Market wrap: Asia’s mixed mood turns bearish in European and US equity trade - Westpac

Analysts at Westpac explained that Asia’s mixed mood turned into bearishness in European and US equity trade. 

Key Quotes:

"Tech stocks underperformed as Facebook came under pressure from officials over usage of personal data.

EUR/USD rose from 1.2260 to highs above 1.2350, with some of the gains coming on a Reuters ECB sources story saying that even the most dovish ECB members agree bond purchases (money-printing) should end this year. GBP was the day’s outperformer, rising from 1.3920 to 1.4088 (high since 16 February) before steadying up 0.6% on the day, benefiting from the EU-UK Brexit transition agreement announcement (see below).

USD/JPY fluctuated between 105.70 and 106.30, notably resilient given the sour risk mood and lower US yields. AUD/USD’s low of 0.7687 in late Sydney trade was not broken offshore, the Aussie chopping up slightly to 0.7715 as the US dollar struggled. The kiwi outperformed, NZD/USD up from 0.7200 to a 0.7260 high. AUD/NZD thus fell from 1.0690 to 1.0636 – the lowest since Aug 2017.

The US 10yr treasury yield pushed up to 2.87% then slid under 2.84% before steadying in line with equities coming off their lows, while 2yr yields were net unchanged at 2.30%. Fed fund futures were little changed, continuing to price three more hikes by end-2018 and another hike in 2019.

Brexit negotiators for EU-27 and UK announced an “agreement” on a Draft Withdrawal Agreement and cleared the way for the EU Leaders’ Summit at the end of this week to sign on a 21-month transition period (to end 2020). Concessions from UK, notably on citizens’ rights during the transition period and the Brexit Bill, were seen as sufficient for EU-27 to allow UK to negotiate independent trade agreements during transition, but only to be implemented post transition. The agreement is seen as critically unblocking negotiations, though the Irish border remains a painful issue, to proceed towards trade and access arrangements for UK into the single market of EU-27, and so reduces the risk of a market/GBP unfriendly cliff-edge exit.

Event risk: The minutes of the RBA Board’s 6 March meeting are due at 11:30am Syd. Market interest is limited by the RBA’s firm steady hand on the cash rate near term. We will be looking for any elaboration on why the March statement changed its Australian GDP growth forecast from “growth to pick up, to average a bit above 3 per cent over the next couple of years” to a seemingly less bullish “grow faster in 2018 than it did in 2017.” GDP growth averaged just 2.3% in 2017, so this is a low bar.

The twice-monthly GDT dairy auction takes place in London trade. It has not had much impact on the kiwi recently. Futures point to a 2% fall in whole milk powder prices.

UK inflation has been running above the 2% target since Feb 2017, including several months recently at 3.0-3.1% y/y, which required Bank of England governor Carney to send a letter of explanation to Chancellor Hammond. In the Feb 2018 letter, Carney said that the inflation overshoot was “almost entirely due to the effects of higher import prices that resulted from the depreciation of sterling following the vote to leave the European Union.” As such, it is assumed to be temporary and consensus for Feb CPI is 2.8%. The data will nevertheless be watched closely ahead of Thursday’s policy decision.

The March ZEW survey of Germany investor sentiment is also due but should have little or no impact, printing somewhere around multi-year highs."