Article / 04 July 2016 at 1:58 GMT

Morning Report APAC: Aussie assets slip, Asia on hold

APAC Sales Trading Desk / Saxo Capital Markets


  • AUDUSD gapping lower after the indecision in the Australian elections
  • Australian assets slipped in response to the political limbo
  • Yen traded below 103 per dollar in early trade following a rebound on Friday
  • UK chancellor considering cutting the corporate tax rate from 20% to 15% 
  • ECB's Weidmann says there’s no need for additional ECB easing after Brexit
  • Silver leads precious metal surge, now at over $19/oz with gold also strong


By Saxo APAC Sales Trading

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

1700  EUR  – Eurozone PPI MoM June (Exp. 0.3%, Prev. -0.3%), YoY (Exp. -4.1%, Prev. -4.4%)
2000 SGD  – Purchasing Managers Index (Exp. 49.8, Prev. 49.8)


No speeches

Overnight news

Australia:  Australia's two main parties garnered their lowest primary vote since 1943. Anti-Muslim firebrand Pauline Hanson was one of the winners as the global backlash against mainstream politics struck the nation.

  • Premier Malcolm Turnbull will probably have to work with a handful of independent lawmakers if he wants to stay in power. Counting doesn’t resume until Tuesday.
  • The Reserve Bank of Australia meets tomorrow.
  • The hung parliament is a threat to the country’s AAA rating

Chancellor of the Exchequer George Osborne is considering cutting the corporate tax rate from 20% to 15% and said it should help UK prove to investors country is “open for business” as it withdraws from the European Union.

  • Osborne says his post-Brexit plan focuses on investment from China, support for bank lending, redoubling investment in Northern England, and maintaining fiscal credibility
  • European Central Bank official Francois Villeroy said that the UK will need to come to a new economic agreement with the EU to retain its euro-clearing status.

ECB governing council member Jens Weidmann said in speech in Munich that there’s no need for additional ECB easing in response to the Brexit and the result will only "slightly" curb growth and it’s questionable whether more expansionary policy would work.
ISM Manufacturing PMI came in higher than expected at 53.5 (Exp. 51.3). The survey was done before the Brexit vote but even though, the only concerns about the US could come from a high dollar and turmoil in the financial markets.

Foreign exchange


AUDUSD gapped lower at the open after the indecision in the Australian elections from 0.7498 to 0.7447 but has been recovering slowly since then. The 200 Day Moving Average at 0.7296 is still a very good support. The RBA meets tomorrow and no change is expected in the rates at 1.75%. There is a 12.6% chance of a cut priced in.

GBPUSD is finding good offering interest ahead of the 1.3500 level. The market is not that short GBP. It feels that the move higher last week was more related to profit taking than fresh long positions. Any new indication of a weaker growth will probably make GBP test new lows.

Some profit taking in USD short against emerging markets  were seen in the market on Friday ahead of the long week-end in the US.

Foreign exchange movements



We saw very aggressive buyers on Friday of USDJPY ATMs and upside for the BOJ date (29 July).

The selling interest in USDCNH vols continues in the 3M to 1 year area with funds using the spike in spot to unwind some old positions of USD calls.

The market seems very short Vega in AUD 1 year and the volatility is very bid for that expiry. The rest of the vols have been market lower after the Brexit vote.


Bonds continued to rally last week as the UK’s decision to leave the EU last week overshadowed somewhat better economic data. UK gilts outperformed with Bank of England governor Mark Carney hinting that “some monetary policy easing will likely be required over the summer”.

Yields in peripheral Europe continued to fall and make new lows since April 2015, with spreads continued to narrow.

The 10-year Treasury yield was near 1.44%, -4 basis points, after earlier touching to its lowest in about four years. Yields on the 10Y gilt fell -7.2 bps to end the week at a new low of 0.86%. Bunds fell -1.0 bps to -0.13%.

The Fed fund rates are now pricing 2% of chance of interest rise in September and only 11.8% in December 2016.

The market is pricing 52.3% of a probability of a cut in the UK in July meeting, and 80.6% in the August meeting.






A week after the post-Brexit sell-off, global stocks mostly recovered despite the unknowns ahead.

The Stoxx Europe 600 index broke a four-week losing streak to end up 3.2% for the week. FTSE 100 climbed 1.1% with stunning performance from Fresnillo, rising 7.1% as silver prices jumped. Rival gold miner Randgold Resources rose 4.3%.

Both the S&P 500 and the Dow marked their best weekly gains since the week ended November 20. Notably, S&P reclaimed its significant level of 2,100. Harley-Davidson rocketed 20% on buyout rumors, while Micron Technology slumped 9.2% after swinging to a quarterly loss.

Tesla delivered 14,370 electric vehicles in the second quarter, missing forecasts by 15% because of an "extreme" ramp up in production.

It'll have to step it up further to meet its new target of 50,000 units in the second half. It points to full-year shipments for Model S sedans and Model X SUVs coming in below target and suggests the goal of a half-million vehicles by 2018 could be a stretch.

The embattled leaders of Deutsche Bank and Credit Suisse defended their strategies in the face of slumping stock values. John Cryan told Der Spiegel that the German lender's money management unit isn't for sale because stable earnings are more valuable than short-term gain.

And Tidjane Thiam told a local newspaper he won't dismantle the Swiss bank. Credit Suisse has lost about half its value this year and Deutsche Bank is down 44%.

Asia Pacific Stocks

Hong Kong
Analyst ratings

-      EVA Precision (838 HK): Cut to reduce at CIMB
-      Lee & Man Paper (2314 HK): Rated new buy at Haitong Intl


-      CNOOC(883)'s Daxie petrochemical plant officially starts production and its annual output may reach 7m tons
-      Kingsoft(3888) issued profit warning, expecting to report 6-mth loss on investment impairments of about $125mn
-      R&F PPT(2777) Jun contracted sales was RMB5.7bn, +34% YoY
-      ICBC(1398) raised the down payment requirement for individual purchase of commercial-use property to 70% from 50%
-      HSBC(5) confirmed it will keep its headquarters in London after Brexit
-      Vanke(000002 SZ) to resume trading today and said it won’t hold EGM on director removal proposal; co.’s 1H sales amounted to RMB190bn, +72.9% YoY
-      Evergrande(3333) denied report that it’s involved in buying AC Milan
-      Fulum Group(1443) FY net profit was HK101mn, -37% YoY
-      CGN Power(1816) announced that the expected time for Hongyanhe Unit 4 to be qualified for commercial operation is adjusted from 1H16 to 2H16
-      Hi Sun Tech(818) expects substantial rise in half year profit vs HK$27mn for 1H15
-      Times PPT(1233) announced indirect acquisition of 75% equity in a commercial and residential development project in Guangzhou at a consideration of
-        RMB880mn
-      Road King(1098) agrees to buy Suzhou shopping mall with RMB256mn
-      BOCHK(2388) agrees to buy Thailand and Malaysia branches from BOC(3988) for over HK$6.8bn
-      Datang Power(991) confirms selling 100% of coal-to-chemical business Datang Energy and Chemical Company Limited to its parent co. at RMB1
-      Prosperity Intl(803) FY net loss narrows to HK$263mn from HK$839mn yr ago
-      FE Hld(36) issued profit warning, expecting interim to record loss vs profit last year
-      Yashili(1230) issued profit warning, expecting interim profit to drop 85% YoY
-      Regina Miracle(2199) announced FY net profit of HK$442mn, +31% YoY
-      Citic Bank(998) announced that from 16 June to 30 June, its controlling shareholder CITIC(267) continued to acquire 119mn H shares, amounting to total of 490 million H shares of the company, representing 1% of total capital
Analyst ratings

-       Idemitsu (5019 JP): Cut to neutral at Nomura
-       Preview:
-       Denso (6902 JP): Takes 15% stake in software developer NTT Data MSE
-       Disco (6146 JP): 1Q non-consolidated sales fall 6.9% y/y to 27.3b yen
-       Gunma Bank (8334 JP): Raised to buy from neutral at Nomura
-       Idemitsu Kosan (5019 JP): Cut to neutral from buy at Nomura
-       Komori Corp (6349 JP): To buy back up to 6.1% of shares for 5b yen
-       Musashi Seimitsu Industry (7220 JP): Completes acquisition of Hay Holding GmbH
-       NEC (6701 JP): To sell stake in PC venture to Lenovo Group (992 HK), book 20b yen gain
-       Ryohin Keikaku (7453 JP): 1Q oper. profit rose 19.7% y/y to 11.4b yen, net income climbed 27.2% y/y to 7.7b yen; full-year oper. profit forecast kept at 38b yen
-       Takata Corp (7312 JP): President and executives to take monthly pay cuts of 30% and 20%, respectively, over next year due to costs related to air bag recall
-       UNY Group (8270 JP): 1Q oper. profit climbed 98.7% y/y to 8.89b yen, while net loss jumped 324.8% y/y to 11.41b yen; to book 17.1b yen impairment charge in 1Q; writedowns due to combining ops with FamilyMart (8028 JP)
Analyst ratings

-      Suncorp Group (SUN@AU) upgraded to buy from neutral at UBS
-      Select Harvests (SHV@AU) cut to ’neutral’ at UBS
-      Woolworths (WOW@AU) - deadline for bids for Masters, according to reports.
-      Tigers Realm (TIG@AU) to start production at Russian coking coal field
Source: CIMB / Bloomberg

Local markets will be rocky, while Australia awaits the fate of PM Malcolm Turnbull. Photo: Flickr

– 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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