Morning Report APAC: CNY/CNH spread back at par, oil slips below $30/b
- Crude oil dipped below $30/barrel for the first time since 2003
- There are no signs of a crude price recovery, with higher US inventories expected
- The PBoC is trying to dry up liquidity to stop the CNH selloff
- The selloff in the commodities looks set to continue in the near term
- The price of gold has edged down on profit taking
By Saxo APAC Sales Trading
Economic data of the day (Singapore Time)
0500: KRW – Export Price Index Dec MoM (Prev. -1%), YoY (Prev. -8.6%),
0500: KRW – Import Price Index MoM (Prev. -1.7%), YoY (Prev. -15.6%)
0700: NZD – QV House Prices YoY (Prev. 15%)
0700: KRW – Unemployment Rate (Exp. 3.5%, Prev. 3.4%)
0750: JPY – Money Stock M2 YoY (Exp. 3.3%, Prev. 3.4%), M3 YoY (Exp. 2.7%, Prev. 2.7%)
1000: CNY – Trade Balance (Exp. $51.3B, Prev. $54.1), Exports YoY (Exp. -8%, Prev. -6.8%), Imports YoY (Exp. -11%, Prev. -8.7%)
1545: EUR – France Current Account Balance Nov (Prev. -1.4B)
1545: EUR – France CPI MoM (Exp. 0.1%, Prev. -1.2%), YoY (Exp. 0.1%, Prev. 0.0%)
1800: EUR – Industrial Production MoM (Exp. -0.3%, Prev. 0.6%) YoY (Exp. 1.3%, Prev. 1.9%)
2000: USD – MBA Mortgage Applications (Prev. -11.6%)
INR – Bank of Indonesia Reference Rate (Exp. 7.38%, Prev. 7.5%)
1900: EUR – ECB Exec Board Lautenschlager speaks in Frankfurt
2120: USD – Fed’s Rosengren speaks on Economic Outlook to Boston Chamber
- Oil: Oil prices plunged another 2% (as low as -4% to -5%) on Tuesday with prices falling below $30/barrel for the first time since 2003.
- China: China’s foreign exchange regulator has verbally instructed some banks operating in the mainland to limit yuan outflows and reduce offshore yuan positions and liquidity. Banks are asked to better manage net yuan outflows in their capital accounts in the near term. Banks are also requested to properly manage cross-border interbank yuan borrowing and corporate offshore yuan lending.
- Fed: Fed. Reserve Lacker said current strength of US economy, particularly “robust” consumer spending growth, “is a powerful argument” for higher rates.
Despite the drop of oil overnight, commodities currencies hold well overnight with the Australian dollar on a small consolidation mode at the lows. Any rally should be seen at an opportunity to sell. The first small resistance is at 0.708 and the next one at the 100d MA at 0.7158. The NZ dollar is attempting to confirm a break below the 100 day moving average at 0.6588 and we should see a deeper move lower in the near future.
USDCAD is the one currency not really consolidating and pushing higher with the new lows seen in oil, but the move has really decelerated for the past few days and an improbable rally in Oil but possible could push USDCAD lower. Most of the market is expecting a first target of 1.4500 on the upside. Watch 1.4000 as a support level.
USDCNH had a quiet day in spot yesterday but not in the forward market with HIBOR exploding higher to 66% and T/N forward points moving to above 200 to collapse toward the end of the day at 55. The spread Onshore Spot to CNH traded flat yesterday from +1400 pips on January 6. So today: watch fixing, which has been stable for the past few days and is equivalent to an intervention from authorities and the forward points. As noted in the news above, the PBoC is trying to dry up the liquidity to stop the selloff of CNH.
USDKRW is consolidating at the highs of the year and last year with no reaction to the CNH move. There is possibly smoothing at this level from BOK but we can easily see USDKRW moving much higher from here if it’s not a false break as we often see in KRW.
The rest of Asian currencies have the same pattern and are consolidating close to the highs. Indonesia continues to outperform its peers with equity and bond inflows and the currency which trades at the range 100d/200d MA.
USDCNH risk reversal are trading higher (favours USD calls) but ATM vols stayed stable and we see interests again from funds to buy again USD calls at this level. We need to watch how the fixing will print today but it seems we have found some kind of support in Spot at 6.5750.
USDJPY have been selling off with USDJPY back to the 118 level again.
An out of consensus trade following our comments in the above section is to start buying USD puts in USDCAD. If not for a directional view, at least for protection. I would have thought that USDCAD should have been already at 1.4500 with oil below $30/b, but it’s not so we can see consolidation here and probably stops.
Rates had a roller coaster ride overnight with yields eventually closing lower. Heavy bond issuance in Europe initially pushed yields higher before further falls in commodities trimmed earlier gains. Core European government bond yields finished largely unchanged, except the 10 year Gilt that fell 3 bps to 1.75%. Meanwhile, Money flowed into US government bond markets ahead of scheduled Treasury note supply that kicked off today with the 3-year auction. The US benchmark 10-year yield fell below 2.10% for the first time since late October.
Note: Commodity price weakness remains a focal point, with Commodity Research Bureau (CRB) Index hitting a new 14 year low overnight (down 1.3% and -8% yoy). The broad selloff in the commodities looks set to continue in the near term until the market finds a new equilibrium.
The reduced volatility in Chinese equities led to a positive start to the European session. However, gains were trimmed as commodity prices came under pressure; with the theme continuing in the US. Major markets still closed the day slightly up with Europe seeing gains between 1 to 1.6% and US markets up 0.5-1%. Although confidence does appear to be fragile.
The energy sector saw another bad day with oil settling modestly above $30/barrel and talk of liquidations ahead of bankruptcies. Oil service/E&P names fared the worst while majors like Exxon and Chevron held up better on the notion their dividends will remain safe.
A slew of earnings have started to come out with earning season well under way. First up was Alcoa (-10%) who reported a quarterly profit of 4 cents per share, 2 cents above estimates, though revenue was slightly below forecasts on sliding aluminum prices.
Of note: Apple was up (+1.7%) as Bank of America upgraded the name to a "buy" from "neutral" with a price target of $130, saying concerns over reduced iPhone production are already reflected in the stock's price and that Apple could be primed for a bullish cycle involving an upgraded Apple watch and a possible new iPhone.
China CDS saw some buying yesterday following the uncertainty surrounding the currency and the goal set by PBOC for the market. Expect the curve to be well supported in the CDS market
- China Merchant( 144) to acquire 26.67% stake in Dalian Port for $HK4.3billion Co. agreed to pay $HK3.67 per share for nearly 1.2b Dalian Port shares, purchase price is 2.9% discount from the year to date close at $HK3.78
- PICC P&C (2328) terminated potential transaction w/ PICC group with regards to subscription of Vision Values Holdings (862) shares.
- Dah Sing (440) is exploring options for its life-insurance businesses and could lead to a sale worth of more than $1bn.
- CRRC (1766) enters contract in purchasing 13.06% interests in China United Insurance for 4.46bn yuan.
- MTR(66) David Webb siad MTR has very little net debt (9.1%), and for years it has operated with far more capital than it needs, dragging down the rate of return on equity for investors. He suggests MTR should pay out $HK11/share dividend, rather than currently proposed $HK4.4.
- BOC(3988)'s vice president, Zhang Jinliang, is poised to replace Zhao Huan as the new president of Everbright Bank
- Sinotrans (598) proposes to Issue 1.5bn yuan ultra short-term debentures for a term of 270 days; fund raised would be used to satisfy the working capital need.
- CK PPT(1113) executive director, Justin Chiu, said the company sold over 3,900 flats in 2015, sales reaching HK$31.7b. He believes that HK home prices would linger at a 10% range amid a challenging yr in 2016.
- CR Land (1109) Dec contracted sales -22% YoY to RMB7.03b while 2015 total contracted sales to RMB85.15b
- Shenzhen Invest (604) Dec Contracted Sales +66.8% MoM, -36.9% YoY to approximately 694mln yuan.
- Xinyi Glass(868) continues to buy back 7.066mln shares (~0.18% of issued shares) at $HK4.26 to $HK4.33 for HK$30.3mln on January 12.
- Harbin Electric (1133) and China First Heavy Industries (CFHI) are expected to carry out restructuring, and the proposals are in the preparatory stage (China Business News)
- Ajisen (538) 3M HK’s SSS -0.1% YoY and China's SSS also -6.6% YoY
- TCL(1070) issued positive profit alert for Q4 2015, swings to profit from loss of $HK440m in Q3.
- Asahi (2502): To consolidate non-alcoholic beverage operations in Australia and spend about ¥8.6bn to upgrade equipment.
- JFE (5411), Toyo Construction (1890): Won a ¥14bn order to build port facilities in a special economic zone near Yangon, Myanmar.
- Sharp (6753): Samsung considering an investment in co venture Sakai Display Products if Hon Hai exits the venture.
- Nissan (7201): To battle back against the emergence of car-sharing with more connected vehicles that drivers can personalize, according to CEO Ghosn, who downplayed the impact Uber and Lyft will have on the car business.
- Nintendo (7974), Sony (6758): GameStop said holiday new hardware sales rose 4.5% YoY while new software sales fell 9.7% YoY. PlayStation4 and Xbox One combined software sales were up 38% while Nintendo software sales fell due to availability of fewer titles.
- Itochu (8001): Masahiro Okafuji to remain president.
- Chubu Electric (9502): To cut household rates as much as 5% and commercial rates as much as 7% after the April deregulation.
- Hito Communications (3654): To split stock two-for-one on February 1.
- Hirakawa Hewtech (5821): To split stock two-for-one.
- Toho (9602): To buy back up to 0.54% of shares for as much as ¥4bn.
- Oriental Land (4661): Nikkei sees 9 month OP of about ¥90bn, roughly flat YoY.
Sources: CIMB and MS
Oil prices have dipped to a fresh low, and there is no end in sight to the price slide, given an expected rise in US inventories. 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. Join our Global Market Call daily at 1540 SG time.
Please contact us for any market updates:
- Sales Trading Team: +65 6303 7818
- Christopher Moltke-Leth - email@example.com
- Christin Tan - firstname.lastname@example.org
- Lakshmi Thurai - email@example.com
- Tareck Horchani - firstname.lastname@example.org
Global Macro Strategist:
- Kay Van-Petersen – email@example.com
All material contained herein is provided for your general information. The information and commentaries are not intended to be and do not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort offered or endorsed by Saxo Capital Markets Pte. Ltd. (“SCM SG”). Any expression of opinion (which may be subject to change without notice) is personal to the presenter and/or author; they do not reflect the view or opinion of SCM SG or its affiliates, neither do they constitute an endorsement of SCM SG’s view or analysis of the same.
None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. SCM SG does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment based on any commentaries or information provided here.
For further information, please click here.
Saxo Capital Markets Pte Ltd ("Saxo Capital Markets") is a licensed subsidiary of Saxo Bank A/S, an online trading and investment specialist. Saxo Capital Markets serves as the APAC headquarters and holds a capital markets services licence under the Monetary Authority of Singapore; and a commodity broker licence issued by the International Enterprise Singapore. Clients can trade Forex, CFDs, Stocks, Futures, Options and other derivatives via SaxoWebTrader and SaxoTrader, the leading multi-asset online trading platforms.
Trading risks are magnified by leverage - losses can exceed your deposits. Trade only after you have acknowledged and accepted the risks. You should carefully consider whether trading in leveraged products is appropriate for you based on your financial circumstances. Please consider our Risk Warning and General Business Terms before trading with us. Please see full General Disclaimer.
Thousands of serious traders receive free news and analysis from Saxo Capital Markets each day. Saxo Capital Markets never sends these emails unsolicited; they are sent following acceptance of your membership and subscription request by Saxo Capital Markets at saxomarkets.com.sg. If you do not wish to receive any emails from Saxo Capital Markets in the future, please reply to this email with the word "UNSUBSCRIBE" in the subject header.
Samsung Hub | 3 Church Street | # 30-01 | Singapore 049483
Company No. 200601141M