Asian stocks traded positive across the board following the energy-fuelled upside on Wall St

NZD pressured after RBNZ stood pat on rates and provided a dovish tone. USD slightly eased back to 93.00

Looking ahead, highlights include UK production figures, BoE rate decision, minutes and QIR, US CPI and weekly jobs

ASIA

Asian stocks traded positive across the board following the energy-fuelled upside on Wall St, where oil names outperformed as crude gained in the wake of Trump’s withdrawal from the Iran nuclear agreement and DoEs. As such, ASX 200 (+0.3%) was led by the energy sector as oil edged fresh multi-year highs last seen in 2014 and with RBOB also at its best levels since mid-2015, while Nikkei 225 (+0.3%) was also marginally higher amid earnings and with Mitsubishi Motors shares outpacing the broader market after it beat on its FY net and guided sales higher. Shanghai Comp. (+0.2%) and Hang Seng (+0.9%) shrugged off another liquidity drain by the PBoC to trade positive in which Hong Kong resumed its recent trend of outshining its regional peers, while participants also digested mixed Chinese inflation figures that showed CPI missed estimates at 1.8% vs. Exp. 1.9% although PPI growth gathered pace for the 1st time in 7-months to 3.4% as expected. Finally, 10yr JGBs were flat with demand lacking amid gains in riskier assets while a 10yr inflation-indexed auction was also largely ignored and failed to spur price action.

PBoC injected CNY 20bln via 7-day and CNY 10bln via 14-day reverse repos for a net daily drain of CNY 20bln. (Newswires)
PBoC set CNY mid-point at 6.3768 (Prev. 6.3733)

Chinese CPI (Apr) Y/Y 1.8% vs. Exp. 1.9% (Prev. 2.1%). (Newswires)
Chinese PPI (Apr) Y/Y 3.4% vs. Exp. 3.4% (Prev. 3.1%)

BoJ Summary of Opinions for April 26th-27th meeting stated it is appropriate to pursue powerful monetary easing under current guidelines as inflation is still a distant from the 2% target. Furthermore, the release noted that the rate of CPI Y/Y growth is likely to continue on its uptrend and increase toward 2%, while it added that BoJ is buying ETFs and risky assets as part of efforts to reach inflation goal but must look at potential merits and demerits of this action. (Newswires)

The Malaysian general election results showed a surprise victory for the opposition Pakatan Harapan coalition which won 121 out of the 222 parliamentary seats vs. only 79 seats for the incumbent Barisan Nasional headed by PM Najib Razak. However, PM Najib Razak commented that no party received a simple majority and that it is up to the King to select a new PM with the decision to be made on who will get the trust of the members of parliament, while PM-Elect Mahathir stressed the importance to have a government formed today and hopes to be sworn in as PM by 5pm local time today. (Newswires)

UK/EU

UK RICS House Price Balance (Apr) -8% vs. Exp. -1% (Prev. 0%). (Newswires)

EU officials suggest that the EU is looking to find a way forward to maintain trade between the UK and EU post-Brexit despite having reservations about PM May’s current plans. (Newswires)

ECB’s Lane (Dovish) said it is too soon to say if the demand slowdown is hurting the European economy. (Newswires)

Forza Italia’s Berlusconi gave the go-ahead for a 5-Star/League government, although Berlusconi said his party will not give this coalition backing in parliament though and will remain allied to the League. (Newswires)

FX

NZD stole the spotlight overnight with the currency pressured after the RBNZ policy meeting in which it kept rates unchanged as expected and stated that it expects to maintain the OCR at the current expansionary level for a considerable time to maximize sustainable employment and stable inflation. Furthermore, the RBNZ noted that the next direction in rates is equally a hike or cut, while a couple of financial institutions pushed back their forecasts for a rate hike in response to the rhetoric. Elsewhere, the rest of the G10 currencies were relatively quiet with the DXY slightly easing back to the 93.00 level and with commodity-linked currencies remaining firm following the strength across the energy complex, while MYR non-deliverable forwards declined on uncertainty following the surprise opposition win at the general elections and with incumbent PM Najib Razak seemingly refusing to concede.

RBNZ Interest Rate Decision (May) 1.75% vs. Exp. 1.75% (Prev. 1.75%). (Newswires)
RBNZ said that it expects to maintain OCR at this expansionary level for a considerable time and that current level is best to maximize sustainable employment and stable inflation, while it also noted the next direction in rates is equally a hike or cut.
RBNZ said domestic economic growth is robust, while it cited subdued wages, low food & import price inflation for low inflation. RBNZ also maintained forecasts for where it sees OCR through to September 2019 in which it OCR estimates were kept at 1.8% for September 2018 and June 2019, while the estimate for September 2019 was maintained at 1.90%.

COMMODITIES

Commodities traded higher in which crude prices extended on the advances seen in the wake of the US withdrawal from the Iran nuclear agreement and following the larger than expected DOE crude inventory drawdown, with WTI and Brent crude prices firmly above the USD 71.00/bbl and USD 77.00/bbl respectively. Elsewhere, gold prices were marginally higher amid a mild a slight easing of the greenback, while copper also saw modest gains on the back of the positive risk tone.

GEOPOLITICS

US President Trump said Iran sanctions will come into effect ‘very shortly’ and that Iran “will negotiate” or “something will happen”, while there were later comments from the White House that the US is preparing to add additional sanctions on Iran as soon as next week. (Newswires)

Israel Defense Forces conducted operations on Iran targets in Syria overnight. Newswires)

US

Treasury yields were higher across the curve with 5yr, 10yr and 30yr up by c.3bps. The 10yr yield hit session highs at 3.014% on Wednesday and held just above 3%, shrugging off soft PPI figures and after the 10yr auction tailed by 0.1bps. The yield came in at 2.995%, the highest since January 2014. US 10yr T-Notes futures settle 8 ticks lower at 119-8+.

Fed’s Bostic (voter, dovish) said inflation is likely to run above 2% for a while and noted overshooting is not a problem. (Newswires)