28th August 2017

ASIA

Asia stocks traded mixed with most bourses dampened after a lack of fireworks at last week’s Jackson Hole symposium, while participants also digested North Korean concerns and the devastation from tropical storm Harvey. ASX 200 (-0.7%) and Nikkei 225 (-0.1%) traded subdued with the former underperforming amid weakness in its largest-weighted financials sector, as CBA shares declined on reports the APRA is to undertake an inquiry into the governance at the largest of Australia’s Big 4 banks, while KOSPI (-0.5%) was also cautious on further provocation by North Korea which conducted short-range missile launches over the weekend. Conversely, Chinese markets bucked the trend as the Shanghai Comp. (+0.9%) advanced and Hang Seng (+0.6%) briefly broke above 28,000 for the 1st time since 2015, amid earnings including Sinopec which reported an over 40% increase in H1 net. Finally, 10yr JGBs initially gained amid the cautious risk tone in the region and with the BoJ also present in the market for JPY 710bln of government debt concentrated in the short-end, although prices then failed to sustain the upside and gradually returned flat.

Chinese Industrial Profits (Jul) Y/Y 16.5% (Prev. 19.1%); slowest growth in 3 months. (Newswires)

PBoC injected CNY 60bln via 7-day reverse repos and CNY 40bln via 14-day reverse repos. (Newswires)

PBoC set CNY mid-point at 6.6353 (Prev. 6.6579)

EUROPE

ECB's Draghi stated that a significant degree of accommodation is still warranted and that Euro area inflation convergence not yet self-sustained. (Newswires)

Fitch affirmed Lithuania at 'A-'; Outlook Stable and affirmed Slovenia at 'A-'; Outlook Stable. (Newswires)

UK

France could be willing to start Brexit trade discussions by October, according to UK press reports which add that under France’s proposal the UK would seek a 3-year transitional deal in which it will continue to contribute to the EU budget. (Telegraph) Of nothe, the third round of talks between the UK and EU begin today.

UK PM May has pencilled in August 30th 2019 as the date she will quit as PM, giving her two years to see the UK tspanough Brexit. (Mirror)

FX

FX markets continued Friday’s price action with USD reeling after Fed Chair Yellen disappointed central bank watchers and refrained from comments regarding monetary policy. This benefitted the greenback’s major counterparts including EUR/USD which rose above 1.1900 to print its highest in more than a 2½ years after ECB President Draghi didn’t provide any fresh insights nor did he talk down the recent strength in the currency. Elsewhere, the PBoC also adjusted its reference rate to its strongest in over a year in response to the USD weakness, while safe-haven flows were observed in JPY which saw USD/JPY decline towards 109.00.

COMMODITIES

Commodities were mixed with WTI subdued, while US gasoline futures surged by about 6% to its highest in over 2 years in the wake of the adverse weather conditions and flooding at the heart of the US oil & gas industry caused by tropical storm Harvey. Elsewhere, gold found mild support on the back of a weaker greenback and copper was also higher amid the positive risk tone seen in its largest consumer China.

GEOPOLITICAL

North Korea conducted another missile test in which it launched short-range projectiles into the sea which travelled around 250km. (Newswires)

US

US Treasuries advanced as any potential sellers had little to act on as the Jackson Hole speeches disappointed, with focus on this week’s supply and NFP release. US Sep’17 10y T-note futures settled at 126.22, up 6 ticks.

Fed’s Powell (Voter, Neutral) said the Fed has a balance sheet plan and will soon normalise monetary policy. Powell also stated that the economy and labour market are strong, but added that inflation is slightly below target which allows the Fed room to be patient. (Newswires)

Fed’s Mester (non-voter, hawk) said weak US inflation should not interrupt the Fed’s rate-rise strategy. (FT)

US Treasury Secretary Mnuchin is 100% confident that the debt ceiling will be raised in September, while he reiterated that preference is for a clean debt ceiling and noted that he is on the same page as President Trump. (Newswires)