Morning Report APAC: Asian shares retreat as USD hike looms
- Japanese shares rose after the JPY dropped overnight by most since August
- Wih USD advancing, GBPUSD now trading at the all-time low of 1.2731
- New Zealand’s dollar extended declines after global dairy prices fell
- Lacker says Fed should embrace a strategy of raising interest rates
- Crude oil rallies as industry data indicated American oil stockpiles declined
By Saxo APAC Sales Trading
Economic data of the day (Singapore Time; GMT+8)
- 1330: NZD – RBNZ’s McDermott comments on panel in Melbourne
- 1630: GBP – BoE deputy governor Ben Broadbent gives speech in London
- 2130: USD – Fed’s Kashkari giving opening remarks at development conference
Fed speech: Richmond Federal Reserve president Jeffrey Lacker said the central bank should embrace a strategy of raising interest rates before inflation spikes like it did in 1994.
He said: “Prudent pre-emptive action can help us avoid the hard-to-predict emergence of a situation that requires more drastic action after the fact.
Pre-emptive increases in the federal funds rate are likely to play a critical role in maintaining the stability of inflation.
The Fed should raise rates gradually "but not too gradually". Lacker argued economic history suggests the Fed funds rate should be about 1.5 percentage points higher than its current level given the current rate of joblessness and inflation.
"This is the basis for the strong case I have articulated for raising our interest rate above its current low level," Lacker said.
ECB: The European Central Bank will probably gradually wind down bond purchases before the conclusion of quantitative easing, and may do so in steps of 10 billion euros ($11.2 billion) a month, according to Eurozone central bank officials.
They didn’t exclude that QE could still be extended past the current end-date of March 2017 at the full pace of 80 billion euros ($90 billion) a month.
Lacker’s comments created strong buying interest in the USD, with DXY up 0.50% and Treasury yields up 7 basis points. DXY is attempting to break the 200 Day Moving Average at 95.93. If we manage to confirm the break, the next target will be 97.60, the July highs.
USDJPY broke the weekly downward channel and the daily resistance (please come back to us if you want to receive the charts) and rallied 1.2% overnight. The next resistance is at 104.50, the pre-nonfarm payroll level.
NZDUSD is breaking the 0.7200 support level and the next level to watch is 0.7000. EUR is trading in a triangle that goes from the 200 DMA at 1.1164 as support to 1.1245.
GBPUSD continues to slide after confirming the break of 1.3000. We are now trading at the all-time low of 1.2731. This is despite the fact that IMF upgraded its outlook for the UK and predicted that growth will be 1.8% in 2016 from 1.7% previously making it the fastest growing G7 nation.
In emerging markets, USD rallied against all currencies following Lacker’s comments, by around 1.5%.
With the chance of a US rate hike increasing, a selloff in the US treasury market, we could see outflows coming out of the EM world after the strong inflows we have seen in the recent months that could trigger a much stronger USD.
Foreign exchange volatilities
GBP vols continue to get paid following the break lower in spot.
After buying the sub 100 strikes in USDJPY, funds are now selling the R/R (Selling the downside, buying upside) following the break higher in spot (see comments above).
Rates and credit markets
Rates: Overall sovereign bond yields were lifted on increasing prospects for an ECB taper and Fed hike.
Spain 50 years bond yields touched record low of 2.48% yesterday, showing demand for ultra-long bonds is very strong at the moment, as Italy sold 50Y bond in EUR5billion sale
US stocks suffered losses as the dollar rallied to near two month high. The S&P 500 dropped 10.71 points to 2,150.49, led by utilities which closed down by 2.2%.
Alphabet climbed 0.5% after the tech company launched a new smartphone and its Google Home “personal assistant” speaker system.
Delta Air Lines edged up by 0.4% after it reported a smaller annualised decline in September (3% year-on-year, comparing to Aug 9.5%) in unit revenue.
European stocks rose for a sixth day and hit near-two week highs as Deutsche Bank continued to recover and as UK stocks rose to the high since May 2015, boosted by a sinking pound over Brexit worries and better than expected construction activity in September.
The STOXX 600 index rose 0.8% to 346.10. In London the FTSE 100 rallied 1.3% to 7,074.34.
Deutsche Bank regained some more ground and rose by 1.5% after HSBC said that despite its obvious operational shortcomings, fears over the bank's solvency were overdone, thus maintained the 'hold' rating.
LVMH Moët Hennessy Louis Vuitton jumped 3% after it purchased a controlling stake in German luggage maker Rimowa.
- Anhui Conch (914 HK): Raised to buy at Jefferies
- New Universe Environment (436 HK): Rated new buy at Everbright Secs
- Wharf (4) is said to sell its telecom business to consortium formed by TPG and MBK at a consideration of HK$9.5b. (Reuters)
- Wing Tai PPTY (369) said its project “Homantin Hillside”, which is a coop with Nan Fung, sold 129 units (~80% sellable units) amounting to ~HK$2.1b.
- CKH (1) and Li Ki Shing Foundation’s Frank Sixt said CH Postal BK (1658) is a “unique invst opportunity” despite its moderate mkt feedback. He also said the co. will keep seeking to expand its UK mobile business. He also said will examine startups in AI and 3D printing.
- CKI (1038)’s Park’N Fly has acquired a valet indoor airpot parking business adjacent to Winnipeg Airport in Canada with a consideration ~CAD12mio.
- Genting Malaysia seeks to sell stake in Genting HK (678) for US$420.8mio.
- Kangda Env (6136)’s 9mth wastewater treatment capacity for executed concession
- agreements was ~2.9mio tonnes per day, +14.4% YoY.
- NagaCorp (3918) 9mth VIP rollings at US$6.6b, +11% YoY. Floor table buy-ins at US$456.5m, +13% YoY. Slot machines US$1.137b, +15% YoY.
- Kwan On (1559)’s shareholder Variety Rich reduced the co. holding to 10.46%.
- Aoyuan (3883) bought back 1mio shrs at HK$1.858mio.
- HSBC (5) bought back 5.03m shrs at avg 597.54 pence each on Oct 4.
- Daiwa cuts banks:
- Mizuho (8411 JP): Neutral
- Resona (8308 JP): Neutral
- Sumitomo Mitsui Trust (8309 JP): Neutral
- Marui (8252 JP): Raised to neutral at Mitsubishi UFJ-MS
- Sun Frontier (8934 JP): Cut to neutral at Storm Research
- ABC-Mart (2670 JP): Sept. same-store sales -5.8%
- Chiyoda Co. (8185 JP): Prelim. 1H oper. profit 4.42b yen vs co. forecast 6.25b yen, lowers full-year target 30%
- Fast Retailing (9983 JP): Japan Uniqlo sales -3.4% in Sept., biggest decline this year
- J Front Retailing (3086 JP): 1H oper. profit 19b yen vs co. forecast 21.8b yen, cuts full-year target 10%
- Nippon Fine Chemical (4326 JP): Warned by FDA after barring facility access
- Skylark (3197 JP): Bain Capital pledges stake in Skylark as loan collateral
- Toray (3402 JP): ADRs fell after Nikkei says co. to miss profit forecast
- United Arrows (7606 JP): Sept. same-store sales -7%
- Henderson Group (HGG AU) raised to outperform at RBC
- Summerset (SUM NZ) 3Q sales of 196 occupation rights
- Pushpay (PAY NZ) prices Australian IPO at A$2.09 per share, Australian Financial Review reports. Trading to start Oct.
Source: CIMB / Bloomberg
– Edited by Adam Courtenay
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