European Morning Briefing 04.07

European Morning Briefing 04.07

4th July 2017

RBA maintained its cash rate target at 1.5%, however defies hopes of a more upbeat outlook.
Hong Kong stocks underperforms while North Korea yet again conducts another missile launch.
Looking ahead, highlights include Riksbank rate decision, Fonterra dairy auction.


Asia initially traded mixed as the region took a cue from Wall St. where the DJIA edged fresh record highs amid outperformance in energy and financials, while the Nasdaq was dampened on renewed tech selling, but then markets were later spooked after a possible ICBM launch from North Korea. ASX 200 (+1.9%) was lifted by energy names after WTI briefly broke above USD 47/bbl, with gains in the largest-weighted financials sector further supporting the index. Elsewhere, Nikkei 225 (-0.1%) was dampened by a pull-back in USD/JPY and KOSPI (-0.5%) was negative after another North Korean missile launch, while Shanghai Comp. (-0.5%) and Hang Seng (-1.2%) was kept subdued by PBoC inaction in which it skipped liquidity operations for the 8th consecutive session. Finally, 10yr JGBs saw lacklustre demand from the open as participants were side-lined ahead of the 10yr auction, which later failed to spur price action as the results were mixed with b/c higher than prior while accepted prices fell. Furthermore, the curve was slightly steeper as the short-end outperformed.

PBoC skipped open market operations for the 8th consecutive session. (Newswires)
PBoC set CNY mid-point at 6.7889 (Prev. 6.7772)


Some ECB policymakers are cautious about fully dropping easing bias in July, according to sources. The sources added that the ECB may drop only part of the QE easing bias, which would leave in the reference either to the size or duration. (Newswires)

Latest INSA poll showed German Chancellor Merkel's CDU/CSU on 36.5% vs. SPD on 25.0%. (Newswires)


BoE's Vlieghe (dove) said this is an environment where a premature rate hike would be a bigger mistake than one that is slightly late. (Independent)


In FX markets, the USD held onto most the gains from the prior session where the USD-index further recovered from 9-month lows to hold above the 96.00 level. Elsewhere, USD/JPY slightly pulled back but remained above 113.00 while AUD gave up gains and then some, after the RBA rate decision in which the central bank kept rates unchanged as expected and refrained from joining the recent shift to a hawkish tone seen in other central banks.

RBA kept its Cash Rate Target unchanged at 1.5% as expected and stated that it judged unchanged policy is consistent is targets.
RBA stated that rising AUD complicates the economic adjustment, while it added that wage growth remains low and is likely to continue for a while. (Newswires)

Australian Retail Sales (May) M/M 0.6% vs. Exp. 0.2% (Prev. 1.0%). (Newswires)

BoC Governor Poloz says inflation should be well into an uptrend sometime in H1 18, according to Handelsblatt. (Newswires)


Commodities were mixed with some mild overnight profit taking in WTI crude futures after the pair briefly broke above USD 47/bbl, while gold (+0.2%) attempted to nurse losses but remained near 7-week lows due to the recovery in the greenback. Elsewhere, copper prices suffered amid an indecisive risk tone in the region in and underperformance in its largest consumer China.


North Korea conducted another missile launch which landed in Japan's exclusive economic zone. There were also reports that the missile greatly exceeded altitude of 2500KM and may have been an intercontinental ballistic missile, while North Korea is to issue a major announcement at 0730BST/0130CDT. (Yonhap/Newswires)


US yields ticked up alongside strong US ISM manufacturing headline reading in a holiday shortened session, with the belly underperforming. September US 10 year T-notes settled down 9 ticks at 125.17.




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