Morning Report APAC: BoE rate cut hits sterling
- The Bank of England cut rates to a record low of 0.25%
- GBPUSD was the only mover of the night, down 1.70%
- Government bonds rallied and the US 10-year yield was down by 4.3bps
- US stocks were flat as the market waits for the nonfarm payrolls numbers
By Saxo APAC Sales Trading
Economic data of the day (Singapore Time; GMT+8)
- 0930: AUD – Reserve Bank of Australia Statement on Monetary Policy
- The Bank of England cut its benchmark for the first time in seven years to a record low 0.25% and increased the asset purchase program by £60bn to £435bn
- The BoE also announced two new stimulus initiatives. One will buy £10bn of high-grade corporate debt and the second – potentially worth up to £100bn – is to ensure banks pass on the full 25 basis point rate cut to borrowers. The Term Funding Scheme is designed ensure lower interest rates set by the BoE are reflected in the costs commercial banks charge households and firms to borrow funds. For the next 18 months lenders will be able to borrow four-year central bank reserves at rates close to the bank rate. They will charge a penalty rate to banks that reduce net lending.
- The BoE left its forecast for growth this year steady at 2.0% but downgraded 2017 growth to just 0.8% (Prev: 2.3%). The growth outlook for 2018 was cut to 1.8%.
- By acting early and comprehensively, the (bank) can reduce uncertainty, bolster confidence, blunt the slowdown and support the necessary adjustments in the UK economy
- Had unveiled an "exceptional package of measures" as the economic outlook had changed markedly following the Brexit vote
- The BoE had scope for more stimulus in the form of rate cuts and quantitative easing, however he ruled out negative interest rates, and rejected "flights of fancy" such as handing out 'helicopter money' with no strings attached. “All of the elements in this package have scope to be increased."
- Initial claims for unemployment benefits crept up 3,000 to a seasonally adjusted 269,000 (Mkt est: 265,000) in the week ended July 30. The four-week moving average edged higher by 3,750 to a seasonally adjusted 260,250. Continuing unemployment claims, reflecting workers drawing jobless benefits for more than one week, dipped 6,000 to 2,138,000 (Mkt est: 2,130k).
- Factory orders dropped 1.5% MoM (Mkt est: down 1.9%) falling a revised 1.2% in May (Prev: minus 1.0%). The drop was primarily due to another steep fall in durable goods orders, neg-3.9%, after diving 2.9% in May. Orders for transportation equipment slumped 10.5%. Excluding transportation orders, factory orders rose 0.4% (Mkt est: neg-0.2%). The increase in ex-transportation orders was partly due to continued growth in orders for non-durable goods, up 1%. Orders for non-defence capital goods excluding aircraft grew 0.4%.
GBPUSD was the only mover of the night, down 1.70% but only reached the bottom of the range of the past month and settled above 1.3000. The move came mainly from the additional QE.
Carney saying that he is ruling out negative interest rates is now limiting the expectations of further rate cuts. From the previous IMM data, we could see the market was short GBP but not at extreme levels. There is definitely room to move lower but the main level to break is 1.3000. The major resistance is at 1.3500.
Foreign exchange movements
- US stocks were flat overnight as the market waits for the nonfarm payrolls numbers tonight.
- European shares rose, with those in the UK capping their biggest jump since June, after the Bank of England unveiled fresh stimulus measures to help the economy cope with the fallout from the Brexit vote.
- Chesapeake Energy posted its sixth straight quarterly loss as the natural gas slump prompted a $1 billion impairment and eroded the value of the company’s hedges. The 14-cents-a-share loss was worse than expected. Chesapeake also announced plans to sell some Haynesville shale acreage and increased its 2016 asset sale target to more than $2 billion from as much as $1.7 billion.
- Bayer's looking into Monsanto’s books to decide whether to raise its $55 billion offer. The process is expected to take a few more weeks as the German company weighs the size and timing of a new bid. Monsanto rejected its improved $125-a-share proposal in July, but could come to the table for $130.
We had few earnings overnight with:
- Building materials manufacturer Louisiana Pacific (+2.1%) reported adjusted Q2 EPS of $0.28 (Mkt est: $0.26). Sales jumped 18% to $582mln (Mkt est: $578mln).
- Kellogg (+1.7%) reported adjusted Q2 EPS of $1.00 (Mkt est: $0.91). Revenue slid 6.6% to $3.27bln). Operating margin jumped 190bps to 13.7%. Kellogg raised FY EPS guidance to reflect better-than-expected performance in Venezuela and an improved outlook for the company’s operating margins in the rest of its business.
- Ball (+12%) reported adjusted Q2 EPS of $1.05 (Mkt est: $0.99) driven by the completion of legacy metal packaging growth projects, a robust aerospace backlog and the recent Rexam acquisition. Revenue slid 6.5% to $2.03bln (Mkt est: $2.17bln).
- Iron Mountain (-5.7%) reported Q2 normalised FFO of $0.47 (Mkt est: $0.52). Revenue grew 16% to $883.7mln (Mkt est: $884.5mln). On a constant dollar basis, total revenue growth was 18.6%, primarily driven by partial quarter benefit from the Recall acquisition.
- Chevron Corp. (-0.2%) is set to announce plans to divest Asian-based assets worth up to $5bln. Among the assets Chevron is looking to sell is its stake in an offshore oil field production venture with China’s state-owned oil company CNOOC, which could fetch as much as $1bn. Chevron is also shopping its geothermal assets in Indonesia. Chevron is also selling natural gas field assets in Thailand.
- European stocks edged higher, lifted by a rebound in beaten down banks. The Stoxx Europe 600 Bank index recouped 1.8%, its first gain in three sessions.
- Fiat Chrysler surged 8.2% on a report it could sell its parts-making unit Magneti Marelli to Samsung for over $3bn.
- HSBC jumped 4.5% after a surprise $2.5bn stock buy-back plan even as Q2 profit plunged 40%.
- Samsung Electronics is in advanced talks to buy some or all of a Fiat-owned auto-parts maker. The deal could be worth more than $3 billion, making it the South Korean company's biggest purchase abroad. Samsung is particularly interested in Magneti Marelli’s lighting and in-car entertainment operations to help it cut its dependence on smartphones. Fiat shares rose 9%.
Hong Kong analyst ratings
- Anta Sports (2020 HK) raised to buy at UBS on better sales outlook
- Nagacorp (3918 HK) raised to ’outperform’ at Credit Suisse
Hong Kong preview
- MGM Resorts (MGM US) 2Q adj EPS ex-gain on asset sale reached 26c, beat est.19c. MGM China(2282) 6 mths total rev. -22% YoY to HK$7.2b, while adj Ebitda -16.7% YoY to HK$2b. Targets opening MGM Cotai in 2Q 2017
- Melco (MPEL US) 2Q net operating rev. US$1.07b missed est. US$1.08b while adj. profit/ ADS 5c missed est. 6c
- BBMG (2009) obtained approval to proceed with proposed spinoff to dispose of equity interest in subsidiaries to Shenzhen-listed Jidong Cement
- Evergrande (3333) acquired, through a subsidiary, an aggregate of 517m Vanke (000002.SZ) A shares with RMB 9.11b, representing approximately 4.68% of the total issued share capital of Vanke.
- HKEX(388) Jan.-July securities market average daily turnover was -47% YoY to HK$66.7b
- Manulife (945) 2Q core EPS C$0.40, missed est. C$0.45. while core ROE -13.5%YoY to 8.4%
- Tencent(700) Didi cut incentives to private car drivers by 80% from Thursday, is expected to scrap all incentives from next week (Economic Info)
- China Railway Group(390) ‘s consortium won a RMB 14.7b rail transit construction project in northern Chinese city of Hohhot, w/w local govt will own 49% in the project
- Citic Bank(998) says Citic Ltd bought 149.3m h-shares from Jul 7 to Aug. 1
- Shui On Land (272) Jan-Jul property contract sales +74%YoY to RMB17.9b
- Citic Sec (6030) Jul net profit RMB947m
- Haitong Sec (6837) Jul net profit RMB495m
- Truly Intl (732) Jul net consolidated turnover +6.6% YoY to HK$1,821m
Japan analyst ratings
- Lion (4912 JP): Raised to outperform from neutral at Daiwa
- NTT Data (9613 JP): Raised to hold at Jefferies
- Terumo (4543 JP): Raised to buy at Nomura
Australia analyst ratings
- Automotive Holdings (AHE AU) raised to buy vs neutral at UBS
- Navitas (NVT AU) cut to underperform vs neutral at Credit Suisse
- irgin Australia (VAH AU) full-year earnings; forecast for net attributable loss of $A117.8mln (5 analysts)
- Aurizon (AZJ AU): ACCC reviewing co.’s proposed buy of Glencore Rail NSW
- SG Fleet (SGF AU) buys UK’s Fleet Hire for GBP25.7 mln
- Intueri Education (IQE NZ) sees FY16 underlying earnings down 36%
to a record low 0.25%. Photo: iStock
– Edited by Gayle Bryant
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