Article / 14 July 2016 at 7:59 GMT

From the Floor: Perpetual bondage and a shiny red Apple

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  • TSMC earnings beat could point to soft release from Apple
  • Asian equities rally extends, but move may be losing steam
  • Yen weakens on stimulus expectations, BoE statement in focus
  • Bunds pare losses, returning above the 167 level
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From the Floor
By Michael McKenna

Reporting from Saxo Bank's Singapore trading floor this morning, Global Sales director Christoffer Moltke-Leth tells us that enthusiasm for Asian equities is beginning to wane.

"We saw moderate gains today, but the rally is slowly losing steam," says Moltke-Leth, adding that the Shanghai Composite is under pressure after sessions of what he terms "excessive gains".

Despite the apparent softening of sentiment, Japan's Nikkei 225 still managed to crank out 0.95% worth of green ink today as the JPY slipped further. At one point, the USDJPY peaked as high as 105.60 as Japanese officials weigh the exact nature of their stimulus plans.

Interestingly, the day saw former Federal Reserve chair Ben Bernanke in Tokyo where he reportedly met with leaders as a follow-up to an earlier exchange with high-ranking adviser Etsuro Honda.

"Bernanke and Honda discussed a perpetual bond issue," says Moltke-Leth, adding that the Bank of Japan is apparently of the view that bond buying is preferable to additional interest rate cuts.

Whatever the exact plans underway, USDJPY remains near its highs of the days as markets continue to bank on significant stimulus from prime minister Shinzo Abe's new government.

USDJPY

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Source: Saxo Bank 

According to Saxo Bank head of forex strategy John J Hardy, one factor that could provide yen pairs with a strong (if oblique) directional push today is the Bank of England rate cut decision. 

Although markets are taking the cut as a near-given (the current odds are 80%), the nature, breadth and forecefulness of the BoE's guidance today, as well as what tools it intends to employ beyond the forecasted cut, remain unknown.

Noting that incoming UK prime minister Theresa May's selection of former Tory leader Boris Johnson as foreign secretary is but one of many signals that "Brexit means Brexit," Hardy tells us that "we're not at the bottom of the cycle for sterling" and today's statement leaves plenty of room for volatility despite the priced-in nature of the expected cut.

In other news from the Asian session, the Taiwan Semiconductor Manufacturing Company – a chip-maker that provides key component's to Apple's iPhone, as well as a host of other, largely Android-based devices – reported earnings today, beating estimates with a net income of NT$72.5 billion ($2.3bn), surpassing the NT$68.9bn forecasted.

According to Bloomberg, analysts at CIMB Securities specifically cited the rising popularity of [smartphone brands] Oppo and Vivo as key factors in their view that TSMC remains primed for further upside. In their view, the market share gains enjoyed by such firms acts as a counterweight to the continued slowdown seen at Apple.

"Apple has fallen to fifth place in terms of its share of the Chinese market," explains Saxo Bank head of equity strategy Peter Garnry. Garnry adds that he is maintaining his view that the increasing saturation of the smartphone product is leading to a commoditization of the devices, leaving price as an increasingly important competitive factor.

"We have seen [Apple CEO] Tim Cook out describing Apple's weakness in China as temporary, but I suspect it is permanent," says Garnry. 

"Apple appears set to continue losing market share if its pricing structure doesn't change."

Meanwhile, crude oil has returned to the levels seen at Monday's close after a 9% swing in the wake of new inventories data from the US. "The numbers show that rising inventories remain a risk," says Saxo Bank commodities head Ole Hansen.

Another key movement seen in the commodities space, adds Hansen, is the retracement seen in gold that came along with (with only a slight delay) this week's determined risk-on move. In Hansen's view, although the yellow metal is currently holding the line above $1,328/oz, a break lower could place $1,313/oz and even $1,298/oz in view.

Falling market share
Chinese smartphone users are increasingly rejecting Apple's high-priced iPhone 
in favour of cheaper, Android-based alternatives. Photo: iStock 

Michael McKenna is an editor at TradingFloor.com 

Editor’s note: From the Floor takes advantage of TradingFloor.com's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios. 
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