• Major Asia-Pac equity markets traded subdued as a plethora of corporate updates dominated news flow and somewhat drowned out the US-EU trade talks
• In FX markets, the USD remained softer overnight after having lost ground against the EUR. GBP/USD reclaimed 1.3200 and USD/JPY slipped below 111.00
• Looking ahead, highlights include ECB rate decision and press conference, US durable goods and trade balance, supply from the US and a slew of large cap earnings

ASIA

The major Asia-Pac equity markets traded subdued as a plethora of corporate updates dominated news flow and somewhat drowned out the US-EU trade talks where concessions were made to avoid a trade war, while Nasdaq 100 futures were also pressured overnight as Facebook’s market cap dropped by around USD 140bln after revenue and active user numbers missed expectations. ASX 200 (Unch) and Nikkei 225 (-0.1%) were subdued with M&A news the catalyst for the biggest movers in Australia as Fairfax surged from a takeover deal by Nine Entertainment which subsequently weighed on the latter, while the Japanese benchmark was dampened by a firmer currency and reports the BoJ could adjust its ETF purchases more towards those associated with the TOPIX and less at those associated with Nikkei indices. Shanghai Comp. (-0.6%) and Hang Seng (-0.7%) were also lower alongside the broad lacklustre tone in the regional majors and following another consecutive liquidity drain by the PBoC. Finally, 10yr JGBs were lower as yields continued to gain in which the 10yr yield rose to its highest level in a year of 0.1% amidst the speculation of a possible BoJ policy tweak next week, while today’s 2yr JGB auction was also weaker than previous on nearly all metrics.

PBoC skipped open market operations for a net daily drain of CNY 70bln. (Newswires)
PBoC set CNY mid-point at 6.7662 (Prev. 6.8040)
 

BoJ is reportedly to review the allocation of ETF purchases and is considering purchasing more ETFs linked to TOPIX and less associated with Nikkei indices, but is likely to maintain the total annual ETF buying at JPY 6tln. In separate reports, Twitter sources noted the BoJ may consider dropping JGB buying operation dates release and may allow slight JGB yield curve steepening, while there BoJ were also said to see higher super long yields having a favourable effect. (Nikkei/Twitter)

UK

EU leaders are looking to let UK PM May sell her Brexit blueprint directly to member states in an effort to kickstart stalled talks on Britain’s departure. (Times)

British officials are reportedly considering letting the EU impose market regulations on Northern Ireland as the remainder of the UK breaks away after Brexit, in an attempt to break the current deadlock in negotiations, according to sources. (Newswires)

FX

In FX markets, the USD remained softer overnight after having lost ground against the EUR due to the positive trade developments in which US and EU agreed to work on zero tariffs, barriers and subsidies on non-auto industrial goods. Furthermore, they also agreed not to raise tariffs on autos and parts during negotiations, as well as resolve steel and aluminium tariffs. The weakness in the greenback helped GBP/USD reclaim the 1.3200 handle and kept USD/JPY below 111.00, while the PBoC also strengthened its reference rate accordingly. Elsewhere, the remainder of FX pairs were uneventful amid a lack of tier-1 data releases although high-beta currencies AUD and NZD slightly pullied back amid the lacklustre risk-tone.

COMMODITIES

Commodities kept range-bound overnight in which WTI crude futures remained above USD 69.00/bbl and held on to the prior day’s gains which were spurred by a larger than expected drawdown in DoE crude inventories. Elsewhere, gold prices were also flat as initial upside due to a softening greenback was capped by resistance once again at the USD 1235/oz level, while copper prices were higher fuelled by the positive trade EU-US trade developments but are off today’s best levels amid the lacklustre risk tone in Asia.

Saudi Arabia halted oil shipments through Bab-el-Mandeb strait near Yemen after 2 vessels were attacked by Houthi rebels. (Newswires)

US

The US Treasury sold USD 36bln of 5-year notes in a decent sale which saw a stop-through of 1bps, and better participation from indirects. The curve was mixed on Wednesday, with 2-year yields printing fresh near-decade highs ahead of next week’s FOMC. US new home sales data garnered little price action, with traders opting to keep their powder dry ahead of the Trump/Juncker meeting. The curve continued to flatten, with 2s30s narrow by around 3bps at settlement, 2s5s flatter by slightly less than that, while other major curve spread were narrower modestly. US 10YR T-notes futures (U8) settled 3 ticks higher at 119-21.

There were initial reports that Europe was said to have made concessions to US President Trump in trade talks in which they agreed to lower industrial tariffs and import more US soybeans. This was then confirmed in a joint press conference in which US President Trump stated they agreed to work on zero tariffs, zero barriers and zero subsidies on non-auto industrial goods and that the EU has agreed to buy more US soybeans. Furthermore. Trump stated they will resolve steel and aluminium tariffs, and that there will be no new tariffs against EU after parties agreed to trade negotiations, while EU's Juncker stated they have agreed to begin dialogue on standards as well as WTO reform and he later commented the major concession from US was that it agreed not to raise tariffs on autos and parts during negotiations. (Newswires)

US Commerce Secretary Ross reiterated Section 232 investigation on autos is ongoing and that there has not been any action proposed, while there were also reports that US Senators introduced a bipartisan bill to delay auto tariffs until a study has been completed. (Newswires)

Mexico’s Economy Minister Guajardo said essence of NAFTA is trilateral and will continue to be trilateral, while he also stated that the three sides need to show flexibility to reach an agreement. In related news, Mexico’s Foreign Affairs Minister Videgaray said NAFTA negotiations are at a very advanced stage but challenges remain, while Canada’s Foreign Minister Freeland said a renewed NAFTA deal can be realised. (Newswires)