Article / 15 February 2016 at 1:52 GMT

Morning Report APAC: Asian rebound as China trading resumes

APAC Sales Trading Desk / Saxo Capital Markets
Singapore

 

  • Gold and bonds retreat as investors await Chinese trading after a break
  • Japan’s Topix index surged more than 4.5% in early trading
  • US crude slips to about $29 a barrel after a 12% surge on Friday
  • US retail sales came in a bit better than expected, calming volatility

 

By Saxo APAC Sales Trading

Economic data of the day (Singapore Time; GMT + 8)
0750: JPY – GDP SA QoQ (Actual -0.4%, Exp. -0.2%)
0750: JPY – GDP Annualised SA QoQ (Actual -1.4%, Exp. -0.8%)
0750: JPY – GDP Deflator YoY (Actual 1.5%, Exp. 1.6%)
1230: JPY – Industrial Production MoM (Prev. -1.4%), YoY (Prev. -1.6%)
1330: SGD – Retail Sales SA MoM (Exp. -2.4%, Prev. 1.4%), YoY (Exp. 3.5%, Prev. 4.7%), Ex-Auto (Exp. -1.1%,  Prev. -2.0%)
CNY – Trade Balance (Exp. $60.60Bn, Prev. $60.09Bn)
CNY – Exports YoY (Exp. -1.8%, Prev. -1.4%), Imports YoY (Exp. -3.6%, Prev. -7.6%)
IDR – Trade Balance (Exp.- $241Mio, Prev. -$236Mio)
CNY – Exports YoY (Exp. -15.20%, Prev. -17.66%), Imports YoY (Exp. -8.65%, Prev. -16.02%)

Speeches
2200: EUR  – ECB's Draghi Speaks in EU Parliament Committee in Brussels

Overnight news

  • Oil: Prices bounced sharply from 13-year lows Friday on speculation that Opec will consider production cuts
  • Federal Reserve: NY Fed President Dudley said that it is "extraordinarily premature conversation to be having" about using negative interest rates to stimulate the economy. "To me, that’s not something that should be part of the conversation right now." The U.S. economy has "quite a bit" of momentum that will help offset weakness from abroad and while there has been "a significant tightening over the last few months" in financial conditions "you have to apply a little nuance: while the stockmarket has declined quite significantly, in recent weeks we've seen the dollar actually weaken a bit and we've seen Treasury yields fall quite sharply. So even within financial conditions you can't say it's all going in one direction."
  • US: Retail Sales came in a bit better than expected, which is a good news considering the volatility of the market.
  • China: Zhou Xiaochuan, the governor of the Peoples Bank of China said that “There is no basis for the yuan to keep depreciating. China will keep the yuan basically stable versus a basket of currencies while allowing greater volatility against the USD”. “The government also needed to prevent systemic risks in the economy, and prevent “cross infection” between the stock, debt and currency markets." The PBOC will maintain its “policy continuity and stability,” make policies more forward-looking, carry out policy fine-tuning in a timely and appropriate manner, adapt its aggregate demand mgmt to supply-side structural reform, the bank said in its monetary policy report for Q4.
  • China will continue to crackdown on underground banking this year, according to a Xinhua report posted on central government’s website that cites Zhang Shenghui, head of the supervision and inspection department of the State Administration of Foreign Exchange. SAFE says it will start comprehensive and targeted inspections on key banks and non-bank financial institutions and it directly involved in uncovering the more than 60 underground banking cases involving more than 1 trillion yuan in total last year. (source: DB).
 


Foreign exchange

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The USD rebounded following the sharp move higher in oil and with rates pushing USDJPY 1% higher on Friday. The move lower was so sharp that in terms of technicals we are a bit in no man’s land and we should expect some wide ranges at these levels with the first resistance being at 115.

EUR seems to have found good selling interests from macro above 1.1300 but the main support remains the 200 Day Moving Average at 1.1055.

CAD has benefited from the rally in oil and USDCAD dropped 0.4%. The range for USDCAD should be 1.3600/1.4000 on the wide formed by the 50d MA and 100 DMA.

All the hedge funds and real money investors have their eyes on the next China fixing after a week of Holidays. USDCNH dropped to the lows of 6.5000 during Chinese New Year and 1 year points from a high of 3300 beginning of the month to 2350 now.

Foreign exchange movements

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The market relief seen on Friday in oil helped push the volatilities a bit lower. USDCNH vols remain bid with the market waiting for the first CNY fixing after 1 week


Rates
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A strong rally in the US yields following the rebound of oil mixed by good data in the consumer spending front. Yields were higher in late trading by 4 basis points to 10 basis points, paring weekly drop in 10Y yield to about 9 bp.

The 10Y yield had declined for six straight days, falling to 1.529% on Thursday, the lowest since August 2012 and within 15bp of record low reached in July 2012.

The 5/30 curve steepened as much as 5.2 bp to 141.4 bp, erasing about half of its flattening over previous five sessions.  European Bonds benefited from the US rally and Bunds rallied 9 bps and the spread tights 4 to 5 bps against peripherals.

Commodities
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Equities
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There was a rebound in both US and European stocks. The S&P financial index rallied 4% to log its largest daily percentage win since November 2011.

JP Morgan Chase soared 8.3% after a regulatory filing showed CEO James Dimon bought 500,000 shares. A better-than-expected reading on consumer spending added to the positive tone.  

For the Dow, Financials (+4%), materials (+2.9%) and energy (+2.6%) led the charge.

In Europe, Commerzbank spiked 17.7% after the German bank announced plans to pay its first dividend since 2008. Deutsche Bank surged 11.6% after it confirmed plans to buy back €3 billion of its own euro-denominated debt and $2 bn of its USD-denominated debt.

Credit
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CDS Indices managed to tighten following the strong rally in UST yields and in equities overnight. All eyes today on the China Fixing that will give the tone of the market today in Asia.

Industry news


  • HK PPT:  latest Centa-City Leading Index stood at 131.01 pts, -0.71% weekly, hitting the new low for 62 weeks. CCL Mass was 131.29 pts, -0.81% WoW, marking the lowest level over past 64 weeks. In the past three weeks, CCL and CLL Mass have recorded an accumulated decline of 2.92% and 3.78% respectively.
  • HSBC (5):  decided to keep London as headquarters as U.K. is an important and globally connected economy.
  • Tencent (700): says there were a record number of digital red envelopes, or cash gifts, exchanged during the Lunar New Year holidays. Total 32.1b red envelopes were sent and received in the Feb 7 to 12 period via WeChat, nearly 10 times more than last year.
  • Greenland HK (337): Jan contracted sales amounted to RMB990m, -1.7% YoY.
  • China Overseas (688): seized residential site in Tai Po at HKD2.13b, far below the market valuation on the land (RMB3.69-4.3b).
  • HN Renewables (958):  Jan gross power generation +41% YoY. Wind power generation +42.1% and solar power generation +19.9%.
  • Guoco Group (53): subsidiary GL Limited interim profit +63.38% YoY to USD51.3m.
  • SEE Corp (491): issued a profit warning that expecting 6m loss of FY2015 to increase as compared to 2014.
  • Good Resources (109): issued a profit warning that expecting to record a loss for 6m ended Dec 31 2015.
Saxostrats
 
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The S&P financial index logged its largest daily percentage since November 2011. Photo: iStock

 


– 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. Join our Global Daily Market call daily at 1540 Singapore time here

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