Morning Report APAC: Fed outlook halts USD momentum
- Asian stocks rebound after dovish comments from Fed's Lael Brainard
- Brainard says prudence needed in the move towards tighter Fed policy
- The yen strengthens slightly in early trade - up 0.1% to 101.71 to the USD
- Event risk in Asia today could centre on China’s August data
- AUD, a bellwether for sentiment towards China, was steady at 75.62 US cents
- South Korea’s won gained 0.5% against the USD
By Saxo APAC Sales Trading
Economic data of the day (Singapore Time)
2030 – SEK – Sweden’s Riksbank deputy Governor Skingsley speaks
2215 – CNH – Bank of Argentina’s Sturzenegger, PBOC’s Yi speak in Vienna
Federal Reserve speech: Fed governor Lael Brainard said the Fed needs to show “prudence in the removal of policy accommodation”. Here are excerpts from her speech:
"The response of inflation to unexpected strength in demand will likely be modest and gradual, requiring a correspondingly moderate policy response," she said.
“My main point here is that in the presence of uncertainty and the absence of accelerating inflationary pressures, it would be unwise for policy to foreclose on the possibility of making further gains in the labor market.”
The apparent flatness of the Phillips curve together with evidence that inflation expectations may have softened on the downside and the persistent undershooting of inflation relative to our target should be important considerations in our policy deliberations. In particular, to the extent that the effect on inflation of further gradual tightening in labor market conditions is likely to be moderate and gradual, the case to tighten policy pre-emptively is less compelling.”
"Today's new normal counsels prudence in the removal of policy accommodation," Brainard said. "Perhaps most salient for monetary policy, it appears increasingly clear that the neutral rate of interest remains considerably and persistently lower than it was before the crisis."
The speech from Brainard triggered USD selling against most currencies one week before the next Fed meeting. DXY dropped 0.25% and managed to stay below the 100 Day Moving Average at 95.23.
USDJPY sold off the most among G10 currencies and failed to break above the 50 DMA at 102.65. The 100 DMA remains the strong resistance at 104.83. The market is now waiting for the Bank of Japan meeting on September 21.
The USD has rallied strongly against Asian currencies for the past two days and has also pushed by the high fixing in USDCNH yesterday and the rally in forward points in the pair but managed to find good selling interests from hedge funds following Brainard’s speech in USDPHP, USDMYR and USDINR.
USDSGD though remains well supported with funds buying on the way down.
Foreign exchange movements
USDCNH 1 Year was very bid and traded at 7% following the high fix and the strong rally in the forward points. Expect the volatility curve to remain well supported.
Strong interest in AUD and AUDJPY volatilities with funds buying downside strikes for the BoJ meeting next week.
The selloff in European bonds continue with the Bunds staying in positive territory at 3.8 basis points and spreads with peripherals widening.
US stocks rallied overnight 1.5% following the Fed speech. The move was led by telecoms, staples, utilities and technology.
Canadian fertiliser giants Agrium (-2.7%) and Potash Corp of Saskatchewan (-1.2%) confirmed plans to merge in a deal that will create a crop-nutrient giant worth $27 billion.
Praxair (+1%) confirmed that its preliminary discussions with Linde regarding a potential ~$60bn industrial gas merger have terminated.
HP (+3%) agreed to buy Samsung Electronics' printer business for $1.05bn.
European stocks fell for a third day losing on average 1%. In the UK, oil and mining were among biggest losers.
Asia Pacific Stocks
- AgBank (1288 HK): Cut to neutral at Credit Suisse
- Bank of Ningbo (002142 CH): Cut to underperform at Credit Suisse
- BoCom (3328 HK): Cut to neutral at Credit Suisse
- CCB (601939 CH): Raised to outperform at Credit Suisse
- China Everbright Bank (6818 HK): Cut to neutral at Credit Suisse
- China Jushi (600176 CH): Rated new buy at Haitong
- China Merchants Bank (600036 CH): Raised to outperform at Credit Suisse
- ICBC (601398 CH): Raised to outperform at Credit Suisse
- Industrial Bank (601166 CH): Cut to neutral at Credit Suisse
- New China Life (601336 CH): Cut to underperform at Macquarie
- Ping An Bank (000001 CH): Cut to neutral at Credit Suisse
- Sands China (1928 HK): Cut to reduce at Nomura
- Tingyi (322 HK): Raised to outperform at Macquarie
- CNOOC(883) announced that the Weizhou oilfield project has commenced production
- KWG PPT(1813) Jan-Aug pre-sales value was RMB15.1bn, representing 69% of the group’s full year pre-sales target of RMB22bn
- CRLand(1109) Aug contracted sales was RMB7.3bn, -7.6% YoY
- COLI(688) Aug contracted sales +79.8% YoY to RMB20.7bn; Jan-Aug contracted sales +19.8% YoY to RMB128.7bn
- Country Garden(2007) spent HK$64.1mn in buying back 15.6mn shares on Monday at price of HK$4.04-HK$4.15 per share
- China Shenhua(1088) Aug cola sales -2.8% YoY to 34.3tons
- NCI(1336) Jan-Aug premium income -2.53% YoY to RMB83.5bn
- CH OVS G Oceans(81) Aug contracted sales was HK$1.9bn, +20.4% YoY
- Prosperity REIT(808) buys a 24-story building in Kwun Tong for HK$1.88bn
- Shanshui Cement(691) to raise up to HK$475mn from share placement
- SMIC(981) granted an aggregate of 1,523,075 share options under its 2014 Stock Option Plan to subscribe for Ordinary Shares
- Japan Cash Machine (6418 JP): Rated new neutral plus at Iwai Cosmo
- Kameda Seika (2220 JP): Rated new outperform at Daiwa
- Kumiai Chemical (4996 JP): Cut to neutral at Daiwa
- Mabuchi Motor (6592 JP): Raised to outperform at SMBC Nikko
- Topix fell 1.5%, led by energy explorer and steel groups. Nikkei -1.7%.
- Ci:z Holdings (4924 JP): Forecasts full-year oper. profit -7.2% to 7.6b yen
- Fuso Chemical (4368 JP): Raises planned full-year dividend to 36 yen/share from 30 yen
- Gumi (3903 JP): 1Q oper. profit 253m yen vs 532m yen loss year ago
- Maruzen CHI (3159 JP): 1H oper. profit +26% to 2.05b yen vs co. forecast 1.73b yen
- Santen Pharma (4536 JP): To buy back up to 2% of shares for as much as 13b yen
- Vicinity Centres (VCX AU) raised to buy vs hold at Morningstar
- Oil Search (OSH AU) buys exploration acreage in offshore Papuan Gulf, PNG
- pSivida (PVA AU) 4Q loss per share 19c; co. says 2nd Medidur trial to complete enrollment next month
Sources: CIMB / Bloomberg
– Edited by Adam Courtenay
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