Article / 13 February 2018 at 1:50 GMT

Morning Report APAC: Markets pick up in wake of global stock rebound

APAC Sales Trading Desk / Saxo Capital Markets
Singapore

 

  • Precious metals gained as stock markets rebounded and the US dollar weakened
  • Gold had a small gain as investors awaitingr US inflation data
  • Copper gained on the back of weaker USD and Donald Trump’s infrastructure plan
  • Oil prices dropped slightly due to the residual impact of surging US output

By Saxo APAC Sales Trading


Economic data of the day (Singapore Time)
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Speeches

  • 2100 – US: Cleveland Federal Reserve Bank president Loretta Mester to discuss monetary policy and economic outlook

Overnight news, market rebound

  • US Equities rebounded overnight pushing with it all the equity markets up. Every sector benefited from the rally and VIX dropped to 25.61.
  • US 10 year yield is staying close to the top at 2.85%. Most bank analysts believe the 10 year yield will move to 2.95% by September; Goldman Sachs is even seeing 3.5% in the next six months. We are starting to see a reversal in the flattener trade with the 5 year-30 year moving from a low of 42 to 58 basis points in the span of just two weeks.

Overnight news, US budget

  • President Trump proposed a $4.4 trillion federal budget for fiscal 2019 that would slash entitlements and other domestic programs in favor of higher spending on the military and immigration enforcement. The deficit would almost double from projections last year under the plan.

 

Foreign exchange

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  • DXY has resumed its move lower following the equity rally overnight. So 90 should be the short term support but the Heikin-Ashi trend is showing sign of a rally.
  • Overall the range in Forex is fairly small on either side. There is still strong demand for downside in USDJPY and CrossJPY from the Hedge Fund community.
  • Emerging Markets: USDZAR is well offered with the hope of Jakob Zuma out of the presidency increasing. USDZAR is consolidating now around 12.00, but we are back at the lows since 2015.

Foreign exchange movements

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  • AUD and NZD vols are collapsing due to realised vol not performing, and the market recovering. The market had bought a lot of AUD and NZD vols during the equity selloff last week as it is one of the best proxy for it in FX.
  • There are still buyers of downside CrossJPY and funds are still selling ATM or upside to fund the downside options

Rates

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  • UK gilts underperformed in bonds market as Bank of England official says that the bank need to increase rate successively to stop the economy running too hot.
  • Core European bonds had little change however peripherals especially Italy and Portugal outperforms following risk off declines in previous day.
  • US yields change less than 1pip up to 10year, long end was being bid, however the change was due to short covering in futures.

Commodities

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Equities

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US equities

  • Apple led the tech rally with a 4.03% rebound yesterday as it led the rebound in Silicon Valley.  On technicals, the stock has been well supported at the $155 in the past few sessions, which is also trend line support from August last year. The recent sell down indeed made Apple look attractive at current level; a cash secured put on Apple at $155 strike is worth a second thought.
  • Boeing’s rally also aid the recovery in Dow Jones as it rebounded by 410 points yesterday before closing 1.7% higher. There was nothing specific in the news, but note that as a price weighted index, the Dow is most sensitive to stocks such as Boeing (Highest weighting due to its price) and the aircraft maker is just 5% off from its 52 week high and still up by 17% year to date. Not a stock that that I will be comfortable buying in definitely despite the recent discount given by the sell down.

European equities

  • Germany's Dax (which gained 175 points) and the FTSE (+84 points) finished on an upbeat as the global market bounced. Shares of TDC soared 13% to 49.47, the Danish operator confirmed the $6.7 billion takeover offer from Australia’s Macquarie-led consortium and three Danish pension funds.
  • Basic resources and energy stocks closed higher on the back of a stronger uptick in commodity prices. London listed Anglo American (AAL), BHP Billiton (BLT) and Rio Tinto (RIO), these miners rose 2.3%, 2% and 2.8% respectively, as some metal prices came in higher.
  • Joining into the commodities uptick, chemical related counters climbed as well, after several rating upgrades, boosting the sector sentiment. Polymer solutions firm Victrex (VCT) rose over 3% to 80.00, following an upgrade from BAC. Lastly, Umicore (UMI) jumped over 6% to 46.78 – a new 52 weeks high, after Credit Suisse and Citigroup raised their price target on the stock.

Hong Kong equities

  • The Hang Seng Index (HSI) traded lower (-47 points; down 0.2%) to 29,459, initially it opened up 205 points but slowly gave up its gains. Following the sell down on Friday, Tencent (700.HK) once rebounded 3% but only rose 0.54% at close to $409.6. Sunny Optical (2382.HK) climbed 3.5%, being the best performer of blue chips.
  • On Chinese financials, these counters broadly retreated after their early rise. Bank of China (3988.HK) and ICBC (1398.HK) reportedly proposed to bid for DVB Bank. However, Bank of China closed flat at $HK4.17, while ICBC closed at $HK6.46.


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 Trump's proposed budget would boost spending on the military and immigration, including measures aimed at curbing arrivals from neighbouring Mexico, above. Photo: Shutterstock


– Edited by Robert Ryan


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