Citi
European Open
Monday’s focus has been on China, where LPR has been kept steady by PBoC today. However, the focus was on a sharp move higher for CNY, with no notable headlines seen behind the move. Elsewhere, the weekend saw French President Macron's Enseble lose the absolute majority with only 245 seats, while the Colombian election ended with a victory for Gustavo Petro (left). Over the day, USD has been offered, with high-beta currencies performing better. Stocks have ticked slightly higher, while oil prices have remained flat.
Ahead, central bank speakers will be the main highlight for EUR, USD and GVBP. Watch for talk about the anti-fragmentation tool from the ECB, although Citi Economics cautions that ECB President Lagarde’s appearance will unlikely yield insight into ECB staff’s thinking. USD will observe a holiday, but we listen to the Fed’s Bullard on inflation and interest rates. GBP will look for insights into the balance of the growth and inflation risks from BoE speakers. Elsewhere, TWD receives export orders figures, and we flag that COP also observes a holiday today.
In focus
What happened in markets?
FX: USD has been offered over the course of the Asian morning, with BBDXY about 0.25% weaker. The rest of the G10 currencies remain in the green, with high beta currencies performing. NOK and AUD lead at +0.46%, while JPY and GBP remain flat. CNH, however, was taken 0.52% higher today.
Stocks rose slightly today, with Nasdaq100 futures and S&P eminis up 0.4% and 0.2% respectively. Chinese stocks fared slightly better on the day, with ChiNext up 2.37% and CSI 300 up 0.71%.
Rates: UST cash markets were closed due to the US holiday today
CNH’s rise
CNH rises sharply by 0.52%, and CNY by 0.6% with no headlines behind the apparent move. Our traders state the same, that they do not see any headlines either. However, rumours on social media around the potential relaxation of quarantine measures in China could potentially be the cause, although our sales teams caution that this is not new.
We flag that Treasury Secretary Yellen was on ABC on Sunday, reiterating comments on China tariffs though did not cite specifics and declined to say when there may be a decision. China stocks commodities have not benefited.
–Reuters: Yellen "We all recognize that China engages in a range of unfair trade practices that is important to address but the tariffs we inherited, some serve no strategic purpose and raise cost to consumers,"
CitiFX Wire’s Rui Ding highlighted in a China tariff Cheat sheet last month that any tariff relaxation is likely to be strategic, in line with broader foreign policy, with officials hinting at easing tariffs on bicycle, apparel and other textiles. This is unlikely to be a major economic tailwind for China and therefore any asset impact may be short-lived. Covid lock down risks and related policy support are likely to remain the biggest focuses in the near term.
PBoC also left the 1y and 5y LPR unchanged at 3.70% and 4.45% in line with Bloomberg forecast. Citi Economics had been an outlier forecasting a 10bps cut to both, one of three contributors to the survey of 25 expecting a cut.
We note recent reports in Securities Daily suggested any imminent cuts to the LPR are unlikely though do see room for additional cuts in the second half of the year. China rates and FX are both little changed following the release.
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