• European bourses trade mostly higher across the board amid optimistic EU-US trade talks
• The DXY is trying to stabilise and pare some losses after hitting a new low for the week
• 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. (-0.7%) and Hang Seng (-0.5%) 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)

PBoC plans to adjust two structural parameters in its macro prudential assessment, and the MPA adjustment is to vary depending on province; according to sources. (Newswires)

Reports suggest that Large domestic Chinese banks are offering 1yr USD for CNY; driving lower USD/CNY 1yr swaps to as low as 0-125 points (Newswires)

TRADE

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)

China Commerce Ministry says China does not want a trade war but are not afraid of one. (Newswires)

EU/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)

EQUITIES

European bourses trade mostly higher across the board as markets digest the fallout of yesterday’s EU-US trade talks and react to a slew of large cap earnings. Sentiment for the auto sector in particular has been boosted by news that the EU and US agreed to not raise tariffs on autos and parts during negotiations. This has boosted the likes of Volkswagen (+3.1 %), BMW (+3.0%) and Daimler (+2.3%) with the latter seeing gains capped by its pre-market earnings report; DAX outperforms its peers with gains of 1.4% (vs. Eurostoxx 50 +0.8%).

Elsewhere, on a sector basis, energy names lag their peers amid losses in Shell (-2.1%) with the Co.’s USD 25bln buyback and 30% increase in profits not enough to satisfy investors with some flagging concerns surrounding cashflow; FTSE 100 (Unch) lags its peers given Shell’s weighting in the index, with the FTSE also hampered by recent gains in the GBP and an overall lack of upside catalysts.

Other notable movers post-earnings include: Airbus (+5.0%), British American Tobacco (+4.5%), Smith & Nephew (+3.8%), KPN (+3.4%), Roche (+2.0%), Nestle (+1.7%), Nokia (-8.1%), Valeo (-6.7%), AB Inbev (-5.1%), Schneider Electric (-1.4%), Anglo American (-1.2%) and Diageo (-1.1%).

Nasdaq 100 futures were pressured overnight as Facebook’s market cap dropped by around USD 140bln after revenue and active user numbers missed expectations. Facebook is currently down 16.8% pre-market. Elsewhere, NXP Semiconductors (-10.2% pre-market) confirmed Qualcomm’s (+5.5% pre-market) exit from the deal. Qualcomm are to pay a USD 2bln termination fee.

FX

DXY - Another downturn and breach of near term support for the index in wake of a truce on tariffs struck between Trump and Juncker yesterday, pending more talks to resolve the trade barriers and import restrictions at issue. The DXY is trying to stabilise and pare some losses after hitting a new low for the week just above 94.000 vs 94.206 at worst on Monday. Chart-wise, 93.950 is now within striking distance if the index fails to sustain recovery momentum and loses more ground vs G10 peers.

JPY - The biggest beneficiary of the latest Usd downturn, but also in its own right as hawkish BoJ reports continue to circulate ahead of next week’s policy meeting. Consequently, the headline pair is back under 111.00 and looking at bearish/downside tech levels around 110.65 (50% Fib) before 110.51 (55 DMA).

AUD - Back to the bottom of the pile and heavy again above 0.7400 vs its US counterpart as initial euphoria over the aforementioned US-EU ‘agreement’ wanes amidst ongoing US-China strains that have more bearing down under.

NZD/CHF/EUR/GBP - All modestly softer, or off best levels seen overnight vs the Usd to be precise, with the Kiwi easing back from 0.6850 and still wary about those mega option expiries at the 0.6800 strike (circa 1.75 bn) rolling off later today. Meanwhile, the Franc remains rangebound, albeit nearer the top of 0.9905-40 parameters, and the single currency has topped out ahead of Monday’s 1.1750 best ahead of the ECB with options pricing a relatively tame 60 pip break-even on the event risk – for a full preview visit the Ransquawk Research Suite. Elsewhere, Cable is pivoting 1.3200 amidst the general, if not broad Greenback declines, but capped ahead of its weekly cloud base around 1.3227.

CAD - Another relative outperformer and holding the bulk of its gains vs the Usd, with the Loonie meandering between 1.3025-50 and deriving support (alongside the MXN) from upbeat NAFTA noises of late.

YUAN - Intervention of sorts, with a marked drop in the PBoC’s official Usd/Cny fix overnight (to 6.7662 vs 6.8040 on Wednesday) and widespread reports of 1 year forward selling down to flat points from 100+ against spot at 6.7800 and 6.7900 for the Cnh.

FIXED INCOME

Bunds and Gilts both extended recovery gains to post fresh intraday highs at 162.14 and 123.21 respectively (-23 and -9 ticks vs -49 and -31 ticks at one stage), but topped out amidst further strength in EU equities, and perhaps some technical trading ahead of potential fundamental leads via the ECB and a relatively busy US data agenda. Market contacts note that 162.18 represents a 50% Fib of yesterday’s move on Eurex, while the UK benchmark is still not threatening to test this week’s 122.94 low (from Tuesday), albeit just dipping under 123.00 to a marginal new Liffe low of 122.99. Elsewhere, US Treasuries remain pressured and the curve steeper again ahead of more supply in the form of $30 bn 7 year notes that usually draw decent investor demand, especially foreign buyers, but have been preceded by relatively strong 2 and 5 year sales.

COMMODITIES

Once again markets are seeing a divergence in the performance of WTI (-0.1%) and Brent (+0.8%) with the latter supported by reports that Saudi Arabia have temporarily halted shipments via the Red Sea shipping lane after 2 vessels were attacked by Houthi rebels. This was then followed by reports that Kuwait are debating whether to halt oil exports via the passage given recent events.

In metals markets, spot gold (-0.2%) is slightly softer in European trade amid the modestly firmer USD after the PBoC bucked their recent trend by strengthening the CNY fix rate. Elsewhere, metals prices in London have broadly been supported by the aforementioned breakthrough in trade talks between the EU and US. Steel prices were seen higher during Asia-Pac trade with gains capped by fears over the Chinese crackdown on domestic pollution. 

Global crude steel output +5.8% y/y to 151mln tonnes. (WorldSteel)