Article / 12 February 2016 at 2:27 GMT

Morning Report APAC: Bears at the fore in Asia trade

APAC Sales Trading Desk / Saxo Capital Markets


  • Japanese stocks headed for their worst week since 2008 as Topix dives 4.4%
  • Traders showing anxiety over central banks’ ability to revive the world economy
  • In testimony, Yellen said Fed would look into the possibility of 'negative rates'
  • She said it was "hard to predict" when energy prices/USD would stabilise
  • Oil rebounds from 12 year lows, JPY set for strongest week since 2008
  • Flight to safe haven assets - JPY and gold the big beneficiaries

By Saxo APAC Sales Trading

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

1500: EUR – Germany CPI MoM (Exp. -0.8%, Prev. -0.8%), YoY (Exp. 0.5%, Prev. 0.5%)
1500: EUR – Germany GDP SA Q4 (Exp. 0.3%, Prev. 0.3%)
1800: EUR – Eurozone GDP SA Q4 (Exp. 0.3%, Prev. 0.3%), SA YoY (Exp. 1.5%, Prev. 1.6%)
2000: INR –Industrial Production YoY (Exp. -0.9%, Prev. -3.2%), CPI YoY (Exp. 5.35%, Prev. 5.61%)
2130: USD – Retail Sales Advance MoM (Exp. 0.1%, Prev. -0.1%), ex-autos (Exp. 0.0%, Prev. -0.1%)
2300: USD – University of Michigan Sentiment (Exp. 92.3, Prev. 92.0)


0630: AUD – RBA Governor's Testimony to Parliament Committee
2300: USD – Fed's Dudley Answers Questions at Press Briefing in New York

Overnight news

On negative rates:
-    Policy makers “would have to think through all the institutional details” of implementing negative rates and how such policy would work in US.
-    While not aware of any legal prohibitions on negative rates in US, the Fed needs to look into issue further.
-    We’re taking a look at them again because we would want to be prepared in the event we wanted to add accommodation.
-    Yellen was “surprised” it was possible for some countries to move rates as far below zero as they have.
-   She said it was “hard to predict” when energy prices/USD would stabilise and inflation will begin to move higher. Fed wants to raise rates gradually, didn’t want to wait “so long” to initiate liftoff that economy significantly overshot objectives of policy makers

On recession:
-    Yellen said policy makers and the market had been “quite surprised” by movements in oil and there’s “always some chance of a recession” in any year.
-    She said "We’re watching developments very carefully".
-    Still, evidence shows “expansions don’t die of old age”; Yellen quotes paper by San Francisco Fed.
-    A stronger USD is “something we partly anticipated. Even so, strength of USD and its rise since mid-2014 was “not something we anticipated".

On the global economy:
-    Normalisation is not something policymakers want to pursue for “its own sake” but only if it’s consistent with central bank’s objectives.
-    Monetary policy isn’t on a “preset course”.
-    Global developments can impinge on outlook, Fed is evaluating how events will affect balance of risks.
-    Didn’t think prospect of rate cut as Fed’s next move would be “likely possibility”; not yet seeing sufficient shift in outlook that makes rate cut “highly likely”.
-    Oil and China have driven market turmoil this year, Yellen said during questioning Thursday from Senate Banking Committee in Washington.
-    While declining oil prices have had some negative consequences. on balance lower oil prices are good for the US.

  • US: US weekly initial jobless claims declined by 16,000 to a seven-week low of 269,000 in the week ending February 6. Continuing claims also eased to 2,239,000 in the week ending January 30 from 2,260,000. The data is indicative of a solid labour market.
  • Sweden: Sweden’s Riksbank cut its key policy rate more than expected (expectation were for a 0.45% cut) from -0.35% to -0.5%. Worries over housing and strong domestic demand overpowered low inflation and policy easing by other central banks. The bank declared it was prepared to cut the repo rate even further. We note, that negative rates is likely to become a regular feature across many countries. 
  • Japan: Finance Minister Taro Aso said that the ministry was watching the FX market movements with a sense of urgency. He said it is undesirable for there to be abrupt movements in FX and will respond to markets appropriately if necessary.

Foreign exchange


USDJPY and JPY crosses were the main movers overnight after the drop to 110.99 from 113.60.
USDJPY moved 8.7% lower in February. Some talks of intervention from BOJ overnight pushed back USDJPY back to a high of 113.19 before finding some large resistance from funds in New York pushed it down to low 112.

AUDJPY had a similar move dropping to 77.52 before rallying back overnight. Japan Is back from a holiday today and it will be interesting to see how the Bank of Japan will answer the sharp move lower.

USDCHF is trying to hold at the 200 Day Moving Average MA, the big support now at 0.9731 despite the collapse seen in USDJPY.

Emerging market currencies suffered overnight with USDBRL up 1.6%. USDMXN broke the 19.00 level due to the sharp drop of oil to trade all the way up to 19.44 before the central bank intervened to push it back slightly lower but the pair is finding good support above 19.00.

Foreign exchange movements

JPY vols exploded higher after the sharp drop seen in spot to trade above 16 vol, last level seen in 2013.

Believe it or not, the market is still short volatilties despite the massive drop in spot this month and is buying all sorts of options, downside, upside, ATMS, just to cover the short Gamma and Vega positions. Expect the vols to stay at elevated levels, especially with more talks about a possible BOJ intervention.

All the cross JPY vols are seeing similar moves higher. AUDJPY 1M ATM trades now at 21 .8 from 11.7 at the beginning of the year. The market is now looking to any proxy to cover the short vols positions and as a result, all the G10 vols are marked higher on the back of that.



Bond markets continue to rally with a key catalyst for the rush to bonds being the Swedish Central Bank lowering its key benchmark to negative territory; as investors become increasingly concerned about the impact negative rates will have on banks and their earnings outlook.

US 10-year Treasuries down to an intraday low of 1.529% (against an all time low of 1.39%), but has since corrected higher to 1.659% .

Core European yields also fell sharply, but peripheral yields (Italy, Spain, Portugal and Greece) all rose, widening spreads. German 10-year yields fell to 0.185% and French yields to 0.59%. UK yields were down to 1.3%. Yields have plunged into multi-year lows and we expect these move to continue today in the Asian session.



 Expect heightened volatility to continue as concerns over global growth remain a major concern.




Another rough night for equities as concerns over growth hit financials shares. Société Générale fell 12.6% after it posted a lower than expected Q4 net income, hurt by an additional €400 million set aside to cover litigation costs.

The bank said that because of difficult market conditions and tighter regulation it may not reach its targeted 10% return on equity in 2016. Elsewhere in the bank sector, Credit Suisse Group dropped 8.4% to close at its lowest level since January 1991.

US stocks also closed in the red driven also by renewed down drift in banks. The only other real pockets of strength could be found in technology shares. Cisco surged 10% after earnings and updates on investor capital returns.

Watch for the rout to extend, in Asia. With Japan now open today, expect it to close down over further anxiety regarding the global economy and its’ central bank’s ability to stem volatility fuelled by a rally in yen. 


 A saviour in times of trouble. Gold is the best performing commodity of 2016. 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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