Global Markets, US Futures Surge On Renewed Trade Hopes

Asian stocks traded higher across the board with sentiment underpinned as news flow spurred optimism regarding US-China trade relations, including reports that China submitted a proposal for review that would cut tariffs on imports of US autos to 15% from 40%. ASX 200 (+1.4%) and Nikkei 225 (+2.2%) gained from the open with energy and tech the front-runners in Australia, while the Japanese benchmark outperformed as it benefitted from USD/JPY’s slipstream and with the BoJ said to have purchased a record JPY 6tln of ETFs so far this year. Elsewhere, Hang Seng (+1.6%) and Shanghai Comp. (+0.3%) were positive on hopes of a potential tariff cut on US autos and encouraging comments from US President Trump, while news that Huawei’s CFO was released on bail and the recent better than expected lending data from China also added to the optimism. Finally, 10yr JGBs are subdued with demand dampened by the gains in stocks and amid spill-over weakness from T-notes.

Top Asian News

  • Tencent Music Sets $1.1 Billion IPO at Bottom as Markets Gyrate
  • China Said to Near Megamerger of ChemChina, Sinochem Group
  • Citi Hires HSBC Veteran to Head Thai Corporate, Investment Bank
  • Hitachi to Buy ABB’s Power-Grid Unit for $7 Billion, Nikkei Says
  • Vietnam Is Coming Out on Top in the U.S.-China Trade War

European equities are higher across the board (Euro Stoxx 50 +1.3%) following the strong performance experienced in Asia overnight after sentiment was underpinned as news flow spurred optimism regarding a US-China trade deal. France’s CAC 40 (+1.6%) outperforms its peers on the back of shares in Kering (+2.0%) amid an upgrade at Deutsche Bank and Pernod Ricard (+3.6%) after upbeat comments from activist investor Elliott on the Co. Meanwhile, Spain’s IBEX 35 (+0.80%) marginally lags peers as the index is weighed on by shares in heavyweight Inditex (-4.0%) following disappointing earnings. Moving on, sectors are experiencing broad-based gains with marginal outperformance in utility names. In terms of notable movers, auto names are performing particularly well (Stoxx 600 Auto & Parts +1.5%) in a continuation of the positive momentum from potential Chinese tariffs cuts on US autos from 40% to 15%. Meanwhile, Dixons Carphone (-8.2%) shares fell in excess of 10% at one point after the company downgraded interim dividend guidance alongside expectations for higher net debt.

Top European News

  • Italy’s Salvini May Seek New Election as Budget Fuels Crisis
  • Inditex Resists Discount Pressure, Making Sales Target Harder
  • Sainsbury, Asda Seek More Time to Handle Regulator’s Review
  • Siemens, Alstom to Sell Signaling, Trains for Rail Merger
  • ThyssenKrupp Supervisory Board Said to Favor Merz as Chair

In FX, GBP is not just the most volatile major, but displaying considerable resilience (or complacency?) in the face of perhaps the biggest Brexit hurdle in the form of a challenge to UK PM May’s leadership, not to mention all the political uncertainty if she fails to survive. However, Cable has recovered well from new ytd lows circa 1.2478 and almost reached 1.2550 before waning again as a number of high profile Cabinet members voiced public support for the current Conservative head in the run-up to tonight’s confidence vote. A hefty 1 bn option expiry at the 1.2500 strike may be exerting a gravitational pull, while Eur/Gbp is pivoting 0.9950, as the single currency continues to weather its own storm via Italian and French budget excesses.

  • EUR/AUD/CAD/CHF/JPY:All narrowly mixed vs a generally firmer Greenback (DXY just off a fresh 97.500 recent peak) and the ongoing revival in broad risk sentiment amidst heightened hopes of a tangible improvement in US-China trade relations. Eur/Usd has survived another, deeper test of 1.1300 support where a massive 2.4 bn expiries reside and are perhaps helping to keep the headline pair cushioned against Italian/French deficit issues ahead of Thursday’s ECB policy meeting. Meanwhile, the Aud and Loonie are feeding off the aforementioned improved risk appetite, with the former holding above 0.7200 and latter rebounding a bit further from 1.3400+ lows with the added incentive of rebounding crude prices. The Franc is meandering in a tight range between 0.9950-20 and encircling 1.1250 vs the Eur awaiting the final 2018 SNB Quarterly review tomorrow, while Usd/Jpy is equally restrained within 113.50-30 trading parameters with the topside said to be laden with Japanese offers.
  • EM: In contrast to the Sek, firmer than expected SA CPI has underpinned the Zar around 14.3100 vs the Dollar, but the Rand may also be drawing momentum from option-related flows alongside bullish technical impulses as 1 bn expiries roll off at the 14.5000 strike today
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