2018Feb

FC: EUROPEAN OPENING REPORT : WEDNESDAY – 7TH – MARCH – 2018 March 07, 2018 at 05:44AM

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US cash equity markets closed in the green. Futures rallied before the open stateside amid reports that North Korea expressed a willingness to talk to the US about denuclearization. The improvement in sentiment for risk failed to last, however, as stocks gains narrowed with investors contemplated the possibility of a global trade war, inspired by Trump’s proposed steel and aluminium tariffs. Of note, Senator Purdue said Trump is open to changes on tariffs. Staying in Washington, US President Trump said the EU has been particularly tough on the US and makes it difficult to do business and reiterates plan to implement tariffs on steel, adding the US cannot lose steel industry. Trump stated trade wars are not so bad when the US has a deficit with many countries. He also said he thinks North Korea is sincere in willingness to hold discussions, partly sue to sanctions. In currency space, the US Dollar remained on the back foot, losing ground against most of its G10 counterparts, while the Antipodeans were the outperformers on the day. Elsewhere, oil prices were little changed at the close with US crude futures settling at $62.60 (+$0.03). In post-settlement trade, oil prices declined after private inventory data showed a larger than expected build in US crude inventories. Also of note, the EIA cut their forecast for 2018 world oil demand growth by 30K BPD to a 1.70 Mln BPD YoY increase; 2019 was unchanged at 1.72 Mln BPD. In Europe, French Finance Minister Le Maire said reports that France are taking a tough stance in Brexit talks are not correct.

Following the US close, the NYT reported that Gary Cohn is to resign as US President Trump’s top Economic Advisor. The headline saw the US Dollar lose ground in currency space along with the Mexican Peso and Canadian Dollar. US equity futures also opened sharply to the downside. Usd/Jpy fell further after BBG carried the headline that the US is said to be mulling further curbs on imports from China. In Europe, UK Chancellor Hammond said it is within the interests of both the UK and the EU to include financial services in Brexit deal.

Before the open in Asia, RBA Governor Lowe said our assessment is that the economy is moving in the right direction, adding we expect stronger growth in 2018 than in 2017 and a further reduction in the unemployment rate. Lowe stated it is likely that the next move in interest rates in Australia will be up, not down, this comment led to a firming of the Aussie Dollar. In later comments, Lowe said recent data suggests today’s Q4 GDP may be a little less than +0.5%, but such a result would change their confidence on the outlook. He stated it would be helpful to have a lower AUD at the moment, but AUD is not broadly overvalued. On rates, the RBA Governor said out scenario centrally is that rates will rise, but it is not inevitable, adding it depends on how quickly unemployment comes down. Lastly, mentioning if a rate increase could come quicker because of a stronger economy, that would be good. Data wise, Australia’s AiG performance of construction index rose to 56.0 in February. Meanwhile, New Zealand’s building volume gained 1.4% (f/c +1.0%) q/q in Q4.

Asian bourses traded mixed as they searched for direction after the resignation of US President Trump’s Chief Economic Advisor Gary Cohn after the bell yesterday. Following the resignation, Trump tweeted he will be making a decision on Cohn’s successor soon, adding that many people want the job. On the data front, Australian GDP rose less than expected in Q4, rising a SA 0.4% (f/c +0.5%) q/q and 2.4% (f/c +2.5%) y/y. The Aussie Dollar saw a
slight decline on the data but the lower than expected read was expected after it was highlighted by RBA Governor Lowe in his speech before the open. At the US Fed, Governor Brainard said headwinds are shifting to tailwinds, but are ready to slow or quicken rate increases if forecasts are incorrect, adding gradual US rate increases are likely appropriate. Brainard stated there is larger confidence that inflation will increase to 2%, adding she is encouraged by substantial fiscal stimulus, above-trend growth and full employment. She said she would welcome a mild temporary overshoot of inflation goal. In later comments, the FOMC member said she has greater confidence that gradual rate increases are required and is focused less on under-performance of inflation. Elsewhere, China’s Finance Minister, who said Chinese government debt-to-GDP ratio at 36.2% in 2017, down from 36.7% in 2016, adding in coming years, there will not be large changes in Chinese government debt ratios. In other news, the PBoC set the yuan mid-point at 6.3294 against the Dollar and injected 105.5 Bln yuan via 1-year MLF with rates unchanged at 3.25%.

Looking ahead, at 07:00 GMT, we get Denmark’s industrial production and Norway’s current account balance, followed by France’s trade and current account balances at 07:45 GMT. Next at 08:00 GMT, we get Swiss FX reserves, followed by UK house prices and Sweden’s budget balance at 08:30 GMT. Then at 10:00 GMT, we get Euro Zone GDP, followed by Irish retail sales & industrial production and Turkey’s benchmark repurchase rate (f/c +8.0%; Prev +0.8%) at 11:00 GMT. On the auction front, Sweden sells SEK1.5 bln 2028 bonds at 10:03 GMT, followed by a Norwegian bond sale at 10:05 GMT and a German €4.0 Bln 2026 bonds at 10:30 GMT.

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