Sleepy Overnight Session Interrupted By Chinese Market Turmoil

Outside of China, Asian shares hit a 2-year high overnight. As discussed, the overnight action was entirely in China, where despite the strong GDP data the Shanghai Composite Index retreated 1.4% amid concerns over the implications of a weekend meeting where President Xi Jinping said the central bank would play a greater role in defending against risks. The kiwi fell after the deputy governor of New Zealand’s central bank said a lower currency would help rebalance growth. Japanese markets were closed for Marine Day. South Korea’s Kospi Index advanced to an all-time high.

Not surprisingly, complacency has returned with the Citi global risk aversion macro index back to its pre-crisis average.

In currencies, the Aussie dollar hit its highest level in over two years before it pulled back to $0.7813, while the Canadian dollar touched a one-year high before it settling at around C$1.2659. Britain's Sterling and the euro both eased against the dollar having jumped on Friday as officials from both sides prepared to for Brexit talks in Brussels. Specifically, the pound fell from a 10-month high against the dollar on concern that discord within the U.K. government is worsening before the nation starts the second round of Brexit negotiations with the European Union. Sterling snapped a three-day advance ahead of the talks that are likely to focus on protecting citizens’ rights, which has been a key sticking point so far, Bloomberg reports. The Chancellor of the Exchequer Philip Hammond exposed tensions within the British cabinet at the weekend by stating that transitional arrangements at the end of talks are likely to last a couple of years, far longer than the couple of months suggested by Trade Secretary Liam Fox.

In commodities, oil rose again following the Chinese data, extending gains made last week on signs of lower U.S. inventories and stronger demand. U.S. crude rose 0.3 percent to $46.66 a barrel, while global benchmark Brent added 0.3 percent to $49.07.  Gold gained too, rising to $1,229.90 an ounce in London, though it was copper that shone brightest of the metals as it climbed 1 percent to $5,983.50 a tonne, having earlier struck its highest since March 2.

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