Article / 21 February 2018 at 2:01 GMT

Morning Report APAC: Asian markets subdued on weak overseas lead

APAC Sales Trading Desk / Saxo Capital Markets
Singapore

 

  • Asian markets were subdued in early trade
  • Most indices were flat following the softer lead from the US
  • US yields were higher across the curve especially on the short end


By Saxo APAC Sales Trading

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

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Speeches (Singapore Time)

  • 2200 – US – Federal Reserve's Partrick Harker speaks on the economic outlook
  • 2215 – UK – Bank of England's Mark Carney, Broadbent, Haldane and Tenreyro speak in London
  • 2300 – US – Fed’s Neel Kashkari speaks in Minneapolis on Bloomberg Television


Overnight news

US bond action

  • The US government conducted bond auctions worth $151bn of short-term bills and $28bn of 2-year notes. The $55 billion sale of four-week notes had a yield of 1.38%, with the bid-to-cover ratio falling to 2.48%, the lowest level since 2008. The $28 billion auction of two-year notes, yielded 2.255%, the highest in almost a decade. 
  • This is just the beginning of the US debt auction schedule but a 2-year note at 2.26% vs a 2 year German bond at minus 0.496% looks like a good trade to us, at least as a spread.

 

Foreign exchange

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  • The USD rallied against all G10 currencies and EM following the higher US yields and a positioning adjustment. The volume in FX was fairly low overnight
  • USDJPY found very good support at 106 with the market already short and hedged for larger downside moves. Hedge funds are starting to cover the shorts
  • Weaker-than-expected inflation in Sweden drove the interbank volume in EURSEK 40% more than usual with obviously strong buying interest of the pair. We are trading again close to the two-year highs at 10.0000
  • Emerging Markets: TRY was leading the selloff in the EM space following stronger prospects of direct military conflict between Syrian and Turkish armed forces.


Foreign exchange movements
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  • No one has focused on it lately but funds are now buying EUR downside for the Italian elections on March 4.
  • Short-term funds are buying very short dated upside in USDJPY, which also explains the move higher in spot.

 
Rates

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  • European bonds are steady ahead of the US big trunk of supply, peripherals underperformed on the back of Spanish 30-year syndication being priced.
  • US yields were higher across the curve especially on the short end, amid the big trunk of Treasury sales on short-term bills and two-year notes. More is coming with 2-year floating notes, 5-year and 7-year in queue.


Commodities 

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Equities

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United States 

  • The Dow resumed trading, snapping its sixth day winning streak; it was down 254 points and closed at 24,964, as investors watched climbing bond yields, which could make equities less attractive at current levels.
  • Giant retailer Walmart Inc (WMT) shed 10.2% after its fourth-quarter adjusted earnings per share missed forecasts. WMT, a Dow component, was a drag on the blue-chip gauge, and posted its biggest drop since 1988. Shares prices fall below its 50DMA to 94.11, this negative sentiment also dragged down shares of Target (TGT) and Costco Wholesale (COST), -3.75% and -1.80% respectively.
  • Biotech MiMedx Group Inc (MDXG) tumbled 40% and closed at 8.75, after the company announced that it was delaying the release of its fourth quarter and full-year 2017 earnings to conduct accounting reviews. Trading volumes significantly increased, as more than 9.5 million shares were traded, nearly five times greater than its 30-day average volume (2 million).

Europe

  • European equities were lifted by favourable developments for the UK in its Brexit negotiations with the European Union. Only the UK FTSE 100 (-0.89 points) closed flat while the Dax (+102 points) and CAC (+33 points) closed 0.83% and 0.64% respectively higher.
  • InterContinental Hotels Group PLC (IHG) shares slumped 2.8% as the company opted to use the excess cash for reinvestment rather than pay it out as a special dividend, which is something that investors have been used to. InterContinental Hotel Group closed at 4,568 GBp.
  • On earnings, mining giant BHP Billiton (BLT) posted a 25% rise in underlying half-year profit on Tuesday. The company also handed an extra $800 million to shareholders as it projected rising cash flows in the second half. However, its shares were off 4.58% to £1490.40 by the close.

Hong Kong

  • Hang Seng Index (HSI) resumed trading on Tuesday but was off for a bad start in the new lunar calendar as financials and property stocks led the equity index lower. HSI fell 241 points (0.78%) to 30,873.
  • Heavyweight HSBC Holdings (5.HK) retreated from its gain to 80.95 (-2.60 pts / 3.1%), being the weakest performer of blue chips. The bank announced that the reported profit before tax was US$17.2 billion last year, slightly missing estimates. No further share buyback was reported in its full-year results, this is due to AT1 supplement by way of bond issuance will take place in the first half of the year, which cannot be proceeded along with share repurchase. 
  • In the technology space, Tencent (700.HK) receded 0.3% to $445.8. AAC Tech (2018.HK) and Sunny Optical (2382.HK) jumped 2.5% and 2.6%, with the latter being the biggest gainer of blue chips.
  • Automobile stocks fared well with Geely Auto (175.HK) being the best performer. Geely shot up 2.4%, rose for five straight trading days and peaked at $23.8 (20DMA). It last stood at $23.5, showing a continuous rise of 3.5%.


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 BHP shares were under pressure on Wednesday as investors
reacted to its half-year results. Photo: Shutterstock

 
– Edited by Gayle Bryant


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