Article / 15 August 2016 at 1:39 GMT

Morning report APAC: Poor US retail sales feeds into rate-hike plans

APAC Sales Trading Desk / Saxo Capital Markets


  • US retail sales were worse than expected at 0.0% month-on-month
  • The USD sold off after the poor US retail sales but managed to rally back slightly
  • The main mover in the G10 space was the EUR with a spike above 1.1200
  • Pricing of the Fed funds rate fell, implying a 15% chance of a rate hike in September


By Saxo APAC Sales Trading

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

Overnight news


  • Joseph Schooling became the first Singapore Olympic Gold medallist after winning and beating the Olympic record of the 100m fly. His time was 50.39 sec. He beat his long-time idol Michael Phelps who finished second with Chad Le Clos and Lazlo Cseh.
  • On behalf of Saxobank Singapore, we would like to congratulate Schooling for his great achievement, Singapore for believing in making great achievements in sports and pushing the next generation to get more gold medals in the Olympics. 

United States

  • Retail sales were worse than expected at 0.0% MoM and down 0.3% ex autos and gas. Relatively strong sales at auto dealers and non-store retailers were cancelled out by weakness just about everywhere else. Sales at auto and parts dealers jumped 1.1%. Non-store – predominantly online – retailers leapt 1.3%. Department-store sales dropped 0.5%. Sales at gasoline stations slumped 2.7%
  • The PPI declined a seasonally adjusted 0.4% MoM (Exp. +0.1%), the largest one-month fall since September 2015. Core producer prices fell 0.3% (Mkt est: +0.2%). Much of the headline drop was in typically volatile categories such as trade services and energy
  • The University of Michigan said its index of consumer sentiment climbed to 90.4 (Mkt est: 91.5) from 90 in July. The current economic conditions index fell to 106.1 from 109 but the index of expectations jumped to 80.3 from 77.8

  • People's Bank of China Chief Economist Ma Jun said China does need to lower corporate debt leverage by eliminating zombie companies and improve budget controls at state firms and local governments. But slowing growth in the nation’s money supply hasn’t affected the economy and fundamentals support a stable yuan, he said, citing steady forex reserves as a sign the exchange rate is near equilibrium
  • The International Monetary Fund said 19 trillion yuan ($2.9 trillion) of Chinese “shadow” credit products are high risk compared with corporate loans and highlighted the danger that defaults could lead to liquidity shocks. The commentary highlighted the potential for risks bigger to the nation’s financial stability than from companies’ loan defaults. 

Foreign exchange



  • The USD sold off after the poor US retail sales but managed to rally back slightly before the close.
  • The main movers in the G10 space were the EUR with a spike above 1.1200. The main resistance is at the 100d MA at 1.1230. USDJPY remain offered with a Head and Shoulder formation which started on June 24 and a base at 100.50.
  • NZDUSD completely erased the rally following the Reserve Bank of New Zealand cutting the rate and the series of stops following the market disappointment. AUDNZD is now trading in a volatile fashion at the top of the range close to the 100d MA.
  • GBPUSD remained well offered after the Sunday Times reported that the UK could remain in the European Union until the end of 2019, about a year longer than predicted. New departments set up to handle the transition won’t be ready to act should PM Theresa May invoke Article 50 in January, and some ministers said that the situation is “chaotic."    
  • In Emerging Markets, USDBRL rallied almost 2% after President Michel Temer said he was worried with the BRL rally. The monetary authority offered 15,000 of reverse currency swaps, equivalent to buying $750 million in the futures market, maintaining an accelerated pace of intervention that it set on Thursday. It previously offered $500 million in daily auctions.

Foreign exchange volatilities



The market is interested in buying the July 29 in G10 currencies, covering Jackson Hole and we have also seen some buyers for the US elections but nothing spectacular.





  • China: As authorities allow more companies to collapse, domestic bond failures soared this year, bringing the total principal of defaulted notes to 22.5 billion yuan ($3.4 billion) since 2014. Given the short history of such failures, debtholders have no road map for recovering their investments. Moody’s says the country needs to establish bankruptcy protection law like Chapter 11 in the US to offer breathing space for struggling firms to negotiate with creditors and get back on their feet again.
  • Moody’s said many private-sector companies have a greater incentive to repay defaulted securities than state-backed firms because their executives typically give personal guarantees, including pledging their own assets as collateral for corporate debt. Out of the nine defaulted notes fully repaid, seven were issued by private sector companies. 
  • The Bank of England's plan to purchase £10bn worth of corporate bonds to revive the UK economy following the Brexit vote may not be large enough to make a difference. The Bloomberg GBP investment-grade corporate bond index has rallied about 10% since the BoE unveiled its plan on August 4, headed for the biggest weekly increase in almost a month
  • The corporate purchase plan is spread over 1.5 years, which effectively means buying of less than £600mln a month in a market where some traders put monthly secondary-market turnover at about £10bn. By comparison, the European Central Bank has accumulated €14.98bn, or the equivalent to almost £13bn, in just the first two months of its own corporate bond-buying program



  • Global bond funds attracted their highest inflows in almost 18 months after the Bank of England unleashed its largest stimulus package since August 4.
  • On Friday, US Treasuries erased most of Thursday’s losses after July retail sales and PPI were weaker than forecast, reinforced expectations that the Federal Reserve will not be in any great rush to tighten monetary policy. US 10-year treasury yields were lower in late trading by 4bps-5bps, off session lows.
  • Market pricing of the Fed funds rate fell, implying around a 15% chance of a rate hike in September, a 44% chance by December, and 100% by Nov 2017.
  • Japan’s government bonds rallied last week led by 20-and 30-year tenors as investors were lured by the highest yields for super-long-term debt since April.







  • US stocks edged lower on Friday as lacklustre retail sales data offered little incentive for equities to push higher after the three main benchmarks reached records the previous day
  • Losses were led by materials (-1.2%), telecoms (-0.4%) and industrials (-0.3%), while energy (+0.7%), staples (+0.3%) and utilities (+0.1%) posted the only gains
  • J.C. Penney Co. gained 6% after the retailer reported narrower-than-expected Q2 losses, though sales were just below estimates, while Nordstrom shares jumped 8% after posting better-than-expected sales and raised profit projections for the year
  • Silicon Graphics International spiked 29% following news late Thursday that Hewlett Packard Enterprise (+0.51%) agreed to pay $275 mln ($7.75 a share) for the maker of server, storage and software products
  • European stocks ended a choppy session in the red as Stoxx Europe 600 fell 0.2%
  • A.P. Moller-Maersk shot up 3.1% as Q2 earnings before interest and tax totalled $656mln beat an estimate of $551mln, despite drops in profit and revenue amidst tumbling freight rates and weak oil prices

Asia-Pacific stocks

Hong Kong analyst ratings

 - IC (981 HK): Raised to buy at Citi

- Sunny Optical (2382 HK): Cut to neutral at Crosby Securities

Hong Kong Preview

- Bestway(718) wins rights to collect 28 non-performing debts, in aggregate principal amount of RMB665.4mn

- Henderson(12) and New world dev(17) price 24 parking spaces at their The Reach project in Yuen Long

- China Gas(384) plans restructure with Shenzhen Nanshan Power

- CKP(1113) is open to the possibility of selling any buildings except the CKC where it is based

- 3SBIO(1530) announced that the anti-epidermal growth factor receptor monoclonal antibody has received an approval for clinical trial

- COLI(688) Jul property contracted sales was HK$12.76bn

- Shenwan Hongyuan(218) interim net profit -61.6% YoY to HK$47.7mn

- Star PPT(1560) issued profit warning, expecting interim results to swing to loss

- China HongQiao(1378) interim net profit +20.7% YoY to RMB3.3bn

- HXTL(1085) interim net profit +2.5% YoY to RMB50.5mn

- Yue Yuen Ind(551) interim net profit +18.3% YoY to US$249bn

- Kerry PPT(683) buys clear water bay studio with $930mn

- Shenzhen Inv(604) Jan-Jul contracted sales +30.7% YoY to RMB14.6bn

- Pacific Plywood(767) issued a +ve profit alert, expecting to record an increase in net profit for 1H16

- Pou Sheng Intl(3813) interim net profit was RMB385mn, +135% YoY

- Ping An(2318) Jan-Jul premium income +20% YoY to RMB2.9bn

Japan analyst ratings

- Bic Camera (3048 JP): Cut to equalweight at Morgan Stanley MUFG

- Sharp (6753 JP): JCR upgrades to BB from B+; stable

- Ulvac (6728 JP): Cut to neutral at Storm Research


Australia analyst ratings

 - Telstra (TLS@AU) cut to neutral vs buy at New Street Research

- James Hardie (JHX@AU) raised to outperform at Credit Suisse

Australia preview

- Contact Energy (CEN@NZ) loss for year NZ$66m

- Summerset Group (SUM@NZ) first-half NPAT rises 42% y/y to NZ$50.6m

- Newcrest (NCN@AU) full-year earnings

- Aurizon (AZJ@AU) full-year earnings

- JB Hi-Fi (JBH@AU) full-year earnings

- Ansell (ANN@AU) full-year earnings

- Orora (ORA@AU) full-year earnings

- GPT Group (GPT@AU) 1H earnings

- Sims Metal (SGM@AU) sells recycling assets to Steel Dynamics

Source: CIMB / Bloomberg


 Market pricing of the Fed funds rate fell, implying around a 15% chance of a
rate hike in September
. Photo: iStock

– Edited by Gayle Bryant

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