China Commodity Carnage Continued Overnight As Brexit Fears & Bitcoin Cheers Dominate

Once again weakness in the US carried through to Asia with stocks unable to hold any National-Team-inspired gains, but it was the contagion to commodities that was most notable (as a hike in exchange fees snuffed out a lot of speculative fervor)

ASIA

Asia equity markets somewhat shrugged off the subdued tone on Wall St and mostly rebounded from the prior day’s losses, aside from China which underperformed amid continued regulatory concerns. ASX 200 (+0.5%) and Nikkei 225 (+1.5%) were lifted from the open, in which the Japanese benchmark led the gains amid short-covering from yesterday’s 2% slump and as it coat-tailed on the bounce in USD/JPY. Conversely, Hang Seng traded (+0.7%) indecisive while Shanghai Comp. (-0.3%) lagged after the CBRC drafted new requirements for banks to curb liquidity risks, and although the PBoC conducted Reverse Repos for the 1st time in 5 working days, this still amounted to a net neutral daily position after expiring operations were accounted for. Finally, 10yr JGBs were uneventful as focus was centred on riskier assets, while a mixed 30yr JGB auction result also failed to spur demand.

China’s banking regulator drafted new requirements for banks to curb liquidity risks which will go into effect March 2018. (Newswires)

UK/EU

EU’s chief Brexit negotiator Barnier said UK has 48 hours to agree a text on potential deal over Irish border or else talks will not move on to the next phase. (Guardian)

Equities

European equities have followed suit from their Asia-Pac counterparts to trade higher across the board (Eurostoxx 50 +0.3%) with the Nikkei 225 (+1.5%) the notable outperformer in a recovery from yesterday’s losses. Once again, European specific newsflow remains on the light side with markets awaiting any Brexit-related updates and developments in the US tax /shutdown legislation. In terms of sector specifics, health care names are the only sector in the red whilst outperformance is seen in the telecom sector with markets appeased by the latest strategy update by Orange (+1.5%). Other notable individual movers include Sky (+1.8%) who have been supported by reports that Comcast is looking to push for a deal for Fox (FOXA) assets in a move which could see it take full control of Sky.

Fixed Income

Solid Spanish auction results did not set the tone for Eurozone semi-core and UK bond sales, but have underlined the relative attraction of Eurozone periphery paper and demand for premium despite ECB QE depressing yields most at the margins. French OATs were not greeted that well, like yesterday’s 10 year German Bund, but UK Gilts drew even less demand despite appealing to the investment portfolio needs of institutional buyers (normally). Hence, a downturn in Eurex debt futures and Liffe’s core 10 year contract to new session lows at 163.27 for Bunds, 157.28 for OATs and 124.24 for Gilts (-1/4 point, -23 ticks and -43 ticks vs +8, +8 and +10 ticks at the other end of the scale). US Treasuries also feeling some contagion having traded to fresh overnight highs earlier amidst a decent clip of 10 year note buying.

FX

USD index has inched over the 93.500 level that has been hindering the Greenback’s recovery from recent lows for a while. However, a significant element of the more concerted rebound is due to weakness in other currencies rather than outright Dollar strength. GBP is holding up pretty well, above yesterday’s lows around 1.3360 in Cable and EUR/GBP just over 0.8800, despite yet another deadline for the UK Government to sort differences with the DUP over the Irish border. NZD is suffering more than the AUD in percentage terms vs the USD despite a double-dose of negatives for Aussie unit in the form of a big downside miss on trade and a meltdown in iron ore prices with NZD/USD having recently topped out around 0.6900.