- Asian equities traded broadly higher with many bourses closed for domestic holiday’s
- EUR/USD faced selling pressure following public unrest and clashes during the Catalonian referendum
- Looking ahead, highlights include Eurozone PMIs, US ISM Manufacturing, ECB’s Praet and Fed’s Kaplan
Asia-Pac equity markets were mostly higher on what was a holiday quietened day with China, Hong Kong South Korea and India all shut for holiday. Nonetheless, the positive momentum from last Friday’s US session where the S&P 500 and Nasdaq Composite ended Q3 at fresh record levels rolled over to the region with ASX 200 (+0.9%) the outperforming on broad based gains, while a PBoC announcement of targeted RRR cuts from 2018 and Chinese Official Manufacturing PMI at its highest since 2012 added to the optimism due to Australia’s heavy exposure. Nikkei 225 (+0.1%) was also positive, albeit to a lesser extent as participants digested the latest Tankan survey in which most components beat estimates including a decade-high headline Large Manufacturing Index, although Large All Industry Capex disappointed. 10yr JGBs were lower as they tracked the declines in USTs, while prices were also pressured alongside a positive risk tone and the absence of the BoJ in the market today.
Chinese Official Manufacturing PMI (Sep) 52.4 vs. Exp. 51.5 (Prev. 51.7) Highest since 2012.
Chinese Non-Manufacturing PMI (Sep) 55.4 (Prev. 53.4)
Chinese Caixin Manufacturing PMI (Sep) 51.0 vs. Exp. 51.5 (Prev. 51.6)
PBoC announced it would cut RRR for some banks that meet certain requirements for lending to small business and the agricultural sector beginning in 2018. The PBoC said that a wide majority of China’s banks would be eligible for at least a 50bps cut but reiterated that it will implement a prudent and neutral monetary policy while keeping liquidity basically stable and that the announcement was a structural adjustment and not a shift in monetary policy. (Newswires)
Japanese Tankan Large Manufacturing Index (Q3) 22 vs. Exp. 18 (Prev. 17). Highest since 2007.(Newswires)
Japanese Tankan Large Manufacturing Outlook (Q3) 19 vs. Exp. 16 (Prev. 15)
Japanese Tankan Large All Industry Capex (Q3) 7.7% vs. Exp. 8.4% (Prev. 8.0%)
Catalan regional government head stated that Catalan citizens have won right to independence after 89% voted for independence, while Spanish PM Rajoy dismissed the results and said most Catalans have not wanted to participate in a referendum which was a strategy against legality and democracy. This comes after police were reported to have entered various polling stations in which they attempted to seize voting materials and blocked some from voting in the Catalonia referendum, while were also reports of clashes in which 844 people were injured and that pro-independence groups and trade unions have called for a general strike this Tuesday. (Newswires)
Fitch affirmed Switzerland at AAA; outlook stable and affirmed Norway at AAA; outlook stable, while S&P affirmed Spain at BBB+; outlook positive. (Newswires)
UK PM May stated that her cabinet is united in their mission, while she added that the cabinet is agreed on Brexit approach and are working towards a deal with the EU. (Newswires) Separately, PM May’s allies have come out and accused Foreign Minister Johnson of ‘posturing’ in order to boost his profile with some ministers calling for May to sack Johnson. (Telegraph)
The greenback was firmer against most major counterparts as EUR/USD weakened following public unrest and clashes during the Catalonian referendum, while GBP/USD also retreated after the pair met resistance around the 1.3400 handle. Elsewhere, NZD/USD was slightly pressured and broke below the 0.7200 levelamid cross related flows into AUD/NZD and after reports of a 4th dairy farm was affected by a bacterial cattle disease.
Commodities were mixed with WTI range-bound throughout the session, while gold extended on last week’s declines to print its lowest level in nearly 2 months as a firmer greenback and positive risk tone weighed on the safe-haven, while in turn copper slightly benefitted from the said risk appetite.
US Baker Hughes Rig Count (Total) 940 (Prev. 935)
US Baker Hughes Rig Count (Oil) 750 (Prev. 744)
US Baker Hughes Rig Count (Gas) 189 (Prev. 190)
EIA said US crude production rose 141K bpd in July to 9.238mln bpd. (Newswires)
North Korea was reported to been seen moving several missiles from a rocket facility in Pyongyang. (Newswires)
US Secretary of State Tillerson stated that despite tensions, US has direct lines of contact with North Korea and that the US is probing whether North Korea is interested in dialogue. However, there were also reports that Tillerson has been encouraged to not talk with North Korea by President Trump. (Newswires)
US treasuries ticked lower after the much better than expected Chicago PMI data of 65.2 vs the expected 58.5, and the announcement that Kevin Warsh, who is seen to be quite hawkish, as a potential candidate for Fed Chair Yellen’s replacement. However, treasuries slightly bounced back after reports Yellen is still being considered for Fed chair, with Trump expected to make an announcement in two to three weeks. Dec’17 10y T-note futures settled at 125.10, down 7+ ticks
US President Trump said he has had four meetings regarding the Fed Chair search and the decision will be made in the next two or three weeks, while reports stated that 4 candidates that have been interviewed are Janet Yellen, Jerome Powell, Gary Cohn and Kevin Warsh. (Newswires)
Fed’s Harker (Voter, Soft Hawk) is said to pencil in a December rate hike and sees three hikes in 2018, while he also added the Fed is in a period where they can be patient. (Newswires)
US Treasury Secretary Mnuchin said he is hoping that tax plan will be signed by December. (Newswires)