• Modest gains for EU bourses ahead of the ECB meeting.
  • GBP softens despite better than expected UK retail sales data.
  • Looking ahead, highlights include ECB monetary Policy Decision and US Philadelphia Fed Mfg. Index

ASIA-PACIFIC

Bank of Japan:
– Kept rates at -0.10%, 10yr JGB yield target at 0.00% and annual pace of JGB holdings at JPY 80tln.
– Increased Real GDP forecasts for FY17, 18 and 19.
– Decreased Core CPI forecasts for FY17, 18 and 19

Asia equity markets took the impetus from Wall St. where all three majors closed in the green with the energy sector outperforming on the back of a larger than expected draw in DoE crude oil inventories. ASX 200 (+0.6%) outperformed on the back of the upside seen in oil markets, as well as a strong performance from Financial names, while Nikkei 225 (+0.6%) benefitted from a softening JPY, although the currency breaking above the 112.00 handle. Elsewhere, Shanghai Comp. (+0.25%) and Hang Seng (+0.2%) conformed to the upbeat tone, with the former lagged following a lacklustre CNY 60bln liquidity injection by the PBoC. Finally, 10yr JGBs traded lower amid the global risk-on conditions, with underperformance in the long end leading to steepening of the yield curve.

Japanese Trade Balance (Jun) 440B vs. Exp. 488B (Prev. -204.2B)
– Imports (Jun) Y/Y 15.5% vs. Exp. 14.4% (Prev. 17.8%)
– Exports (Jun) Y/Y 9.7% vs. Exp. 9.5% (Prev. 14.9%). (Newswires)

PBoC injected CNY 40bln via 7-day reverse repos and CNY 20bln in 14-day reverse repos
PBoC set CNY mid-point at 6.7464 (Prev. 6.7451). (Newswires)

Equities

European bourses trade in the green, as earnings continue to dictate play. A dovish BoJ has helped with the flow in equities, however full focus does remain on the ECB. 9/10 Stoxx 600 sectors trade in the green, with utilities in the red, evident of the risk on tone. The FTSE was also unfazed by the stela UK Retail Sales beat.

Fixed Income

Fixed Income markets do trade subdued however, with many arguing that the risk is to the downside for Gilts. Gilts were in focus as we approached the latest UK data, Retail Sales, beat on all accounts, however, could not spark any selling into Gilts, as Draghi approaches

FX

FX Markets have been subdued since the open, as much of the volatility was seen from JPY and AUD overnight. European FX traders did await the UK Retail sales beating across the board, aiding cable in retaking the 1.30 handle. EUR/GBP saw a dip lower; however, closer attention will be on the ECB later this afternoon. GBP has not seen all bullish news this morning, with comments from Fox stating that the UK can still survive with no Brexit deal, once again intruding the possibility of a ‘hard brexit’

UK Retail Sales ex Fuel (Jun) M/M 0.9% vs. Exp. 0.5% (Prev. -1.6%, Rev. -1.5%)
– Retail Sales ex Fuel (Jun) Y/Y 3.0% vs. Exp. 2.5% (Prev. 0.6%)

UK Retail Sales (Jun) M/M 0.6% vs. Exp. 0.5% (Prev. -1.2%, Rev. -1.1%)
– Retail Sales (Jun) Y/Y 2.9% vs. Exp. 2.5% (Prev. 0.9%)

UK Trade Secretary Fox says the UK can survive with no Brexit deal. (Newswires)

Commodities

Precious metals trade lower, evident of the risk tone that has been seen in recent trade, as Gold, Silver and Platinum all trade in the red. Elsewhere, Oil trades subdued following the unexpected draw yesterday, yet has contained around yesterday’s high, with WTI firmly above 47.00/bbl.

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