14th September 2018

• EM comes back into focus as CBR makes a surprise 25bps hike and Erdogan takes aim at the CBRT
• USDRUB falls from 68.35 to sub-68.00 and TRY trims gains in reaction to Erdogan’s comments
• Looking ahead, highlights include, US retail sales, industrial production, Uni. of Michigan, Baker Hughes

ASIA

Asian equity markets traded mostly higher as the region took impetus from the US where the S&P 500 notched a 4th consecutive gain and the Nasdaq outperformed as tech rebounded with a vengeance. ASX 200 (+0.6%) and Nikkei 225 (+0.9%) were higher in which miners led the broad gains in Australia, while Japanese exporters benefitted from a weaker currency which lifted the benchmark index to above the 23,000 level. Elsewhere, Hang Seng (+0.8%) and Shanghai Comp. (-0.1%) were both initially positive after continued liquidity efforts by the PBoC, although sentiment in the mainland eventually waned as amid weakness in Shenzhen and as participants digested mixed data in which Industrial Production printed in-line with expectations and Retail Sales beat, while Fixed Assets Investments growth declined to a fresh multi-year low. In addition, recent Trump comments also spurred some apprehension after he commented the US are under no pressure to make a deal with China and that it is China which is pressured to reach an agreement. Finally, 10yr JGBs are uneventful with demand for safe-havens dampened by the positive risk appetite in Japan, but with downside also capped amid the BoJ’s presence in the market for JPY 700bln of maturities in the short-end to belly.

PBoC injected CNY 110bln via 7-day reverse repos and CNY 40bln via 14-day reverse repos for a weekly net injection of CNY 330bln vs. Prev. neutral position last week. (Newswires)
PBoC set CNY mid-point at 6.8362 (Prev. 6.8488)

Chinese Industrial Production (Aug) Y/Y 6.1% vs. Exp. 6.1% (Prev. 6.0%). (Newswires)
Chinese Retail Sales (Aug) Y/Y 9.0% vs. Exp. 8.8% (Prev. 8.8%)
Chinese Urban Investment YTD (Aug) 5.3% vs. Exp. 5.5% (Prev. 5.5%)

EU/UK/US

Italian Deputy Finance Minister Castelli states that the nation’s citizen’s income will commence on Jan 1st 2019 and will be a minimum of EUR 7880mln. (Newswires)

Mexico NAFTA negotiator Smith Ramos said it is ideal to keep NAFTA trilateral, but they remain prepared to proceed with a bilateral deal with US. (Newswires)

Former Trump campaign manager Manafort was reported to have agreed a plea deal with Special Counsel Mueller although reports noted it was unclear if he is agreeing to cooperate with prosecutors or is conceding to a guilty plea, while sources later stated that a Manafort plea deal with Special Counsel Mueller is close but not there yet. (Newswires)

Swedish CPI YY Aug 2.0% vs. Exp. 2.1% (Prev. 2.1%)

Swedish CPIF YY Aug 2.2% vs. Exp. 2.2% (Prev. 2.2%)

Turkish President Erdogan said they have faced a "heinous" attack against Turkey after US statements, the rise in TRY above 7 was an economic assassination attempt. He added that in 15 years the inflation target of the central bank was never correct and that we will see the results of central bank independence after the rate hike. (Newswires)

Russian Federation Central Bank key rate Sep 7.50% vs. Exp. 7.25% (Prev. 7.25%). The bank said they will consider the necessity of further rate hikes taking into account inflation and economic dynamics against the forecast. They added the increase of key rates will help maintain real interest rates on deposits in the positive territory, which will support the attractiveness of savings and the balanced growth in consumption. (Newswires)

GEOPOLITICAL

North Korea said US sanctions over cyber-attack is a smear campaign against North Korea and that the US is misleading as if North Korea were behind the Sony hack, while it warned that sanctions could impact implementation of US agreement. (Newswires)

CENTRAL BANKS

Fed's Kaplan (Non-voter. Dove) reiterated the Fed should be proceed to neutral rate which is seen between 2.50%-2.75%. (Newswires)

BoE's Carney says that the uncertainty around Brexit has an increased dampening effect on pay growth, and that the BoE is prepared for whatever path the economy takes. (Newswires)

EQUITIES

European equities have started the day on the front foot. The DAX is leading the way in the equities space, driven by Infineon, who are benefitting from broad-based IT sector strength after yesterday’s outperformance in the US. The SMI is currently the laggard and weighed on by Roche’s announcement of a “moderate” sales growth in 2019.

UK homebuilders are struggling after comments from BoE’s Carney stating that UK home prices could fall by over 35% if there is a “no-deal” Brexit.

Investec announced the demerger of their asset management business, and are currently leading the gains in the Stoxx 600.

FX

DXY - Another downturn in the index and for the Greenback overall, partly on a further reflection post-benign US CPI, but also or perhaps mainly due to relative strength in rival currencies. The DXY remains below 94.500 and not far from recent lows, with more data on the horizon via retail sales, ip and business inventories before preliminary Michigan sentiment for September.

G10 - All majors are ahead vs the Usd, bar the Loonie that continues to trade around the 1.3000 handle awaiting more NAFTA news. The Kiwi has overtaken its Aussie peer with some independent impetus overnight from firmer NZ manufacturing PMI growth to extend gains towards 0.6600, while Aud/Usd continues to look heavy above 0.7200. Elsewhere, Cable and Eur/Usd appear more comfortable on 1.3100 and 1.1700 handles respectively, amidst largely positive Brexit vibes at the UK-EU level if not on the domestic front, with the former eyeing 1.3150 and latter filling a chunk of bids/stops at 1.1715 before fading ahead of the 1.1734 August peak and strong chart resistance at 1.1750. Usd/Jpy continues to trade against the broad trend, but has retreated from 112.00+ highs to sub-111.88 Fib levels again, as 112.15 technical resistance held firm, while Usd/Chf has fallen further from 0.9700 and through 0.9650 even though SNB head Jordan uttered some words of loose intervention via an expression of desire to see other Central Banks tighten policy. Turning to Scandinavia, more Sek underperformance post-softer than consensus Swedish inflation data with Eur/Sek up to 10.5400+ at one stage vs 10.4640 or so at the low.

EM - Try back in focus with another attempt to probe post-CBRT peaks around 6.0000 vs the Usd thwarted by more rhetoric from Turkish President Erdogan aimed at the US again, but also reiterating his stern opposition to higher rates. The Lira duly weakened in response, as has become an all too familiar pattern, but is off worst levels with some tangible support from data showing a narrower than forecast current account deficit. Elsewhere, the Rub is hedging bets around 68.4700 vs the Usd ahead of the CBR policy decision that is widely expected to be a ‘hawkish hold’.

FIXED INCOME

Core bonds are succumbing to a bit more selling pressure, albeit gradual rather than straight-line or heavy, with Bunds down to 159.27, -19 ticks, and Gilts slipping to 121.41, -28 ticks. Nothing that fundamental behind the extended downside move, but volumes and losses could increase if techs get twitchy approaching the next set of chart supports that include Thursday’s Eurex session low at 159.26. Moreover, US Treasuries are on the retreat from post-CPI peaks and testing some key or psychological levels, like 142.00 in the long bond future and recent highs for 10 year yields (just shy of 3%) ahead of a relatively busy pre-weekend agenda. Back to Liffe, and also on the bearish side, contacts not chunky put buying in Short Sterling with the 98.75 strike in Jun19 purchased for 3.5 ticks 25k times.      

COMMODITIES

The oil market is languishing around yesterday’s lows after the previous sessions losses of over 2%,. Brent and WTI are both set for gains of over 1.5% this week, as weather reports remain in focus, with Hurricane Florence set to make landfall in North Carolina today.

In the metals scope, gold is currently benefitting from a softer USD and is currently up 0.5% on the day. LME copper has remained stable around two week highs as traders remain wary of trade talks, after US President Trump said the US “are under no pressure to make a deal with China, they are under pressure to make a deal with us” in Thursday’s session.