- GBP trades in Brexit night’s range, following comments from Vlieghe
- North Korea launched a missile that flew through Japanese airspace, prompting Japan to issue an emergency warning
- Looking ahead, highlight include the Russian rate decision, US retail sales, industrial output and Uni. of Michigan
ASIA-PACIFIC
Asia equity markets traded mostly negative after North Korea launched a missile that flew through Japanese airspace and over the Hokkaido prefecture before landing in the Pacific Ocean, which prompted Japan to issue an emergency warning for its residents and South Korea also conducted its own missile firing test as a show of readiness. This triggered a risk-averse tone across asset classes with ASX 200 (-0.7%) and KOSPI (-0.2%) pressured from the open, while Nikkei 225 (+0.5%) pared early losses as USD/JPY rebounded from its lows. Shanghai Comp. (-0.3%) and Hang Seng (+0.4%) both initially conformed to the downbeat sentiment caused by the renewed geopolitical concerns, although downside in mainland China was stemmed and Hong Kong recovered amid a firm liquidity effort by the PBoC. 10yr JGBs were higher and eyed the 151.00 level amid the mostly risk-averse tone in the region and with the BoJ present in the market for JPY 880bln in JGBs of maturities across the curve.
PBoC injected CNY 120bln via 7-day reverse repos, CNY 60bln via 14-day reverse repos and CNY 20bln via 28-day reverse repos. (Newswires) PBoC set CNY mid-point at 6.5423 (Prev. 6.5465).
US/Canada
US Treasury Secretary Mnuchin says Trump admin is concerned about economic growth and less concerned about inflation at the moment. (Newswires)
BoC’s Wilkins says inflation is at lower end of target, adds not ideal to give markets full plan on rates and that every decision is live. (Newswires)
EU/UK
BoE’s Vlieghe says appropriate time for hike might be as early as the coming months, further stating, Risks remain that Brexit will have bigger impact on economy but for now wage pressures are gently building. Also stated that conditions for hike are fall in slack, rising pay pressures and household spending and robust global growth. (Newswires)
There have been reports of an explosion on a London underground train at Parsons Green station, the situation is being dealt with as a terrorist related incident, there are currently no reports of any fatalities. (Newswires)
Swedish PM Lofven has survived the vote of no-confidence in Parliament. (Newswires)
FX
JPY
The geopolitical concerns saw USD/JPY briefly spike below 110.00, as unfazed bids were stacked around 109.50, bouncing the pair 100 pips. The JPY safe-haven flow has become a concern of late, as threats against Japan could lead to flows outside of the JPY, and some traders looking for other safe haven assets. This could be indicated by the lack of aggression in the bounce in USD/CHF, with the cross remaining other the 2017 downward resistance trendline.
GBP
Following Vlieghe’s comments, Cable is now in touching distance of those post Brexit highs, breaking through the September 2016 high of 1.3442, next key resistance could be at 1.3535.
GEOPOLITICAL
North Korea fired a missile which passed through Japan’s airspace and over Hokkaido, before landing in the Pacific Ocean. This initially prompted Japan to issue an emergency warning for its residents to seek shelter, while there were also reports that South Korea conducted its own missile firing test as a show of readiness. (Yonhap/Newswires)
US military stated North Korean missile did not pose a threat to Guam and that the launch was an intermediate range ballistic missile. (Newswires)
South Korean President Moon said will not sit idle on North Korea provocation and that South Korea has power to pulverize should North Korea provoke. (Newswires)
North Korea stated that it will take stronger actions for its self-defence if the US continues to walk on current course. (Newswires)
EQUITIES
European equities trade marginal lower amid geopolitical tensions, where North Korea fired another missile into Japanese airspace. Market reaction was minimal in Asia, led into European trade where equity markets trade with slight losses. FTSE under-performs as a result of the buoyant Sterling, as hawkish BoE comments were supported by Governor Carney and noticeable dove Vlieghe, with the former stating, the probability of a hike has definitely increased, may need to adjust Bank Rate in the coming months.
FIXED INCOME
European bonds trade in a tight range, with yields now slightly higher vs. yesterday across the board. Gilts have been in focus following the volatility that has been seen in UK asset classes post BoE. The UK 10y continues to trade near lows, pushed by comments from BoE’s Vlieghe, now trading through July’s lows.
COMMODITIES
WTI trades just short of USD 50.00, as some bids have been evident as we approached the European lunch hour.
