Article / 15 June 2016 at 2:14 GMT

Morning Report APAC: German bunds turn negative for the first time

APAC Sales Trading Desk / Saxo Capital Markets


  • The USD rallied against all currencies except the GBP
  • German 10-year bund yield turned negative for the first time
  • The risk of contagion surrounding Brexit could push the EUR lower
  • MSCI has delayed including Chinese domestic equities in its benchmark indices 

By Saxo APAC Sales Trading

Economic data of the day (Singapore Time; GMT+8)

  • 0700: KRW – Unemployment Rate (Act. 3.7%, Exp. 3.8%) 
  • 1200: MYR – CPI YoY (Exp. 2.0%, Prev. 2.1%) 
  • 1300: SGD – Retail Sales SA MoM (Exp. 2.2%, Prev. -1.4%), YoY (Exp. 6.1%, Prev. 5.1%), Ex Autos YoY (Exp. -2.3%, Prev. -2.2%) 
  • 1445: EUR – France CPI MoM (Exp. 0.4%, Prev. 0.4%), YoY (Exp. -0.1%, Prev. -0.1%)
  • 1630: GBP – ILO Unemployment Rate 3 Months (Exp. 5.1%, Prev. 5.1%) 
  • 2030: USD – PPI Ex Food and Energy MoM (Exp. 0.1%, Prev. 0.1%), YoY (Exp. 1.0%, Prev. 0.9%) 
  • 2030: USD – Empire Manufacturing (Exp. -4.90, Prev. -9.02) 
  • 2115: USD – Industrial Production MoM (Exp. -0.2%, Prev. 0.7%) IDR – Exports YoY (Exp. –7.80%, Prev. -12.64%), Imports YoY (Exp. -5.83%, Prev. -14.62%) IDR – Trade Balance (Exp. $723Mio, Prev. $667Mio) 

Overnight news

United States

  • Retail sales rose more than expected to 0.5% MoM (Exp. 0.3%) led by a 1.3% jump in “non-store” sales, which includes purchases from internet retail companies such as Amazon. “Core” retail sales, i.e. excluding automobiles, gasoline, building materials and food services, and correspond most closely with the consumer spending component of GDP, rose 0.4% (Exp: up 0.3%) from an upwardly revised 1.0% increase in April (Prev: up 0.9%). Business Inventories expanded 0.1% in April, less than the 0.2% expected. Retail inventories ex-autos, which are used in the calculation of GDP, declined 0.2%, the largest drop in nearly a year. Prices for imported goods rose for a third month to 1.4% (Exp. 0.7%) and at their fastest pace in over four years during May as prices continued to strengthen for petroleum-related products and industrial supplies such as metals. 


  • MSCI has decided to delay including Chinese domestic equities in its benchmark indices for now, citing the need for increased accessibility to the A-share market despite the improvements already and capital mobility and anti-competition concerns.

Foreign exchange


Risk-off continued overnight and the USD rallied against all the currencies except the GBP (see below). All year, the EUR has found very good offers in the range 1.14/1.15 and the risk of contagion surrounding the Brexit could push the EUR lower even though the market will rush to buy EURGBP on a Britain exit. 

The next strong support level for EURUSD is at 1.1100. The drop of base metals due to risk-off is pushing the AUD lower. 

NZD dropped back below the 0.7000 level that should serve as a resistance. Following the big stops of long AUDNZD and a drop to 1.04, the pair managed to bounce back and with a much cleaner positioning should rally back quickly toward the old ranges and the support of 1.0600.

USDCNH is confirming a break above 6.6000 and nothing seems to stop it now for a move much higher. The forward points are finding some supports in the long end; 1yr trades at +1350 .

Foreign exchange movements


The market is buying some protection by buying 1.08 strikes in 2w USDJPY in case of a surprise from the Bank of Japan meeting. Most hedge fund managers are short USDJPY.

All the cross/JPY remain very negative on a possible longer risk-off move after the Brexit vote. Most of the G10 volatilities are bid with the vote of the Brexit coming fast.



US Treasuries yields dropped for a sixth consecutive day and touched the lowest level since December 2012 at 1.56% while European investors are flying to safety and pushing the German bunds below 0% for the first time. The risk-off mood is even better seen with the widening of the peripherals with Italy 10-year yield up 5.1 basis points, Spain 6.1bps, Portugal up 15bps and Greece up 36bps.






A final hour rebound helped to prevent another ugly day for US stocks, one that came despite a solid May retail sales report. Financials came under pressure to lead the declines as the German 10-year bund yield turned negative for the first time ever and as Synchrony Financial raised concerns about the health of the consumer by lifting its expected net charge-off rates over the coming year.

Synchrony Financial (down 13.1%), the largest retail-store card issuer by purchase volume and balances, raised its forecast for losses over the coming year and said it was increasing reserves for future losses. Synchrony said it expected net charge-off rates over that period to increase by 0.20 to 0.30 percentage points. The company now sees a charge-off rate of around 4.5% to 4.8% over the next 12 months (Prev: 4.3% to 4.5%).

Synchrony’s disclosure sent tremors through a variety of financial stocks with exposure to the consumer. American Express slumped 4.1%, Capital One Financial down 6.6%, Ally Financial 5.6%, and Discover Financial Services (4.1%).




The credit spreads in Europe in particular continue to widen with the bunds reaching record lows below 0% and peripherals yields moving higher .

Hong Kong

Analysts views

  • Longfor Properties (960 HK) raised to buy at Guotai Junan 
  • Shimao Property (813 HK) cut to hold at DBS Vickers 
  • Kunlun Energy Co Ltd (135 HK) rated new buy at Haitong 

Equity preview

  • CH Life (2628) Jan-May prem inc RMB250.2bln, up 26.1% YoY
  • New CH Life (1336) Jan-May prem inc RMB60.8bln 
  • HKEx (388)’s Charles Li said HK can become a commodity exchange platform during Asian hours to accommodate mainland’s commodity markets
  • ICBC (1398) granted $230mln loan to UAE energy giant ENOC
  • MCC (1618) Jan-May new contracts value up 45% YoY to RMB180bln
  • Xinyi Solar (968) expects Jan-Jun net profit up 70% to 90%
  • Xinyi Glass (868) expects Jan-Jun net profit up 30% to 45%
  • Alibaba (BABA) expects rev up 48% in year ended 2017
  • Vanke (2202) said its restructuring plan still has some uncertainty


Analyst views 

  • Amuse (4301 JP): Rated new neutral plus at Mito Securities 
  • Daihen (6622 JP): Downgraded to neutral from buy at Ichiyoshi Research 
  • Denso (6902 JP): Cut to neutral from buy at Haitong International 
  • Dentsu (2433 JP): Cut to neutral from buy at Mizuho 
  • Hakuhodo DY (4324 JP): Cut to neutral from buy at Mizuho 
  • Hokkaido Electric Power (9509 JP): Downgraded to neutral from outperform at SMBC Nikko
  • Japan Petroleum Exploration (1662 JP): Cut to neutral from outperform at SMBC Nikko
  • Kansai Electric Power (9503 JP): Downgraded to neutral from outperform at SMBC Nikko
  • Komatsu (6301 JP): Raised to neutral from underperform at Macquarie
  • Nippon Shokubai (4114 JP): Added to conviction list at Goldman, kept at buy
  • Nippon Signal (6741 JP): Downgraded to neutral from buy at Ichiyoshi Research 

Equity preview

  • Atrae (6194 JP): Begins trading on Mothers after IPO priced at JPY 5,400
  • Don Quijote (7532 JP): Raises planned full-year dividend to JPY 22/share from JPY 20
  • Evolable Asia (6191 JP): To split shares 3-for-1 effective Aug. 1 
  • Hope (6195 JP): Begins trading on Mothers and Fukuoka Q-Board after IPO priced at JPY 1,400
  • JX Holdings (5020 JP), TonenGeneral Sekiyu (5012 JP): Said to be among companies interested in Petrobras’s Japan unit 
  • Medrx (4586 JP): Seeks JPY 2.21bln from sale of CBs and warrants to Whiz Partner; to use proceeds for trials of products, including Alzheimer’s treatment 
  • Token (1766 JP): Full-year operating profit JPY 13.2bln vs JPY 12.7bln, company guidance; forecasts operating profit up 12% to JPY 14.8bln for current FY; projects dividend of JPY 130/share vs JPY 95 for latest FY 
  • Tsuruha (3391 JP): Full-year operating profit JPY 31.3bln vs JPY 30bln, company guidance; lifts dividend to JPY 108/share vs JPY 88 prior guidance; sees oper. profit up 18% to JPY 37.1bln for current FY 
  • Vector (6058 JP): To split shares 3-for-1 effective Sept. 1 


Equity preview

  • Sky Network TV (SKT NZ) raised to neutral vs underperform at First NZ 
  • Mesoblast (MSB AU) cut to neutral from outperform at Credit Suisse 
  • A2 Milk Co. (ATM NZ) revises full-year outlook upwards; sees FY operating Ebitda $NZ52mln-$NZ54mln 
  • PGG Wrightson (PGW NZ) upgrades FY operating Ebitda guidance 
  • South32 (S32 AU): Miners at co.’s Cerro Matoso nickel mine to delay strike action to see if mine makes new offer 
  • Oil Search (OSH AU): InterOil shareholders reject dissident resolutions and nominations
  • Amcor (AMC AU) plans to close Belgian plant, cutting 224 jobs, Belga news agency reports 
Source: Bloomberg / CIMB 


 MSCI has decided to delay including Chinese domestic equities in its
benchmark indices, at least for now. Photo: iStock

– Edited by Gayle Bryant

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. Join our Global Market Call daily at 12:40 Singapore time.

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