Article / 20 June 2016 at 2:13 GMT

Morning Report APAC: British voters to decide fate of forex, gold

APAC Sales Trading Desk / Saxo Capital Markets
  • Forex markets are focused on Thursday's Brexit
  • The US economy may only have one interest rate hike between now and 2018
  • St. Louis Fed president James Bullard put forward this single hike view
  • Oil rallied following USD selling on Friday, and corn rallied for the sixth day
  • Money managers boosted their net-long positions in gold futures and options 
  • If the stay camp wins on Thursday, expect huge gold selloff

By Saxo APAC Sales Trading

Economic data of the day (Singapore Time: GMT plus 8 hours)

1400: EUR – Germany PPI MoM (Exp. 0.3%, Prev. 0.1%), YoY (Exp. -2.9%, Prev. 3.1%)

Overnight news

  • US: Housing starts dropped to -0.3% from +6.6% the previous month (Exp. -1.9%)
  • Fed Speech : St. Louis Federal Reserve President James Bullard said the US might only need one interest rate increase through 2018. Bullard said his change in outlook in driven by a belief that the current path of modest growth is likely to continue. In a paper entitled The St. Louis Fed's New Characterization of the Outlook for the U.S. Economy’,  Bullard and his co-authors wrote that the upshot of their new approach “delivers a very simple forecast of US macroeconomic outcomes over the next 2½ years. Over this horizon, the forecast is for real output growth of 2%, an unemployment rate of 4.7%, and trimmed-mean PCE inflation of 2%. In light of this new approach and the associated forecast, the appropriate regime-dependent policy rate path is 63 basis points over the forecast horizon.”
  • Bullard also called for the Federal Reserve to do away with its practice of forecasting long-run values for economic growth and the target policy rate. The Fed's "dot plot" of projected interest rate policy "appears to be too steep. Fed funds futures markets do not seem to believe it. They are priced for a much shallower pace of increases," Bullard said.
  • "The Fed's actual pace of rate increases has been much slower than what was mapped out by the committee in the past. This mismatch between what we are saying and what we are doing is arguably causing distortions in global financial markets, causing unnecessary confusion over future Fed policy, and eroding credibility of the (FOMC)”

Foreign exchange


There was a lot of cross yen buying on Friday on a risk-on mode before the weekend, after a whole week of uncertainties about Brexit. The euro is again getting close to the top of the range at 1.14/1.15, with support at the 200 day moving average at 1.1100.

USDCAD traded lower on the back of oil higher and back at the 50 day moving average at 1.2856. Despite the rally in USDJPY, the main resistance that triggered the big move lower is at ¥105.50 and we should see offers there from the big funds

All USD/Asia traded much lower as well on the back of risk on mode, oil higher, with USDMYR, USDKRW, USSDBRL all lower 1% or more

Despite the risk on sentiment, vols remained well supported on Friday with a major event coming this week, the Brexit vote.



After the strong selloff in Yields last week in the Treasuries and Bunds, we saw some profit taking on Friday ahead of the week end and Bunds back in the positive territory.

Even the Peripherals recovered and Portugal yields dropped 9.7 basis points, Greece 12.5 bps, Italy 3 bps and Spain 4.2 bps







Equities closed the week in a volatile fashion, initially selling off at the start of the week as the “risk-off” sentiment prevailed and then reversed as the Bremain camp gained traction towards the end of the week. The S&P500 closed the week 1.19% lower, while the FTSE100 closed 1.55% lower week on week.

In terms of earnings reporting in the US we will see FedEx Corp, Adobe Systems Inc, Red Hat Inc, Accenture PLC, and BlackBerry Ltd in the headlines. Adobe is quickly becoming the first of the older software makers to make a complete transition to subscription-based cloud model with Q1 revenue split 77% from subscription and 15% from product. The stock is valued at 12-month EV/EBITDA 18.8 which is a 50% premium to S&P 500, but in our view the valuation is actually attractive given the revenue guidance and improving margins as Adobe has very little competition across its products such as Photoshop, Illustrator and Acrobat.

Over the course of the start of this week we should see equities trend higher given two catalysts (i) crude oil (light sweet) – which reversed six days of declines on Friday to close the day at $47.98/barrel, and (ii) GBPUSD , which has open sharply higher this morning as Brexit risks are subdued. GBPUSD is quickly becoming the new barometer for risk, as declining Brexit fears lead to a higher GBP which then acts as a leading indicator for the FTSE 100.

Volatilities are starting to stabilize with the VIX closing the week at 19.41 compared to a high of 22.89 on Thursday last week. In the absence of any more shocks (such as Brexit poll results) to the market we could possibly see a re-pricing of the GBP and an equity market recovery from here.



The credit Spreads recovered slightly yesterday following few days of risk off in the credit space.

Hong Kong equities preview

Analyst views

  • Air China (753 HK): H share rated new neutral, A shares rates new underperform at Credit Suisse.
  • China Southern (1055 HK): H shrs, A shrs rated new underperform at Credit Suisse.
  • Geely Auto (175 HK): Cut to equalweight at Morgan Stanley.

Company news

  • China Property: China May new home prices rise in fewer cities MoM vs April amid slower sales. NDRC officials held a seminar to survey opinion on Shanghai property market conditions and the impact from property-control policies (Business Herald).
  • HK Preperty: existing home px +0.35% WoW, hitting seven-week high (Centaline).
  • Apple (APPL US) has appealed the decision of a Beijing intellectual property regulator alleging co violated design patents of a Chinese competitor, Baili, sales of iPhone 6 and 6s have not been disrupted by the dispute accd to Apple.
  • PetroChina(857) CNPC transfers 624m a-shares (worths ~USD$683m) to Baosteel Group for free, upon completion, Baosteel will hold 0.34% of co (
  • Vanke (2202) said board has approved plan to issue shares to Shenzhen Metro for 15.88 yuan/share to acquire 100% of SZMC Qianhai Intl Dev; preliminary estimated value ~45.6bn yuan...China Resources doubted the legality of the board resolution due to director Zhang abstaining from voting.
  • PICC Group (1339) January-May premiums income +18.46% YoY to 227.5bn yuan.
  • PICC P&C (2328) January-May direct premium income +12.6% YoY to 132.0bn yuan.
  • Sichuan Express(107) May total toll income -0.1%YoY to 216mln yuan.
  • China Coal (1898) May production and sales vol of commercial coal -32.6% and -22.7% respectively.
  • Coolpad (2369) says Data Dreamland to sell about 11% stake at HK$1.90/share for $HK1.05bn, and company will no longer be its biggest shareholder.
  • China Minseng Bank (1988) gets CSRC approval to raise up to 30bn yuan in placement
  • China Citic Bank(998) gets CSRC approval for private placement.
  • CCB (939) plans to securitize 30bn yuan of non-performing loans.
  • Hang Seng (11) gets approval from CSRC to set up fund management joint venture in Shenzhen.
  • Hengan (1044) proposed spin-off and separate listing of the food and snacks business of the group on the main board.
  • SH Electric (2727) says SASAC approved share transfer to Guosheng.
  • Value Partner (806) announced May AUM approx. USD 13.3b, -24% YoY.
  • China Merchant Bank(3968) to open wholesale branch in London.

Japan equities preview

Analyst views

  • Bandai Namco (7832 JP): Downgraded to neutral plus from outperform at Mito Securities.
  • Don Quijote (7532 JP): Upgraded to neutral from sell at Haitong International.
  • J Front Retailing (3086 JP): Raised to buy from neutral at Daiwa.
  • Kyoei Steel (5440 JP): Upgraded to buy from neutral at Haitong International.
  • Nihon Dempa Kogyo (6779 JP): Downgraded to neutral from buy at Mitsubishi UFJ Morgan Stanley.
  • Toshiba Machine (6104 JP): Raised to overweight from neutral at Mitsubishi UFJ Morgan Stanley.
  • Toyota Boshoku (3116 JP): Upgraded to overweight from neutral at Mitsubishi UFJ Morgan Stanley.
  • Yokogawa Electric (6841 JP): Raised to outperform at Credit Suisse.

Company news

  • Chip-making equip. book-to-bill 1.04 in May versus 1.16 in April.
  • Asics (7936 JP): Cuts full-year oper. profit forecast 21% to ¥23bn; cites stronger-than-expected yen.
  • Idemitsu Kosan (5019 JP), Showa Shell (5002 JP): Idemitsu purchase of stake in Showa Shell delayed to September due to time needed for Japan FTC review.
  • Japan Tobacco (2914 JP): May domestic cigarette sales volume -4.5%; gets manufacturing approval for Genvoya in Japan.
  • Laox (8202 JP): To open store in Taiwan duty-free mall.
  • Mitsubishi Motors (7211 JP): To book ¥50bn charge to compensate buyers affected by falsified fuel-test data; confirms earlier Nikkei report.

Australia equities preview

Analyst views

  • CSR (CSR AU) raised to outperform vs neutral at Credit Suisse.
  • Woodside (WPL AU) raised to overweight vs equalweight at Morgan Stanley.
  • Santos (STO AU) raised to equalweight vs underweight at Morgan Stanley.
  • Caltex Australia (CTX AU) cut to neutral vs buy at Goldman Sachs.
People power ... if the stay camp wins on Thursday, expect a huge gold selloff. Photo: iStock

– Edited by Robert Ryan

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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