Article / 15 December 2015 at 2:03 GMT

Morning Report APAC: Oil and junk seep through the market

APAC Sales Trading Desk / Saxo Capital Markets

  • Oil prices in the mix, with the market falling to new lows before recovering
  • Eurozone industrial production a stronger-than-expected 0.6% m/m in October
  • Bank of England official's dovish comments have weighed on GBP
  • Selloff in US junk-bonds is continuing, with asset managers offloading

By Saxo APAC Sales Trading

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

1200: IDR – Exports YoY (Est. -10.7%, Prev. -20.98%), Imports YoY (Est. -19.75%, Prev. -27.81%)

1200: IDR – Trade Balance Nov (Est. $900Mln, Prev. $1019 Mlm)

1300: SGD – Retail Sales Oct MoM (Est. 1.7%, Prev. -3.7%) YoY (Est. 2.6%, Prev. 4.6%) Ex Auto YoY (Est. -3.5%, Prev. -1.4%)

1730: GBP – CPI Nov MoM (Est. -0.1%, 0.1%) YoY (Est. 0.1%, Prev. -0.1%) Core YoY (Est. 1.2%, Prev. 1.1%)

1730: GBP – RPI Nov MoM (Exp. 0.0%, Prev. 0.0%), YoY (Exp. 0.9%, Prev. 0.7%)

1730: GBP – PPI Input MoM (Exp. -1%, Prev. 0.2%), YoY (Exp. -12.4%, Prev. -12.1%)

1730: GBP – PPI Output MoM (Exp.- 0.1%, Prev. 0%), YoY (Exp. 0.1%, Prev. 0.3%)

1800: EUR – Employment 3Q QoQ (Prev. 0.3%) YoY (Prev. 0.8%)

1800: EUR – Germany ZEW Survey Current Situation (Exp. 54.2, Prev. 54.4)

1800: EUR – Germany ZEW Survey Expectations (Exp. 15.0, Prev. 10.4)

2130: CAD – Manufacturing Sales Oct MoM (Est. -0.5%, Prev. -1.5%)

2130: USD – Empire Manufacturing Dec (Est. -7, Prev. -10.74)

2130: USD – CPI Nov MoM (Exp. 0%, Prev. 0.2%), CPI ex Food and Energy (Exp. 0.2%, Prev. 0.2%)

2130: USD – CPI YoY (Exp. 0.5%, Prev. 0.2%), CPI ex Food and Energy (Exp. 2%, Prev. 1.9%)

2130: USD – CPI Index (Est. 237.2, Prev. 237.838) Core (Est. 244.09, Prev. 243.7)


08:30am: AUD – RBA December Meeting Minutes

Overnight news

  • Eurozone industrial production rose a stronger-than-expected 0.6% m/m in October (market expected 0.3%), with annual growth lift to 1.9% y/y. There were large gains in French, Italian and Dutch production, which overshadowed weaker results from Germany and Spain.
  • Bank of England deputy governor Nemat Shafik delivered some dovish comments, noting that wage growth needs to pick up to support a recovery in inflation towards the BoE’s 2% target before it would raise rates, given the headwinds presented by weaker oil prices, softer growth in emerging economies and a stronger GBP – and we saw these comments weigh on GBP. 
  • Distressed debt/high-yield: The selloff in US junk-bonds continued.The iShares iBoxx $ High Yield Corporate Bond ETF declined 0.9% but it was down 1.6% at session lows. Publicly-traded asset management firms with junk bond portfolios were under pressure. Many of the most heavily traded individual bonds traded in the red; with debt from energy and mining companies continuing to be weak with very little liquidity. Lucidus Capital is now next in line to liquidate $900m of holdings and return capital to investors, following the same path as Third Avenue yesterday. 
  • Oil prices dominate markets and fell to new post-2008 lows during the session (before recovering), weighing on equity markets ahead of this week’s Federal Open Market Committee decision. 


Foreign exchange


Source: Saox Bank

USD unwind was the theme of the night as the street reduced longs (sometimes violently) ahead of the FOMC meeting. When the dust settled we ended up around Friday's close. 

EURUSD traded as high as 1.1049 before hitting good offers on the street. Breaking the 200 Day Moving average at 1.1030 but significantly not the 100 DMA at 1.1055. 

AUD and NZD both traded higher to $0.7270 and $0.6790. AUDUSD has resistance at the $0.7300 area and NZD a quadruple top at $0.6785/90. The NZDUSD is just bubbling under this level this morning and it seems like only a matter of time before it breaks and inflicts a lot more pain on shorts and AUDNZD longs. 

In emerging  markets, USDMXN pulled back from record highs near 17.50 on Friday with support at 17.28 portending a much deeper correction. After a tumultuous Monday session, USDZAR has held onto most of its gains to settle at 15.10 with a break of yesterday’s lows at 14.92 opening up another potentially emotional leg lower. 

USD/Asia should come under pressure today following on price action and the rebound in oil. USDCNH in particular was capped above 5.5600 by official “smoothing” and has much the same set up as MXN and ZAR above. 

Overall, the USD selloff shows the level of nervousness out there. We would expect this to continue. I would not be surprised if the level of USD long positioning into the Fed this week is a lot lighter than the market thinks.

Foreign exchange movements


Source: Bloomberg

USDJPY: There is still plenty of interest to buy downside strikes for Thursday and Friday which gets the FOMC event. Curve is very well supported and gamma should squeeze higher if spot breaks below 120.00. USDCNH volatilities were paid up yesterday with spot pushing above 6.5550 and the forward points still near the highs.

1 year USDCNH is around 7.6 mid and the risk reversal is 3.2 for the USD calls. AUDUSD volatilities are also seeing decent buying interest yesterday when spot was under $0.7200 but this has eased somewhat. Expect the curve to come off if spot grinds higher or holds $0.7200-$0.7280 range.



Global rates markets were choppy overnight from fluctuating oil prices. The bounce in oil prices led to a broad-based selloff. US Treasury 10-year yields were up over six basis points  and European yields were up between three and 10 bps.

Commodities  xxx

Source: Bloomberg



Source: Bloomberg

Lower oil prices and some concerns over global credit markets generally weighed on equity markets.  European stocks were under pressure, with the Euro Stoxx 50 closing down 2%. European stocks reversed early wins to close at 2½ month lows as the commodity-related sectors continued to lose ground and Brent crude slid below $37/barrel for the first time since December 2008.

Anglo American dived 4.2% after S&P Ratings Services warned that it may further cut its credit rating.

US stocks rallied late to close comfortably in positive territory having earlier whipped around either side of break even as all eyes remained focused on a bounce in oil, further pressures in the distressed debt market and the impending monetary policy decision from the Federal Reserve Bank.



Source: Bloomberg (IG: Investment Grade)

Company/country News:

Hong Kong 

Two of China Ocean Shipping's units, China COSCO Holdings (1919) and COSCO Pacific (1199), plunged 28 percent and 17 percent respectively after the government announced merger plans to create one of the world's largest container lines.


Bank of Japan officials are gaining confidence in the resilience of Japan's economy thanks in part to the revised GDP and improving capex numbers. They are likely to extend the life of its loan-support programs by one year.

Source: MS and CIMB


xxx xxx

 The oil price was under pressure last night, moving as low as $35/b. Photo: iStock

– Edited by Adam Courtenay

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