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Tadhg Gaelach

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Jan 14, 2016


Key meeting for PM May as Brexit talks enter decisive phase
Theresa May hopes to break the Brexit talks deadlock with a new offer on divorce settlements at a crunch meeting with EU officials, as some of her party members urge her to walk away unless there is progress. The EU wants a pledge that Britain will pay what it owes the bloc when leaving, protect the rights of EU citizens living in Britain and ensure there is no hard border between the north and south of Ireland, which appears to be the main hurdle in the talks. However, it is not yet clear if Britain and the EU can agree on written assurances to avoid a hard Northern Ireland border by today's deadline, Irish Foreign Minister Simon Coveney said.

UK factories plan to ramp up investment - EEF
British factories intend to increase investment at the strongest pace in four years, adding to signs that manufacturing will help support an otherwise sluggish economy in 2018, an industry survey showed. Manufacturers' investment intentions rose to their highest since the second quarter of 2014, a good omen for Bank of England officials who expect business investment will improve next year. But EEF said there was some evidence that much of the investment was to help cope with short-term demand, with Brexit uncertainty dampening plans for larger-scale projects.

China says 2018 growth target to reflect new changes in economy
China's economic growth target for 2018 will reflect new changes in the economy as the government put more emphasis on higher quality development, the State Council Information Office said. Policy sources have told Reuters that China's leaders are likely to maintain this year's growth target of "around 6.5 percent" in 2018, even as they ratchet up efforts to control systemic risks from a rapid build-up of debt in the economy. China will strive for higher quality, more efficient and fair growth, the information office said, reiterating a pledge made by President Xi Jinping at a party congress in October.
Central banks need to ensure tightening cools froth in financial markets -BIS
Major central banks must ensure their efforts to gradually lift interest rates prove effective enough to cool some already "frothy" financial markets, the Bank for International Settlements (BIS) said in its latest report. The organisation gave the warning as investors continue to bask in what it called the "light and warmth" of improving global growth, subdued inflation and soaring stock markets. One concern is that the continued low bond yields and low market volatility, particularly in the United States, are reminiscent of the bond market "conundrum" referred to by former Fed Chair Alan Greenspan in 2005 before the financial crisis.
BOJ's Kuroda calls for reforms to better use fintech
The Bank of Japan's Haruhiko Kuroda urged financial institutions to reform their business structures to make effective use of financial technology, which is triggering big changes to global financial markets. Fintech can contribute to raising growth potential and addressing social challenges not only in emerging but developed nations, Kuroda said in a speech. "Financial institutions are required to take forward-looking measures to reform their own structures in order to make effective use of fintech. Without such efforts, the countries where traditional financial services already prevail might lag behind in the field of fintech," Kuroda said.




• US Treasury 10s indicated 2.402%, JGB 10s 0.036%, Bund 10s 0.330%
• US-Japan-Germany respective 2s indicated 1.804%, -0.148%, -0.737%
• JGBs off on US Senate tax passage, caution ahead of 10yr auction
• MoF to sell ¥2.3trn of 10-year bonds tomorrow
• But intraday price moves very limited
• Futures in a 151.00/150.95 range in AM, 150.96/150.92 in PM
• At 150.92, futures off 10 ticks on day
• JGB cash yields up only 0.5-1.0bp across most sectors
• Nikkei tad soggy, range 22,739-864, Friday close 22,819
• At 22,743, index off 75 points or 0.3% on day
• AXJ mixed - SSEC +0.1%, HSI +0.7%, KOSPI +0.65%, TWI +0.5%
• STI -0.3%, ASX and NZX50 just below par on day
• Dalian iron ore +4.4%, Shanghai rubber +3.4%, Tokyo rubber +2.95%

Currency Summaries
• USD/JPY, JPY crosses buoyant after slips down Friday on Flynn to-do
• USD/JPY to as low as 111.40 Friday before bouncing, Asia 112.36 to 112.98
• Offers good ahead of 113.00 still, pair backs off to 112.65, steadies
• Stops 113.00+ but resistance strong, USD405 mln option expiries at strike
• Downside supported by 112.50-55 option expiries, total USD914 mln
• US yields also supportive, back up after swoon Friday, Tsy 10s @2.404%
• USD/JPY on hold around rising 55-DMA at 112.75, daily Ichi cloud top 113.17
• EUR/JPY buoyant too after swoon to 132.92 Friday, Asia 133.71-134.01
• Cross again well-clear of daily Ichi cloud top at 132.98
• GBP/JPY 151.09 to 152.39 in Asia, backs off some and steadies
• Bias again up after outlier down Friday
• 152.80-85 September 21/22 double top break eyed
• AUD/JPY, NZD/JPY see decent gains Friday, bouncing from recent lows
• AUD/JPY 85.52-75, low Nov 27 84.33, NZD/JPY 77.29-44, low Nov 20 76.10

• EUR/USD fell to 1.1850 from 1.1900 in the first few hours in early Asia
• USD broadly gained in reaction to Senate passing their tax plan on weekend
• EUR/USD buyers around 1.1850 and EUR/JPY buying underpinned after early dip
• EUR/USD traded back to 1.1876 and was around 1.1870 into the afternoon
• Asia didn't seem to react to White House drama related to Mueller probe
• The key mo moves later today will be moves in US Treasury yields
• The 10-year Treasury yield opened Asia 5 BPs higher at 2.41%

• Cable buoyant after trades up to 1.3548/49 last Thursday/Friday
• Good resistance still @1.3550 but re-tests maybe soon, Asia 1.3432-1.3514
• Support from around ascending 100-HMA at 1.3431, 200-HMA 1.3372
• Flattening daily Ichi tenkan in area too at 1.3380
• Brexit deal to remain focus, EU Summit next week
• EUR/GBP remains soggy in Asia, 0.8784-0.8830
• Support still from around ascending 200-DMA at 0.8798

• USD/CHF 0.9780-0.9829 in Asia after wild swings Friday post-Flynn news
• Action around descending 200-DMA at 0.9800, 55-DMA 0.9835 above
• Underlying support from ascending 100-DMA at 0.9734, Ichi cloud base 0.9730
• EUR/CHF 1.1615-67 in Asia, ascending 55-DMA below at 1.1578, support

Market Briefs
• Australia workers earn income boost amid hiring rush
• NZ Q3 Business Inventories 0.2%, -0.4% last f' cast 0.1%, -0.5% rvsd
• AU Nov ANZ Internet & Newspaper job 1.5%, 1.4% last
• Bounce for Australian PM as voters tire of leadership roundabout
• Central banks need to ensure tightening cools froth in financial markets -BIS
• JP Nov Consumer Confid. Index 44.9, 44.5 last
• Japan may cut corporate tax rate to 20% through incentives - Nikkei
• Japan firms end years-long price freezes - Wall Street Journal
• Enter the 'petro': Venezuela to launch oil-backed cryptocurrency
• Key meeting for PM May as Brexit talks enter decisive phase
• UK factories plan to ramp up investment - EEF
• China should maintain budget deficit ratio around 3 pct - official think tank
• Fed officials fret over yield curve, warn on pace of hikes
• Trump tweets about Russia probe spark warnings from lawmakers
• S.Korea, U.S. kick off largest air exercise amid N.Korean warnings
• Pentagon evaluating U.S. West Coast missile defense sites - officials
• McConnell says U.S. government shutdown over DACA 'ridiculous'
• Speculators raise short U.S. dollar bets to largest since late Oct -CFTC

Looking Ahead - Economic Data (GMT)
• 09:30 GB Nov Markit/CIPS Cons PMI f' cast 51.0, 50.8 last
• 09:30 EZ Dec Sentix Index f' cast 33.6, 34.0 last
• 10:00 EZ Oct Producer Prices m/m, y/y, f' cast 0.3%, 2.6%, 0.6%, 2.9% last

Looking Ahead - Events, Auctions, Other Releases (GMT)
• N/A ECB's Draghi and Coeure participate in a Eurogroup meeting - Brussels
• 06:30 ECB's Galhau speaks at a seminar - Tokyo
• 12:00 Riksbank executive board meeting
See North American Open for a detailed listing of US/NorAm releases, events

RBA decision to be a non-event for markets
The RBA decision and statement tomorrow should be a non-event, as they have clearly signalled they are on hold for the foreseeable future. Following Tuesday's meeting, the RBA won't be meeting again until February so they are unlikely going to significantly change their statement and risk market misinterpretation. The statement may come across as upbeat on business investment following the solid capex data last week, but that will be balanced by their concerns over the high levels of household debt and stubbornly slow wage growth. The decision and statement should have limited or no impact on the AUD and is unlikely going to alter RBA expectations heading into 2018.