Morning Report APAC: Dovish Fed drives US stocks lower, Asia to follow
- Copper rose after China said it would build reserves in base metals
- Gold prices are approaching psychological resistance at $1300/oz
- Gold is likely to keep rising, due to Brexit fears and German bond trading
- Oil dipped on concerns that higher prices would encourage more US output
- Treasury yields sank to 3½-year lows after the Fed left rates unchanged
By Saxo APAC Sales Trading
Economic data of the day (Singapore Time; GMT+8)
0645: NZD – GDP SA QoQ 1Q (Act. 0.7%, Exp. 0.5%), CPI YoY (Act. 2.8%, Exp. 2.6%)
0930: AUD – Employment Change (Exp. 15k Prev. 10.6k)
0930: AUD – Unemployment Rate (Exp. 5.7%, Prev. 5.7%)
1.00: JPY – Bank of Japan Annual Rise in Monetary Base (Exp. JPY 80 Trn, Prev. JPY 80 Trn)
1100: JPY – BoJ Policy Rate (Exp. -0.10%, Prev. -0.10%)
1100: JPY – BoJ Monetary Policy Statement
1630: GBP – Retail Sales Ex Auto Fuel MoM (Exp. 0.3%, Prev. 1.5%), YoY (Exp. 3.8%, Prev. 4.2%)
1630: GBP – Retail Sales Incl. Auto Fuel MoM (Exp. 0.2%, Prev. 1.3%), YoY (Exp. 3.9%, Prev. 4.3%)
1700: EUR – Eurozone CPI MoM (Exp. 0.3%, Prev. 0.0%), YoY (Exp. -0.1%, Prev. -0.1%), Core CPI (Exp. 0.8%, Prev. 0.8%)
1900: GBP – BOE Asset Purchase Target (Exp. 375B, Prev. 375B)
1900: GBP – Bank of England Bank Rate (Exp. 0.5%, Prev. 0.5%)
1900: GBP – BoE Inflation Report
2030: USD – Initial Jobless Claims (Exp. 270k, Prev. 264k), Continuing Claims (Exp. 2,140,000, Prev. 2,095,000)
2030: USD – CPI MoM (Exp. 0.3%, Prev. 0.4%), CPI ex Food and Energy (Exp. 0.2%, Prev. 0.2%)
2030: USD – CPI YoY (Exp. 1.1%, Prev. 1.1%), CPI ex Food and Energy (Exp. 2.2%, Prev. 2.1%)
IDR – Bank Indonesia Reference Rate (Exp. 6.75%, Prev. 6.75%)
IDR – Bank Indonesia Deposit Facility Rate (Exp. 4.75%, Prev. 4.75%)
IDR – Bank Indonesia Lending Rate (Exp. 7.25%, Prev. 7.25%)
IDR – Bank Indonesia 7D Reverse Repo Rate (Exp. 5.50%, Prev. 5.50%)
1440: JPY – Bank of Japan Governor Haruhiko Kuroda may speak following rate announcement
FOMC: The Federal Reserve decided to keep the rates unchanged at 0.25% (Lower Band) and 0.50% (Upper Band) as expected and signalled it still plans two rate increases in 2016, but lowered its economic growth forecasts for both 2016 and 2017 and lowered tightening projections in the medium term. Chairman Janet Yellen said:
- "It was fair to say that [“Brexit” concerns] was one of the factors that factored into today’s decision"
- "the pace of improvement in the labour market has slowed while growth in economic activity appears to have picked up (This is a complete reversal from their April statement)
- "The [Fed] expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate"
- "No meeting is out in terms of a possible rate increase, but we really need to look at the data and I can’t pre-specify a timetable"
- "It’s not impossible that by July we would see data that we’re on a perfectly fine course"
New forecasts show officials expect the federal funds rate to sit at 0.875% by the end of this year. That forecast implies two rate increases by December, the same number of increases officials saw back in March. However, an increased number of officials now see just one increase taking place, rather than two. In March, just one official forecast a single rate increase in 2016, and seven saw three or more. Now, six officials forecast one increase in 2016, and only two see three or more hikes.
The Federal Open Market Committee also forecast the fed-funds rate at 1.625% by the end of 2017 and 2.375% at the end of 2018, lower than the quarterly projections officials released in March (see charts below). Back then the median estimate for rates in 2018 was 3%. In the longer run, the Fed expects its benchmark rate to reach 3%, lower than the 3.25% they saw in March. The Fed slightly reduced its estimate for 2016 economic growth to 2% from 2.2% in March and edged down its 2017 growth projection by 10 bps to 2%. The Fed raised its inflation projection to 1.4% from 1.2%, but held to most of its other projections
It was an unanimous vote. Kansas City Fed President Esther George, who dissented in March and April in favour of a rate increase, voted with the majority.
The Fed median outlook from the dot plot now shows cumulative hikes to 2.375% by 2018, up from 3.00% previously
- Indicates 50 basis points in 2016 to 0.75-1.00% range, unchanged
- 75 basis points in 2017, from 100 bps previously, to 1.625% vs 1.875%
- 75 basis points in 2018 vs 112.5 bps previously, for a 2.375% year end 2018 rate from 3.00%
US producer prices rose for a second successive month during May. The producer-price index for final demand rose a seasonally adjusted 0.4% MoM (Exp: +0.3%) as energy prices surged 2.8% and trade service prices rose 1.2% increase in May. Core prices, ex-food, energy and trade, dipped 0.1% MoM (Exp: +0.1%) to partly reverse the 0.3% increase in April.
New Zealand: GBP was higher than expected at 2.8% YoY (Exp. 2.6%) and 0.7% MoM (Exp. 0.5%). Oil and gas extraction and coal mining declined while farm production was flat as dairy offset a drop in sheep/beef output. Goods producing industries rose 1.5% as construction gained most since 1Q 2014, rising 4.9%.
The US dollar sold off after the dovish Janet Yellen speech and DXY dropped 0.37% and pushed by the US yields lower. EUR is in a middle of wide range from the 200 day moving average at 1.1100 and the resistance band that we have seen all year at 1.14/1.15.
Better than expected New Zealand GDP figure released this morning is pushing AUDNZD lower and closer to the lows of the year at 1.0400 (currently trade at 1.0477).
USDJPY dropped as well in line with the rest and remains offered closer to ¥105.
USD/Asian currencies also traded lower in New York, with USDKRW the best performer, dropping to 1167 in the 1M from a high yesterday at 1180. USDCNH also managed to drop after strong bidding interest; it is now trading at 6.5910 with forward points stable due to a flush in liquidity in the short end.
Treasury yields sank to fresh 3½-year lows after the Fed left interest rates unchanged, signalled a gradual path to tightening monetary policy and took a cautious stance on the outlook for the economy. The two-year note yield slumped 5.2 basis points to 0.67%. The 10-year bond yield is falling 3.8 bps to 1.575%.
Bunds yields continue to trade lower down 1 bps. For once, it was quiet on the peripherals side
The Dow Jones Industrial Average shed 34.65 points, or 0.2%, to 17,640.17. The S&P 500 dipped 3.82 points, or 0.2%, to 2,071.50 (H: 2,085.65; L: 2,069.80).
Losses in utilities (-0.7%) and healthcare (-0.7%) led the way lower. Materials (+0.4%) and discretionary (+0.3%) posted the best performances. The Nasdaq eased 8.62 points, or 0.2%, to 4,834.93.
The reversal of risk-off sentiment prevalent at the start of the week was evident as the VIX closed lower at 20.14.
The rest of the market actually followed the treasury yields and bonds rallied overnight pushing lower CDS indices.
Hong Kong equities preview
- China Shenhua (1088 HK) cut to hold at Jefferies.
- Shanghai Shimao (600823 CH) rated new neutral at Macquarie.
- Tsingtao Brewery (168 HK) cut to ’reduce’ at Guotai Junan.
- CH Taiping (966) January-May life insurance prem +17.6% YoY to 52.6bn yuan vs Jan-Apr +18% YoY. P&C insurance prem +19.9% YoY to 7.57bn yuan.
- Ping An (2318)’s board of directors agreed to list Ping An Sec in HK after some restructuring.
- Everbright (165) to sell the remaining 49% stake in Everbright Sec (Intl.) to its subsidiary with a consideration of $HK930mln.
- CH big four banks: Apr new RMB loan at RMB171.9b according to PBoC data release.
- BEA (23)’s non-executive director Stephen Li sold 37,600 shares on June 13.
- SHK PPTY (16) offers homeowners loan up to 120% (SCMP)
- Southern Airlines (1055) May passenger traffic +9.72% YoY, of which domestic routes +3.74% YoY, regional routes +16.05% YoY and international routes +30.09% YoY.
- CNOOC (883) appointed Yang Hua as the CEO after Li Fanrong’s resignation.
- Alibaba (BABA) cloud expands its SGP data centre. They also achieved certifications of MTCS Highest Security Tier and PCI-DSS Download Print SGP.
- CH City Constr. (711) FY NI +195% at HK$301m. Rev +27% at $HK8.5bn.
- Yuzhou (1628) is said to seek $300mln 3.5y financing.
- Melco(MPEL US) Crown Resorts will spin off its international investments, including a $2 bn stake in Macau casino operator Melco.
- Crown Entertainment Ltd; stock +4.8%
Japan equities preview
- Hitachi Kokusai (6756 JP): Raised to buy from neutral at Mizuho.
- Nagoya Railroad (9048 JP): Rated new outperform at Tokai Tokyo.
- Nippon Ceramic (6929 JP): Rated new outperform at Iwai Cosmo.
- Nitto Denko (6988 JP): Downgraded to underweight from neutral at Mitsubishi UFJ Morgan Stanley.
- Foreign visitors to Japan rise 15.3% in May (see monthly trend).
- Hioki EE (6866 JP): Cuts full-year oper. profit forecast 22% to ¥2.62bn; lowers planned 1H dividend to ¥20/share from ¥25.
- Kakaku.com (2371 JP): To buy back up to 0.78% of shares for as much as ¥3bn.
- Nousouken (3541 JP): Begins trading on Mothers after IPO priced at ¥1,050.
- PeptiDream (4587 JP): To receive milestone payment from Bristol-Myers, may be eligible for additional payments.
- SoftBank (9984 JP): Expects gain of ¥200bn-¥250bn on previously announced sale of some Alibaba shares.
Australia equities preview
- Crown Resorts (CWN AU) plans to spin off its international investments.
- James Hardie (JHX AU) corp family raised to Ba1 from Ba2 by Moody’s.
- BHP Billiton (BHP AU), Exxon examining sale of Australian oil and gas assets.
- Trilogy International (TIL AU) announces NZ$50m capital raising at NZ$3.70/shr; plans to seek ASX listing.
- GrainCorp (GNC AU) investor day.
- Elders (ELD AU) shrs halted for capital raising and hybrid buyback.
- JB Hi-Fi (JBH AU) raised to overweight versus equalweight at Morgan Stanley.
- Dexus Property (DXS AU) raised to neutral vs sell at UBS.
- GrainCorp (GNC AU) raised to neutral vs sell at UBS.
- Medibank Private (MPL AU) cut to underweight at Morgan Stanley.
- Surfstitch Group (SRF AU) cut to underweight at JPMorgan.
– Edited by Robert Ryan
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