Article / 16 September 2015 at 1:00 GMT

Morning report APAC: Rates rally, equities upbeat ahead of Fed meeting

APAC Sales Trading Desk / Saxo Capital Markets
Singapore







  • A strong move higher in US rates last night pushed the USD higher 
  • EURCHF continues to test the psychological level of 1.1000
  • There were strange move in rates overnight with a strong rally in the whole curve
  • European stocks were up, led by gains in car makers and energy producers


By Saxo APAC Sales Trading

Economic data of the day (Singapore Time)

  • 0100pm (0500 GMT): JPY – Bank of Japan’s Monthly Economic Report for September 
  • 0330pm: THB – BOT Benchmark Interest Rate (Exp. 1.50%, Prev. 1.50%) 
  • 0500pm: EUR – Eurozone CPI YoY (Exp. 0.2%, Prev. 0.2%), MoM (Exp. 0.0%, Prev. -0.6%), Core CPI (Exp. 1.0%, Prev. 1.0%) 
  • 0830pm: USD – CPI MoM (Exp. -0.1%, Prev. 0.1%), CPI ex Food and Energy (Exp. 0.1%, Prev. 0.1%) 
  • 0830pm: USD – CPI YoY (Exp. 0.2%, Prev. 0.2%), CPI ex Food and Energy (Exp. 1.9%, Prev. 1.8%)  

Speeches

  • 0730am: AUD – RBA’s Guy Debelle gives speech in Sydney 
  • 0105am: CAD – Bank of Canada Deputy Agathe Cote Speaks in Winnipeg 

Overnight news 

  • US Retail Sales dropped more than expected to 0.2% MoM (Exp. 0.3%), Ex Autos at 0.1%(Exp. 0.2%)
  • US Industrial Production also drops more than expected at minus 0.4% MoM (Exp. minus 0.2%)
  • The NY Empire Manufacturing Index remained weak at minus 14.67 (Exp. minus 0.5) from a previous low of minus 14.92 reflecting declining orders and employment. NY seems to start feeling the effects of a strong US and weaker overseas economies  







Foreign exchange

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A strong move higher in US rates last night pushed the USD higher with DXY up 0.45%. The main mover on this USD move were EUR, JPY and CHF

EURCHF continues to test the psychological level of 1.1000, the highest level since the drop of the support by the Swiss National Bank in January.

Dairy Prices rose 16.5% in the GlobalDairyTrade auction. This is the third auction that sees dairy prices go up since the 12-year low seen in August. Whole milk powder rose 20.6% and skim milk powder rose 17%. The effect of this was a move higher in the NZD, up 0.6% to 0.6350. The main resistance for NZD still sits at 0.6500.

Despite the move lower in iron ore overnight and the USD rally, AUD was holding well and is still trading well and at the top of the downtrend channel which started in May.

A quiet mixed session in emerging markets had USD/Asia trading broadly lower after the Asian session and USDKRW dropping 6 won to 1180.50 in the 1M NDF after the spot close. 

USDSGD is still testing 1.4000. However USDBRL rallied 1.2% after most members of Brazil’s audit court known as TCU were leaning toward a ruling against President Dilma Rousseff that could shift the balance on starting impeachment proceedings.  

USDRUB had a small relief after oil rallied overnight and trades at 66.67.

Foreign exchange movements

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Interesting flows in London in the volatility market where we have seen sellers of risk reversal of USDJPY (sell USD put, buy USD call) after USDJPY bounced off the lows. AUD gamma trades a bit lower after the resilient price action in spot.


Rates
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There were very strange move in rates overnight with a strong rally in the whole curve. 2yr rates rallied 8 basis points to 0.80% and 10yr UST rallied 12 bps to 2.29%. The US one-year bill auction had the lowest bid-to-cover ratio since December 2009. 

DB reported that indirect bids, which included central banks was 26% compared to around 50% in recent auctions. Sovereign bonds were weak around the world with 10yr yields increasing in a variety of countries: Sweden up 9 basis points, France up 8bps, Germany up 9bps, Canada up 9bps, and  Switzerland up 6bps.

This is hard to draw a conclusion of yesterday’s move but we could imagine the market is trying to reduce some risk in case of a move from the Fed this week and a more hawkish statement about rates.

Commodities 

Note: Investor positioning is pointing to further weakness ahead of the FOMC, with speculators continuing to cut net-long positions across all markets.

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Equities

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European stocks were up, led by gains in car makers and energy producers. Auto stocks advanced on the back of a report showing European car sales rose in August. Daimler added 1.3% after saying the company’s growth momentum in China will last through 2016. 

Upbeat US retail sales data pushed stocks to their highest level in more than two weeks but did little to remove uncertainty about whether the Federal Reserve will end seven years of near-zero interest rates when it meets this week. 

Saxo continues to expect markets to be stuck in this trading range as we move towards the Fed meeting given the confusion over what the Feds will do and many traders are not making a strong call on the markets.          

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Upbeat US retail sales data pushed stocks to their highest level
in more than two weeks. Photo: iStock

– Edited by Gayle Bryant


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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