Morning Report APAC: Asian markets exit from Brexit
- Overnight Boris Johnson pulls out of the race to be next British prime minister
- Asian stocks rose, on track for their best week since April
- Markets in Hong Kong and Thailand shut for holidays
- Oil back to gains in early trading following its best three months since 2009
By Saxo APAC Sales Trading
Economic data of the day (Singapore Time)
0700: KRW – South Korea CPI MoM (Act. 0.0%, Exp. 0.1%), YoY (Act. 0.8%, Prev. 0.8%)
0700: KRW – South Korea CPI Core YoY (Act. 1.7%, Exp. 1.6%)
0800: KRW – South Korea Export YoY (Exp. -8.2%, Prev. -6.0%), Imports (Exp. -10.0%, Prev. -9.3%)
0800: KRW – South Korea Trade Balance (Exp. $9100Mio, Prev. $7082Mio)
0900: CNY –China Manufacturing PMI (Exp. 50.0, Prev. 50.1), Non-Manufacturing PMI (Prev. 53.1)
0930 KRW – Nikkei South Korea PMI Manufacturing (Prev. 50.1)
0945 CNY – Caixin China PMI Manufacturing (Exp. 49.2, Prev. 49.2)
1000: JPY – Nikkei China PMI Composite (Prev. 47.8)
1030: TWD – Nikkei Taiwan PMI Manufacturing (Prev. 48.5)
1100: IDR – Nikkei Indonesia PMI Manufacturing (Prev. 50.6)
1130: MYR – Nikkei Malaysia PMI Manufacturing (Prev. 47.2)
1130: THB – Thailand CPI MoM (Exp. 0.1%, Prev. 0.56%), YoY (Exp. 0.5%, Prev. 0.46%)
1130: THB – Thailand CPI Core YoY (Exp. 0.80%, Prev. 0.78%)
1200: MYR – Malaysia Exports YoY (Exp. 2.0%, Prev. 1.6%), Imports YoY (Exp. -2.9%, Prev. -2.3%)
1200: MYR – Trade Balance (Exp. 8.26B, Prev. 9.06B)
1555: EUR – Markit Germany Manufacturing PMI (Exp. 54.4, Prev. 54.4)
1600 EUR – Markit Eurozone Manufacturing PMI (Exp. 52.6, Prev. 52.6)
1630 GBP – Markit UK Manufacturing PMI (Exp. 50.1, Prev. 50.1)
2000: USD – ISM Manufacturing June (Exp. 51.3, Prev. 51.3)
2000: USD – ISM Price Paid June (Exp. 6.5, Prev. 63.5)
2200: USD – ISM New Orders (Exp. 55.9, Prev. 55.7)
IDR – Indonesia CPI YoY (Exp. 3.40%, Prev. 3.33%), CPI core YoY (Exp. 3.42%, Prev. 3.41%)
2300: USD - Fed's Mester Speaks at European Economics and Financial Centre
- UK: Boris Johnson pulled out of the race to be the next British prime minister after former Brexit ally Michael Gove turned on him when Johnson refused to offer the job of foreign secretary to George Osborne, the pro-Remain Chancellor, who will now compete for the job with Home Secretary Theresa May.
- The opposition Labour Party is also in turmoil. Jeremy Corbyn came under further fire after appearing to compare Israel’s government to the Islamic State at the start of an independent review into antisemitism within the party.
- Mark Carney said the Bank of England will probably have to loosen policy within months to deal with the fallout of the Brexit vote as he warned that there’s only so much he can do to protect the economy. The BOE will also continue its liquidity auctions for banks on a weekly, rather than monthly, basis and consider a “host of other measures.”
- The FT reported that Britain will send high-level trade missions to China, India, the U.S. and the Commonwealth as it preps to separate from the EU
- EU: S&P responded to the U.K.'s departure by cutting its rating of the EU's debt to AA from AA+, citing fiscal concerns once it loses one of its wealthiest members.
- ECB: The ECB is making plans to keep stimulus flowing. It's weighing looser rules for its quantitative easing program to make sure it has enough bonds to buy. Policy makers are concerned the pool of eligible securities has shrunk as investors pile into the region's safest assets following the UK vote to leave the EU, pushing yields below the current criteria.
- Mexico: Banco de Mexico increased the overnight rate by 50 basis points, more than expected, to 4.25% (expected: 4.00%), saying that while the nation’s growth outlook has deteriorated, worsened global economic conditions could impact prices. Officials said “With this action, the board looks to keep the drop in the peso in recent months and the adjustments in some relative prices from translating into an uprooting of expectations for inflation in our country".
GBPUSD started to rally after the decision of Boris Johnson to withdraw from the PM race but dropped quickly after when Bank of England announced the central bank may need to loosen the monetary policy after the Brexit vote.
The drop was just an initial reaction of Carney’s comments but not really a surprise and GBP closed in mid-range. It seems that 1.3500 is becoming a short term resistance.
USDJPY continues to squeeze higher and it happened during the Fixing time in Europe, most probably coming from a Corporate month end flow. 103.50 was the main level to watch before the fall after the Brexit vote.
We have noticed that Japanese banks like to sell USDJPY during the Asian session but it stopped moving lower because NY keeps buying so we could have a bigger squeeze higher soon. Commodities currencies continue to trade well overall.
Emerging markets were again the beneficiaries of the USD selling, with USDMXN dropping 2% on the more than expected rate hike. USDSGD continues to give headaches to Funds who have been buying Vols as a proxy of risk off and continues to trade below 1.3500.
Foreign exchange movements
GBP volatilities found good support after the move lower of the currency. We doubt there is much interest from funds on GBP vols at the moment.
Benchmark yields in US turned to go down, as UK yields fell to record lows after Carney said that BOE will probably have to easy policy over summer to counteract the economic fallout due to Brexit.
Yields in peripheral Europe (especially Italy and Spain) extended their fallout and reached lows since April 2015, with spreads narrowed dramatically, as ECB is considering liberalising QE rules.
Yields on the 10Y UK gilt dropped 8.3bps to 0.862% while yields on the 10Y Treasury note dropped 5.3bps to 1.463%. US-UK 10yn spread widened to 58.5bp, above closing levels since Nov 2000. The Fed fund rates are now pricing 0% of chance of interest rise in Sep and only 9.2% in December 2016.
The market is pricing 57.1% of probability of cut in the UK in July meeting, and 74.7% in August meeting.
Benchmark yields in US turned to go down, as UK yields fell to record lows after Carney said that the Bank of England will probably have to easy policy over summer to counteract the economic fallout due to Brexit.
Yields in peripheral Europe (especially Italy and Spain) extended their fallout and reached lows since April 2015, with spreads narrowed dramatically, as the European Central Bank is considering liberalising QE rules.
Yields on the 10Y UK gilt dropped 8.3bps to 0.862% while yields on the 10Y Treasury note dropped 5.3bps to 1.463%. US-UK 10yn spread widened to 58.5bp, above closing levels since Nov 2000.
The Fed fund rates are now pricing 0% of chance of interest rise in Sep and only 9.2% in December 2016.
The market is pricing 57.1% of probability of cut in the UK in July meeting, and 74.7% in Aug meeting.
- Chongqing Dept. Store (600729 CH): Rated new buy at Haitong Intl
- EVA Precision (838 HK): Cut to reduce at CIMB
- Huafa (600325 CH): Rated new buy at Haitong Intl
- Lee & Man Paper (2314 HK): Rated new buy at Haitong Intl
Preview: HK is Closed Today
- China Postal Savings Bank said to file $8b IPO application
- CDB Leasing breaks cornerstone records with H.K. IPO
- China Said to Check Financials of Selected IPO Applicants: 21st Century
- Kuraray (3405 JP): A+/a-1 rating affirmed at R&I, with outlook changed to positive from stable
- Nitori (9843 JP): Raised to overweight at Morgan Stanley
- BC-Mart (2670 JP): Quarterly oper. profit grew 5%, Nikkei reports
- Adastria (2685 JP): 1Q oper. profit gained 9.8% y/y to 5.22b yen, net income climbed 27.6% y/y to 2.98b yen; full-year oper. profit forecast retained at 17b yen
- Canon (7751 JP): Japan’s FTC approves co.’s purchase of medical unit of Toshiba (6502 JP)
- Daiseki (9793 JP): 1Q oper. profit dropped 15.2% y/y to 1.84b yen
- Idemitsu Kosan (5019 JP): President Tsukioka reappointed with 52.3% of votes
- Koshidaka Holdings (2157 JP): 9-mo. cumulative quarterly oper. profit fell 3.2% y/y to 3.6b yen
- Kusuri No Aoki (3398 JP): full-year parent oper. profit rose 16.1% y/y to 9.03b yen; raised parent oper. profit for this FY 0.3% to 9.06b yen
- Lion (4912 JP): Dissolves joint venture PEERLESS LION
- Nitori (9843 JP): 1Q oper. profit jumped 30.9% y/y to 27.3b yen, net income soared 42.9% y/y to 16.9b yen; full-year oper. profit forecast retained at 79b yen
- Sankyo Tateyama (5932 JP): Full-year oper. profit climbed 24% y/y to 6.2b yen, while net income tumbled 91% y/y to 90m yen
- Seraku (6199 JP): Begins trading on Mothers after IPO priced at 1,500 yen
- Star Micronics (7718 JP): 1Q oper. profit slumped 33.2% y/y to 802m yen; full-year oper. profit forecast kept at 4.5b yen
- Sysmex (6869 JP): Acquires additional shares in Riken Genesis from Toppan Printing (7911 JP)
- Tokai Tokyo Financial (8616 JP): To raise some wages by avg. 4,000 yen/mo. from July
- Tokuyama (4043 JP): To post one-time gain of 2b yen in 1Q
- Toshiba (6502 JP): Completes transfer of Toshiba Lifestyle to Midea
- Toyota Tsusho (8015 JP): Merging 2 units into chip trader, Nikkei reports
- Usen (4842 JP): 9-mo. cumulative quarterly oper. profit dropped 2.4% y/y to 7.8b yen
- Automotive Holdings raised to overweight vs neutral at JPMorgan.
- Vocus cut to neutral vs buy at UBS
- OZ Minerals raised to neutral vs underperform at Credit Suisse
- Clydesdale cut to underweight vs equalweight at Morgan Stanley
- Henderson cut to equal weight vs overweight at Morgan Stanley
- BHP Billiton raised to buy vs neutral at Haitong
- Shaver Shop (SSG@AU) - debuts on ASX
- News Corp. (NWS@AU) - agrees to buy Wireless Group
- Oil Search (OSH@AU) - InterOil receives unsolicited takeover offer, continues to recommend Oil Search, Total bid
Source: CIMB / Bloomberg
– 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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