Article / 30 September 2016 at 2:44 GMT

Morning Report APAC: Banking jitters weigh on markets

APAC Sales Trading Desk / Saxo Capital Markets
Singapore







  • The dollar strengthened versus most peers after US data 'supports hike'
  • Financial shares were the biggest drag on the MSCI Asia Pacific
  • Japanese data on Friday showed consumer prices fell for a sixth straight month
  • MSCI Asia Pacific Index dropped 0.8% as of early Asian trading
  • West Texas Intermediate crude fell 0.2% to $47.74/b
  • China's factory activity expanded marginally in September

 

By Saxo APAC Sales Trading

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Speeches

07:50 – JN - BoJ Summary of Opinions at September 20-21 meeting
08:00 – JN - BoJ governor Kuroda speaks in Tokyo
08:10 – JN - Lawrence Summers speaks in Tokyo

Overnight news

US:  US final Q2 GDP at 1.4% against estimate 1.3%, prior 1.1%, showing signs that growth is slowly making its way back on to firmer ground.

Initial jobless claims rose 3,000 to 254,000 in late September, but remained below 300,000 for 82 straight weeks, pointing to a steadily improving labor market.
 
US pending home sales slipped 2.4% in August, weaker than expectations and the July gain was revised down a touch to 1.2%. and broad set of housing data continues to look mixed as separate data related to new home sales have looked somewhat better recently.
 
Philadelphia Federal Reserve President Patrick Harker said he backs a December rate increase if the economy continues to grow as expected, while Atlanta Fed President Dennis Lockhart said he expects the Fed to be in a position to raise rates soon.

Federal Governor Jerome Powell, on the other hand, said the Fed can afford to be patient in gradually raising rates as the economy slowly improves.


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USDJPY bears were in control late into yesterday's session as it retreated much of its gains on Thursday after an oil-led risk on mood. Key economic data was also out as household spending in Japan fell 4.6% and missed analyst consensus which was estimated at -2.1%.

Daily candle stick also shows a tall upper shadow which also coincide with the 50 Day Moving Average.

In emerging market forex news, Mexico increased the overnight rate by half point to 4.75% on Thursday, the highest level since 2009. This is the third hike this year after half point increment in Feb and June.

Foreign exchange movements

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USDJPY gamma was offered in general but there was some interest to cover topside strikes as the spot rally to 101.75 caught some off guard.

Vega remains well bid as general risk-off theme continues to dominate. 1m tenor rolls to November BOJ date but market is not pricing in a large move.

USDCNH vega crept higher as the swap points bounced from a week low. Overall low vol base and low skew is making topside USDCNH plays relatively good value.

AUD gamma has been depressed ever since the Federal Open Market Committee meeting last week and realised volatilities are picking up. Skew is also modestly priced, making downside gamma an attractive proposition.

Rates and credit

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US Treasuries rose on Thursday as the 10-year yields fell 2.4 bps to 1.548%. US 2 year yield came was down 3.4 bps to 0.722%.

Spread of US 2 year and 10 year notes should see near term support at 0.80% as the spread challenged to break the 0.80% level yesterday.
 

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US stocks fell as banks retreated amid growing concerns that Deutsche Bank’s woes will spread to the global financial sector. Financial shares erased gains and slumped 1.5% after Bloomberg reports signaled growing concern among some Deutsche Bank clients roiled markets.
 
Accenture rose 4.3% after adjusted quarterly profit of $1.31 per share, a penny above estimates, with revenue also beating forecasts, helped by strength in new bookings and expansion in profit margins. It also announced a 10% increase in its semi-annual dividend to $1.21 per share.
 
FTSE 100 Index rallied 1% on Thursday, with resource companies leading the marched higher as traders cheered OPEC decision to cap oil output. Royal Dutch Shell jumped to close up by 6.7% and BP gained 4.3%. Among the miners, Anglo American advanced 6.1% and Glencore put on 3.1%.

The big focus remained on German banks, amid speculation that Deutsche Bank (+1%) could need a state rescue.

Shares of the bank continued to recover slightly in European hours from all-time lows on Thursday. Meanwhile, Germany's Commerzbank (-3.1%) announced it would make net cuts of 7,300 jobs and stop paying dividends on Thursday.
 
Asia Pacific stocks

China highlights
 
- Citic Bank Intl (998 HK): To build M&A advisory team in Hong Kong, FT reports
- FDG Electric (729 HK): Li Ka-Shing sells 60.1 mln shares
- Merchants Securities (600999 CH): Said to price HK IPO at/above mid-point
- Sainty Marine (002608 CH): Plans to swap some debt with new shares in revamp
 
Japan highlights
 
- Mitsubishi Nichiyu Forklift (7105 JP): To buy out UniCarriers for 76.8b yen
 
Southeast Asia highlights
 
- Hiap Teck Venture (HTVB MK): 4Q net income 7.9m ringgit vs 68.7m ringgit year-earlier loss

- SMRT Corp. (MRT SP): Minority shareholders approve S$1.2b offer from Temasek


Information sources: Bloomberg

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 Ghost of Lehman Brothers? Probably not, but there are jitters across all markets. Photo: iStock


– Edited by Adam Courtenay


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