Is the Goldilocks trade back on? While longer-term global growth and macro trends argue otherwise, a dovish FOMC and a dip in 10-year US yields has sentiment on the rise in the short term.
Article / 25 July 2016 at 2:08 GMT

Morning Report APAC: Asia holds up on stimulus hopes

APAC Sales Trading Desk / Saxo Capital Markets


  • Asian stocks rallied after the S&P 500 Index set a fresh record on Friday
  • Japanese shares climb, but JPY weakens in early Asian trade
  • JPY is weakening amid expectations of more easing
  • Bloomberg poll of economsts predict BoJ will increase stimulus this week
  • Brexit vote now seen as having limited impact on inflation and growth
  • G20 policy makers agree to work to support global growth

By Saxo APAC Sales Trading

Economic data of the day (Singapore Time GMT + 8)

Time    Country    Event    Month    Survey    Actual    Prior
0750    JN    Trade Balance    Jun    ¥474.4b    ¥692.8b    -¥40.7b
1300    SI    CPI YoY    Jun    -1.10%    --    -1.60%
1600    GE    IFO Business Climate    Jul    107.5    --    108.7
1600    GE    IFO Expectations    Jul    101.6    --    103.1
1600    GE    IFO Current Assessment    Jul    114    --    114.5

1530: NZD - RBNZ governor Graeme Wheeler speaks in Auckland (not public)

Overnight news

Friday was interesting as we got first the first batch of major post-Brexit data. Brexit vote shows little initial impact in continental Europe as July Flash PMIs surprise on the upside.
Manufacturing PMI beat expectations with strong upside surprise in German and French services confidence while the Eurozone overall showed a slight decline down 0.2 points to 52.9 in July, but against consensus expectations of a much sharper fall.
ECB Survey of professional rorecasters noted that Brexit vote was seen as having limited impact on inflation and slight reduction in growth
On the contrary the UK shows a very different development. PMI Services contracted for the first  time in 43 months following Brexit at 47.4 from 52.3 prior. This was its lowest reading since April 2009.

Foreign exchange


This is a carry-over once again from last week, as we never got a breakout signal for EURUSD out of the current tight range and something needs to give as we await a directional resolution soon after a tease below the 1.1000 level this week.

We still prefer the downside, but traders may want to wait for a technical break before getting involved after a long, frustrating bout of trading within the range.

And if the Federal Reserve fails to deliver sufficiently hawkish guidance to boost odds of a rate hike in September or December, the price may resolve higher again.
Trading stance: EURUSD traders may want to wait until after the Federal Open Market Committee meeting to trade EURUSD next week, especially if we fail to see a close above 1.1150 or below 1.1000.

Those are the breakout levels that could lead to 200-pip extension of the price or more in the direction of the break after the FOMC statement release.
JPY cross downside
The next Bank of Japan meeting is up on Friday next week after a recent JPY selloff driven by expectations that after the strong endorsement of Prime Minister Abe after the Upper House elections, some bold new policy moves could be forthcoming.

The market may be over-anticipating on this front and the risk is that the BoJ under-delivers at next week’s meeting when most of the focus is on fiscal stimulus/eventual helicopter money anyway.

And it could take more time to define and launch the eventual fiscal stimulus, while helicopter money (actual cash injections into consumers’ hands) looks very far off after explicit rejections of legality and possibility of the idea by government officials.
Trading stance: When the JPY moves, it often does so across the board, so traders may choose relatively indiscriminately among JPY crosses, though GBPJPY downside might merit extra consideration given the weak UK flash PMI data on Friday that pushed the sterling firmly back lower after an attempt to the strong side this week.

Foreign exchange movements




Treasury prices finished Friday slightly higher into the close aided by late flight-to quality flows  as treasuries were pretty much directionless for the whole of last week. Meanwhile, German 10-year bund yields held near zero.
The FOMC rate decision is on Wednesday and investors see a 8% chance of a hike and a 25% chance in September compared with 79%/87% at 2015 year end.






The S&P 500 posted a new all-time closing high amid solid manufacturing data. It climbed 9.86 points, or 0.5%, to 2,175.03. All ten sectors closed higher led by utilities (+1.3%) and telecoms (+1.3%).

Industrial giant General Electric (-1.6%) reported a Q2 profit of $2.74 billion, compared with a loss of $1.36bn, a year ago. The focus of the result fell upon its core industrial business where GE reported lower quarterly profit (-5.4%) and revenue that was weighed down by its oil equipment division.

Honeywell International (-2.6%) reported a Q2 profit of $1.66 per share (market estimate: $1.64) up from $1.19bn, or $1.51 per share, a year ago. Revenue grew 2.2% to $9.99bn (market est: $10.13bn). Core organic sales fell 2%.

European stocks edged lower following mixed PMI data - unexpectedly strong for the Eurozone, but worse than anticipated for Britain. The FTSEurofirst 300 inched down 0.02 of a single point to 1,344.11.

In London the FTSE 100 climbed 0.5%, to 6,730.48 as weak economic data spurred hopes of easing monetary action by the Bank of England.

Vodafone leapt 4.6% after the mobile giant reported better-than-expected business figures.

Asia-Pacific stocks

-      JSR (4185 JP) 1Q, 7.67b yen (7 analysts) 3:00pm
-      Formosa Plastics (1301 TT) 2Q, NT$10.1b (5 analysts)
-      Hyundai Mobis (012330 KS) 2Q, 844.3b won (19 analysts)
-      Indiabulls Housing Finance (IHFL IN) 1Q
-      Formosa Petrochemical (6505 TT) 2Q, NT$20.5b (6 analysts)
-      Mahindra & Mahindra Financial (MMFS IN) 1Q
-      Nan Ya Plastics (1303 TT) 2Q, NT$8.0b (5 analysts)
-      S-Oil (010950 KS) 2Q, 384.7b won (16 analysts)
-      Samsung C&T (028260 KS) 2Q, 21.6b won (7 analysts)
-      Shinsegae (004170 KS) 2Q, 31.8b won (11 analysts)

IPO Watch
-      China Harzone Industry (300527 CH) book building expected to end
-      Mitsui Fudosan Logistics Park (3471 JP) expected to price

China Highlights
-      China City Construction (711 HK): Said to have defaulted on dim sum bonds
-      Citic (6030 HK): Expects 1H profit down 40%-50% y/y
-      Sinopec Engineering (386 HK): Sees 1H profit after tax down 30-40% y/y

India Highlights
-      Axis Bank (AXSB IN): 1Q profit falls 21%, misses est.
-      Indian Oil (IOCL IN): In talks to buy GSPC stake in Mundara terminal, PTI reports

Japan Highlights
-      Nintendo (7974 JP): Sees limited impact from Pokemon Go; ADRs fall

Southeast Asia Highlights
-      DBS (DBS SP): DBS Group to enter Japan securities market, Nikkei newspaper reports

Information source: Bloomberg

Japan's Haruhiko Kuroda says he will ease policy further to achieve a 2% inflation
goal, but says there has been no discussion on "helicopter money". Photo: iStock


– Edited by Adam Courtenay

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