Article / 29 September 2017 at 2:21 GMT

Morning Report APAC: Crude oil peaks, USD rally takes a breather

APAC Sales Trading Desk / Saxo Capital Markets
Singapore

 

  • Gold traded to its lowest level in a month on continued USD strength
  • Crude oil prices may have reached a temporary peak
  • Corn stockpiles have hit their highest level in 29 years

By Saxo APAC Sales Trading

Economic data of the day (Singapore Time)
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Speeches (Singapore Time)

  • 1830 - EC: IMF's Christine Lagarde Speaks at Bank of England Conference, London.
  • 2000 - UK: BoE deputy governor Jon Cunliffe  speaks at conference in Brussels.
  • 2300 -  US: Philadelphia Federal Reserve Bank President Patrick Harker Speaks at Fintech Event on Consumers and Banking.

Overnight news, US

  • GDP came in better than expected at 3.1% (Expected 3.0%). The upward revision from the 3.0% rate of growth reported last month reflected a slightly faster pace of inventory investment. Rebuilding after the Hurricane Harvey is expected to boost GDP growth in the fourth quarter and in early 2018.
  • Growth in consumer spending, which makes up more than two-thirds of the U.S. economy, was unrevised at a 3.3% rate in the second quarter as an increase in spending on services was offset by a downward revision to durable goods outlays. Consumer spending in the second quarter was the fastest in a year.

Overnight news, Spain, Catalonia

  • There is something that has been completely discounted by the market but could have a strong negative effect on the stability of Europe: the Illegal referendum that Catalonia wants to hold for independence.
  • The vote is the most serious political crisis facing Spain since it returned to democracy following the death of longtime military dictator Francisco Franco in 1975. The independence drive is fuelled by the belief that Catalonia and its tourist-mecca capital, Barcelona, give more than they get from Madrid, and that the region's unique culture and language are not respected by the Spanish state. The wealthy region, where 7.5 million of Spain's 46 million people live, accounts for approximately one-fifth of the country's economy. It is one of 17 semi-autonomous Spanish regions.
  • On Thursday, September 28, polic seized more than 6,000,000 ballots and envelopes and 100 ballot boxes in a Catalan town, in the latest bid to block a banned independence referendum, a police source said.
  • The political crisis that Spain could get after the vote might give ideas to other regions in Europe like Scotland, Corsica in France and so on.

 

 

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  • There was a strong breather for the USD rally following the release of the new Tax Reform plan. The market really wants to be long USD and believe in the higher yields, higher USD story. But it seems painful to sustain and a lot of fast money prefer to take any profit they can than holding the long USD position that might not materialize. That’s what happened in New York last night.
  • DXY  is back to 93.00 and is really not easy to trade and back to the middle of the long term range 92/94. We will need more info to have a better sense of the longer term direction.
  • USDJPY is still well above the 200 day moving average at ¥112.06 and the market has not given up on that long USD trade so far, but stop orders below that level are increasing.
  • Emerging Markets: USD also had a breather against EM currencies. USDKRW continues to be well supported above the 200 day moving average and the equity outflows from foreigners continues. Custodian banks are not very active yet buying USD but it could come soon. Exporters have been noticed selling USD just below 1150 in spot.
 

Foreign exchange movements
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  •  In Europe session we saw some buyers of EURUSD calls, with Friday expiry 1.1850 calls getting paid, but market ended offering vols again and grinded softer through New York session as well. We raised the day waiting on the announcement of the Japanese election to be held on October 22, which now has a forward o/n vol of 27%.
  • USDCNH spot higher again. Vols and skew not reacting. Both offered. It's all about positioning. Market seems to be long decent amounts of back-end risk reverals (long USD Calls).


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  • US 10 year yield attempt to move higher was halted yesterday as it was bought towards the end of the session.
  • 2.4% has always been the key psychological resistance level for the US 10 year. With US 10 year yields high correlation with USDJPY (with a correlation of 0.7), I will be cautious on betting the yield for US 10 year to move higher as the market could be overzealous and get caught out on the USD rebound. 

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Equities   

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  • US indices closed slightly higher as data on Thursday showed the U.S. economy expanded a bit faster than previously estimated in the second quarter. McDonalds also closed 2.2% higher on analyst upgrade and lifted Dow Jones yesterday.
  • Blackberry reported a surprise net income of 19 million and exceed market estimate after having reported loss in the same period last year. More importantly, BlackBerry's main business is now subscription-based and not recognized as revenue right away provides could provide more stability in share prices in future.
  • Drugmaker AbbVie jumped after it reached a deal with a competitor, Amgen that it would delay competition for its anti-inflammatory treatment Humira, the biggest-selling drug in the world. Furthermore, Amgen will require to pay Abbvie royalties on their copy of Humira. AbbVie closed 4.97% higher while Amgen nudged slightly higher to finish 0.31% higher.

Asian equities preview

Hong Kong analyst views

  • Logan Property Holdings (3380 HK): New Buy at Haitong Intl, PT $HK12.33.
  • China CYTS Tours Holding (600138 CH): China CYTS Tours Holding Cut to Hold at HSBC; PT 22.90 Yuan.
  • China Southern Air (1055 HK): China Southern Air H Shares Cut to Underweight at Morgan Stanley.
  • Sino-Ocean Group (3377 HK): Sino-Ocean Group Reinstated Buy at Goldman, PT $HK6.30.

Hong Kong stocks

  • Air China (601111 CH): Air China Looks to Expand Into the Import-Export Business.
  • Beijing Airport (694 HK): Beijing Capital Airport to Pay Parent Demolition Compensation.
  • BYD (1211 HK): BYD, China Resources Szitic Trust to Set up 4.65B Yuan Fund.
  • China Telecom (728 HK) Is Said to Add Goldman as Adviser Amid Oi Pursuit.
  • CK Hutchison (1 HK): PRICED: Northumbrian Water GBP300m 10Y UKT +98.
  • Cosco Shipping Dev. (2866 HK): Cosco Shipping’s Leasing Unit to Issue Asset-Backed Notes.
  • Country Garden (2007 HK) Entered Into 2.65b Yuan Assets Rights Pact.
  • DJE (002672 CH): Dongjiang Enviro Issues 1.38M A Shares in Incentive Scheme.
  • Esprit Holdings (330 HK): Esprit Grants Exclusive Distribution Rights in India to Myntra.
  • Great Wall Motor (2333 HK): Great Wall Motor to Buy Interest in Mining Rights in Australia.
  • Haitong (665 HK) to Add 100 Jobs in Hong Kong in Wealth Management Push.
  • HSBC (5 HK): Ex-HSBC Currency Trader’s Trial Delayed Due to Judge’s Illness.
  • Huaneng Power (902 HK): Huaneng Group Unit to Acquire 56.53% Stake in Taishan Power.
  • Huayu Auto (600741 CH): Koito Raises Net Income Forecast on Sale of Shanghai Venture.
  • ICBC (1398 HK) Luxembourg $850m, €1.1bn 3-Part Deal.
  • Shenhua (1088 HK) Cuts Coal Price at Northern Ports by 10 Yuan/Ton: News.
  • Sinopec (386 HK): China Issues 4th Batch Tolling Quota of 1.644M Tons: ICIS.
  • WH Group (288 HK): PRICED: Smithfield Foods Inc. $400mln 4y +115.

Japan analyst views

  • Anritsu (6754), Riken Keiki (7734): Rated new outperform at SMBC Nikko.
  • Credit Saison (8253): Raised to outperform from neutral at Tokai Tokyo Securities.
  • Daifuku (6383): Rated new outperform at Daiwa.
  • Okuma (6103): Raised to buy from neutral at Okasan Securities.
  • Ono Pharma (4528): Raised to buy at Citi.
  • Opt Holding (2389): Downgraded to neutral from positive at Storm Research.
  • Unipres (5949): Rated new buy at Goldman.
  • Sumitomo Electric (5802): Raised to outperform at Credit Suisse.
  • Yamaha Motor (7272): Rated new neutral at Okasan Securities.

Japan stocks

  • Aeon Fantasy (4343): Prelim. 1H operating profit ¥2.54bn vs earlier forecast ¥1.8bn.
  • Azbil (6845): Boosts 1H operating profit forecast 26% to ¥7.3bn.
  • Casinos: Openings may wait until 2025, BI says.
  • Genki Sushi (9828), Sushiro (3563): Cos. to merge in capital tie-up with rice wholesaler Shinmei, Nikkei says.
  • Hikari Tsushin (9435): Taking 1.86% stake in Yamashita Medical (3022) in business, capital tie-up.
  • Koito Manufacturing (7276): Cuts full-year operating profit forecast 4.2% to ¥92bn; raises net income target on sale of stake in Shanghai venture.
  • Kose (4922): 1H operating profit ~26b yen vs co. forecast ¥19bn, likely to raise full-year guidance Nikkei says.
  • Leopalace21 (8848): To retire 4.08% of shares on October 31.
  • Star Micronics (7718): 1H operating profit +27% to ¥2.29bn.
  • Tokyo Century (8439): To buy 20% stake in Aviation Capital for $595mln, Nikkei reports
  • Toshiba (6502): Signs final agreement to sell memory chip ops to Bain group for ~¥2trillion; group also includes Apple, Dell, SK Hynix, Seagate and Hoya (7741); Bain said to be planning to take unit public 2-3 years after closing deal.
  • Toyo Tire (5105): To invest 21b yen in Malaysia unit, ¥14bn in North America unit.
Australia analyst views
  • Kore Potash (K2P): New Speculative Buy at Canaccord, price target $A0.37.
  • Costa (CGC): Raised to Neutral at JPMorgan, PT $A5.01.
  • Aspen Group (APZ): Singapore Listing New Add at CIMB, PT $S0.29.

Australia stocks

  • BHP Billiton (BHP): Top Iron Ore Miners to Boost Cargoes 5.3% This quarter: Bernstein.
  • CSL (CSL): CSL Behring Says Japan Ministry of Health Approves AFSTYLA.
  • Prime Media (PRT): Gordon Is Said to Build Prime Media Stake to Just Under 15%: AFR; Prime Media Block Trade of 39.4m Shares Crossed at $0A.40 Each.
  • Qantas (QAN): Flights Delayed Around Globe as Amadeus Booking System Fails.
  • ResMed (RMD): F&P Healthcare Says German Court Suspends Patent Proceedings.
  • Rio Tinto (RIO LN): Iron Ore Hit as Investors See Lower China Demand, Rising Output.
  • Westpac (WBC): Is Said to Put Ascalon Sale on Hold: Australian.


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US corn stockpiles have hit their highest level in nearly three decades following a drop in exports.  Photo: Shutterstock

 
– Edited by Robert Ryan


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