Article / 15 February 2018 at 2:07 GMT

Morning Report APAC: Rally continues in Asian markets

APAC Sales Trading Desk / Saxo Capital Markets
Singapore

 

  • Asian markets advanced, taking their cue from Wall St
  • US equities rallied overnight despite the above-expectation CPI
  • The USD was bid after the CPI result, but then collapsed
  • No support before 100 for USDJPY
  • South African President Jacob Zuma resigned 


By Saxo APAC Sales Trading

Economic data of the day (Singapore Time)

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Speeches (Singapore Time)
 

1615 – EC – European Central Bank’s Yves Mersch speaks in Paris

2000 – EC – ECB’s Sabine Lautenschläger speaks in Amsterdam 

0200 – CA – Bank of Canada deputy governor Lawrence Schembri speech 

0630 – AU – RBA governor gives testimony to parliamentary committee


Overnight news


Go figure!: So the market collapses on higher inflation shown in the NFP report but does the exact opposite after the above-expectation US CPI yesterday. 

CPI came in at 0.5% MoM from an upward revision of 0.2% (Exp. 0.3%, Prev. 0.1%), CPI YoY printed 2.1% (Exp. 1.9%) and even core inflation inched higher at 0.3% MoM (Exp. 0.2%) and 1.8% (Exp. 1.7%). 

The USD initially rallied, US equity futures dropped 1.5% to finish up between 1% and 1.8% down, and then it was a total reversal. And honestly, we have no idea why and how. 

The only thing that made sense yesterday was the US yield rally, and the 10-year Treasury is now trading at 2.90%.

Where do we go from here?: There has been one constant in the past though; the USD is still moving lower, no matter what. There might be some rallies but until proven otherwise it’s still worth selling the rallies. 

For the VIX, if it was not for the SVXY ETF (Inverted VIX ETF) and all these volatilty products, it would already be back at 10. We are now trading at 19.2. 

The other thing that this market tells us is that it is still flush with a ton of cash, and a lot of investors are happy to buy equities at 5% to 10% lower if they get that opportunity. They might have missed it this time due to the fear of uncertainty but their mindset now is that the next move lower, they will go in. 


Zuma is out: South African President Jacob Zuma resigned on Wednesday, bringing an end to his scandal-marred tenure and leaving the nation’s leadership in the hands of the ruling ANC's new leader, Cyril Ramaphosa. 

Andrew Bresler expects a cabinet reshuffle soon. The main one to watch is Gigaba, the Zuma-appointed immaculately dressed finance minister. SA’s budget is due next week. A strong finance minister in the form of a Pravin Gordhan would help avert a Moody’s downgrade.


Foreign exchange

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There was a complete reversal in the USD overnight. It started extremely bid after the CPI numbers and collapsed with the rally of equities. The guess is the market was so ready to see an upside surprise that there was no one left to buy USD and all rushed to take profit in their short-term trade, pushing the USD even further down.

USDJPY is literally collapsing and we can’t see any support before 100!!! The market doesn’t understand why USDJPY is collapsing and is still long, and wrong. The volatility market is telling us also, with the super bid risk reversals (favouring USD puts), that the market is wrong. 

There was no exception overnight on the USD selloff, with all the currencies rallying.

Emerging Markets: USDAsia, USDEM collapsed overnight as well, following the rest of the world and the equity rally. Actually, USD didn’t really rally much after the strong US CPI print (at most 0.5% for most currencies) but was fast to collapse afterwards.


Foreign exchange movements

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The break below 107 triggered more buying interest in volatility for USDJPY and we feel the market is still short below.

On the other hand, there is good supply of vol for the rest of the G10 currencies with this USD move lower.


Rates

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Bunds pared gains after the US CPI data and closed with little change. Peripherals outperformed, led by Portugal, which recorded strong auction demand.

US yields surged to multi-year highs after upbeat CPI data, adding to optimism about a rate hike.


Commodities 

 

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Equities

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US equities: The Dow was on its fourth day of a winning streak, up 253 points, and closed at 24,893, as banks and tech led the rally, even with a jump in bond yields (above 2.91%). News on higher inflation and rising interest rates contributed to the gain as well. 

Fossil Group Inc (FOSL), fashion accessory maker, soared an astounding 87.7% and closed at 16.97 after the company announced fouth quarter results that declined year over year but trounced Wall Street expectations. Revenue fell 4% to $921 million and adjusted earnings per share sank 47% to $0.64. Analysts were expecting EPS of $0.40 on sales of $890 million. 

The financial sector had its best day since November 2017. Shares of Goldman Sachs (GS), up 2.8% to 262.58, contributed the most to the gains, while Bank of America (BAC), JP Morgan Chase (JPM), Citigroup (C) and Morgan Stanley (MA) all traded higher. 

Netflix (NFLX) climbed 3% to $266 after the streaming video company said it signed another big-name TV writer and producer to a production deal. According to reports, producer Ryan Murphy received a $300 million deal that will span five years.


European equities

The DAX (up 142 points) and FTSE (up 45 points) closed off higher, recovering from a sharp dip seen in midday trading. Volatility came in after the US inflation data was above expectations.

In retailer space, H&M fell nearly 5% to 135.00 after the company reported that e-commerce sales were expected to rise by at least 25% in 2018, but sales in stores were likely to fall, before bouncing back in 2019. 

Financials performed fairly with Credit Suisse (CSGN), whose shares jumped around 3.8% to close at 17.115, reported a net loss of CHF 983 million for 2017 as US tax write-downs resulted in a third consecutive annual loss. However, the latest figures were slightly better than analysts had expected. France's Credit Agricole (ACA) posted a 33% jump in profits, as its investment banking unit outperformed in challenging market conditions. Even so, its shares slipped almost 3% by the close, ending off at 13.57.


Hong Kong equities

The Hang Seng Index (HSI) was up 676 points (2.27%) to 30515, driven by Chinese and Hong Kong banks.

Heavyweight HSBC Holdings (5.HK) leaped 2.6% to conclude at $81.9, as the bank was expected to post a reported profit before tax of US$17.4-18.5 billion last year, up 1.45-1.61 times over a year ago period. Hong Kong banks trended up considerably. Hang Seng Bank (11.HK) shot up 7.8% to nearly one-month high after being upgraded to buy by Goldman Sachs with target price lifted by 16% to $220. BOC HONG KONG (2388.HK) rocketed 4.3% and Bank of East Asia (23.HK) climbed 2.2%


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 South African President Jacob Zuma resigned, bringing an end to his scandal-marred tenure. Photo: Shutterstock

 

– 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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