Article / 22 September 2016 at 2:00 GMT

Morning Report APAC: Asian stocks take off where Fed left off

APAC Sales Trading Desk / Saxo Capital Markets

  • The Fed now sees two increases next year, down from three projected in June
  • The MSCI Asia Pacific excluding Japan Index was up 0.9% in early trade
  • Korean won jumps 1.7% and JPY rises as much as 0.2% to 100.12 per dollar
  • New Zealand’s 10-year bonds surged by the most since June

By Saxo APAC Sales Trading



1600: EUR – ECB publishes Economic Bulletin
2000: GBP – BoE policy maker Forbes speaks at Imperial College
2100: EUR – Draghi speaks at ESRB Conference in Frankfurt

Overnight news

US: The Federal Reserve Bank left rates unchanged but gave a clear signal for a December hike. The dot plot was lowered to reflect a hike in December 2016 and just two (from three) hikes in 2017. In the statement there were very little changes made to the economics of the inflation outlook.

There were three dissenters who wished to hike, first time since 2014 when there have been dissenters. A picture of the new dot plot below which continues to show a clear divergence between what the Fed says they intend to do and what the market expects them to do.

New Zealand:
Earlier this morning the RBNZ met and kept rates unchanged as expected, however they gave a strong indication of a cut at the next meeting in November.

Despite the recent strong growth numbers and the improvement in dairy prices, the RBNZ notes that inflation remains too low and the NZD too high. The statement has caused IOS markets to price in a 68% chance of a cut at the next meeting, up from just 51% yesterday.


There has been persistent buying of JPY in the wake of the Bank of Japan's decision yesterday. The market has interpreted this as more talk and less delivery. Many, if not all, of Saxo strategists have been calling to fade the rally yesterday and see a trade below 100 as an inevitability.

The USD was broadly weaker as a function of both JPY buying but also because of the dovish tilt from the Fed. While they firmed up rate hike expectations for next year, they lowered their projected hikes for 2017. This should keep a lid on any USD strength.

Emerging markets have performed very well as the USD has sold off and risk sentiment remained buoyant. The "lower-for-longer" Fed should provide support for emerging markets and the carry trade.

Foreign exchange movementsxxx

Post Fed, most G10 volatilities have been sold off. The market will now focus on December meeting, anything in the volatility space 2 month and below is offered and will continue to trade on the soft side.


Bund core curves reversed initial steepening after digesting BoJ shift in policy framework to target yield curve and scrap average maturity target of Japanese government bonds.

The US yield curve was flattened by the Federal Open Market Committee decision to maintain the Fed Funds rate in the range of 0.25% to 0.5%, yet signals 2016 increase likely.

Market-implied probability of a December US rate hike rose to 61.2% yesterday from 58.2% a day before.







US stocks closed broadly higher and the Nasdaq hit a new all-time record after the Fed held rates and higher oil prices boosted sentiments. The VIX sank 16.5%, to 13.30.

FedEx (FDX: xnys) stock surged 6.9% and closed at its highest this year at $173.86 after strong quarterly numbers with adjusted earnings soared by 20% to reach $2.90 per share as revenue grew over 19% year-over-year.

The sales bounce was mostly thanks to the recent acquisition of TNT Express, but FedEx also managed solid gains in its core businesses. Next key resistance level should be at around $185 which was the 2015 year high.

Adobe Systems (ADBE:xnas) also hit record-high territory after the company posted a better-than-expected Q3 sales and earnings. Q4 guidance also topped views and Adobe closed at 107.78, up 7.12%.

Asia-Pacific stocks

China highlights
- Bank of Hangzhou (600926 CH): Plans to raise 3.8b yuan in Shanghai IPO
- CRRC (601766 CH): Thales signs partnership with co.: La Tribune
- China Railway (390 HK): Enters 13.1m yuan investment pact
Southeast Asia highlights
- Alliance Financial (AFG MK): AFG shares to be swapped with Alliance Bank shares on 1-for-1 basis
- Ekovest (EKO MK): Says unit to sell 40% of Konsortium Lebuhraya for 1.13b rgt
- Thai President Foods (TF TB): To pay 2.65 baht per share dividend

Thankyou Ma'am: Asian markets have take the Fed's dovish ball and run with it. 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. Follow us on @SaxoStrats on Twitter

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