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Steen Jakobsen
Outrageous Predictions 2017 is out today and this call on Italian banks to rally 100% in 2017 could raise some eyebrows in light of the fallout from last Sunday's referendum vote and the frantic efforts of the Italian banking sector to reduce their toxic debt.
Article / 03 October 2016 at 1:53 GMT

Morning Report APAC: Financial shares drive Asia gains

APAC Sales Trading Desk / Saxo Capital Markets
Singapore

 

  • Asian stocks rose as concern about Deutsche Bank AG’s finances eased
  • Deutsche Bank was nearing a $5.4 billion settlement with US Justice
  • After big falls, financial sector drove gains on the MSCI Asia Pacific Index
  • GBP slides in early trade to its weakest level in more than a month
  • US personal spending, a big part of the GDP, showed a flat reading

By Saxo APAC Sales Trading


Economic data of the day (Singapore Time)
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Speeches

16:00 – EUR – Portugal governor, finance minister speak in Lisbon

Overnight news

Brexit: Theresa May said she'll trigger the process of the UK's withdrawal from the EU by the end of March, pledging to control immigration while retaining market access to the continent.

The British Prime Minister also announced plans for legislation to incorporate bloc regulations into British law as soon as the divorce is complete.
 
Brexit Secretary David Davis said the UK government will bring down its migrant numbers after withdrawing from the EU, and will seek to preserve the "freest possible trade" with the region.
 
China: The manufacturing PMI was stable above 50 and came in at 50.4 (Exp. 50.5) in September and Non-Manufacturing PMI at 53.7 from 53.5.

That suggests growth momentum may have continued to stabilise in the last month of Q3.
 
In the details, new orders fell to 50.9 in September from 51.3 in August, while output rose to 52.8 from 52.6. New export orders improved to 50.1 from 49.7, marking the first reading above 50 since May.

Employment, up to 48.6 from 48.4, continued to contract, though at a slower pace than in August. On balance, the sub-indexes point to stable domestic demand while external demand may continue to improve.
 
US: PCE Deflator rose slightly from 0.0% to 0.1% MoM (Exp. 0.2%) and to 1.0% form 0.8% YoY. PCE Core rose to 0.2% and 1.7% as expected MoM and YoY.

Personal spending which represents a big part of the GDP reading was flat at 0.0% from 0.4% (expected +0.1%) and Personal Income came in as expected at 0.2% from 0.4%.

The latest data show that GDP should be strong enough for Q3 but the trend is more blurry to know if it will be sustainable for 2017. 
 
The composition of spending showed a sharp decline in spending on durable goods (-1.3% vs. 2.1% prior) and a lesser pullback in consumption of non-durable goods (-0.2% vs. -0.6% prior).

Service spending grew at a slower pace than the previous few months (0.3% vs. 0.4% prior); it averaged 0.6% per month in Q2.
 
The University of Michigan reading was stronger than expected at 91.2 (Exp. 90.)

Foreign exchange

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GBPUSD moved lower after PM Theresa May said that she would start the Brexit process by Q1 2017. Technically we are still trying to confirm a break of the 1.3000 level. The other support will be the low of the year at around 1.2880. 

EURUSD closed at the high of the session after the news came that DB is negotiating a better than expected deal with the department of Justice in the US and the fine would only be $5.4 billion instead the $14bn initially thought.

In emerging markets, very choppy day all over but USDBRL, USDMXN finished unchanged.  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


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There is still buying interest in downside USDJPY, sub 100 for the nonfarm payrolls this week.  Overall though, very light in terms of flows from funds, all waiting for the Fed to start the hiking process. 


Rates and credit markets

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Rates: The rally of Deutsche Bank in the US had given some sentiment of risk on pushing the yields higher but 2 to 3 basis points.

The US 10-year Treasury yield trades at its resistance level at 1.6000. A break above the 100 Day Moving Average at 1.6106 would open the door but a bigger move higher and target the 200d MA at 1.7585%.

The bunds started on a risk off tone with the pressure on Deutsche Bank dropping to -0.16% before finishing on a strong note after news that DB was negotiating a better deal than expected with the US Department of Justice.
 
Credit: The CDS indices dropped in the US following the rally in the banking sector in equities which should be followed at the open today in Europe.

Commodities 

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Equities
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US stocks closed higher Friday, boosted by two-digit rally in Deutsche Bank shares, as investors lean to believe that the bank may be able to negotiate a less destructive settlement.

The S&P 500 index rallied 0.8% to 2,168.27, with the financials and energy sectors led the gainers. With that, the S&P 500 gained 3.3% for the quarter, the best quarter in the year.

Costco Wholesale shares rose by 3.4% after the wholesale club reported a surprise jump in earnings, as lower credit card fees turned lower after its new deal to accept Visa cards.

Cognizant Technology Solutions tumbled 13% after an internal investigation was disclosed that the consulting company is researching on whether certain payments it made to facilities in India violated the US Foreign Corrupt Practices Act.

European stock markets erased earlier sharp losses and managed to closed slightly higher, as concerns over Deutsche Bank’s financial health subsided. The Stoxx Europe 600 index rose by 0.1% to 342.92. The FTSE 100 fell 0.3% to close at 6,899.33,l. However it ended with a 6.1% jump for the third quarter, its biggest quarterly jump since 2013.

Airbus Group rose 1%, with the aerospace heavyweight set to cut an unspecified number of management jobs as part of a restructuring plan.

Royal Bank of Scotland continued to rise by 1%, after it agreed this week to pay $1.1 billion to the National Credit Union Administration Board in the US to resolve two civil lawsuits over the way it sold mortgage-backed securities.


Asia-Pacific stocks overview


Hong Kong

 
Preview
-      AVIC real estate to sell assets to Poly for 2.3b yuan
-      Baoshan Steel(600019 CH) shares to resume trading Oct. 10
-      China Everbright (165 HK) to sell 9.34% of China Unionpay
-      Lenovo Group (992 HK) to sell Beijing property for 1.78b yuan
-      Man Sang (938 HK) to place 8.74% of new shares with investor
-      Mingyuan Medicare (233 HK) says fraud discovered in 2011 deals
-      United Co. Rusal (486 HK): Vekselberg expects to complete stake purchase in a month
-      Renren to spin off social video platfrom
-      Wharf (4 HK) to sell 4b yuan 3-yr panda bonds via BOC, ICBC
-      Wheelock Properties (20 HK) to sell 24 luxury flats, 2 villas
-      Wuhan Steel(60005 CH) to resume trading on Oct. 10
-      Zhejiang Expressway (576 HK) plans up to $400m conv bond issue
 
Japan

 
Analyst ratings
-      Bandai Namco Holdings (7832 JP) rated new neutral at Tokai Tokyo Securities
-      Hitachi Chemical (4217 JP) downgraded to neutral at Iwai Cosmo Securities
-      Rohm (6963 JP): Raised to outperform at Macquarie
-      Taiyo Holdings (4626 JP) rated new buy at Mitsubishi UFJ Morgan Stanley
-      Takeuchi Manufacturing (6432 JP) raised to outperform from at Iwai Cosmo Securities
-      Toyoda Gosei (7282 JP) raised to neutral from underweight at Mitsubishi UFJ Morgan Stanley

Preview
-      Coca-Cola East (2580 JP), Coca-Cola West (2579 JP): Agree to merge; Coca-Cola East holders to get 0.75 share in Coca-Cola West for each share held; equals 2,114.25 yen vs Coca-Cola East’s Fri. close of 2,185 yen
-      Kawasaki Heavy (7012 JP): Prelim. 1H oper. profit 4b yen vs co. forecast 22b yen; cuts full-year forecast 51% to 34b yen; cites strong yen
-      Milbon (4919 JP): 9-month oper. profit +1.5% to 3.85b yen
-      Mimasu Semiconductor (8155 JP): 1Q oper. profit +1.6% to 1.07b yen
-      Mochida Pharma (4534 JP): Says AJG533 met primary endpoint in phase 3 trial in Japan
-      Rakuten (4755 JP): Joins Nikkei 225 average
-      Seven & i (3382 JP): Prelim. 1H net income 33.5b yen vs co. forecast 83b yen; lowers full-year targets; cites store write-downs
-      Shikoku Electric (9507 JP): Prelim. 1H net income breakeven, forecasts full-year net 4.5b yen; plans FY dividend of 20 yen/share, unchanged y/y

Australia

Holidays

Information sources: CIMB / Bloomberg


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Still standing tall: Asia's banking sector has enjoyed some relief this morning. Photo: iStock
 

– Edited by Adam Courtenay


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03 October
Alessandro Milesi Alessandro Milesi
Once people realize that EU not GB is big looser from a quick Brexit EUR GBP is bound to fall massively
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