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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 14 February 2018 at 2:01 GMT

Morning Report APAC: Key lies with US inflation

APAC Sales Trading Desk / Saxo Capital Markets
Singapore

 

  • JPY is trading close to a five-month high at ¥107.74 per dollar
  • Investors keenly await the US inflation report for direction 
  • 10-year yields tipped to hit 3.5% in the next six months


By Saxo APAC Sales Trading


Economic data of the day (Singapore Time)
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Speeches

  • 1600: EU – Deutsche Bundesbank president and European Central Bank governing council member Jens Weidmann speaks in Frankfurt, Germany
  • 1820: EU – ECB board member Yves Mersch speaks in Frankfurt 

Overnight news

Waiting for US CPI: Remember that the equity selloff started after the surprise on the wages inflation in the payroll report so the inflation data tonight are extremely important. 

The market is expecting core inflation to be at 1.7% YoY from 1.8% the previous month. 

If there is a positive surprise in inflation, expect another round of equity selloff, US yields to bring new highs and the curve steepening.   

USD should also rally but we don’t believe that that move will be sustained for too long.

On a negative surprise for CPI, expect the USD to drop and the US Treasury curve to flatten. Equities should have a strong rally as well on that.

UK CPI: UK CPI surprised on the upside at 3.0% YoY (expected. 2.9%) and core at 2.7% YoY (expected: 2.6). 

Upward pressures came from the recreation and culture sector, where prices posted their smallest January decline in five years. 

There was also some pressure from clothing prices as seasonal discounts failed to match those of a year ago.   

Japan GDP:  Big disappointment for Japan GDP which printed 0.5% SA quarter-on-quarter with an expectation of 1%. 

The dip in Q4 reflected weaker public demand, and reduced support from external demand due to a pickup in imports. 

Private-sector demand was solid -- business investment and consumer spending both increased. A drop in inventories dented the Q4 GDP.

Singapore GDP: Positive surprise in the Singapore GDP at 3.6% YoY from 3.1% (expected: 2.9%). 

Manufacturing in the trade-reliant economy was boosted last year by a surge in electronics exports. 

Services industry, which makes up about two-thirds of economy, grew at an annualised 6.3% in the fourth quarter from prior three months. Manufacturing contracted 14.8% while construction declined 0.2% 


Foreign exchange

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DXY continues to be well offered with USDJPY accelerating lower on the break of ¥108.50. 

The market has been buying aggressively downside strikes for a while now and it finally performed and locals have been seen selling USDJPY .

The market will now wait for the US CPI tonight but the feel is that we will see another big move lower of the USD after the number no matter what.

Emerging Markets: USD/emerging market currencies were fairly mixed despite the rally in equities in Asia yesterday. Funds are waiting for the inflation data in the US tonight.


Foreign exchange movements

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AUD is still collapsing due to realised vol not performing and the market recovering.  

The market seems to be long spot EURUSD and is buying short dated Puts for protection for tonight US CPI but in the longer end of the part the skew is still for the upside.
 
Banks seem still short gamma in USDJPY following all the Funds interests to buy downside in the pair and is buying back now since the break of 108.

Rates
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Gilts yields were higher with solid headline inflation data in Jan and core inflation ticked up.

Bunds held the gain, while peripherals were sold off with concession seen buildup ahead of Italian auction and Spanish syndication in coming weeks.

US Treasuries were higher with dovish option hedges emerged ahead of inflation data in US.

Commodities 

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Equities
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US: The Dow posted a third day gain +39 points to close at 24,640, after falling as much as 180.24 points. Goldman Sachs (GS) and 3M (MMM) were one of the biggest contributors to the gain.
 
Under Armour (UAA / UA), athletic apparel maker reported a break-even quarter on an adjusted basis and revenue topped consensus. 

Share price for UAA – class A shares – were up 17% closing at 16.70, which breaks the 50 Day Moving Average.  

On the other day, North American sales fell, but that was offset by a strong performance internationally. Under Armour also announced an expansion of a previously announced restructuring program, saying it saw more opportunities to optimise its operations.

Shares of AmerisourceBergen (ABC) jumped nearly 10% after the Wall Street Journal reported Walgreens made a takeover approach for the drug distributor. Walgreens fell 1.8%.

Medical Equipment wholesaler Patterson Companies Inc (PDCO), fell sharply – 5% to 31.21 - on the news that PDCO allegedly involved in dental discount conspiracy and certain other executives may have issued materially misleading business information to the investing public.

Europe: Germany's Dax (down 86 points) and the FTSE (which lost 9 points) closed in the red amid corporate earnings releases, but miners outperformed. 

The telecoms sector dived 1.1% due to unfavourable earnings report. Shares of Telenet (TNET) fell around 5% on dividend concerns after the Belgian operator posted its 2017 results.

Additionally, Inmarsat (ISAT) slipped 5% after HSBC cut its price target on the stock. 

In commodities markets, oil prices gave up their gains, after a forecasting agency projected global crude supply could overtake demand later this year. 

However, basic resources outpaced fellow sectors, finishing up nearly 1%, as a sharp uptick in metal prices boosted London-listed miners, including Anglo American (AAL) , BHP Billiton (BLT) and Glencore (GLEN), which all closed up above 1.5%. 

Hong Kong: The Hang Seng Index (HSI) was up 379 point (1.29%) to 29,839, gain expanded to 709 points at most to peak at 30,169 during the day. 

In the property sector, HKICIM Group (687.HK), together with parent company HNA, proposed to sell two land parcels in Kai Tak at $16 billion to Henderson Land (12.HK). The two stocks rocketed 8.5% and 1.3% respectively. 

Technology fared well broadly, shadowing the positive sentiment of the sector. Tencent (700.HK) reclaimed 50 Moving average ($423.53) to peak at $424.8 and last traded at $423.6, showing a continuous rise. 

Sunny Optical (2382.HK) breached above 100MA ($118.66) in the morning to peak at $124.4 and closed at $119.00, surging around 9%. 

The company issued a positive profit alert and expected to report at least 1.2 times escalation in 2017 net profit.

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 US equities can raise the flag - a little - as indices continue to improve. Photo: Shutterstock


– Edited by Adam Courtenay


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