Article / 12 October 2016 at 2:32 GMT

Morning Report APAC: Bond yields rise, equities sell off

APAC Sales Trading Desk / Saxo Capital Markets


  • UK PM Theresa May has accepted parliament should be able to vote on Brexit plan 
  • GBPUSD recovered after moving lower on hard Brexit fears
  • 10-year Treasury yields are breaking higher, with resistance at 1.7500%
  • The market is now pricing in a 70.2% probability of higher rates by December
  • US stocks posted their biggest percentage drop since early September


By Saxo APAC Sales Trading

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




0930: JPY – Bank of Japan board member Yutaka Harada gives speech

1700: GBP – Bank of England deputy governor Jon Cunliffe speaks in parliament in London 

2000: USD – US Federal Reserve’s William Dudley speaks at Fireside Chat in Albany 

2140: USD - Fed’s Esther George speaks at Chicago Fed’s payments conference

Overnight news

UK: Prime Minister Theresa May has accepted that parliament should be allowed to vote on her plan for taking Britain out of the European Union, but asked lawmakers to do it in a way that gives her space to negotiate.   

Parliament will debate on Wednesday a motion from the opposition Labour Party calling for a “full and transparent debate on the government’s plan for leaving the EU” and for parliament to be able to “properly scrutinise that plan” before she begins formal talks. The request is supported by some lawmakers from May’s own Conservative Party.  

In response, May late on Tuesday tabled an amendment that effectively accepted the motion, adding that there shouldn’t be an attempt to block Brexit or “undermine the negotiating position of the government". (Bloomberg

South Africa: South African Finance Minister Pravin Gordhan was summoned to appear in court on fraud charges on November 2. The announcement may disrupt preparations for Gordhan’s mid-term budget scheduled for October 26, when he’s expected to commit to impose tighter reins on spending.

Foreign exchange



USD continued to rally overnight following the break higher of US yields, which triggered a sell-off in stocks. EURUSD confirmed the break lower of the triangle range which started on August and the 200-day moving average at 1.1172. The first support will be at 1.1000 but interest from investors to sell the pair should come back quickly with all the uncertainty surrounding the Brexit.

GBPUSD continued its move lower overnight on the expectation of a hard-landing Brexit but managed to recover after Prime Minister Theresa May accepted that parliament should be allowed to vote on her plan for taking Britain out of the European Union (see above). There should be good resistance at 1.2300 where it first got sold off yesterday unless the pair squeezes more on the news.

AUDUSD is now trading at the 100-day MA at 0.7531 and a break of that level should push AUD 100 pips lower to the 200-day MA at 0.7436.

USDJPY managed to stay at around 104 due to a large strike yesterday at 104 in the market. As soon as it touched 104, a lot of options-related selling was triggered.

In emerging markets, USDZAR jumped 4.5% after Finance Minister Pravin Gordhan was summoned to appear in court on fraud. There is a stronger risk that ratings agencies drop the rating of SA to junk, which would trigger more buying of the pair. USDAsia is overall bid and USDCNH continues to break higher in the spot market.

Foreign exchange movement


 All volatilities squeezed higher with GBP vols almost at Friday's levels. Strong interest from the market to buy EUR vols as well.

Hedge funds are buying a lot of downside strikes in EUR out to 1 month.


10-year Treasury yields are breaking higher and the resistance is 1.7500%. Fed-fund futures indicate that the market is now pricing a 70.2% probability of higher rates by December.

Gilt yields dropped 4.4 basis points after a Bank of England buyback across the 15Y+ sector as offer-cover ratio rises to 3.49x compared with prior 3.26x, 2.38x, 2.72x.

Portugal’s bonds jumped the most since June after rating company DBRS has a positive assessment of the nation’s fiscal efforts, strengthening the government’s conviction that it will keep its investment-grade rating.





US stocks posted their biggest percentage drop since early September as the third-quarter earnings season started and aluminium giant Alcoa Inc.’s results cast a shadow over the market. A stronger dollar also hurt sentiment. The S&P 500 index slid 1.2% to 2,136.73, with all of its main sectors declining.

Alcoa shares were slashed 11% after the company reported results that missed expectations. 

Illumina Inc. shares slumped by 25% and recorded the worst daily loss in five years, according to FactSet data, after the biotech company issued a revenue warning late Monday. 

European stocks ended in the red, pulled back by the energy sector. However, luxury shares were solidly higher on an earnings report from LVMH SE. The Stoxx Europe 600 ended 0.5% lower at 340.17, the fourth loss in five sessions. The FTSE 100 ended 0.4% lower to 7,070.88, however it recorded its highest intraday level at 7,129.83, as the pound continued to suffer at three-decade lows. 

France’s LVMH Moët Hennessy Louis Vuitton SE jumped by 4.5%, the most since late July, after it reported strength in its Asia business contributed to a rise in nine-month revenue. 

Major oil companies BP PLC and Royal Dutch Shell PLC headed lower, losing 1.6% and 0.7% respectively, as oil prices fell after the IEA reported that Opec boosted its output to a record 33.64m barrels a day in September.

Saxo round-up

Asia Pacific stocks

Hong Kong

Analyst Ratings: 

  • China Resources Beer (291 HK): Reinstated at buy at Goldman 
  • China Merchants Port (144 HK): Raised to buy at Morningstar 
  • Dah Sing Bank (2356 HK): Rated new buy at Haitong 
  • Geely Auto (175 HK): Cut to outperform at Daiwa Securities 
  • Tsingtao (600600 CH): Cut to neutral at Goldman 
  • Yue Yuen (551 HK): Cut to hold at HSBC 


  • Auto: Ssangyong Motor, Shaanxi Auto may build car plant in China 
  • Developers: China invests 1.2t yuan in shantytown renovation Jan.-Sept. 
  • Health: China to direct private capital to elderly care: Xinhua 
  • Internet: China to promote innovations in mobile internet: CCTV 
  • Rail: China NDRC approves 75.8b yuan railroad plan linking Guizhou, Guangxi 
  • Refiners: China car sales boom offers limited gasoline demand support: IEA 
  • AVIC Aviation Engine (600893 CH): Nominates Zhang Minsheng as chairman 
  • Beijing Capital Land (2868 HK): 9M contracted sales rise 70% to 30.6B y-o-y 
  • Central China Real Estate (832 HK): 9M contracted sales 14.9B yuan, 51% y-o-y gain 
  • China Resources Land (1109 HK): Sept. contracted sales 8.35B yuan 
  • Geely Auto (175 HK): Raises 2016 sales volume target to 700,000 units 
  • Greentown (3900 HK): To develop Hangzhou residential project with Longfor 
  • Guosen Securities (002736 CN): September unconsolidated revenue 951.4 million yuan 
  • HKEx (388 HK): Signs agreement with Shenzhen bourse on stock connect 
  • HSBC (5 HK): Still awaiting approval for China Securities JV 
  • Maanshan Iron (323 HK): Co. expects 9-mos. net around 757m yuan 
  • New World Development (17 HK): William Doo sold 2m New World shares at avg HK$10.074 
  • Powerlong Real Estate (1238 HK): Sept. contracted sales total 1.22B yuan 
  • Wealth Glory (8269 HK): Says Hong Kong anti-graft agency searched office 
  • Yuexiu Property (123 HK): Sept. contracted sales rise 19% to 2.56B y-o-y 



Analyst Ratings: 

SMBC Nikko Reit ratings:

GLP J-Reit (3281 JP): Cut to neutral 
Hulic Reit (3295 JP): Raised to outperform 
Invincible Investment (8963 JP): Cut to neutral 
Sekisui House Reit (3309 JP): Cut to neutral 

SPE initiations at Jefferies

New buys: Disco (6146 JP), Ulvac (6728 JP) 
New holds: Advantest (6857 JP), Hitachi Kokusai (6756 JP) 

  • Ajinomoto (2802 JP): Added to Goldman conviction buy list 
  • Don Quijote (7532 JP): Raised to buy at Haitong 
  • Kao (4452 JP): Cut to neutral at Goldman 
  • Lixil (5938 JP): Cut to neutral at Haitong 
  • Meiji Holdings (2269 JP): Raised to buy at Goldman 
  • Nippon Paint (4612 JP): Downgraded to hold from buy at Jefferies 
  • Sumitomo Trust (8039 JP): Rated new buy at Haitong 


  • Denka (4061 JP): Prelim. 1H oper. profit 9.5bn yen vs co. target 12bn yen; cuts full-year OP forecast 23% to 24bn yen 
  • Don Quijote (7532 JP): Sept. same-store sales up 2.6% 
  • FamilyMart UNY (8028 JP): Raises full-year oper. profit forecast 13% to 56.5bn yen, boosts sales guidance to 911.6bn yen from 410.3bn yen on merger; 1H OP down 6.5% y/y to 26.5bn yen 
  • Fanuc (6854 JP): To spend ~800m yen to boost capacity for robots to 6,000 units/month 
  • Hisamitsu Pharma (4530 JP): 1H oper. profit 12.9bn yen vs co. forecast 11.6bn yen 
  • Izumi (8273 JP): 1H oper. profit 17.3bn yen vs co. target 16.6bn yen 
  • Kyodo Printing (7914 JP): Prelim. 1H oper. profit 1.2bn yen vs co. guidance 700m yen 
  • Nissan (7201 JP): China Sept. vehicle sales up 26.3% y/y to 123,600 units 
  • Pal (2726 JP): 1H oper. profit 2.62bn yen vs co. forecast 3.73bn yen 
  • Plenus (9945 JP): 1H oper. profit 2.93bn yen vs co. forecast 3.5bn yen; trims full-year sales target 5.2% 
  • Ringer Hut (8200 JP): 1H oper. profit 1.36bn yen vs co. guidance 1.3bn yen 
  • Rohm (6963 JP): Prelim. 1H oper. profit 14bn yen vs co. forecast 7.6bn yen 
  • Rorze (6323 JP): 1H oper. profit 2.15bn yen vs co. forecast 1.63bn yen; boosts FY OP guidance 40% 
  • Toyota (7203 JP): China Sept. vehicle sales up 12.4% y/y to 104,200 units 


Analyst Ratings: 

  • Pacific Energy (PEA AU) raised to buy vs hold at Argonaut Securities 
  • Qube Holdings (QUB AU) rated new overweight at JPMorgan 
  • South 32 (S32 AU) cut to neutral vs buy at UBS 
  • BHP Billiton (BHP AU) cut to neutral vs buy at UBS 
  • Money3 (MNY AU) rated new buy at Bell Potter 
  • Sandfire Resources (SFR AU) raised to buy vs hold at Shaw & Partners 
  • Whitehaven Coal (WHC AU) cut to sell vs neutral at UBS 
  • SCA Property (SCP AU) raised to overweight from underweight at JPMorgan 
  • OZ Minerals (OZL AU) raised to neutral from sell at UBS 


  • Fonterra (FSF NZ) shareholders are due to vote on the co.’s planned changes to its governance 
  • Contact Energy (CEN NZ) annual meeting 
  • CSL (CSL AU) annual meeting 

Source: CIMB / Bloomberg 



UK PM Theresa May has accepted that parliament should be allowed to vote on her plan for taking Britain out of the European Union. Photo: iStock


– Edited by Susan McDonald

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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