Morning Report APAC: Equities rally runs out of steam
- USD buying interest continued overnight with the rally in US rates
- Risk-on sentiment dominates and precious metals are feeling the pressure
- China's CPI is likely to remain below the government's 3% target
- Broader moves in the US dollar will now be reflected in USDCNY
- Base metals have lost ground, while crude has hit fresh highs
By Saxo APAC Sales Trading
Economic data of the day (Singapore Time)
Speeches (Singapore Time)
- 2200: US – Federal Reserve’s Charles Evans discusses Economy and Policy Outlook
- 2210: US – Fed’s Robert Kaplan speaks in moderated Q&A in Dallas
- 0230 on Thursday: US – Fed’s James Bullard speaks on US economic outlook in St. Louis
Overnight news, bonds
- A significant technical break in the 10 year yield from a combination of heavy long positioning of Treasuries and an underestimation of future inflation pushed the 10 year Treasury yields to 2.55%.
- This was also combined with a very big new issuance calendar and the market is getting prepared for that: More than $60 billion in combined bond offerings by the US, UK, Japan and Germany are set to take place this week.
Overnight news, China
- China is suspending counter-cyclical factor in the yuan fix, which means that broader moves in the US dollar will be reflected in the USDCNY fix.
- Watch China's CPI number today with 1.9% expected YoY from 1.7% previously. China's CPI is likely to remain below the government's 3% target in 2018.
- USD buying interest continued overnight with the rally in US rates. That definitely makes the market more interesting and with the heavy positioning in high yielders, we might have a stronger knee-jerk reaction. But as we all saw last year, there could be a lot of false breaks.
- USDCNH was the main mover with the change in China's fixing mechanism for the yuan that could potential create more outflows onshore, but the PBoC managed to accumulate enough FX reserve to handle any move higher in the USD.
- Emerging Markets: USDEM is following the US yield move. It seems to be an important technical break in rates, so the thing to watch will be the reaction of all the robot advisors and algorithm funds that are long EM in general, and all the high yielders.
Foreign exchange movements
- Gamma in USDJPY was paid aggressively, because the vols are low in general. Note that there is no skew on vols and no direction was preferred.
- The market is caught short Gamma in USDCNH after China's change in its fixing mechanism, which generated some USD calls buying from funds.
- All the banks got given a decent amount of Vega (long dated Vols in G10 currencies). which pushed all the curves lower on the back end. But we have no idea who is behind the trade. The main currency that we heard about was AUD.
- US yields surged on amid signs of global tightening, with Japan joining the party to trim its regular bond purchases. Technical breakout also triggered selling of treasuries.
- Core European bonds dropped. Peripherals underperformed with heavy supply in focus this week.
- Boeing reported a record backlog of orders for commercial jets on Tuesday as demand in Asia-Pacific pushed the stock price higher. Boeing was up 2.67%, as the stock continued to set record highs since breaking the $300 psychological barrier last week.
- Gilead Sciences broke its key slant trend line resistance, with volume as the stock surge 4.97%, as the biotech company awaits a FDA approval (due February 12) for a new drug.
- Altice, a Netherlands-based multinational telecom company plans to spin off its US unit and simplify the indebted telecoms and cable firm's structure. The telco rose 10.5%.
Hong Kong equities
- Tencent once again broke its all time high with a gain of 1.2% and carry the Hang Seng index to a record level, as it broke 31,000.
- China Aoyun (3883.HK) signalled a positive profit alert, as it expects at least 75% in net profit year on year. The stock is off from a good start since the new year and has already gained close to 40% in this year.
– 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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