Article / 02 March 2018 at 2:30 GMT

Morning Report APAC: Jittery investors send stocks sliding across Asia

APAC Sales Trading Desk / Saxo Capital Markets
Singapore

 

  • Donald Trump has slapped hefty import duties on steel and aluminium imports
  • Canada may be the biggest country most affected by the tariffs
  • Base metals were rattled by the Trump tariffs
  • Wheat has rebounded sharply and is entering a bull market

By Saxo APAC Sales Trading

Economic data of the day (Singapore Time)
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Speeches (Singapore Time)

  • 1200 – Japan: Bank of Japan governor Haruhiko Kuroda's confirmation hearing.
  • 1610 – EU: European Central Bank board member Yves Mersch speaks in Prague.
  • 1800 – UK: Bank of England governor Mark Carney speaks on Money at Event in London.

Overnight news, trade war prospects

  • Donald Trump said he'd impose 25% duties on steel and 10% on aluminium imports.
  • Canada called the measures unacceptable and the EU vowed to "react firmly" with counter-measures against the tariff move. The move also prompted criticism from members of Trump's own party, with Republican Senators Ben Sasse and Orrin Hatch calling it a tax increase on American families.
  • What Trump doesn’t seem to understand is that the tariffs will affect Americans and create unnecessary inflation. Steel and aluminium are used a lot by the car companies, and machinery industries.
  • Taken from CNBC, here are the top 10 sources of import from the US: 16% Canada, 13% Brazil, 10% S. Korea, 9% Mexico, 9% Russia, 7% Turkey, 5% Japan, 4% Taiwan, 3% Germany, 2% India
  • Aluminium Imports: 56% Canada, 8% Russia, 7% UAE, 6% China, 23% Other

 US data

  • The Fed's preferred gauge of inflation, the PCE Deflator, rose 0.4% as expected MoM and was stable in year on year terms at 1.5%. We would need a bigger increase in wages to see that number rise more in the future.
  • Personal income rose 0.4% in January, building on a similar increase in December, as wages and salaries advanced 0.5%, up from 0.4% prior. If this acceleration continues, it will support stronger consumer spending later in the quarter.
  • Notable is the January increase in disposable personal income, which jumped 0.9% from 0.4% in December, as some companies may have started to reduce tax withholdings as early as January. On a year-over-year basis, disposable personal income accelerated to 4.0% in January, the fastest pace since October 201  (Bloomberg)
 

Foreign exchange

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  • There was not much from the FOMC chair Jerome Powell last night.
  • But Donald Trump is making the news again with his hefty tariffs, which triggered another selloff in equities, USD selling with the prospects of a trade war accelerating and buying interest in Treasuries pushing the 10 year yield back to 2.80%.
  • In the FX Technicals report , we had recommended to take profit on the long USD yesterday which was luckily a good timing. Very hard to predict what Trump will do day in and day out. Let’s see next week if the tariffs will be really put in place but in the meantime it will be negative USD and Equities.
  • In terms of flows, Real Money have been buying EURUSD last night just below 1.2200 and good two-way flows in GBP before May’s speech and in CHF. Macros funds are Selling CrossJPY and CrossCHF as a risk off hedge trade.
  • Emerging Markets: Good buying interest in USDAsia and USDBRL overnight from macros fund following the selloff in equities.


Foreign exchange movementsnnn












  • There is a large 1.2250 strike today in EURUSD for $3bn, so the spot is likely to stay around that level today,
  • Following the tariff news from Trump and NAFTA negotiations, USDCAD Gamma is extremely bid now as Canada will probably be the biggest country affected by the tariffs.
  • There is very strong bidding interest in CrossJPY for hedging for more risk off from Funds as well as CHF Calls. USDCAD Gamma is still very bid for the topside and due to the spot move.

Rates

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  • European bonds were generally higher, again supported by gilts amid buying on the back of uncertainties in Brexit. Peripherals outperformed with Asian buying BTPs ahead of election.
  • US treasuries rose sharply after Trump’s metals tariff announcement fuelled market concern of a trade war and demand for bonds. Jerome Powell’s senate testimony came across as dovish; nevertheless there are expectations of a possible four Fed hikes this year.

Commodities 

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Equities
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US equities

  • The Dow (down 420 points) and S&P 500 (which lost 36 points) fell sharply, after President Trump said the US will implement tariffs on steel and aluminium imports next week.
  • Shares inFord Motor (F) dropped 3% to $10.29 and General Motors (GM) fell nearly 4% to 37.79, hitting their worst levels since September. This tarif move implied higher costs for consumers.
  • Boeing, Cummins, Johnson Controls and United Technologies — other users of steel and aluminium — also helped lead the market lower.
  • But Steel stocks like U.S. Steel (X) and AK Steel (AKS) posted strong gains, up 5.75% and 9.50% respectively .
  • China could restrict Apple iPhone sales via a variety of measures, giving a boost to local rivals that have already been grabbing big market share. The European Union could be even more aggressive on U.S. internet giants Facebook (FB) and Alphabet (GOOGL)-unit Google. Apple fell 1.75%, still close to record highs. Facebook and Alphabet lost 1.3% and 2.9% respectively.

European equities

  • European stocks closed in the red, following negative comments from Jerome Powell on Tuesday, markets have started to price in a higher interest rate path in the U.S., which is set to ultimately impact firms' costs. Britain's FTSE 100 fell (by 56 points) and the Dax tumbled as well (down 2444 points).
  • Media stocks were one of the top losers, off over 2% as a sector following earnings news. Shares of WPP fell as much as 14% in trade before closing down 8.2% to GBp1,280. This comes after the advertising giant announced lower net sales in 2018 and a cautious outlook for 2018.
  • Shares in the manufacturer Cobham (COB) were a top gainer, jumping 10% by the close as the company reported a pre-tax profit in 2017, after having registered a loss in the previous year. Shares closed above their 50 DMA to GBp 124.85.

Hong Kong equities

  • The Hang Seng Index (HSI) ticked up after early decline of over 600 points, HSI gradually picked up with mainland stocks, closing 199 points higher. Heavily weighted blue chips bounced back across the board. The internet enterprise Tencent (700.HK) regained 3.4%, closed off at $HK447.00. There was word spread that Tencent has invested in Gaana, an Indian music streaming company.
  • In the property space, Sino Land (83.HK) reported interim underlying net profit of $8.74 billion, up 2.2 times. The shares soared 4% closing at 14.40 above 50 day moving average, as the property developer also declared interim and special dividend of 58 cents.

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Trump's metal tariffs will hurt Americans as well as foreign companies, given that steel and aluminium are key inputs in many industries, including car making, machinery and construction. Photo: Shutterstock

 
– Edited by Robert Ryan


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