European Morning Briefing - 17.07

European Morning Briefing - 17.07

17th July 2017
• Asian equities higher following the record closes in the US with exception of China amid a 5% drop in the ChiNext.
• USD continued to hover around 10-month lows after Friday’s soft US data.
• Looking ahead highlights include Eurozone CPI (final readings).


Asia equity markets somewhat recovered from the early volatility in China to approach the close mostly higher after Friday’s gains on Wall St. where the S&P 500 and DJIA printed fresh record highs, while better than expected Chinese data also provided support. The Asia-Pac region was spooked in early trade as the ChiNext board fell as much as 5% after a profit warning from its largest weighted stock Leshi which expects a net loss for H1. This led to similar declines in the Shenzhen Comp. (-1.7%) while the Shanghai Comp. (-0.1%) fell over 2% before better than expected GDP, Industrial Production and Retail Sales data provided much-needed relief. Finally, ASX 200 (-0.1%) was restricted by weakness in telecoms and financials, while Hang Seng (+0.6%) benefited from a firm liquidity injection by the PBoC, and Japanese markets were shut for Ocean Day holiday.

Chinese GDP Growth Rate (Q2) Q/Q 1.7% vs. Exp. 1.7% (Prev. 1.3%). (Newswires)
Chinese GDP Growth Rate (Q2) Y/Y 6.9% vs. Exp. 6.8% (Prev. 6.9%)

Chinese Industrial Production (Jun) Y/Y 7.6% vs. Exp. 6.5% (Prev. 6.5%). (Newswires)
Chinese Retail Sales (Jun) Y/Y 11.0% vs. Exp. 10.6% (Prev. 10.7%)

PBoC injected CNY 130bln via 7-day reverse repo and CNY 40bln in 14-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.7562 (Prev. 6.7774)

UK Rightmove House Prices (Jul) M/M 0.1% (Prev. -0.4%). (Newswires)
UK Rightmove House Prices (Jul) Y/Y 2.8% (Prev. 1.8%)

UK Chancellor Hammond stated that ministers are increasingly convinced that a Brexit transition period is needed, in which the length of period would be dependent on how long it takes to place in new systems to handle departments including customs and immigration. (Newswires)

UK Trade Secretary Fox stated that there are contingency plans across UK government departments in the scenario that no Brexit deal is reached. (Newswires)

In FX markets, the USD remained weak after last Friday’s soft CPI data which saw the USD-index languish in proximity to test a break below the 95.00 level. This kept its major counterparts afloat with GBP/USD briefly reclaiming the 1.3100 handle, while AUD/USD slightly pulled back after it met resistance at near 2-yr highs. Elsewhere USD/JPY and JPY-crosses traded sideways with a lack of price action observed as Japanese participants were away for holiday.

WTI and gold (+0.2%) both experienced sideways trade overnight, with both commodities residing near Friday’s highs alongside weakness in USD. Conversely, copper prices saw upside following strong Chinese GDP numbers and Industrial production data.
US Baker Hughes Oil Rig Count (Jul) W/W 765 (Prev. 763). (Newswires)

Treasuries were supported by the soft data, but eased from session highs on University of Michigan inflation expectations. US 10 year T-notes settled up 8+ ticks at 125.21+.
Fed's Evans (Voter, Dove) said it remains to be seen whether there will be two rate hikes this year, or three, or even four—and exactly when we will start paring back reinvestments of maturing assets. Evans added that the important feature is that the current environment supports very gradual rate hikes and slow predetermined reductions in our balance sheet. (Newswires)

Fed's Kaplan (Voter, Neutral) said he wants to wait and be patient to see evidence that inflation is rising to the Fed's 2% target. (Newswires)


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