Article / 24 August 2015 at 1:21 GMT

Morning Report APAC: Equities tumble, oil flirts with $40/b

APAC Sales Trading Desk / Saxo Capital Markets
Singapore
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  • The dismal Chinese Manufacturing PMI sparked fears of a China slowdown
  • Equities had their sharpest falls in four years on Friday
  • Gold prices hit a five-week high, while oil and other commodities lost ground

By Saxo APAC Sales Trading

Economic Data of the Day (Singapore Time)

1300: SGD  – CPI NSA MoM (Exp. 0.0%, Prev. -0.1%), YoY (Exp. -0.2%, Prev. -0.3%)
1300: SGD  – CPI Core YoY (Exp. 0.2%, Prev. 0.2%)
1600: THB  – Industrial Production YoY (Exp. -2.30%, Prev. -1.35%)

Speeches


0355: USD – The Federal Reserve’s Dennis Lockhart speaks to the Public Pension Funding Forum

Overnight News

  • On Friday, the China Manufacturing PMI for August plunged to its lowest level since March 2009 to 47.1 from 47.8 last month, the latest sign of a slowing in the world's second-biggest economy well below the 50 benchmark that separates growth from contraction.
  • US Manufacturing PMI dropped to 52.9 from 53.8 the previous month (53.8 was expected).
  • Big selloff in equities, the Dow dropped more than 1000 pips in a week, the S&P dropped 5.8% for the week, VIX was up 46% on Friday to 28.03.
  • Traders will be banned from short-selling of borrowed stocks and depository receipts at lower prices than the previous day’s close, Taiwan’s Financial Supervisory Commission says in a statement posted on its website on Sunday, measures will take effect on Monday.

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Foreign exchange
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The big risk-off environment seen on Friday with equities down 3% after the lower-than-expected Chinese PMI data and another confirmation of the slowdown in the Chinese economy, saw USD selling off against a selected number of currencies on stops, like the EURUSD, which closed above the 200 Day Moving Average (1.1332) on Friday at 1.1386. A confirmation today of that close would push EUR to the next resistance at 1.1500.

The best indicator of a risk off environment is AUDJPY which plunged 1.5% on Friday and another 1.1% this morning. USDJPY is now very quickly approaching the next support at the 200 Day MA at 120.72. The flight to safe heaven is pushing USDCHF lower and it now broke the 200 Day MA at 0.9543. We trade below the psychological level of 0.950 at 0.9473 and can head much lower.

In positioning, IMM data for the week ended August 18 show that non-commercial accounts sold $5.5 billion in USD, cutting net USD longs to $40.9bn. EUR shorts were cut by $3.1bn through Tuesday. The estimated net short positions is now at $12.3bn.

In emerging markets, we had a massive move this morning on the South African Rand with the USDZAR breaking 13 and then flying to 14 on stops in one to two minutes. We saw a lot of stops of the big carry trade by retail in ZARJPY.

Here are some headlines:

  • South Africa Treasury: FX volatility likely to remain elevated.
  • South Africa's flexible currency allows for adjustment in cross.
  • South Africa's Nene: Global slowdown not as severe as 2008 recession.
The fall in equities down should continue to push EM equities down today and USD/Asia higher with USDKRW close to break 1200. With oil breaking briefly $40.00 on Friday, USDMYR will continue its move higher and spot has now broken 4.2000. The USDCNH should continue to trade lower after the lower than expected PMI on Friday in China. The forward points are already reflecting the very negative sentiment of the currency.

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USDJPY volumes exploded after the sharp risk off overnight and the move lower in USDJPY. The market is really short gamma JPY and with the big stops seen in the carry trade ZARJPY this morning, the volumes will remain very bid. The volatility in equities reflected by the VIX has risen sharply and the idea is to remain long volatility, as the selloff in equities and pressure on emerging markets should continue for the time being.

Rates
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Big risk off overnight pushed rates lower 2 to 3 bps. We are getting close to breaking the 2% level again and should see some stops below.

Commodities
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Equities
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Global markets fall the most in four years on Friday. US stocks took it on the chin on Friday as investors continued to de-risk themselves on fears of a China-led global slowdown.This was heightened by data that the US’s manufacturing sector shrank at the fastest rate since March. The Dow, the Nasdaq and the Russell 2000 each confirmed technical corrections while the S&P 500 closed 7.6% below its May high.

European stocks also faced a very ugly session amid growing concern over the Chinese economy. However, mining stocks surprisingly managed to outperform albeit all recorded losses - Rio Tinto (RIO) dropped 2%, BHP Billiton (BHP) 2.5%, South32 (S32) 0.7%, Anglo American (AAL) 1% and Glencore (GLEN) 2.6%.

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Bright spot ... gold prices have surged amid the slide in prices for
 other commodities and the equities tumbles. Photo: iStock


– Edited by Robert Ryan and Adam Courtenay

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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