the curve with the 10yr yield ticking up 0.1bps.

Chinese CPI YY (Oct) 1.9% vs. Exp. 1.8% (Prev. 1.6%)

- MM (Oct) 0.1% vs. Exp. 0.2% (Prev. 0.5%)

- PPI YY (Oct) 6.9% vs. Exp. 6.6% (Prev. 6.9%)

EUROPE/ UK

An unnamed EU leader is said to reveal European officials are planning for a no deal on Brexit or reversal of the decision amid UK PM May's more fragile leadership position. (Times)

Priti Patel was forced to step down as international development secretary. (Guardian)

BoE McCafferty (Hawk) noted uncertainty and stated that he 'can’t say when the next hike will happen'. There’s no huge differences in MPC about trajectory for rates. (LBC)

EU is said to give the UK 2-3 weeks to make Brexit bill offer, according to sources. (FT)

UK RICS Housing Survey (Oct) 1 vs. Exp. 4 (Prev. 6). (Newswires)

FX

NZD at better levels after the RBNZ monetary policy decision, where the central bank kept the OCR at 1.75% as expected. Although, the central bank brought there forecast of when a hike will take place, subsequently supporting the currency, while RBNZ Governor Spencer noted that NZD is at around fair value, following its 5% drop in September. AUD had been initially lower amid a surprise drop in home loans, however, the firmer steel prices supporting iron ore has kept, alongside firm Chinese data kept AUD bid, while the USD softness also provided support.

RBNZ holds rates at 1.75% as expected, brings forward its forecast for the next rate hike. In the monetary policy statement, the central bank stated that NZD has eased and if sustained it will increase inflation. Employment growth has been strong and that CPI to remain around the mid target range.

RBNZ Governor Spencer said the rate of the NZD is in the region of fair value. (Newswires)

RBNZ Assistant Governor McDermott says would be good if NZD fell a little bit further and that inflation has gone up tspanough temporary factors which the central bank looks tspanough. (Newswires)

COMMODITIES

Across the commodity complex, iron ore prices continued to surge higher with Dalian iron ore rising as much as 2% amid the persistent rise in steel prices. WTI and Brent crude futures trading relatively sideways overnight, while precious metals gained a slight bid following the turnaround in risk sentiment, where Japan equities reversed its 2% rise to trade with losses of 1.5%.

GEOPOLITICAL

US

While yields were slightly higher across the Treasury curve, we continued to see it linger around the flattest levels in a decade.

Analysts seem content to explain away the flatness by citing concerns regarding the sustainability of US growth and questions over whether inflation will rebound at a time when the FOMC is on a hiking trajectory.

The US Treasury’s $23bln auction of a new 10-year note was decent, stopping tspanough by 0.2bps; dealer takedown was the lowest since January, direct participation was pushed up to the highest since March, while indirect bidders’ participation was in line with the previous auction, and above recent averages. 10-Year T-Note Future settled 5+ ticks lower at 125-08

 President Trump stated that trade deficit is shockingly high with China and that the two nations trade and economic relationship was ‘far out of kilter’. (Newswires/FT)