Morning Report APAC: Equities take a breather following robust rally
- Gold prices rose on Wednesday, buoyed by the softer dollar
- The GBP fell overnight; a cut is expected at the Bank of England meeting today
- Copper surged to its highest since April on hopes of increased demand for metals
- Iron ore extended its climb towards a 10-week high in China
- WTI crude sank on bearish US inventory data and a warning of an oil supply glut
By Saxo APAC Sales Trading
Economic data of the day (Singapore Time; GMT+8)
0800: SGD – GDP YoY Q2 (Act. 0.8%, Exp. 0.9%), YoY (Act. 2.2%, Exp. 2.2%)
0900: KRW – Bank of Korea 7-Day Repo Rate (Exp. 1.25%, Prev. 1.25%)
0930: AUD – Employment Change (Exp. 10k Prev. 17.9k)
0930: AUD – Unemployment Rate (Exp. 5.8%, Prev. 5.7%)
1900: GBP – Bank of England asset purchase target (Exp. £375bn, Prev. £375bn)
1900: GBP – Bank of England Bank rate (Exp. 0.25%, Prev. 0.5%)
1900: GBP – Bank of England inflation report
2030: USD – Initial Jobless Claims (Exp. 265,000, Prev. 254,000), Continuing Claims (Exp. 2,130,000, Prev. 2,124,000)
2030: USD – PPI Ex Food and Energy MoM (Exp. 0.1%, Prev. 0.3%), YoY (Exp. 1.0%, Prev. 1.2%)
IDR – Indonesia Foreign Reserves (Prev. $103.60bn)
2315: USD – Fed's Lockhart Speaks on Economy in Idaho
Friday, 0115: USD – Esther George, president and chief executive officer of the Kansas City Federal Reserve, speaks on US economy in Oklahoma City
- US Import prices rose less than expected in June to 0.2% (Exp. 0.5%) despite the fact that Petroleum import prices rose 6.4% and natural gas 5.2%. However, ex-energy prices for all other goods fell 0.3% in their largest decline since December. Prices for food, machinery and consumer-related products all fell. U.S. export prices rose 0.8% MoM to post their third straight monthly increase.
- The federal government delivered a budget surplus of $6.3bn (Mkt est: +$19bn) during June, well down from the $50.5bn surplus enjoyed a year ago. Nonetheless the overall budget deficit widened to its highest level in two years, as revenue growth continued to slow. Over the past year, the deficit increased 20.6% to $523bln. In the 12 months through June, the deficit represented 2.9% of gross domestic product, up from 2.6% through May, and the highest level since March 2015.
- According to the Beige Book, the US continued to expand at a modest pace from mid-May through the end of June. Employment continued to grow modestly, with strong demand for skilled labor. Consumer spending showed signs of softening. Inflation pressures outside of wages “remain slight. Factory activity was “mixed but generally improved across districts. Residential real estate activity strengthened from earlier in the spring, with home sales increasing despite limited inventory. Commercial real estate activity was stable or improved in almost all districts. Wage pressures were "modest to moderate" in most of the central bank's districts and price pressures remained slight.
- Dallas Federal Reserve President Robert Kaplan said a "slow, gradual, careful" approach to raising interest rates is appropriate as the US central bank deals with global headwinds. Kaplan said the Fed needs to calibrate monetary policy more cautiously now than it did five or six years ago in the face of China's economic slowdown, the possible impact of Brexit on global and US economic growth, and other global threats. "Accommodation should be removed only in a slow and patient manner".
- The Bank of Canada kept the rates on hold at 0.5% as expected and said that climate of heightened uncertainty" exists, primarily due to the U.K. referendum, which is likely to weigh on the decision-making processes of businesses and households. However, a projected increase in rising global demand -- particularly in the U.S. -- will help bolster the Canadian economy
- The BoC sees real GDP contracting by about 1.0% in Q2, which followed a 2.4% increase in 1Q in large part due to even weaker expectations for business investment and exports. The BOC sees economic growth advancing by 3.5% inQ3 amid the resumption of oil production and restorative efforts commencing in the wake of the Fort McMurray wildfires.
- The BoC sees CPI to be 1.6% in 2016, and price gains are expected to average close to 2.0% in 2017 amid a narrowing output gap.
- Theresa May fired George Osborne, the chief strategist of outgoing prime minister David Cameron’s administration and the architect of his flagship austerity policies, as finance minister. She replaced him with Philip Hammond, the former foreign secretary.
- Prominent pro-Brexit figure Boris Johnson was named foreign secretary. David Davis was assigned the task of overseeing Brexit negotiations, and Liam Fox will have to negotiate new trade deals.
USDCAD came off as the market after the BoC meeting, which kept rates unchanged. The market had concerns about financial stability and property prices but despite a downgrade in growth forecasts, BoC didn’t mention anything about property prices and prefered to keep its ammunition dry. The market had been expecting a more bearish BOC. USDCAD is now again testing its 100 day moving average at 1.2982. Expect more stops on the downside if we manage to close the day below that level
UK rates and GBP fell overnight as we saw fresh selling interest from funds to go short ahead of the Bank of England meeting today where a cut is expected. Most market players still believe that the upside is very limited for GBPUSD and the market is again targeting 1.3000 and below. We are already pricing 80% chance of cut though so the first reaction after the rate cut could be painful
After the unexpected rate cut by Bank Negara Malaya yesterday, the market started to get paid first pushing USDMYR at 4.0100 and then we saw a big collapse to 4.9400 at the lows on the expectation that this rate cut would open the door for more bond inflows and at least that BNM will keep rates low for much longer
- GBP Gamma is still very bid ahead of the BoE meeting today, especially with fresh sellers on GBPUSD in the spot market by large hedge funds.
- AUDNZD gamma is also extremely bid with a lot of buyers of ATM and topside. The spot is hovering around the now strong support at 1.0400.
Treasuries recovered from their worst two day performance of the year after an auction of $12 billion 30-year bonds saw strong demand and were sold at a record-low yield of 2.172%, smashing previous low of 2.43% set in January 2015.
The indirect bidding, a proxy of demand from foreign investors, spiked to 68.5%, the highest for a 30-year bond sale on record, in sharp contrast to the poor demand of shorter maturities from previous days.
The two-year note yield fell 2.4bps to 0.665%. The 10-year bond yield ended lower by 3.9bps to 1.471%.
Germany set a new record in financial markets, becoming the first Eurozone country to sell 10-year bonds with a negative yield in a government auction.
Today, Bank of England is widely expected to cut interest rates for the first time in seven years in an effort to avert a Brexit-induced recession. The market is pricing 80% chance to halve the 0.5% base rate to 0.25%.
The Dow Jones Industrial Average nicked higher for 24.45 points to 18,372.12. The S&P 500 inched up 0.29 of a point to 2,152.43 The Nasdaq fell 17.09 points, or 0.3%, to 5,005.73. Oil sector led the decline after bearish U.S. inventory data and warning from the International Energy Agency warned about a global oil supply glut.
In London the FTSE 100 dipped 10.29 points to 6,670.40.European stocks fell for the first session in five, weighed by a weaker energy sector and as the market awaited tonight’s monetary policy decision from the Bank of England.
CSX corp reported Q2 EPS of $0.47, which was $0.03 better than the analyst estimate of $0.44. Revenue was $2.7 billion and is in-line with consensus. CSX closed 4.4% higher, up $1.19 with stronger than average volume.
Nokia rallied 4.8% after the handset maker raised sales forecasts and announced an expanded licensing agreement with Samsung. The agreement announced today expands access for each company to patented technologies of the other and reinforces Nokia's leadership in technologies for the programmable world. With this expansion, Nokia expects a positive impact to the net sales of Nokia Technologies starting from the third quarter of 2016. Nokia closed at 5.31.
Hong Kong stocks
- Midea (000333 CH): Cut to neutral at JPMorgan
- Pou Sheng (3813 HK): Added to conviction list at Goldman
- Shimao Ppty (813) Jun contracted sales +22.72% YoY to 10.1bn yuan…co bought back another 3M shares yesterday.
- China Taiping (966) Jan-Jun Premium Income +20.69% YoY to 72.37bn yuan.
- NCI (1336) Jan-Jun premium income -2.24% YoY to 71.0bn yuan.
- China Telecom (728) GIC Private bought 12m China Telecom H-shs at average $HK3.49/share on July 8, boosting stake from 4.92% to 5%.
- Lenovo (992) shareholder Yang bought 20m shares of co. at $HK44.66, $HK4.68 on July 7-8 for a total of $HK93.4mln , increases stake from 7.94% to 8.12%...co is setting up joint venture with Tishman Speyer on a 9bn yuan real estate project in SZ.
- Stella (1836) Q2 2016 and H1 2016 gross revenue -12.4% YoY and -10% YoY to $437mln and $718mln respectively.
- Luk Fook (590) 1Q16 retail sector SSS decline narrows to 24% from 27% last quarter
- COLI (688) June contracted sales +3.54% YoY to $HK23.1bn.
- COGO (81) Jun contracted sales +2.56% YoY to $HK3.4bn.
- Sino Land (83) Hong Kong Lands Department awards a residential site in NT to Best Wisdom, a unit of Sino Land for $HK1.62bn.
- Shanghai Pharma (2607) denies report of Jamieson Labs purchase, saying that co didn’t proceed with communications with Jamieson Labs currently.
- Tencent (700) has purchased control of China Music Corp. with cash and stock, and is going to merge with its QQ Music (Sina).
- China Modern Dairy (1117) issued profit warning, expects 1H loss of RMB400m on milk prices.
- Maanshan Iron (323) issued positive profit alert, expects interim net profit swings to RMB450m vs a loss of 1.2bn yuan a year ago.
- Dah Sing (440) . Dahsing Banking (2356) announced to sell the life insurance business in Hong Kong and Macau. Group said no further restructuring plan for now.
- CGN New Energy (1811) expects $19.17mln gain from disposal of subsidiary, Hexie Company, which principally engaged in generation and supply of electricity.
- Johnson Elec (179) 1Q sales +30%YoY to $686mln, if excludes currency effects and acquisitions, sales + 4% YoY to $547mln.
- OSG (6136 JP): Cut to neutral at Tachibana
- Bell System24 (6183 JP): Q1 operating profit -1.5% to ¥2.29bn.
- Gulliver International (7599 JP): Q1 operating profit -39% to ¥1.25bn; cuts full-year forecast 30% to ¥7.6bn; lowers planned full-year dividend to ¥12/share from ¥18.
- Japan Wool Textile (3201 JP): H1 operating profit +16% to ¥3.94bn.
- Kintetsu Department Store (8244 JP): Q1 operating profit +14% to ¥837mln.
- Komeda (3543 JP): Q1 operating profitt +6% to ¥1.69bn.
- MUFG (8306 JP): MOF confirms Bank of Tokyo-Mitsubishi UFJ to exit as primary JGB dealer.
- S Foods (2292 JP): 1Q oper. profit +20% to ¥2.4bn.
- TSI Holdings (3608 JP): 1Q oper. profit +51% to ¥2.4bn; to buy back up to 1.82% of shares for as much as ¥1.3bn.
- Alumina Ltd (AWC AU) raised to buy vs neutral at Goldman Sachs
- Treasury Wine (TWE AU) raised to overweight at JPMorgan
Source: CIMB / Bloomberg
– Edited by Robert Ryan
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