Morning Report APAC: GBP rally continues, Bank of Canada on hold
- Bank of Canada keeps rates unchanged at 0.5% as expected
- GBP rallies again overnight (0.7%) after polls favourable to Remain camp
- European stocks extend Tuesday’s rally after Greece-IMF deal
- US stocks close broadly higher as oil rallies
By Saxo APAC Sales Trading
Economic data of the day (Singapore Time – GMT + 8))
1300: SGD – Industrial Production SA MoM (Exp. 1.6%, Prev. 1.0%), YoY (Exp. -0.2%, Prev. -0.5%)
1630: HKD – Hong Kong Export YoY (Exp. -7.6%, Prev. -7.0%), Imports (Exp. -5.5%, Prev. -5.8%)
1630: HKD – Hong Kong Trade Balance (Exp. -$42.0bn, Prev. -$47bn)
1630: GBP – GDP QoQ 1Q (Exp. 0.4%, Prev. 0.4%), YoY (Exp. 2.1%, Prev. 2.1%)
2030: USD – Initial Jobless Claims (Exp. 275,000, Prev. 278,000), Continuing Claims (Exp. 2142k, Prev. 2152k)
2030: USD – Durable Goods Orders (Exp. 0.5%, Prev. 1.3%), Ex Transportation (Exp. 0.3%, Prev. -0.2%)
2200: USD – Pending Home Sales MoM (Exp. 0.7%, Prev. 1.4%), YoY (Exp. 0.2%, Prev. 2.9%)
1830: US Federal Reserve's James Bullard speaks at monetary forum in Singapore
2100: Reserve Bank of Australia's Guy Debelle, Fed's Simon Potter, Bank of England's Chris Salmon on FX Code launch
US: Markit Services PMI dropped to 51.2 from 52.8 (its lowest reading since February) and the Composite fell to 50.8 from 52.4 but the trade balance improved to -$57.5 bn (Exp -$60 bn)Fed: Federal Reserve Bank of Dallas President Robert Kaplan said “we ought to be taking action in the near future to remove some amount of accommodation”. “One issue in June in terms of the near future is Brexit. Our meeting is on June 15, the Brexit vote is the 23rd, the Brexit vote represents to me some amount of tail risk” but “unless something changes I’d be advocating taking the next step” because “there’s a cost to running rates this low”.
- the current stance of monetary policy is still appropriate
- risks to its inflation projection remain roughly balanced
- structural adjustment to the oil price shock continues, but is proving to be uneven
- Alberta wildfires will cut 1.25 percentage points off Canada’s real GDP growth in the second quarter due to "fire-related destruction" and "associated halt to oil production"
- Canada's economy to rebound in the third quarter as oil production resumes and reconstruction begins
- USDCAD is close to the level assumed in April, with fluctuations due to shifting expectations of US monetary policy and higher oil prices
- CPI inflation has risen recently due to gasoline prices, but remains slightly below the 2% target
- the housing market displays "strong regional divergences, reinforced by the complex adjustment underway in the economy"
Brexit: See below
Foreign exchange movements
The Treasury curve steepened on Wednesday, with 5-year, 10-year and 30-year yields rising 0.8 basis points, 1.1bp and 2.7bp, respectively. On Thursday, the US Treasury is scheduled to auction $28bn in 7s. Recent auction performance has been strong at this sector. The market is now pricing a 34% chance of hike in June and 54% in July.
Greece’s government bonds rallied, pushing the 10-year yield below 7% for the first time since November, after its creditors agreed to release aid and committed to ease the nation’s debt. The move has pushed all the yields in Europe lower, the Bunds down 5 bps, Italy 7 bps, Spain 6 bps, and Portugal 6 bps.
European stocks extended Tuesday’s rally, led by peripheral banks after euro zone finance ministers agreed with Greece and the International Monetary Fund on a deal that will address Athens's requests for debt relief.
Marks & Spencer dropped 10.2% after it reported a 19% fall in full-year pre-tax profit. The company said “market conditions continue to be challenging” and suggested its turnaround plan would hit short-term profitability. “We are investing to re-establish our price position by sharpening prices and to enhance service by putting more employees into our stores,” CEO Steve Rowe said. “These actions, combined with the difficult trading conditions, will have an adverse effect on profit in the short term.”
US stocks closed broadly higher as oil rallied after the Energy Information Administration report (see commodities above).
Alibaba Group Holding Ltd ( down 6.8%) announced that the US Securities and Exchange Commission is investigating its accounting practices. The SEC requested the company voluntarily provide documents and information related to its accounting for its logistics network, operating data for the largest online shopping day of the year, and other “related party transactions in general,” it said in a regulatory filing.
The rally in equities and drop of government bond yields in Europe is pushing the CDS indices lower as the risk of default decreases.
HK equity preview
- Huahai Pharma (600521 CH): Cut to neutral at Credit Suisse
- Champion REIT (2778) said Citibank Plaza will be renamed as 3 Garden Road. Rental income of building increases significantly, at HK$110-120 per sq ft a month
- ICBC (3988) is appointed global coordinator by China's Ministry of Finance to issue RMB3bn sovereign bonds in London
- BOC Aviation (2588) to begin listing in HK on Jun 1. BOC said over-allotment option granted
- IT (999) announced Jan-Feb NI HK$209m, down 33.11% YoY. Revenue at HK$7.5bn, up 5.02% YoY. HK retail revenue at HK$3.46bn, down 3.3% YoY. Mainland retail revenue at HK$2.98bn, up16.4% YoY
- Shenhua (1088) April coal sales volume at 27.1m tonnes, down 13% YoY. Commercial coal production at 23.3m tonnes, up 0.87% YoY
- Hanergy (566) declared executive director Liu Jianjun holds 5.09m shares of the company
- Country Garden (2007) and SZ Yantian to develop Indonesia-SZ Industrial Park. The company also bought back 18.8m shares for HK$56.6m on May 25.
- TVB (511) said they are expecting pressure in TV commercials revenue. They have mostly completed all talks regarding commercials during the Olympic Games, but revenue cannot cover costs
Duzhe Publishing to jointly set up insurance entity with CH Railway Constr. (1186) and CH Communications Constr. (1800)
Alibaba (BABA) undergoing US SEC investigation over accounting practices regarding the
- transactions on Singles’ Day. The company is providing documents and cooperating with the probe
Ali Health (241) announced to form O2O alliance with 65 pharmacy chain shops.
CH Molybdenum (3993) to resume trading today.
Japan equity preview
- Haseko (1808 JP): Raised to buy from outperform at Daiwa
Hokuriku Electric (9505 JP): Raised to neutral at Goldman
Ibiden (4062 JP): Cut to underweight from equalweight at Morgan Stanley MUFG
Kirin (2503 JP): Cut to neutral at Macquarie
Mitsubishi Corp. (8058 JP): Raised to outperform at Daiwa
Mitsui Chemicals (4183 JP): Downgraded to neutral plus from outperform at Iwai Cosmo
Shikoku Electric (9507 JP): Raised to neutral at Goldman
Sumitomo Mitsui Financial (8316 JP): Cut to neutral at Macquarie
- Central Japan Railway (9022 JP): Govt may accelerate Tokyo-Osaka maglev train project, Nikkei reports
Mitsubishi Motors (7211 JP): Corrects last year’s earnings to show 19.1bn yen charge on improper fuel economy testing; CEO Osamu Masuko to take title of president, replacing Tetsuro Aikawa
Nippon Flour Mills (2001 JP): To conduct 1 for 2 reverse split October 1
United Urban (8960 JP): Seeks 34.5bn yen from public share sale
Australia equity preview
- Primary Health (PRY AU) raised to neutral vs sell at Goldman Sachs
Iluka (ILU AU) raised to overweight vs equal weight at Morgan Stanley
Suncorp (SUN AU) cut to neutral vs buy at UBS; cut to neutral vs outperform at Credit Suisse
Wesfarmers (WES AU) raised to neutral vs underweight at JPMorgan
Navitas (NVT AU) cut to sell vs hold at Moelis
Source: Bloomberg / CIMB
– Edited by Susan McDonald
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