Article / 02 October 2017 at 1:17 GMT

Morning Report APAC: Mood of Japan's manufacturers hits 10-year high

APAC Sales Trading Desk / Saxo Capital Markets
Singapore

 

  • Markets in China, Hong Kong, India and South Korea are closed today
  • Both the Australian and Japanese markets were up in early trade
  • Japan's Tankan index for big manufacturers’ sentiment was 22 in September 
  • This shows they are the most confident in a decade about the business outlook
  • The US said it is in direct contact with North Korea regarding its nuclear program 


By Saxo APAC Sales Trading

Economic data of the day (Singapore Time; GMT+8)

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Speeches 

  • 1815 – UK – European Central Bank's Peter Praet and Denmark's Lars Rohde speak at a conference
  • 0200 – US – Federal Reserve Robert Kaplan Speaks in El Paso


Overnight news

United States

  • The US is in direct communication with North Korea regarding its nuclear program and is testing Pyongyang's appetite for talks, Rex Tillerson said. "We are probing, so stay tuned," the secretary of state said in Beijing, in the first public acknowledgment of such contact. President Donald Trump undercut the comments, tweeting that Tillerson "is wasting his time," adding "save your energy, Rex." 

China

  • There were two sets of PMIs on Sunday. The Official Manufacturing PMI, which looks more at the large manufacturing companies (including the state-owned companies) rose more than expected at 52.4 from 51.7 (Exp. 51.6). That marks the highest reading since April 2012.
  • Output rose to 54.7 from 54.1 in August, pointing to a continued rapid expansion in production. New orders increased to 54.8 from 53.1. Export orders rose to 51.3 from 50.4.
  • Employment fell to 49 from 49.1
  • On the other hand, the Caixin PMI data, which looks more at the small and medium enterprises dropped to 51.0 from 51.6 (Exp. 51.5). The uneven access to loans prompted China to take measures so that credit reaches small business, rural borrowers and startups. The People's Bank of China announced this weekend that it would cut how much cash banks must hold as reserves from 2018, with reductions linked to the flow of funding to parts of the economy where credit has traditionally been scarce. The move could release upwards of 600 billion yuan ($90 billion) for new lending.

 

Foreign exchange

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  • Despite the lower than expected CPI numbers in the US, FX was fairly quiet for the end of the week. It seems though that the tax reforms effect have dissipated and the market is less incline to buy USD at this level. Geopolitical risks are mainly targeted in Europe with the Catalonia referendum so it will be interesting to see the EUR reaction in the next few days.
  • DXY is hovering around 93.00 and it’s difficult to see any strong direction either way at the moment. The market will wait for the next NFP number even though, in my view, won’t be the most important. The dilemma between low inflation and a potential rate hike wanted by some Fed members will determine which direction we go next.
  • USDJPY is holding well above the 200d MA at 112.06 and we still should see buyers on dip in that pair.
  • Emerging Markets: USD was fairly offered overnight with the S&P reaching a new record high. Foreign outflows into emerging markets has temporarily stopped. USDKRW remains quite bid and still above the 200d MA at 1140.06 but the market has calmed down on the USD buying side. BOK being there on top to slow things down.


Foreign exchange movements

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  • The main risk for USDJPY is the snap election on October 22 with funds buying mainly USD puts, which is a good risk reward at this level.


Rates

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  • US Treasuries began to flatten after a morning selloff spurred by a report Kevin Warsh was interviewed for the Fed chair, while long end was underpinned into month-end close.
  • EGB core bond yields go into the close moderately lower with some buying in bund futures after euro-area CPI data fell short of expectations.


Commodities 

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Equities

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  •  All three US indices were in the green on Friday with both S&P500 and Nasdaq creating new highs as Nasdaq approaches the 6,500 level.
  • An experimental drug from Zogenix for a form of epilepsy saw its market value more than double as the stock was up more than 172% in a single day. Results from a late-stage study of its drug, showed that Dravet syndrome patients who were given the drug had less-frequent convulsive seizures.
  • GW Pharma, a rival and a first mover of the development of the epilepsy drug saw its share price tumble more than 9% and is currently supported at its trendline from June.
  • KB Home delivered better-than-expected results as the homebuilder soared 8.5%. The result also spurred on other construction stocks such as Meritage Homes Corp (1.95%) and LGI Homes (1.48%).

Asian equities preview

Japan 

Analyst ratings

- Full Speed Inc (2159): Cut to neutral from positive at Storm Research

- House Foods (2810): Raised to buy from neutral at Mizuho

- JCR Pharmaceuticals (4552): Rated new outperform at SMBC Nikko

- Nitori (9843): Cut to neutral plus from outperform at Iwai Cosmo

- Toray Industries (3402): Raised to neutral plus from neutral at Iwai Cosmo 

Preview

- Adastria (2685): Cuts full-year operating profit target 10% to 13.5b yen after missing 1H guidance

- DCM Holdings (3050): 1H operating profit +4.2% to 13.5b yen

- Godo Steel (5410): Raises 1H operating profit forecast 67% to 1b yen

- Honeys (2792): 1Q operating profit -5.2% to 398m yen

- Milbon (4919): 9-month operating profit +1.3% to 3.9b yen

- Mimasu Semiconductor (8155): 1Q operating profit +13% to 1.2b yen

- Nippon Steel & Sumikin (9810): Will become equity-method affiliate of Mitsui (8031) and acquire part of Mitsui’s iron & steel ops

- Nissan (7201): Temporarily suspends vehicle registrations in Japan

- Noritake (5331): Lifts 1H operating profit forecast 50% to 2.1b yen

- SoftBank (9984): Nidec’s (6594) Nagamori to resign from board

- Star Mica (3230): Boosts full-year operating profit forecast 7.3% to 3.6b yen; lifts planned year-end dividend to 16.5 yen/share from 13 yen

- Sugi Holdings (7649): 1H operating profit +7.4% to 12.6b yen

- Sushiro (3563): Shinmei to acquire ~33% stake at 15% premium to Thurs. close, as part of co.’s capital tie-up with Genki Sushi (9828)

- Tsuruha (3391): Sept. same-store sales +3.1% y/y


Australia 

Analyst ratings

 - Money3 (MNY AU): Money3 New Buy at Shaw and Partners, PT A$2.13

- Shaver Shop (SSG AU): Cut to Hold at Shaw and Partners; PT Cut to A$0.50

- South32 (S32 AU): South Africa Metalworkers Union Says Strike Called at South32

- Suncorp (SUN AU): Suncorp May Seek to Sell Life Insurance Unit Soon: AFR

- Virgin Australia (VAH AU): Says Disruptions to Check-in System Ended

- Bank of New York Australia ADR Index is down 0.1% to 269.4

- Rio Tinto ADRs are up 0.6% to A$60.18 equivalent

- Companies trading above 20/50/200 DMAs, Bollinger upper band with RSI above 70: BPT

- Companies trading below 20/50/200 DMAs, Bollinger lower band with RSI below 30: NUF

- Companies trading ex-dividend today: AAA, CWP, FDIV, FLOT, HVST, IFRA, MCP, PLUS, QPON, QVE, UMAX, UNV, USR, VACF, VAE, VAF, VAP, VAS, VCF, VEQ, VGB, VGE, VGS, VHY, VIF, VLC

- Newcrest (NCM), Northern Star (NST), Evolution (EVN), Saracen (SAR), Regis Resources (RRL), Resolute Mining (RSG), OZ Minerals (OZL): Gold Heads for Worst Month in 2017 as Dollar Rebounds; Gold down 0.6% Friday

- Woodside (WPL), WorleyParsons (WOR), Oil Search (OSH), Beach Energy (BPT), Karoon (KAR), Origin Energy (ORG), Santos (STO): Oil’s September Surge Propels Bull Market Run on Demand Optimism

- BHP Billiton (BHP), Rio Tinto (RIO) and Fortescue (FMG): Iron ore is down 1.3% to $62.05

Preview

- AMP (AMP AU): Taiping Insurance Denies It Has Plans to Buy Dah Sing, AMP

- BHP Billiton (BHP AU): Iron Ore Becomes Punch Bag as China Concerns Drive 20% Collapse; Iron Ore’s Heartland Pumps Out 1,500 Tons a Minute in Record Dig

- Commonwealth Bank (CBA AU): Departing CBA CEO Narev Won’t Get Long-Term Bonus for This Year

- Crown Resorts (CWN AU): Macau Sept. Casino Revenue Rises 16.1% Y/Y; Est. 14% Rise

- Macquarie Group (MQG AU): Makes Two Hires for European Business

- Pilbara Minerals (PLS AU): Great Wall Motor Says Exchange Seeks Information on Pilbara Shrs

- Rio Tinto (RIO AU): Steel Stocks Still Not Pricing-In China Supply Reform: Jefferies


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 Japan's Tankan index for big manufacturers’ sentiment recorded an impressive rise in September. Photo: Shutterstock 


– Edited by Gayle Bryant


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