Article / 29 September 2016 at 1:51 GMT

Morning Report APAC: Energy shares rip in Asia

APAC Sales Trading Desk / Saxo Capital Markets


  • Asian stocks rise in early trade as MYR jumps 0.8% and oil at a three-week high
  • In early trade, WTI crude for November delivery up 0.7% to $47.38/b
  • Energy shares led gains on the MSCI Asia Pacific Index
  • The MSCI Asia Pacific Index gained 0.5% as of 0918 Tokyo time
  • Dollar Spot Index slips for a fourth day, While JPY is down 0.3%

By Saxo APAC Sales Trading

Economic data of the day (Singapore Time)


1435 – JPY – Kuroda speaks at Security Association Conference
1600 – EUR – Bank of Finland governor Liikanen briefing on monetary policy
2000 – GBP – BoE’s Forbes on panel at conference in Frankfurt
2020 – USD – Fed’s Lockhart speaks to the futures of Florida Forum 

Overnight news

Oil: Opec agreed to a preliminary deal that will cut production to 32.5 million to 33 million barrels/day for the first time in eight years. Many details still have to be worked out. Targets for each country won't be set until the next meeting at the end of November.

One thing is clear: Iran won't freeze output, Iran's oil minister Bijan Namdar Zanganeh said. The individual nation output limits will be decided at the next formal Opec meeting in Vienna on November 30. The invitation to participate in the production cut could also be extended to non-Opec countries such as Russia.

Federal Reserve: Fed chair Janet Yellen said in front of the House Financial Services Committee that the Fed Is focusing on reaching the 2% inflation target and not fixed timetable for raising rates but most Federal Open Market Committee members expect a rate increase this year and added:

“We expect to see solid job growth continue, but we do need, if things continue on their current course, to gradually remove the accommodation that is there,” Yellen said.

“Eventually continued job creation at that [recent] pace would cause the economy to overheat and would push the unemployment rate to levels lower than now,” she said.

The Fed is considering making to the annual bank stress tests. The tests would move to a more risk-sensitive, firm-specific approach that "would result in a significant aggregate increase in capital requirements” for the eight largest US banks.

Durable Goods Orders dropped to 0.0% from a downwardly revised 3.6% (expected -1.5%). Durables ex transportation dropped to -0.4% (expected -0.5%). The data show that companies are now starting to contribute to the overall economic growth with a pick up in equipment orders.

So far, only the consumer spending were driving the growth. The weakness in the headline number was largely attributable to a plunge in civilian aircraft orders, which fell by 22% in August, retracing from July’s strength, when orders in this category surged by 74%.   

Foreign exchange



The only movers overnight were the oil related currencies. CAD was the best beneficiary with USDCAD dropping 0.9% to go back in the middle of the range after failing to break the 200 Day Moving Average higher.

USDNOK started its move lower after the Norges Bank left the rates unchanged last week at 0.5% and was less dovish than expected and continued last night with the rally in oil dropping to the strong support of 8.0000.

In emerging markets, USDBRL dropped following the oil rally and is almost back to the 3.2000 support.  USDMXN is consolidating at 19.35 following the big drop after the Clinton – Trump debate.

Foreign exchange movements

We have seen a lot of buying interest in the 1M to 2M for EUR Put probably a hedge for the Italian referendum. We will come back to that once we get more information.

Gamma is selling off a lot ahead of the Chinese holiday next week. The long dated vols have been stable despite the big drop in forward points triggered by local banks. Probably a good time to buy long dated USDCNH upside.

The MAS date has been set  for October 14 and there has been some buyers of Gamma for that date. With the low CPI print in September, there is a small chance of easing. Vols are relatively cheap and the interest will grow once we get closer to the date.

Rates and credit markets


Rates: US 10-year Treasuries fell as much as 1.5 basis ponts to 1.541%, its lowest since September 8 before reversing as Opec's decision in Algeria to curb production sparked a late sell-off in Treasuries.

10 year US Treasury yield rose 1.4bps to 1.57%. and U.S treasury 2 year yields was also up 1.2bps to 0.754.

In a recent auction, 2 year German bunds were also sold at record-low yield of -0.70%.
Credit: The rally in equities driven by Deutsche Bank and the banking sector helped find some support in the bond market and the CDS indices all dropped. In Asia, the inflows in Indonesia with the tax amnesty is helping the inflows in the bond market






US stocks finally posted broad gains, pulled by Opec's production agreement. The S&P 500 climbed 0.5% to 2,171.37 with energy stocks standing out to lead the march with 4.3% rise.

Nike was down by 3.8% after it reported an 8% jump in quarterly sales however slowing future orders raised concern its stock price.

Tempur Sealy International, a mattress company, dropped 22.4% after it lowered its 2016 guidance by around 5% as sales in the current quarter were weaker than expected.

European stocks gained, attributed to a better performing banking sector, which was lifted as Deutsche Bank’s CEO John Cryan seemed to comfort the market. The STOXX 6000 index gained 0.7% to 342.57. In London the FTSE 100 firmed by 0.6% to 6,849.38.

Deutsche Bank recouped 2% after Cryan personally ruled out a possible capital call. In addition, the bank’s balance sheet received a boost after it sold its British insurance business Abbey Life for £935 million, which is estimated to boost the capital ratio by 10bps.

Royal Bank of Scotland advanced 1% after the bank agreed to pay $1.1bn to settle claims that it sold toxic mortgage-backed securities to credit unions that later failed.

Asia-Pacific equities round-up

Hong Kong
Analyst ratings

- China Harmony Auto (3836 HK): Rated new buy at China Securities
- Food: China corn sales more than double 2015 total: CNGOIC; China sells 37% imported wheat reserves on Sept. 28
- Insurance: Shanghai to study a H.K.-connect insurance program: News
- Nat. Gas: Gazprom-China deals unlikely before 2018: Petrochina Institue
- Steel: Crackdown on truck loading to bolster steel prices: Citi; China investment to raise Iranian steel output: Mehr
- Tourism: Transport Ministry sees 663m trips on road, waterway in national day holiday
- Beijing Shougang (000959 CH): Terminates ’major’ plan; to resume trading
- BOE Tech (000725 CH): Signs finance cooperation agreement with China Dev. Bank
- Cosco Shipping (600428 CH), Cosco Shipping Ports (1199 HK): $738m deal to expand U.A.E. port signed; parent may look at Hanjin terminal assets: Chairman
- FIH Mobile (2038 HK): Co. unit signs to buy Mango International shares for $53.3m
- GD Power (600795 CH): Unit to transfer 51.25% stake in Ningxia Younglight (600635 CH)
- Hesteel (000709 CH): Parent’s deputy GM Wang Hongren under probe
- Hua Han (587 HK): Downgraded to B1 at Moody’s
- Jinduicheng Moly (601958 CH) says chairman, GM to resign
- Mingyuan Medicare (233 HK): HKEx censures co. for failing to disclose a major transcation
- Shanghai Pudong Bank (600000 CH): Approves write-off of 6.46b yuan assets
- Sichuan Languang (600466 CH): To sell up to 8b yuan bonds in placement
- Sinopec Corp (386 HK): Names Wang Dehua as CFO
- Wasion Group (3393 HK): Co. mulls spinoff of water metering business in China
- Yuzhou Properties (1628 HK): Co. sells 3b yuan of bonds to repay debt
Analyst ratings

- Advantest (6857 JP): Raised to neutral at SMBC Nikko
- CyberAgent (4751 JP): Raised to overweight at JPMorgan
- Daido Metal (7245 JP): Cut to neutral at Tokai Tokyo
- Falco (4671 JP): Rated new neutral plus at Iwai Cosmo
- Kyudenko (1959 JP): Rated new buy at BNP Paribas
- Maeda (1824 JP): Rated new buy at BNP Paribas
- Sumitomo Dainippon (4506 JP): Rated new neutral plus at Iwai Cosmo
- Tachi-S (7239 JP): Cut to neutral at Ichiyoshi Research
- Tokuyama (4043 JP): Raised to neutral at Credit Suisse
- TV Asahi (9409 JP): Rated new neutral at Tokai Tokyo


- Hiday Hidaka (7611 JP): 1H oper. profit 2.56b yen vs co. forecast 2.42b yen
- Koito (7276 JP): To spend 8b yen to build plant in Brazil
- Mitsubishi Materials (5711 JP): To purchase Luvata unit for 35b yen
- Sega Sammy (6460 JP): Raises 1H oper. profit forecast to 14b yen from 6.5b yen
- Sharp (6753 JP): To repurchase Osaka building from NTT Urban for 13.9b yen
- Shizuoka Bank (8355 JP): Cuts 1H net income forecast 39% to 14b yen; to buy back up to 1.62% of shares for 10b yen
- Takeuchi Manufacturing (6432 JP): Prelim. 1H oper. profit 9.77b yen vs co. forecast 7.6b yen
- Tokuyama (4043 JP): To sell Tokuyama Malaysia to OCI, will book charge of ~8b yen


Analyst ratings:

- AGL Energy (AGL AU) raised to buy at Citi


- Z Energy (ZEL NZ) says program to divest sites is on track
- CBL Corp (CBL NZ) seeking NZ$60m from underwritten placement
- BHP Billiton (BHP AU) says Olympic Dam mine has restarted after South Australia power cut
- OZ Minerals (OZL AU) says Prominent Hill mine using back-up generators after South Australia power failure
- Pumpkin Patch (PPL NZ) FY result
- South32 (S32 AU) COO Grimbeek due to speak at business briefing in Perth

Information sources: CIMB / Bloomberg

Central bankers know that if OPEC can engineer a rise in the price of crude oil
then that will put an inflation pulse back into the global economy. Photo: iStock

– Edited by Adam Courtenay

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