• Stocks are little changed [Eurostoxx 50 Unch] as the region awaits the FOMC
  • FX relatively tentative,  Fixed income are largely retracing yesterday’s price action 
  • Looking ahead, highlights include Canadian CPI, US DoEs, FOMC rate decision and Fed Chair Powell press conference, NZ GDP, ECB’s Coeure, Draghi 

 

ASIA-PAC

Asian equity markets rallied across the board as the region followed suit from the heightened global risk appetite due to a double dosage of optimism from ECB President Draghi’s hints of potential easing and after US President Trump confirmed a meeting with his Chinese counterpart at the G20. ASX 200 (+1.2%) and Nikkei 225 (+1.8%) were higher with Australia led by energy names after a surge in oil prices and with outperformance also seen in the trade sensitive industries such as tech, materials and miners, while the Japanese benchmark gapped above the 21K level fuelled by favourable currency flows and strength in commodity-related sectors. Hang Seng (+2.5%) and Shanghai Comp. (+1.0%) were buoyed after US President Trump announced the resumption of US-China trade talks and that he will be conducting an extended meeting with Chinese President Xi at the G20 following “a very good” telephone conversation between the 2 leaders, while the PBoC were also supportive with the announcement of liquidity injections through reverse repos and its medium-term lending facility. Finally, 10yr JGBs were higher after the dovish comments from ECB’s Draghi added to the declining global yields narrative which saw a drop in 10yr JGB yields to their lowest since August 2016, while the BoJ also kick starts its 2-day policy meeting where they are expected to maintain current policy settings and reaffirm guidance of keeping rates at very low interest rate levels for an extended period of time at least through around Spring 2020.

PBoC injected CNY 40bln via 14-day reverse repos and CNY 240bln through 1yr Medium-term Lending Facility. (Newswires) PBoC set CNY mid-point at 6.8893 (Prev. 6.8942)

UK/EU

UK Labour party leader Corbyn will reportedly back a move for Labour to support a 2nd referendum in all circumstances. (Times)

UK CPI YY (May) 2.0% vs. Exp. 2.0% (Prev. 2.1%) (Newswires) – Air fares fell in May following Easter highs in April – Overall rate of inflation generally steady since the start of the year

EQUITIES

European equities are tentative [Eurostoxx 50 Unch] as the region gears up for the FOMC rate decision later today (Full preview available in the Research Suite). Sectors are mixed, underperformance is seen in defensive stocks with healthcare, utilities and consumer staples all lower. In terms of movers, STMicroelectronics (+3.2%) and Infineon (+2.7%) shares gained following a broker move at Morgan Stanley and Bernstein respectively. On the flip side, Steinhoff (-6.5%) opened at the foot of the Stoxx 600 after the Co.’s delayed 2018 results posted losses, whilst Belgian retailer Colruyt (-12.2%) plunged on disappointing earnings

FX

DXY – Relatively tight lines being drawn ahead of the FOMC in G10 land, as is often the case, but the Greenback has clawed back some losses against EMs after Tuesday’s euphoria over the US and China reopening lines of communication on the trade front. However, the index is braced for the Fed within a confined 97.683-553 range, and seemingly reluctant to breach chart/psychological resistance or support around 97.639 (61.8% Fib retracement of pull-back from 98.373 ytd peak to recent 96.451 low) and 97.500 respectively in the run up – see the Ransquawk Research Suite for a full preview.

GBP/CHF – Bucking the overall muted trend, Cable has continued its recovery towards 1.2600 after broadly in line with forecast UK CPI and PPI data and ahead of the BoE tomorrow, while Eur/Gbp has also retraced further to test 0.8900 compared to circa 0.8975 before ECB President Draghi’s apparent dovish Sintra revelations. Similarly, the Franc is consolidating back above parity and over 1.1200 vs the single currency as markets tread more cautiously in wake of yesterday’s risk-on session.

EUR/JPY/CAD/AUD/NZD – All narrowly mixed vs the Buck, as noted above, with the Euro licking wounds inflicted by latest dovish ECB vibes and back on the 1.1200 handle where extremely heavy option expiry interest is anchored (5.2 bn 10 pips either side of the big figure). The Yen is also wary of BoJ guidance skewed towards ongoing or even more stimulus, and bound by hefty expiries as 2.95 bn rolls off at the 108.00 strike and 1.3 bn between 108.30-40 vs the 108.25-61 range so far. Elsewhere, the Loonie awaits Canadian CPI data and is holding above 1.3400 with decent expiries from 1.3350-70 (1.2 bn) in close proximity, while the Aussie and Kiwi are both maintaining their recovery momentum over 0.6850 and 0.6500 respectively ahead of RBA Governor Lowe and NZ Q1 GDP, with the former not unduly ruffled by the latest in a growing list of calls for more rate cuts.

EM – The Lira is back on the rack and underperforming amidst the general retracement noted above, and the renewed threat of US sanctions against Turkey has lifted Usd/Try off recent lows to 5.9150+ at one stage. Elsewhere, the Rand has unwound some of its Eskom-related outsize gains despite firmer the forecast SA CPI, with Usd/Zar rebounding through 14.5000.

FIXED INCOME

BundsGilts and US Treasuries have succumbed to a bit more long liquidation, profit taking and/or pre-Fed hedging in case Powell and co confound market expectations and do not yield to mounting external pressure for looser monetary policy. The core 10 year benchmarks all slipped to new intraday lows before finding some underlying bids, at 172.20, 130.19 and 127-08+ respectively and it remains to be seen whether this marks the extent of debt consolidation and rebalancing after yesterday’s pronounced rally and arguably exaggerated moves.

COMMODITIES

WTI and Brent futures are marginally lower on the day as yesterday’s upbeat sentiment in the complex somewhat wanes ahead of today’s DoE release. Last night’s API numbers showed a slightly narrower-than-forecast draw in crude stocks (-0.81mln vs. Exp. -1.1mln) . Traders will be keeping an eye on the more widely followed DoE numbers for any short term direction (crude stocks expected to draw by 1.077mln barrels), ahead of tonight’s FOMC meeting. On the OPEC front, the oil producers have decided to hold the OPEC meeting on July 1st and the OPEC+ meeting on the 2nd following weeks of indecisiveness. Elsewhere, gold is unwinding some of its risk premium amid President Trump and his Chinese counterpart showed willingness to reignite US-Sino trade talks at the G20, albeit the yellow metal is certain to be swayed by tonight’s Fed meeting and presser. Meanwhile, copper is little changed but holds onto most of its trade-driven gains. Finally, Dalian iron ore futures spiked higher by almost 6% as the base metal followed the broad rally across assets.

OPEC will hold its meeting on July 1st-2nd, according to an OPEC delegate. (Newswires)

OPEC will need to extend the output cut deal as inventories are rising, according to UAE official.

Iranian Oil Minister said Europe is not assisting in purchasing Iranian oil, according to Fars News. (Fars)

Reports note a rocket hit a foreign oil company headquarters in Basra, Iraq. However, officials later stated that Iraq’s southern oil operations and exports were not impacted by the rocket incident.

GEOPOLITICS

Chinese Commerce Ministry says they will today launch an anti-dumping investigation into some rubber products from South Korea, EU and US.

US President Trump is considering sanctions on Turkey for purchasing Russian S-400s.

Iran considers engaging foreign potential to reinforce its domestic capacity in air defence, according to Sputnik citing Iran’s Supreme National Security Council.

UN Rights Investigator has found credible evidence linking high-level Saudi officials to Journalist Kashoggi’s murder, which includes Saudi Crown Prince Bin Salman.

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