European Morning Briefing 18.05

European Morning Briefing 18.05

• Asian equities took the lead from their US counterparts whereby sentiment was hampered by the ongoing political tensions in Washington
• Subsequently, the USD-index continued to drift lower while chances of a June Fed hike begin to recede
• Looking ahead, highlights include UK retail sales, Philadelphia manufacturing, Fed’s Bullard, Mester, ECB’s Mersch, Draghi and Lautenschlaeger


Asia equity markets maintained the downbeat tone from Wall St, where US stocks posted their worst performance in 8 months and financials slumped as the ongoing Trump-Comey-Flynn situation led to an unwinding of the Trump trade. This pressured ASX 200 (-1.2%) and Nikkei 225 (-1.5%) from the get-go, while the latter also suffered from the ill-effects of a firmer currency. Shanghai Comp. (-0.2%) and Hang Seng (-0.3%) conformed to the downbeat tone, although losses have been stemmed as participants mulled over the latest property price data and government steps to support businesses. 10yr JGBs were initially higher to track the gains in Tnotes with demand supported amid a flight to safety. However, prices then failed to sustain the upside and returned flat in the 2nd half of trade, amid a lack of drivers and after a muted 20yr auction where the results were broadly in line with the prior month.

Chinese House Price Index (Apr) Y/Y 10.7% (Prev. 11.3%). (Newswires)

Chinese House prices increased M/M in 58 out of 70 cities (Prev. 62) and increased Y/Y in 69 out of 70 cities (Prev. 68).

China State Council said it is to reduce company costs by a further CNY 120bln, through various steps such as a reduction in logistic costs and business fees. (Newswires)

PBoC injected CNY 50bln in 7-day reverse repos and CNY 30bln in 14-day reverse repos. (Newswires)

PBoC sets CNY mid-point at 6.8612 (Prev. 6.8635)

Japanese GDP Growth Rate (Q1 P) Q/Q 0.5% vs. Exp. 0.5% (Prev. 0.3%). (Newswires)

Japanese GDP Growth Annualized (Q1 P) 2.2% vs. Exp. 1.7% (Prev. 1.2%, Rev. 1.4%)


Latest YouGov/Times poll for the UK Election showed Conservatives at 45% vs. Labour at 32%. (Newswires)

UK PM May is to pledge that corporation tax will decline to 17% by 2020 and will pledge to wipe out the UK deficit by middle of next decade, according to UK press reports. Furthermore, PM May is to propose additional charges for businesses who employ non-EU migrants and higher charges for migrants that use the NHS. (Telegraph/Twitter)


The USD-index remained weak and languished below 98.00 amid the ongoing political scenario and as futures markets priced in just a 65% chance of a Fed hike next month in comparison to 87% last week, according to CME’s FedWatch tool. USD/JPY nursed some losses to reclaim 111.00, which provided some reprieve from the recent slump triggered by safe-haven flows, while participants also got to mull over the latest Japan GDP figures in which the headline Q/Q printed inline with expectations at 0.5% and Y/Y topped forecasts. Elsewhere, AUD/USD was supported amid firm jobs data in which Employment Change surpassed estimates 7-fold and the Unemployment Rate declined to match its lowest for 2017.

Australian Employment Change (Apr) M/M 37.4K vs. Exp. 5.0K (Prev. 60.9K, Rev. 60.0K)
Australian Unemployment Rate (Apr) M/M 5.7% vs. Exp. 5.9% (Prev. 5.9%)
Australian Participation Rate (Apr) M/M 64.8% vs. Exp. 64.7% (Prev. 64.8%)


Gold held on to yesterday’s gains where the precious metal posted its largest advance in 11 months amid safe-haven flows, while copper was pressured amid widespread risk averse sentiment. Elsewhere, WTI crude futures were rangebound with prices retreating below USD 49/bbl.


US Treasuries garnered a bid from the risk off tone that was evident throughout the day. The 10Y T-note settled at 126.13+, up 28 ticks.

Former FBI Director Robert Mueller has been named as Special Prosecutor of the Russia probe, while there were also comments from US President Trump that a thorough investigation will confirm that there was no collusion between his campaign and any foreign entity. (Newswires)

US House Oversight Committee Chairman Chaffetz stated he has not seen any evidence of collusion between Trump and Russia, while he added that a probe could last years and that he's not sure if Comey memos exist. (Newswires)

US Treasury Secretary Mnuchin stated as many as 100 people are working on tax reforms at the Treasury and added that the US is committed to rethinking trade agreements. (Newswires)

US Senator Hatch said he doesn't know if the health-care bill can be passed by August and added there are no definitive answers yet regarding tax reform. (Newswires)



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