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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 05 April 2018 at 1:55 GMT

Morning Report APAC: Asia swings higher on US gains

APAC Sales Trading Desk / Saxo Capital Markets
Singapore
APAC:

 

  • Japanese shares lead early gains in the region and Aussie equities also rise
  • Big US index swings, with the S&P making a loss then closing up 1.2%
  • Oil pares its losses after a larger-than-expected drop in crude stockpiles

By Saxo APAC Sales Trading


Economic data of the day (Singapore Time)

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Speeches

April 6: 01:00 (US) Federal Reserve's Bostic speaks on financial literacy

Overnight news

America: An initial very risk-off tone that gripped markets in the wake of the reciprocal tariffs from China eased and turned positive as the US appeared to back away from the harshest of risks with commerce secretary Wilbur Ross saying the goal is negotiation.

New Chief Economic Advisor Larry Kudlow added that the tariffs from Trump are just proposals and that they may be tools for negotiation. This message from deep within the White House appeared to calm market nerves that the worse of trade tension fears may subside.

Positive momentum seems to be gathering on NAFTA with a meeting set to take place in Washington next week. Headlines from NAFTA members seemed to indicate that a deal was near.

US economic data  was at the margin slightly softer with the exception of the ADP numbers. US ADP 241,000 versus 210,000 expected, with prior month upward revisions.

Services and comp PMI declined to 54 and 54.2 from 54.1 and 54.3 respectively. ISM Non-Manufacturing fell from 59.5 to 58.8, below 59 estimates.

Factory orders rose 1.2%, but well below estimates of 1.7% while durable goods increased 3%, down from 3.1% prior.

Fed’s Bullard sees 2.5% GDP this year and 2.2% next. He is concerned about the escalation in trade tensions, which will impact his outlook but agrees China has not played fair.
 
Europe:
EU CPI data will embolden the doves as headline in line at 1.4%, but prior month revised down to 1.2%. Core however missed with a print of 1.0% below the 1.1% expected and in line with prior month.

EU unemployment fell to 8.5% from 8.6% in line with expectations. This is the lowest since 2015 but still well above the lows pre-GFC. 



Foreign exchange

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USD: Generally weaker with the risk on tone in the markets, the safe haven currencies like JPY and CHF however underperformed.

NZD: The best G10 performer overnight with no obvious catalyst with the exception of the strong milk auction late on Tuesday. 

CAD: Continues to be buoyed by the positive NAFTA news retracing all of the ground it lost in early March.

Emerging Markets: Positive NAFTA momentum continues to push USDMXN lower, MXN +0.7% on the day. Rest of EM was a bit missed and muted with respect to other asset classes.


Foreign exchange movements

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Despite the risk off mode early yesterday and the subsequent rally, levels of volatility continue to come off.

NZD spot has moved a lot but vols remain muted.Overnight in CNH there was a spike in spot and a squeeze in gamma but  this was localised to the front end of the curve.

Rates

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US treasuries paired early gains on stocks sell off, as US toned down on the tariffs after China’s retaliation and more signals on negotiation were released to the market.

European bonds closed before unveiling of market optimism, and mostly supported by risk off flows. Peripherals outperformed led by Italy, which recently being bought at times of risk.

Commodities 

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Equities

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US: Dow (+230 points) and S&P 500 (+30 points) stocks make a comeback, Dow rallies more than 700 points from lows of the day.

The S&P 500 erased a 1.6% decline to finish the session 1.2% higher at 2,644.69, led by gains in consumer stocks. The broad index also closed back above its 200-day moving average, a key technical level.

Boeing (BA) skidded 4.1% lower as investors tried to gauge how hard a hit the jet maker might take in the escalating trade war with China.

The largest US exporter could potentially lose ground to European rival Airbus (EADSY) as a result of China's 25% levy. Boeing shares have been consolidating since early March, and are in their fourth week below their 10-week moving average.

Major component Caterpillar (CAT) careened 3.3% lower. The heavy equipment maker is not the direct target of any tariffs, but is in a deepening battle against China's domestic equipment makers. The stock ended Tuesday 16% off its January high, and tracking toward a test of support at its 200-day moving average.

In auto space, Tesla Inc (TSLA) tanked 3.9% at the start of trade, chalking up the heaviest early loss among Nasdaq 100 stocks.

China included electric cars in its tariff targets. That puts Tesla at a particular disadvantage because, unlike General Motors (GM) and Ford (F), Tesla does not produce any vehicles in China and its entire inventory there is imported.

Tesla shares dropped 22% in March, and ended Tuesday 31% off their September high. Shares price closed off well up 7.26% to 286.94.

Europe: European stock markets closed lower, amid elevated concerns of a tit-for-tat trade war between the world's biggest economies.

The UK's FTSE positive 3.55 points and Germany's Dax closed negative 44 points. Investors initially dumped so-called risk assets such as equities as tensions between China and the US over trade issues stepped up, but the selling eventually abated and some sectors saw gains.

Mining stocks were among those dragged lower in London, as this industry is sensitive to development in China, a major buyer of industrial and precious metals. Shares of Anglo American PLC shares (AAL) fell 3.2%, Rio Tinto PLC (RIO) lost 2.6% and BHP Billiton PLC (BLT) gave up 2.5%.

Car makers were under pressure as well due to global trade tension. Germany’s BMW slid 1.4%. Daimler AG (DAI) fell 0.7% and Volkswagen (VOW3) down 0.5%. Fiat Chrysler (FCA) was off 0.5% as well following the jump of 7.3% the previous day after FCA’s post a 14% rise in March sales.

Hong Kong: Hang Seng Index (HSI) decline 661 points, ahead of Qingming Festival holiday, Hong Kong stocks failed to sustain the rebound index closed 29,518. As China released a retaliating list of US imports that it targets to hit tariffs.

Tencent (700.HK) plunged 2.9%, missing $400, last traded at $397.60. Technology, handset equipment and consumption stocks came under pressure.

AAC TECH (2018.HK) collapsed 5.9%, being the worst performer of blue chips.

Key blue chips HSBC (5.HK), HKEX (388.HK) and AIA (1299.HK) lost 1.5%-1.6%.

China Mobile (941.HK) fell notably, down 2.9%. On earnings, Lenovo (992.HK) announced the third-quarter results as of the end of December 2017.

The company reported a loss of $289 million, against a profit of $98 million in the same period of last year. Credit Suisse had expected the company's loss during the quarter to be $147 million. Share closed off -1.7% to $4.06.

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 A seeming about-face by the US president has lit a fire under global shares. Photo Shutterstock


– Edited by Adam Courtenay


This report was compiled by the Saxo APAC Sales trading team in Singapore – the home of social trading. Follow the team on @SaxoStrats or post your comment below to engage with Saxo Bank's social trading platform. Follow us on @SaxoStrats on Twitter

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