Morning Report APAC: Just the start of post-vote pain for GBP, stocks
- The meltdown in GBP continued after the S&P downgrade
- This is just the start of the mess that the Brexit will bring to the market
- Gold rallied yesterday but expect a bumpy road on the rally
- The main support for gold is at $1300/oz
- Iron ore and copper made gains; risk-off sentiment pushed crude prices lower
By Saxo APAC Sales Trading
Economic data of the day (Singapore Time)
2030: USD – GDP Annualised QoQ 2Q (Exp. 1.0%, Prev. 0.8%)
2030: USD – GDP Price Index (Exp. 0.6%, Prev. 0.6%), Core PCE QoQ (Exp. 2.1%, Prev. 2.1%)
1500: KRW - Bank of Korea Policy Meeting
1600: EUR - ECB President Draghi Speaks in Sintra, Portugal
- Brexit: S&P lowered the UK rating to AA from AAA, citing the risk of a less predictable, stable, and effective policy framework in the UK. The cut also “reflects the risks of a marked deterioration of external financing conditions” and constitutional issues arising from the majority of voters in Scotland and Northern Ireland having opted to remain in the EU.
- New Elections: The timeline will be Nominations for candidates close Thursday 30 June at midday, with official candidates subsequently announced. The election process occurs in July/August among both the Parliamentary Party and the grassroots membership. Cameron's successor is expected to be known, at the latest, by Friday 2 September.
- David Cameron highlighted that Article 50 has yet to be submitted to the EU, however rejected calls for a revote. He also set up a team to prepare for the exit which includes Scottish and Northern Irish officials. He underscored how important the EU relationship is noting “Britain will be leaving the European Union but we must not turn our back on Europe or the rest of the world.”
- US: Markit Services PMI came in at 51.3 (mkt: 52.0) from 51.3 in May. The future activity index dipped to 57, from 60; the employment index rose 0.2pts to 52.0; and current business activity was up 0.1 points to 51.3. The composite PMI was at 51.2, from 50.9 previously.
- Advance Goods Trade Balance down to -$60.6bn from -$57.5bn (Exp. -$59.5 nn). Exports fell 0.5% m/m sa in May, following a 2.4% gain the previous month. Import growth came in at 1.4%, from 2.5%. This was the second consecutive month of firm industrial supply imports, up 5.3%, from 3.4%. Exports were weighed down by a 5.1% fall in automotive exports and a 1.7% in capital good shipments.
The meltdown in GBP continued after the downgrade from S&P touching new lows at 1.3121 before recovering at the close slightly. Commodities currencies like AUD and NZD following on the risk off. There was very large bids yesterday at 1.3150 in GBP with feelings in the market that BOE could be behind that move (of course, nothing is confirmed).
Emerging market currencies traded well after the gap at the open yesterday but sold off once NY came in pushing the USD to new short term highs against KRW, SGD.
Fundamentally, we are just at the start of the mess that the Brexit will bring to the market. The risk of contagion in the rest of Europe is very well intact
Hedge Funds are now buying ECB date (July 21) in EUR through downside, ATM, anything that can help them be long gamma.
In G10 currencies, there is good demand in Vega between 3M and 6M with the uncertainty surrounding what the Federal Reserve will do, and when.
European and US equities posted further declines, contrasting with a moderate rally in Asian equities overnight. European stocks tumbled around 3% by Monday's close as the fallout from Brexit vote continues - banks, travel and financial services hit the hardest all closing off 7.5% or more. In the US both the Dow Jones and the S&P fell on Monday below their widely watched 200-day moving average for the first time in three months, although the major indexes came off session lows as the close neared.
Risk aversion hit US airlines hard with the Bloomberg index of US carriers dropping to its lowest since October 2014. Delta Air lost 5.2% while American Airlines and United fell more than 6.5%.
A number of banks downgraded UK stocks and warned of the sectors most vulnerable to the effects of a Brexit. Citigroup said banks were one of the most exposed sectors to Brexit, particularly the UK's domestic lenders. But Citigroup added that European investment banks were also at risk. JPMorgan also said that it expects to see earnings per share cuts from European banks. European banks were hit hard in response with DB -6.2%, UBS -8.1%, CS -9.2%, RBS -15.1% and Barclays -17.4%.
- CKI (1038 HK): Raised to neutral at UBS
- Power Assets (6 HK): Raised to outperform at Daiwa
- Sinotrans (598 HK): Raised to buy at HSBC
- ZTE (763 HK): Cut to neutral at GuoTai JunAn
- Wynn (1128) to open new resort Wynn Palace on August 22.
- BYD (1211) will test-drive its sky-rail proj in the co.’s industrial park on September 15.
- Karrie Intl. (1050) said 2016 net profit +53.4% YoY due to improvement in automation. Factory utilisation rate at 60% in usual season and 70% at peak season.
- BOC (3988) said they have completed the first interbank RMB-KRW direct transaction with Korean bank, Uri Eunhaeng’s branch in CH. BOC is also granted licence in Mexico, will be serving CH corp in Mexico.
- BOCOM (3328) plans to increase capital of BOCOM Life by 1.88bn yuan.
- CH Minsheng (1988)’s P2P top-up service is said to be closed this month.
- Greenland (337) to buy stakes in Board Greenstate Intl. (1253) at $HK570mln.
- APAC Resources (1104)’s unit bought Mount Gibson’s sh for $A4.18mln.
- CH Water Affairs (855) said they target to sell non-core businesses such as real estate, dock and travel in 3-5 years, aiming to improve cash flow and operating costs.
- Tencent (700) confirms 7.8% stake in Bitauto, internet automobile information provider.
- Lippo (226) expects FY net loss of at least $HK300mln.
- Chen Hsong (57) FY net loss $HK173.1mln, rev HK$12.5bn, final div. $HK0.006.
Japan equities preview
- DMG Mori (6141 JP) Cut to Neutral From Outperform at Daiwa Securities.
- Daiwa (8601 JP) Cut to Underperform vs Neutral at Credit Suisse.
- Canon (7751 JP) Raised to Neutral at SMBC Nikko.
- MS&AD Insurance (8725 JP) Cut to Neutral vs Outperform at Macquarie.
- Ariake Japan (2815 JP) Cut to Neutral at SMBC Nikko.
- Shimamura (8227 JP) Raised to Buy vs Neutral at Nomura.
- Haseko (1808 JP) Cut to Neutral From Positive at Storm Research.
- Taiyo Nippon Sanso (4091 JP) Raised at SMBC Nikko.
- Hiday Hidaka (7611 JP): 1Q oper. profit rose 3.9% y/y to ¥1.26bn and Q1 net income climbed 13.2% y/y to ¥806mln; left full-year operating profit forecast at ¥4.66bn.
- Hokkaido Electric Power (9509 JP): Extends Sunagawa no. 3 unit checks through July 28.
- Mazda Motor (7261 JP): BBB+ rating affirmed at R&I, with stable outlook.
- Nippon Sharyo (7102 JP): Wins order from Central Japan Railway (9022 JP) for 224 Shinkansen rail cars; doesn’t give order amount; cars to be delivered over next four fiscal years.
- Okuwa (8217 JP): Q1 operating. profit tumbled 45% y/y to ¥202mln; kept full-year operating profit forecast at ¥3.2bn.
- Recruit Holdings (6098 JP): Invests in the U.S.’ Alignable, network for local business owners.
- Shimamura (8227 JP): Q1oper. profit climbed 38.5% y/y to 12b yen and 1Q net income jumped 44.2% y/y to 8b yen; maintained full-year oper. profit forecast at ¥46.2bn.
- Tokyo Electric Power (9501 JP): Halts Higashi Ohgishima plant’s no. 2 LNG unit.
- Vega (3542 JP): Begins trading on Mothers after IPO priced at ¥1,600.
Australia equities preview
- Newcrest (NCM@AU) raised to buy vs hold at Blue Ocean Equities.
- Altium (ALU@AU) raised to hold vs sell at Bell Potter.
- QBE (QBE@AU) raised to neutral vs underweight at JPMorgan.
- Sydney Airport (SYD@AU) cut to underperform vs neutral at Credit Suisse.
- Rio Tinto (RIO@AU) raised to neutral vs sell at Goldman.
– Edited by Robert Ryan
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