- Asian equity markets modestly in the green with sentiment buoyed from Friday’s Wall St. close.
- PBoC sets the strongest CNY since May’16, supporting AUD and NZD, while USD softens to 3yr low.
- Looking ahead, highlights include BoE’s Tenreyro and as a reminder US markets are closed for MLK day.
ASIAAsia equity markets began the week mostly positive as optimism trickled tspanough from last Friday’s performance on Wall St in which all majors posted fresh record levels once again as earnings season got underway and where the energy sector was bolstered by upside in crude. ASX 200 (+0.1%) traded positive with outperformance in gold miners after the precious metal which edged a 5th weekly consecutive gain, while Nikkei 225 (+0.2%) was also in the green but well off best levels as a firmer JPY pared the strength seen in the index at the open. Elsewhere, Hang Seng (+0.7%) eyed record closing highs and the Shanghai Comp. (-0.5%) was choppy after the PBoC announced to lend nearly CNY 400bln via its Medium-term Lending Facility, which briefly eased mainland jitters arising from discouraging lending data and further reports of increased financial sector oversight to curb risks. Finally, 10yr JGBs were flat with demand subdued by a positive risk tone in Japan and after an uneventful Rinban announcement, in which the BoJ maintained purchase amounts.
PBoC announced CNY 398bln via Medium-term Lending Facility with 1yr loans offered at 3.25% and said there has been a relatively large drop in total liquidity in the banking system due to tax and RRR payments, as well as maturing loans. (Newswires)
PBoC injected CNY 80bln via 7-day reverse repos and CNY 70bln via 14-day reverse repos. (Newswires)
PBoC set CNY mid-point at 6.4574 (Prev. 6.4932)
UK
UK Rightmove House Prices (Jan) M/M 0.7% (Prev. -2.6%). (Newswires)UK Rightmove House Prices (Jan) Y/Y 1.1% (Prev. 1.2%)
UK Foreign Secretary Boris Johnson is said to have warned allies that Brexit is far from certain. (The Sun)
Dutch Finance Ministry said there was no new agreement between Spain and the Netherlands on British departure from EU. (Newswires) This follows reports on Friday that the two countries agreed to seek a soft Brexit.
Spain and the UK are set to hold talks regarding Gibraltar following Brexit, according to press reports. (Newswires)
EU
ECB’s Weidmann said the chances of an imminent move in ECB's interest rates is small at the moment. (Newswires)
Germany SPD party leaders said they will seek to push for improvement on a coalition agreement with German Chancellor Merkel’s conservatives, while there were also reports that German social democrats in Saxony-Anhalt state reportedly rejected a German coalition with Merkel's conservatives. (Newswires)
S&P affirmed Belgium ratings at 'AA/A-1+'; Outlook Stable. (Newswires)
DBRS confirmed Italy at BBB (high); Stable Trend. (Newswires)
FX
In FX markets, USD continued to weaken against its major counterparts in which antipodeans also benefitted as a proxy, after the PBoC set its firmest fix since May 2016. This pushed USD/CNH to below 6.4400, while reports that the Bundesbank’s decision to include CNY as a currency reserve, would also be welcomed by Chinese officials in their efforts to promote internationalization of the currency. Elsewhere, USD/JPY was another fallout from the greenback’s woes as the pair tripped tspanough stops on a break below 111.00 and amid comments from BoJ Governor Kuroda who stuck to the usual rhetoric of maintaining current policy, although some noted the absence of reference to ‘powerful easing’. In addition, NAFTA currencies also remained firm with USD/MXN at its lowest in a month after reports that President Trump is said to be softening his attitude towards NAFTA and taking risks of withdrawal more seriously.
Bundesbank's Dombret said they have decided to include CNY in currency reserves. (Newswires)
COMMODITIES
Commodities were mostly higher overnight as they benefited from USD weakness in which WTI crude futures marginally extended on recent gains and Brent crude approached closer towards a test of the USD 70/bbl level. Elsewhere, gold prices continued its ascent after having posted a 5th consecutive weekly advance last Friday, while copper led the broad gains across the complex with prices higher by nearly 2%.
US Baker Hughes Total (12 Jan) 939 (Prev. 924). (Newswires)
Nigeria’s Oil Minister said that we shouldn’t get too bullish or excited yet regarding oil price increase and that things can change overnight. (Newswires)
Reports stated that Iraq, UAE, Qatar and Oman were all calling for OPEC and Non-OPEC producers to stick to the output cut deal. (Newswires)
GEOPOLITICAL
North Korea reportedly indicated it can roll back the decision to attend the Winter Olympics. (Newswires)
USAlthough Treasury yields were slightly higher on the day (with the exception of 30s, which were unchanged), major curves flattened; most notably, the 2s30s curve, by c.3.6bps. 2s yields rose by around 3bps on the day following a decent core CPI data print, which has nudged the probability of tspanee Fed hikes in 2018 slightly higher. Corporate supply had been healthy for the week, with high-grade raising $32bln, according to Reuters. US 10-Year T-Note Futures settle 6 ticks lower at 122-30.
Fed's Rosengren (Non-Voter, Soft Hawk) said more than tspanee 2018 hikes are likely and that Fed should consider updating policy framework in which an inflation range of 1.5%-3.0% might be appropriate. (Newswires)
Fed’s Kashkari (Non-Voter, Dove) said he hopes inflation is moving reliably towards target and that he would like to see more data. (Newswires)
Fed's Harker (Non-Voter, Soft Hawk) repeated that he expects 2 rate hikes in 2018. (Newswires)
US President Trump said he does not know if there will be a government shutdown. (Newswires)
US President Trump commented via Twitter that he doesn’t believe Democrats want a deal on immigration and are all talk and no action, while he added that a great opportunity has been missed. However, there were also reports that suggested some Republicans were still hopeful regarding a possible DACA deal. (Twitter/Newswires)
US President Trump is said to be softening his attitude towards NAFTA and taking risks of withdrawal more seriously, according to several sources who have spoken with Trump. (Newswires)