Article / 02 June 2016 at 2:41 GMT

Morning Report APAC: Oil rallies on reported output cap talks

APAC Sales Trading Desk / Saxo Capital Markets


  • Oil closes near $49/barrel on reported talks on output ceiling
  • Stronger than expected read on US manufacturing bolsters rate hike expectations
  • Yield curve flattens to levels not seen since late 2007
  • AUD rallies after a better than excepted Australian GDP
  • Iron ore falls 3.5% to $48.40/tonne, a three-month low

By Saxo APAC Sales Trading

Economic data of the day (Singapore Time)

0700: KRW – South Korea GDP SA QoQ (Act. 0.5%, Prev. 0.4%), YoY (Act. 2.8%, Prev. 2.7%)

0930: AUD – Retail Sales MoM (Exp. 0.3%, Prev. 0.4%) 

0930: AUD – Trade Balance (Exp. -2100M, Prev. -2163M) 

1700: EUR  – Eurozone PPI MoM April (Exp. 0.1%, Prev. 0.3%), YoY (Exp. -4.1%, Prev. -4.2%) 

1945: EUR  – ECB Main Refinancing Rate (Exp. 0.0%, Prev. 0.0%) 

1945: EUR  – ECB Deposit Facility Rate (Exp. -0.4%, Prev. -0.4%) 

1945: EUR  – ECB Marginal Lending Facility (Exp. 0.25%, Prev. 0.25%) 

1945: EUR  – ECB Asset Purchase Target (Exp. EUR 80Bn, Prev. EUR 80Bn) 

2015: USD – ADP Employment Rate (Exp. 173k, Prev. 156k) 

2030: USD – Initial Jobless Claims (Exp. 270k, Prev. 268k), Continuing Claims (Exp. 2150k, Prev. 2163k) 

2100: SGD  – Purchasing Managers Index (Exp. 49.7, Prev. 49.8) 

2145: USD – ISM New York (Prev. 57.0)


2030: EUR  – ECB's governing council reviews rates; Mario Draghi speaks to press

2345: CAD  – Bank of Canada's Lawrence Schembri speaks in Nova Scotia

Overnight news 

  • US: ISM Manufacturing was better than expected at 51.3 (exp. 50.3). It was helped by an increase  in orders. The prices index, which measures costs of raw materials, jumped 4.5 points MoM to 63.5, the third month of expansion. Prices were higher for a range of commodities from aluminium to steel to crude oil. 
  • The Fed’s latest Beige Book indicated that inflation pressures grew slightly across the nation in the period to mid-May. In addition, labour markets tightened across most regions, pushing wages higher for many workers. The report on regional economic conditions showed that “tight labour markets were widely noted in most districts". Employment and wage growth were described as modest, with pay raises “concentrated in areas of labour tightness”.


Foreign exchange


USDJPY dropped yesterday after touching the top of the cloud at 111.30. It traded all the way back  down to the bottom of the Ichimoku, most probably on stops after the strong buying seen in USDJPY by funds in previous weeks. The momentum seems strong on the downside now. The first support is only at 108. 

After a better than excepted Australian GDP, AUD rallied but couldn’t close above the 200-day moving average at  0.7246. One factor could be the drop of iron ore of 3.5% to $48.40/tonne, a low since February 26. 

Despite the fact that whole milk prices fell 1.7% in the GDT dairy auction, NZD was resilient for
the second day and traded at the 50-day moving average, which should be the short-term resistance. Expect some selling interests at this level. 

A poll showing an increase in support for Britain to leave the European Union pushed GBP much lower overnight to almost reach the support set by the 100-day moving average. EURGBP had a similar move  and rallied strongly all the way up to the 100-day MA which will be the strong resistance.

Foreign exchange movement

USDJPY vols traded higher on the break lower of the spot. The market seems short gamma or the
funds are unwinding their long USD calls positions. GBP vols had a big move yesterday. 1M vol ATM traded 4 vols higher to a high of 21, the highest level since 2009. The 1 day vol 23/24 June rallied also from 70% a few days ago to 95%. Risks of the UK leaving the European  Union alongside subdued domestic economic data have weighed on the prospects of a pick-up in inflationary pressures.



The yield curve flattened to levels not seen since late 2007 as the stronger-than-expected read on US  manufacturing bolstered beliefs that the Federal Reserve is poised to raise interest rates in the summer. In the run-up to the ISM release, US Treasuries were rallying. But the stronger-than-expected US ISM hit front-end yields instantly with the 2-year jumping 3 basis points and extended through the afternoon. The US 10-year Treasury yield initially fell from 1.84% to 1.80% (a two-week low) but then rebounded during the NY session to 1.85%. 

A hit to risk sentiment caused the yield on 10-year UK gilts to fall by 5.6 bps to 1.371%. The UK’s 30-year break-even rate, a bond-market gauge of expectations for retail prices over the next three decades, has fallen below 3 percentage points for the first time since February 2015.






A raft of mixed Chinese and European May PMI factory reports highlighted worries about the  global economy and drove the risk-off atmosphere in stocks. But US equities rebounded to end the day almost unchanged as the US May ISM manufacturing data delivered a pleasant surprise. 

The US Federal Reserve's Beige Book pointed to tightening labour markets, but also modest wage growth, and failed to inspire a convincing rally. 

The consumer staples had a strong day, led by a 4.9% jump in Whole Foods Market as Credit Suisse upgraded the supermarket chain. 

General Motors dropped 3.4% and Ford Motor lost 2.8% to weigh on the consumer discretionary group. US auto sales were softer than forecast in May, showing consumer demand for cars is leveling off faster than the industry expected. 

Michael Kors plunged 25% in the three months leading up to today's fourth-quarter earnings report, but Kors is up 6% today in the wake of earnings. Kors achieved top- and bottom-line expectations and authorised a big new stock repurchase. 

Under Armour fell 3.9% to a four-month low after cutting its outlook, citing the demise of one of its largest customers, the Sports Authority Inc.




HK Equity Preview

Analyst views:

  • Sinotruk (3808 HK): Raised to neutral at Macquarie 
  • Sinomax (1418 HK): Rated new buy at Guosen 
  • Tingyi (322 HK): Cut to underperform at KGI Securities 
  • Weichai Power (2338 HK): Cut to underperform at Macquarie 
  • Lenovo (992) Google said to seek entire stake in Lenovo, approx 371m shares at HK$4.56-4.62/share, ~4% discount vs yesterday's close, to raise up to USD221m (IFR) 
  • SH Electric (2727) the controlling shareholder, Shanghai Electric (Group) Corporation acquired 120m H shares of the company during the period 4 May-31 May 
  • SSY Group (2005) has obtained approvals for drug clinical trial for epilepsy and rheumatoid arthritis drug, and drug registration also for the latter. 
  • Shui On Land (272) lowers conversion price of convertible securities from  HK$3.11/share to HK$3.06/share
  • Longfor (960) May contracted sales up 153% YoY , 57% MoM to RMB10.2bn 
  • China Shanshui (691) is exploring fund raising options, including equity fund raising, to resolve financial difficulties; chairman Li resigned on May 31. 
  • Jiangxi Copper (358) to set up HK unit with $105m registered capital 
  • GOME(493) continues to buy back 49,149k shares on market yesterday at HK$0.91-0.94/share 
  • Glencore (805)'s Tahmoor mine near Sydney is set to close in 2019, resulting in loss of ~350 jobs (ABC local radio
  • Be Clean Energy (1250) cooperates with China Nanshan to develop distributed photovoltaic power stations 
  • Genting HK (678) announced that the disposal mandate relating to ordinary shares of NCLH has expired on 1 June 2016 and the group had disposed of 15,171,027 NCLH shares. 
  • CIMC Enric (3899) terminates acquisition of Sinopacific Offshore, says certain conditions can’t be fulfilled 

Japan Equity Preview

Analyst views:

  • Ariake Japan (2815 JP): Raised to outperform from neutral plus at Iwai Cosmo 
  • Daikin (6367 JP): Cut to neutral at SMBC Nikko 
  • Horiba (6856 JP): Raised to outperform from neutral at SMBC Nikko 
  • Itochu (8001 JP): Raised to overweight at JPMorgan 
  • Kansai Paint (4613 JP): Cut to neutral at Goldman 
  • Kawasaki Kisen (9107 JP): Downgraded to neutral from overweight at Mitsubishi UFJ Morgan Stanley 
  • Makita (6586 JP): Cut to hold from buy at Jefferies 
  • Rohto Pharmaceutical (4527 JP): Raised to outperform from neutral plus at Iwai Cosmo 
  • Shionogi (4507 JP): Downgraded to neutral plus from outperform at Iwai Cosmo 
  • Terumo (4543 JP): Raised to overweight from neutral at Mitsubishi UFJ Morgan Stanley 
  • Toyota Tsusho (8015 JP): Cut to neutral at JPMorgan 
  • Astellas (4503 JP): Roche gets FDA approval for Tarceva companion diagnostic test 
  • Chugai Pharmaceutical (4519 JP): Licenses SA237 antibody to Roche 
  • Cyberdyne (7779 JP): Oasis’s Fischer says stk overvalued and company’s market is smaller than people think 
  • Ito En (2593 JP): Forecasts oper. profit up 16% to ¥20bn vs est. ¥19.1bn (three analysts) 
  • Kansai Paint (4613 JP): To sell ¥100bn of CBs; to use ¥20bn of proceeds for buybacks 
  • Kikkoman (2801 JP): Lifts full-year net income forecast 20% to ¥24bn; maintains operating profit and sales targets 
  • SoftBank (9984 JP): Said to be planning further asset sales, possibly including stake in GungHo Online (3765 JP); story reported by Bloomberg late in trading day 
  • Yahoo Japan (4689 JP): SoftBank may use Alibaba sale for Yahoo Japan purchase, Nikkei reports 

Australia Equity Preview

  • Bank of Queensland (BOQ@AU) cut to neutral vs buy at Goldman Sachs 
  • Bendigo & Adelaide Bank cut to sell vs neutral at Goldman Sachs 

Source: Bloomberg / CIMB


 Opec delegates said the group would be discussing production caps. Photo: iStock


– Edited by Susan McDonald

This report was compiled by the Saxo APAC Sales trading team in Singapore – the home of social trading. Follow the team on @SaxoStrats or post your comment below to engage with Saxo Bank's social trading platform. Follow us on @SaxoStrats on Twitter

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