Morning Report APAC: Oil rallies on reported output cap talks
- 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
- 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”.
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
- 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
- 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
– Edited by Susan McDonald
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