Article / 28 October 2016 at 2:39 GMT

Morning Report APAC: Bonds selloff, haven assets losing ground

APAC Sales Trading Desk / Saxo Capital Markets
Singapore
  • A big sell-off in sovereign bonds has extended its way into Asian trading
  • Benchmark bond yields in Australia and NZ at highest levels since May
  • Japan's CPI fell for a seventh straight month, spending has slumped
  • USDJPY little changed at 105.23 following four days of losses 
  • Oil was little changed at $49.70/barrel in New York


By Saxo APAC Sales Trading

Economic data of the day (Singapore Time)
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Speeches


15:30 – EUR – ECB’s Benoit Coeure speaks in Frankfurt
16:00 – EUR – ECB Governing Council member Philip Lane speaks in London

Overnight news

US: Initial jobless claims fell 3k to 258k for the week and data is a tad better than the market’s expectation. Durable goods orders also came in line with expectations at 0.2%. The possibility of Fed hike in December is currently now at 73%, up 2% compared to the start of the week.
 
UK: Third quarter GDP came in better than expectations as service sector led growth in UK. Though it is still early to measure the impact of Brexit on UK, 10 year Gilts was up 10 basis points  to 1.25%.

Future GDP data will be very closed watched due to possibility of stagflation in UK. We are unlikely to see the Bank of England make any cuts next week on its policy meeting.

Japan: Bank of Japan governor Haruhiko Kuroda spoke yesterday in parliament. The key take away is his emphasis that longer term rates to rise a bit and he also hinted that he would like the yield curve to steepen.

USDJPY traded lower on Kuroda’s speech but had since recovered and is now above 105.
 


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The USD continued to rally, touching the 99 handle, supported by the 10Y bond yields which surged to 1.8679. US advance GDP release today may potentially derail the USD strength.

GBP was offered despite a better than expected Prelim Q3 GDP (+0.5% against +0.3% expected) which was discounted as all of the growth came from the services sector.

USDJPY surpassed the 105 handle amid speculation that the Bank of Japan will maintain stimulus even as the FED hikes in December.

National core CPI y/y dropped 0.5% in September from a year earlier, its seventh consecutive month of deflation.

USDCNH rose to a high of 6.7987 with the PBOC appearing to tolerate more yuan weakness amid a slump in exports.
 
Foreign exchange movements

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Vols traded slightly higher yesterday however remained quiet. JPY vols bounced up further from session low, and 1m gained 0.75 to 10.25. CNH vols inched even lower as the market is still flush with Vega.

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Bond yields in most developed markets rose overnight amid growing prospect of central banks becoming stimulatory.

The selloff was probably triggered by stronger-than-expected UK GDP data, the desire of BoJ Governor Kuroda for a steeper Japanese yield curve, and the European Central Bank's ambiguity on increasing asset purchase in December.

US 10yr treasury yields rose to five month high from 1.79% to 1.87%, the 2yr yield followed the same traction and rose from 0.87% to 0.89%.

German 10yr up from 0.08% to 0.19%, which is also a five-month high, and the UK 10yr up from 1.12% to 1.29%.

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The Nasdaq Composite was near session lows while the S&P 500 and DJIA little changed on an active earnings day that offered lots of competing data points.

ConocoPhillips gained 5.3%  issued an upbeat full-year outlook as its quarterly adjusted loss of 66 cents a share was narrower than the anticipated 68 cents per share.

Ford Motor dipped 1.2% after the auto maker’s third quarter profit dropped 56%. Per-share operating profit of 26 cents a share, however, were ahead of expectations.

Amazon.com fell 5.8% in extended trading after it reported earnings per share that came in far below analyst estimates on Thursday, posting its lowest quarterly profit in a year as it invested heavily to meet consumer demand for more orders delivered faster.

Twitter gained 0.6% after reported profit and sales that beat expectations, and announced it would lay off 9% of its workforce and discontinue its Vine video service.

Alphabet was up 0.95% after-market, after reporting quarterly earnings that topped analysts' estimates and revenue that beat expectations on Monday, and announced a more than $7 billion stock buyback authorised this month.

Barclays jumped 4.8% after it delivered a better-than-forecast improvement in Q3 profit, driven by an improvement in its investment bank division.

Saxo round-up

  • Steen Jakobsen: Writes his latest thoughts on the US election, it’s not about Clinton or Trump, he says
  • Georgio Stoev: Range bound S&P pre US election. See here
  • Ole Hansen:  Squawked about the inventory decline, pushing oil higher overnight.
  • Ole also completed a full commodities update webinar which can be revisited
  • Patrice Henault, Head of Futures and listed options, has a trade view that the USO oil ETF may be toppy.
  • US Election: See how Saxo views the various asset classes on D-Day of the election.
  • Michael Boye: Completes his weekly bond round up
  • KVP: Europe appears overheated, he says
  • KVP: Digests yesterday’s CPI number and the impact this has on RBA thinking.
  • John Hardy: FX Update

Asia Pacific stocks

Greater China highlights
-       Citic Bank (998 HK): 3Q net 10.9b yuan vs 10.3b yuan yr ago
-       Hexing Electrical (603556 CH): To sell shares at 23.63 yuan apiece at IPO
-       Sinopec Shanghai (600688 CH): 3Q net 1.03b yuan vs 514.5m yuan year ago
 
Japan highlights
-       ANA Holdings (9202 JP): 1H oper. profit seen at nearly 90b yen: Nikkei
-       Asahi Glass (5201 JP): Seen boosting profit on overseas business: Nikkei
-       Mitsubishi Materials (5711 JP): 1H oper. profit seen falling 30%: Nikkei
 
SE Asia Highlights
-       Metrobank (MBT PM): 9-month profit fell 12.6% y/y to 12.6b pesos: Standard
-       Tenaga Nasional (TNB MK): 4Q net 1.76b rgt vs 820.9m rgt y/y
-       United Tractors (UNTR IJ): September heavy equipment sales at 203 units

Source: Bloomberg

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Back in the picture? A Fed hike is increasingly likely say futures markets. Photo: iStock


– Edited by Adam Courtenay


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