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RANsquawk EU Open Rundown 23.11.17

  • FOMC minutes stated that concerns about inflation were widely shared with little else in the way of new information
  • A mixed tone was observed in Asia with the region indecisive amid holiday-quietened trade, in which Japan observed a national holiday
  • Looking ahead, highlights include Eurozone PMIs, UK GDP, ECB’s Praet, Coeure and US Thanksgiving

FOMC Minutes

FOMC meeting minutes from the November 1st decision provided little by way of new information as many participants were of the view that a near-term hike was warranted, though some opposed the decision due to weak inflation – as recent Fedspeak had suggested.

FOMC minutes also stated that concerns about inflation were widely shared and many observed that weak inflation could prove persistent and may reflect drop in inflation expectations. The FOMC also continued to think that tighter labour markets would ultimately produce higher inflation and that the economy is operating at or above full employment and would continue growing above trend.

On the whole, there was little to help repricing of rate expectations for the rest of 2017, and with Jerome Powell’s confirmation hearing for the position of Fed chair, analysts will be looking to his comments to tweak their expectations for 2018 and beyond. There was little reaction in wake of the release, however, as traders headed towards the exit for the Thanksgiving Holiday, a mild dovish reaction was seen; some cited the inflation concerns by “some” participants as the reason for the moves.

ASIA

A mixed tone was observed in Asia with the region indecisive amid holiday-quietened trade, in which Japan observed a national holiday and the US headed into Thanksgiving. ASX 200 (Unch.) was choppy as weakness in the top-weighted financial sector nullified the resilience of commodity-related stocks, while this also followed a subdued close in Wall St counterparts. Chinese markets conformed to the varied tone with early outperformance seen in the Hang Seng (+0.1%) to extend above the 30,000 level, although some of the gains were pared amid weakness in its mainland peers with the Shanghai Comp. (-1.1%) weighed by consumer stocks and as Shenzhen small caps resumed their sell-off.

PBoC injected CNY 140bln via 7-day reverse repos, CNY 120bln via 14-day reverse repos and CNY 10bln via 63-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.6021 (Prev. 6.6290)

UK/EU

UK 1-year inflation expectations fall to 2.6% in November, and 5-10 year expectations remain on hold at 3.2%, according to Citi / YouGov survey. (Newswires)

Source reports suggest that the EU are ready to offer UK PM May a trade deal in the wake of Brexit. However, the mood in Brussels suggests that this may fall short of the UK’s request for a ‘deep and special partnership’. (Newswires)

FX

FX markets were relatively quiet during Asia trade amid holiday conditions and a lack of overnight releases. Nonetheless, USD remained weaker across the board from the miss on US Durable Goods and FOMC minutes. This initially helped EUR/USD and GBP/USD reclaim the 1.1800 and 1.3300 handles respectively, while the PBoC also took its swipe at the greenback and adjusted the reference rate to its strongest in over a month. Elsewhere, JPY-crosses reversed some of their recent losses despite the absence of Japanese participants, and SGD failed to benefit from firmer than expected upward Q3 GDP revisions amid fatigue.

COMMODITIES

Commodities were relatively uneventful overnight as prices took a breather from the prior day’s advances. This saw mild profit taking in gold and WTI gave back the recently reclaimed USD 58/bbl level, although oil prices remained near its best levels in over 2 years as several OPEC members including Saudi were reported to be touting a 9-month output deal extension.

Oil rigs rose by nine in the latest week to 747 and gas rigs fell by one to 176, according to Baker Hughes which pushed the total rig count for the week to 923. (Newswires)

Qatar Oil Minister said OPEC needs more time to reduce crude inventories to a 5-year average and that extending the agreement will help stabilise the market. (Newswires) Elsewhere, Venezuela said that an OPEC cut extension should be agreed by consensus and argued for a 9-month extension. (Newswires)

GEOPOLITICAL

South Korea and China are reportedly to cooperate on stopping North Korea provocation. (Yonhap)

North Korea stated that US designation is deemed a severe provocation and that North Korea opposes any form of support to terrorism, in response after President Trump labelled North Korea as a state sponsor of terrorism. (Newswires)

US

Yields were lower across the Treasury curve ahead of the Thanksgiving Holiday, pushed lower by the weak durable goods data and also got a small boost after the release of the FOMC meeting minutes, which have kept the December hike narrative intact; there was some buying of Treasuries after the Fed released its minutes, after “some” participants were against endorsing a December hike given the weakness in inflation. The curve bull-steepened, with short-end yields falling by around 4.5bps by settlement, while long end yields fell by around 2bps. Today’s price action helped some of the closely-watched curves to widen – 2s10s +0.8bps, 2s30s +3bps, 5s30s +4.3bps and at the settlement, US 10-Year T-Note Futures (Dec) were 13+ ticks higher at 125-03+.
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