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Quiet Month End Markets Hide Below The Surface Fireworks & News

2017-06-04 20:21 [MARKETS] Source:Netword
Guide:It has been another quiet session for global equity markets, with SP futures flat, as are European and Asian Stocks, which is perhaps odd, as there was

It has been another quiet session for global equity markets, with S&P futures flat, as are European and Asian Stocks, which is perhaps odd, as there was quite a bit of newsflow and, in the case of China, outright fireworks.

The main event in DM was the violent move in sterling, which as we first reported on Tuesday afternoon, tumbled for the first time this week after a YouGov poll showed Theresa May’s Conservative Party may fall short of a majority. The currency’s weakness boosted British equities, and the FTSE 100 Index rose even as miners and energy companies weighed on the broader European gauge after another night of sliding commodities in China.

Quiet Month End Markets Hide Below The Surface Fireworks & News

"The return of U.S. and UK markets yesterday (after holidays) saw a little bit of weakness creep in as we head into month end and what has been a positive month for markets, with records broken on an almost daily basis," said Michael Hewson, chief markets analyst at CMC Markets. "This soft tone looks set to be carried over this morning," he said.

Uncertainty about the reliability of polling, however, helped contain the pound’s retreat, which has since regained all of its overnight losses, but the moves are a reminder of the potential risks surrounding a series of national elections in Europe this year.

Another key overnight event, one which helped the Shanghai Composite close higher, was a stronger than expected Chinese Mfg PMI, as well as a Non-manufacturing PMI which rose in May. Specifically, China’s NBS May manufacturing PMI came in at 51.2, same as the previous reading and slightly above expectations. The official non-manufacturing PMI (comprised of the service and construction sectors at roughly 80%/20% weights, based on our estimates) increased to 54.5 in May from 54.0 in April, on higher services PMI. Services PMI rose to 53.5 from 52.6 in April. On the other hand, construction PMI fell to 60.4 from 61.6 in April.

Quiet Month End Markets Hide Below The Surface Fireworks & News

But China's "goalseeked" indices were far less notable than what happened in China’s currency market, where the offshore yuan jumped the most in four months as funding costs exploded amid speculation policy makers were supporting the currency in the wake of a surprise sovereign rating downgrade. At one point, in its ongoing crusade to crush offshore Yuan shorts, the PBOC sent the overnight interbank rate higher than 21%....

Quiet Month End Markets Hide Below The Surface Fireworks & News

... while the CNH overnight deposit rate hit a staggering 65%!

Quiet Month End Markets Hide Below The Surface Fireworks & News

As a result, the CNH premkum to CNY rose as much as 2.3 standard deviations, as Beijing appears set to send the Yuan far higher, perhaps still hurting from the recent Moody's downgrade, and intent on teaching shorts a very memorable lesson. As shown in the chart below, the Yuan hit the strongest level against the dollar, with the offshore Yuan surging the most.

Quiet Month End Markets Hide Below The Surface Fireworks & News

Meanwhile, as the currency surged, China's commodities - perhaps predictably - tumbled, with all mainland commodities tumbling by the close of trading.

ALL mainland commodities closed in GREEN (down) today.
Coke leads -8.97%, Rubber -7.81%, Coking Coal -7.64% pic.twitter.com/ctrcinyDDX

— Simon Ting (@simonting) May 31, 2017

Elsewhere in Asia, 10yr JGBs were lower amid a mild improvement of the risk tone in the region, while the curve was slightly flatter on outperformance in the super-long end, even after a Bloomberg report that the BOJ may "taper its taper" and revert to its traditional bond purchase schedule.

Away from China, a much anticipated European inflation report showed that Draghi still has room to scapegoat weak eurozone inflation, afterboth headline and core CPI missed expectation, printing at 1.4% Y/Y (exp. 1.5%) and Core 0.9% Y/Y (Exp. 1.0%) respectively.

Quiet Month End Markets Hide Below The Surface Fireworks & News

Also today, representatives from the ECB, ESM and the Greek Government will be in Frankfurt today to discuss, among other things, the prospect of a return to the Financial markets for Greece. ESM and Greek officials recently claimed that Greece should be able to return to the market by summer 2018. But given the current impasse between Greece and her creditors, and the fact that a commitment on debt relief from the EU will probably be pushed back until the end of 2018, that seems optimistic according to Capital Economics.

(EDIT:admin)

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