Original insights into market moving news

[PODCAST] US Open Rundown 29.06.18

  • EU sentiment rebounds with equities all in the green as a deal is reached on migrants
  • Positive UK GDP figure give GBP a lift
  • Looking ahead, highlights include, US PCE, Canadian GDP, Chicago PMI, EU summit

Asian stocks initially struggled for direction and traded mixed for most the session with the ASX 200 (-0.3%) and Nikkei 225 (+0.1%) contained on month-, quarter- and half-year end rebalancing, while better than expected Industrial Production and a 25year low Unemployment Rate in Japan failed to underpin the local benchmark. However, it was not all doom and gloom for stocks as a late breakthrough at the EU summit later provided the region with a mild uplift. Elsewhere, Hang Seng (+1.6%) and Shanghai Comp. (+2.1%) rallied amid outperformance in tech and plans to ease foreign investment restrictions which overshadowed the switch to a weekly net liquidity drain by the PBoC, although the 3 big telecom names were mixed after their spin-off JV China Tower received approval for a Hong Kong IPO which is set to be the largest globally since Alibaba. Finally, 10yr JGBs were slightly softer amid modest gains in Japanese stocks and after the BoJ cut its purchase amounts in the 5yr-10yr maturities, although the reaction to the Rinban was muted in comparison to previous similar reductions.  
US Ambassador to China Branstad said the Trump administration is unconvinced China is willing to make enough progress on trade issues soon enough while he added there is scepticism regarding promises China has made and the US wants to see openings carried out. (Newswires) 
China has reduced the amount of industrial sectors restricted from foreign investment, as Beijing increases its appeal to international businesses ahead of a looming trade war with the US. (FT) 
PBoC injected CNY 80bln via 7-day reverse repos, for a weekly drain of CNY 370bln vs. CNY 140bln injection W/W. (Newswires) 
PBoC set CNY mid-point at 6.6166 (Prev. 6.5960) 

EU leaders reached an agreement on migration at the EU summit which include Mediterranean centres for migrants to be kept in on a voluntary basis and in which refugees will be shared among EU members on a voluntary basis. Furthermore, the leaders agreed they must ensure effective control of external borders and prevent uncontrolled migration that was seen in 2015, while EU leaders also agreed to extend economic sanctions against Russia for another 6 months. Additionally, EU leaders also signalled intentions to respond to potential tariffs on cars, should trade tensions escalate. (Newswires) Note: EU leaders had initially failed to formally approve a final EU summit joint conclusions statement after Italy blocked all agreements until demands regarding migration were included in the final conclusions which had prompted the EU to cancel the press conference.  

ECB sources say they are considering buying bonds with longer maturities as of next year in order to keep duration at the same level. Sources added that minor deviations from capital keys may be tolerated during reinvestments. (Newswires)  

EU's Barnier says that progress has been made on Brexit but divergences remain with official European Council statement stating that no substantial progress has been made on Ireland, adding further progress is welcome on the withdrawal pact. (Newswires) 

EU CPI Flash YY (Jun) 2.0% vs. Exp. 2.0% (Prev. 1.9%) 
EU CPI excluding Food & Energy Flash YY (Jun) 1.2% vs. Exp. 1.3% (Prev. 1.3%) 
UK GDP YY (Q1) 1.2% vs. Exp. 1.2% (Prev. 1.2%) 
UK GDP QQ (Q1) 0.2% vs. Exp. 0.1% (Prev. 0.1%) 

US President Trump is said to have told advisors he wants the US to withdraw from the WTO. (Axios) 

US Fed approved 34 of 35 capital plans in the second part of the bank stress tests, with Deutsche Bank's (DBK GY) US operations failing due to material weakness in data capabilities and controls. (Newswires) 

Bank of America (BAC) to repurchase up to USD 20.6bln in shares and boost dividend by 25% to USD 0.15/Shr. 
Citi (C) to repurchase up to USD 17.6bln of shares and boost dividend by 41% to USD USD 0.45/Shr. 
JPMorgan (JPM) is to repurchase USD 20.7bln of shares and boost dividend by 43% to USD 0.80/Shr. 
Wells Fargo (WFC) is to repurchase up to USD 24.5bln shares and boost dividend by 10% to USD 0.43/Shr. 

European equity bourses are higher (Stoxx 600 +1.19%) after the EU struck a deal for immigrants in the most recent EU summit, settling tensions within the region. Italian and German bourses are benefitting the most from reduced tensions, with the two respective indexes up 1.7% and 1.5% on the day after hitting multi-month lows earlier in the week. FTSE 100 is being weighed on by a stronger GBP as the UK posted positive GDP figures. US equity futures hampered in recent trade by reports via Axios that US President Trump is said to have told advisors he wants the US to withdraw from the WTO. 

IT names are benefitting from the improved risk tone as investors return to higher Beta assets, with the sector the current outperformer (+1.9%). Bank stock are in focus, with the US Fed approving 34 of 35 capital plans in the second part of the bank stress tests. CaixaBank (+4.8%) also reached an agreement to sell 80% of its real estate business to private equity fund Lone Star. Gross book value of real estate assets as of end-October 2017 was around EUR 12.8bln 
Hapag Lloyd revised their guidance downwards on the back of fuel related costs, with this hitting the entire shipping industry; Maersk lower by around 4%. 

Early European trade has been dictated by the firmer EUR seen in the wake of EU leaders reaching an agreement on migration at the EU summit. Optimism surrounding the deal has largely been spurred by relief regarding recent tensions within the CDU/CSU alliance in Germany. CSU’s Michelbach has viewed the deal as a ‘positive signal’ and thus markets are optimistic that this could pave the way for a mending of relations. Furthermore, the fact that Italy were able commit to the deal and avoid walking away has been met with positivity in the market; albeit Salvini has stressed the need for ‘concrete commitments. In terms of price action, EUR/USD soared through the 1.1600 level during thin Asia-Pac trading hours to make a high print of 1.1666 but still some distance of the 1.1720 high seen earlier in the week. EUR unfazed by in-line EZ CPI (Y/Y 2.0%) 

The sharp rise in the EUR has naturally pressured the DXY which has given up its 95.00 handle to trade lower by around 0.5%. Subsequently, the USD is softer against a bulk of its major counterparts with JPY the exception to the rule amid the broader risk environment spurred by events in Brussels. USD/JPY sits marginally higher for the session with the move to the upside running out of steam ahead of 110.80 with exporter offers from 110.80-90 capping gains. 
GBP is also firmer vs. the USD (but softer vs. EUR) and has subsequently reclaimed a 1.3100 handle. Brexit-related rhetoric from overnight was unsurprisingly inconclusive and generic with PM May stating that she wants a deal on Brexit that will work for both UK and EU. Perhaps more interestingly, Business Insider sources suggest the EU will reject any Brexit deal that stipulates the UK remains with the goods single market. GBP boosted above 1.3150 to a high of 1.3183 after Q1 GDP Q/Q was revised higher to 0.2% from 0.1% and thus provided some food for thought at the BoE ahead of their August meeting (albeit the MPC had been looking for a firmer upward revision to 0.3%). 
Elsewhere, broad USD softness has lent a helping hand to AUD with AUD/USD paring the softness seen in the wake of another PBoC devaluation which had earlier pressured CNH to its weakest since November. 

Fixed income markets initially saw a softer open during early Eurex trade amid an uptick in risk appetite after the aforementioned deal on migration at the EU summit. The exception to the rule was that of BTPs with a narrowing of the IT/GE spread as markets digested the ramifications for domestic German politics and relief that Italy hadn’t caused a breakdown in negotiations given the anti-immigration views held by the newly appointed government. Thereafter, in what has been a choppy morning of price action thus far, curve flattening was seen in Europe after ECB sources stated the Bank are considering buying bonds with longer maturities as of next year in order to keep duration at the same level. Sources went onto state that minor deviations from capital keys may be tolerated during reinvestments. Prices then reversed course once again in a move lead by Gilts as markets repriced expectations for a move by the BoE at their August meeting with the UK 10yr extending losses below 123.00 

Diverging performance in energy markets, with WTI -0.3% and Brent +0.25%, after WTI hit its highest level in 4 years during Thursdays trade and set for its longest quarterly rise in 8 years, as supply disruptions continue to squeeze the US oil market alongside overarching trade tariff concerns.  In the metals scope, gold is up slightly around USD 1,250/Oz level, as the dollar falls off. This comes after gold hit a 6-month low in the previous session, and was set for its worst monthly performance in over 1 year. Shanghai steel is set for its best quarter in 5 as Chinese demand continues to grow, with the construction material up 2% on the day, and +15% in April-June. Zinc has parred the losses seen in early trade following planned output cuts of 10% by smelters, but is still set for its worst quarter since 2015.   

Asian equity markets begin mixed following the lackadaisical lead from US where most major indices were rangebound…