- Asian equities mixed as markets digest latest news from North Korea
- USD remained firm, underpinned by higher US yields
- Looking ahead highlights include Eurozone flash PMIs, US existing homes sales, ECB’s Coeure and BoC’s Poloz
Asia equity markets began the week lacklustre after last Friday’s losses on Wall St where all majors declined on continued tech weakness and losses in Apple amid concerns regarding iPhone demand. However, overnight pressure was contained in the Asia-Pac region amid a further improvement of the geopolitical climate in the Korean peninsula after North Korea announced it will stop nuclear and ICBM testing, as well as begin dismantling a nuclear test site in the north of the country. ASX 200 (+0.4%) and Nikkei 225 (-0.3%) were mixed with weakness in Japan the result of last week’s flows into JPY. Elsewhere, Shanghai Comp. (-0.1%) and Hang Seng (-0.3%) were choppy amid a lack of drivers and a neutral position by the PBoC which injected CNY 80bln via reverse repos to match maturing operations, although underperformance was observed in Hong Kong names. Finally, 10yr JGBs were lower amid spill over selling from USTs and as yields tracked the upside in their US counterparts, in which the US 10yr yield printed its highest since January 2014.
PBoC injected CNY 80bln via 7-day reverse repos for a daily net neutral position. (Newswires)
PBoC set CNY mid-point at 6.3034 (Prev. 6.2897)
Bank of Japan has shown signs it is tapering its ETF purchases in order to trim what it sees as an outsize profile in the equity market. (Nikkei)
BoJ Governor Kuroda said the Bank of Japan must continue very strong accommodative monetary policy for some time in order to reach 2% inflation. (CNBC)
UK government insisted that the UK will leave the EU customs union and are said to have reassured Eurosceptic Conservative Party MPs after weekend reports suggested UK may have to remain in the customs union post-Brexit. (Telegraph)
Note: There were initial reports over the weekend that Senior Brexiteers are said to be concerned and have warned that PM may is supporting a hybrid plan for post-Brexit relationship with EU that would make trade deals with other countries impossible and in which the UK would collect customs duties on EU’s behalf for goods to the EU. (Telegraph) Furthermore, UK PM May’s team was said to have privately admitted that the UK may have to accept permanent membership of a European customs union. (Times)
Sources reported that ECB normalisation path has not been affected by the recent string of soft data and stated that QE is still to end by the end of 2018. (Newswires)
ECB’s Villeroy (dovish) said despite a slowdown in Q1 growth, there will be a solid or improved economic recovery in France during upcoming 2 or 3 years. (Newswires)
Fitch upgraded Cyprus to ‘BB+’; Outlook Positive. (Newswires)
In FX markets, the greenback remained firm and the DXY held above 90.00 as its major counterparts languished from recent losses with EUR/USD below 1.2300, while GBP/USD found mild support at the 1.4000 level but still has some distance to recoup the lost ground after BoE Governor Carney placed doubts on a May hike last week. AUD, NZD and CAD were subdued amid similar price action in commodities with CAD despondent from softer than expected CPI data, while JPY remained mostly firmer with JPY-crosses near last week’s lows although USD/JPY bucked the trend and was driven by USD outperformance.
Mexico Central Bank Governor Diaz de Leon said that MXN weakness does not require intervention. In separate news, Mexico have signed a free trade agreement with the EU in which the new agreement expands into sectors including finance, e-commerce and agriculture. (Newswires)
Commodities were quiet overnight with WTI crude prices rangebound following last week’s OPEC meeting in which the monitoring committee refrained from any new recommendations. Elsewhere, gold was also lacklustre and marginally extended on last Friday’s declines amid a firmer greenback, while copper prices traded higher and found support amid gains in Chinese metal prices.
US Baker Hughes Total Rig Count (20 Apr) 1013 (Prev. 1008). (Newswires)
OPEC Secretary General Barkindo said that there is no price objective to OPEC or in a deal with non-OPEC members and highlighted the objective is to restore stability. (Newswires)
UAE Energy Minister said not in the business of managing oil prices. (Newswires)
North Korean leader Kim said North Korea has suspended missile tests and is to shut down one of their nuclear sites. (BBC)
US President Trump is expected to tell North Korea leader Kim that nuclear dismantling must precede economic benefits, while a senior administration official also stated that North Korea will have to earn lifting of sanctions. (WSJ)
South Korea said it stopped propaganda broadcasts at the border with North Korea, while South Korea is also beginning the preparation of an inter-Korean economic cooperation plan. (Newswires)
G7 meeting contained good discussion regarding US-North Korea tensions, while there was unity in opposing Russian behaviour of destabilizing nations and they also discussed Iran’s malign activity and unacceptable nuclear ballistic missile program. (Newswires)
Iran President Rouhani has threated “expected and unexpected” reactions if the US exits the nuclear agreement. (Newswires)
It was another day of bear-steepening on Friday with shorter dated yields rising by under 2bps, and long end yields higher by just over 3bps at settlement. But while the steepening curve was attributed for part of the jitters in stocks on Friday, actual curve spreads only saw modest widening (2s30s was were most of the action was at and was only steeper by c.2bps). In post-settlement trade, the 10yr note rose to near 2.96%, reaching levels last seen in 2014. US 10yr T-Notes futures settles 9 ticks lower at 119-17+.
US Treasury Secretary Mnuchin said that the US is continuing dialogue with China and are cautiously optimistic on reaching an agreement. Mnuchin added he may possibly visit China, although he suggested that nothing was confirmed and that it was being considered. (Newswires)
Fed’s Brainard (Voter, Dovish) reiterated view on gradual hikes and said that the economy is solid but noted uncertainties around the outlook given international trade. (Newswires)
Fed’s Williams (Voter, Hawkish) said neutral rate appears much lower than in the past and that he expects ‘new normal’ for Fed’s balance sheet to be around USD 3trln. Furthermore, Williams said that stronger global growth lifts demand for US exports which helps to reduce disinflationary pressures. (Newswires)
Fed’s Evans (Non-Voter, Dovish) said if inflation rises faster than expected it is a sign of a stronger economy that can withstand further rate increases, while he added that gradual rate hikes continue to be appropriate. (Newswires)
Fed’s Kashkari (Non-Voter, Dovish) is said to be surprised the long-end of the curve has risen further after fiscal stimulus and is also surprised by the flatness of the yield curve, which he said warrants caution. (Newswires)