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Macro Monday week 17: A heavy week of US earnings

James Kim@Saxo
In this webcast, Saxo's global sales trader James Kim takes the helm to examine the big issues for the week including more than one third of the S&P 500 set to report.
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Article / 29 June 2016 at 1:49 GMT

Morning Report APAC: Risk rally pushes equities and USDJPY higher

APAC Sales Trading Desk / Saxo Capital Markets
Singapore

 

  • Mario Draghi says growth in the euro area could fall 0.5% over next three years 
  • With a pause in risk-off USDJPY rallies 0.7%
  • After two days of heavy losses, European equity markets bounce overnight
  • Stoxx600 is up 2.5% and UK's FTSE100 up 2.6%
  • Sentiment carries over to US and S&P500 closes up 1.8%

 

By Saxo APAC Sales Trading

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

2000: EUR – Germany CPI MoM (Exp. 0.2%, Prev. 0.3%), YoY (Exp. 0.3%, Prev. 0.1%)

2030: USD – PCE Deflator MoM (Exp. 0.2%, Prev. 0.3%), YoY (Exp. 1.0%, Prev. 1.1%) 

2030: USD – PCE Core MoM (Exp. 0.2%, Prev. 0.2%), YoY (Exp. 1.6%, Prev. 1.6%) 

2200: USD – Pending Home Sales MoM (Exp. -1.1%, Prev. 5.1%), YoY (Exp. 4.6%, Prev. 2.9%)


Speeches

2130: EUR – ECB President Mario Draghi Participates at ECB Conference


Overnight news

Brexit: German Chancellor Angela Merkel said it’s not possible to pull out of the EU referendum outcome. There’s a number of suggestions on the further development of the European Union. 


European Central Bank President Mario Draghi tells EU leaders that he is of the view that growth in the euro area could decrease as much as 0.5% for the next three years after the UK referendum outcome. If the UK goes into recession the effects would be immediate on the euro area. All international markets would also be affected, especially foreign exchange-rate markets .

The ECB has stepped up cooperation with central banks on foreign exchange movements.

 

US:  GDP was slightly better than expected at 1.1% QoQ (Exp. 1.0%) and Core PCE came in at 2.0% (Exp. 2.1%) 

The improved performance in trade and business investment more than made up for weaker consumer spending. Corporate profits at the start of the year were also revised up, giving a brighter picture to gross domestic income.


NEW ZEALAND:

RBNZ reiterates its June 9 policy statement that “further policy easing may be required to ensure that future average inflation settles near the middle of the target range”. 

RBNZ will monitor whether inflation expectations fall further and become embedded in price and wage setting behaviour, developments in the Chinese and emerging Asian economies, global dairy prices, high net immigration, the housing market, and weak world demand and how this affects oil and other import prices.

Foreign exchange

spot

 














There was a pause in the risk-off sentiment last night with no new news on the Brexit front as the European summit is really starting today after the awkward dinner of last night with Cameron. The main beneficiary of the risk-on was USDJPY, which rallied 0.7%, and the emerging market currencies.

USDKRW collapsed from 1183 to 1167 in the 1M NDF. USDBRL dropped 2.64%, as well as USDMXN and USDCOP.

The market might start differentiating the risk from now on and target only the countries affected by Brexit.

Foreign exchange movement
vols

 
Volatilities are all trading lower overall, with strangely some interest in the market to buy upside USDJPY. There were also some sellers in EUR Vega on this risk-on.

Pre-Brexit, funds were buying USDSGD vols (for the most part ATM) but we now see some unwind of that position .

Rates


rates




























The improved sentiment has seen a modest rise in bond yields in the US and the UK, whilst yields in peripheral Europe (particularly Italy and Spain) fell sharply to hit new lows as investors clearly begin to factor the likely impact of extended ECB policy intervention. 

Yields on the 10-year UK gilt rose 2.7 basis points to 0.95% while yields on the 10Y Treasury note rose 3bps to 1.47%.

The Fed Fund rates are now pricing a 13.6% of chance of rate cut in the US in September and only 8.6% of a hike only from December 2016. The market is pricing 39.5% probability of cut in the UK in the July 14 meeting.

Credit markets are trying to establish a degree of stability as spreads tighten across the quality curve, but with little depth. Sentiment remains fragile, leaving many investors sidelined. GBP risk assets are again showing some underperformance relative to EUR peers.

Generic spreads are tighter across cash and synthetics as the market tries to recoup some of the widening seen since the EU referendum result.

Financials marked tighter across capital structure with iTraxx Senior and Sub indices down 6.2bps and 7.9bps, respectively.

Commodities 

com
 


Equities
equ

 















After two days of heavy losses European equity markets bounced overnight with the Stoxx600 rising 2.5% and the UK's FTSE100 rising 2.6%. The improved risk sentiment and healthier price action carried over to US markets where the S&P500 eventually closed up 1.8%, ending at session highs.

Banks in the S&P 500 rebounded 3.2% but this was only after falling 10% in two sessions. JPMorgan Chase and Wells Fargo both added about 2.5%. 

Oil and gas companies had their best session in two months as WTI crude jumped 3.3%. Exxon Mobil rallied 2.3% while Marathon Petroleum advanced 8.4%. 

Biotechnology shares led the rally in healthcare with Gilead Sciences jumping 4.8% after gaining FDA approval of its Hepatitis C drug for all forms of the viral disease.


Asia Pacific Stocks

Hong Kong: 

Analyst Ratings

China South City (1668 HK): Cut to fully valued at DBS Vickers 

Cosmo Lady (2298 HK): Cut to neutral at Merchants Securities 

Link REIT (823 HK): Raised to neutral at Credit Suisse 

NARI Tech (600406 CH): Rated new buy at Haitong Intl 

New China Life (1336 HK): Raised to hold at HSBC 

PICC Group (1339 HK): Cut to hold at HSBC 

Preview

  • Yue Yuen(551): NIKE(NKE) shares fell as much as 7% (last seen down 3.6%) after the bell as its sales and orders missed forecasts. 
  • PSBC received approval from CSRC for its H-share IPO with no more than 13.923bn shares. 
  • StanChart (2888) to merge SH and HK lending team, adding three bankers on board. Shares in London closed at 0.2% discount. 
  • PICC (1339): National Audit Office identified audit problem, which the company said has no material impact. 
  • HKEx (388) said it will increase SH-HK connect quota in appropriate time. 
  • West Cement (2233) said the company plans to issue a statement on Jun 30. The deal with Anhui Conch (914) is still in progress. 
  • CH Gas (384) FY NI HK$2.27bn, down 32.6% YoY, final dividend 14.46 HK cents. Apr-Jun sales higher than nation’s average 2017 LNG sales target at 800k tons. 
  • Zijin (2899) says shareholder New Huadu Industrial Grp sold 375.6m of the company’s A-shares on Jun 27, cutting its stake to 4.92% from 6.66%. 
  • CRTG (269) may sell 86.9% of Zhunxing Heavy Haul Expressway. 
  • Tsui Wah (1314) plans to open 80 shops in CH and HK within a year, 1/3 of which are in HK. The company will also open eight shops in Guangzhou, SZ and Macau by end of 2016. 
  • Fosun (656) is said to have stronger interest in investing in UK and Europe (Reuters). 
  • Shougang (697) may sell 100% of Qinhuangdao Shougang Plate mill. 
  • Golden Meditech (801) FY net loss HK$407m. 
  • Sunac(1918) suspends applications to buy land nationwide temporarily due to high prices. 

 

Japan:

Analyst Ratings 

  • Tokyo Electron (8035 JP) Raised to Outperform vs Neutral at Credit Suisse 
  • Hitachi Kokusai (6756 JP) Raised to Outperform at Credit Suisse 
  • Disco Corp (6146 JP) Cut to Neutral from Outperform at Credit Suisse 

Preview

  • Adways (2489 JP), Imagineer (4644 JP), Netyear (3622 JP) and other Line-related stocks: Line sets IPO price range at ¥2,700-3,200 per share: filing with Finance Ministry; WSJ had reported price range earlier. 
  • DCM Holdings (3050 JP): First-quarter operating profit rose 17.2% y/y to ¥6.9bn; company to make Kuroganeya (9855 JP) a wholly-owned unit via stock swap; to pay 0.6 share for each share of Kuroganeya, which is to be delisted on Nov. 28. 
  • Heiwado (8276 JP): First-quarter operating profit fell 2.2% y/y to ¥2.9bn, and first-quarter net income dropped 6.6% y/y to ¥1.9bn. 
  • J Front Retailing (3086 JP): First-quarter operating profit fell 12.7% y/y to ¥9.3bn, and first-quarter net income tumbled 50.3% y/y to ¥8.5bn. 
  • Oracle Corp Japan (4716 JP): full-year parent operating profit rose 6.7% y/y to ¥50.2bn, full-year parent net income climbed 11% y/y to ¥33.6bn. 
  • Right On (7445 JP): Nine-month cumulative quarterly parent operating profit jumped 62.3% y/y to ¥4.5bn.
  • V Technology (7717 JP): Renaissance Technologies cuts stake in company to 5% from 6.76%. 
  • Zojirushi (7965 JP): Half-year operating profit climbed 28% y/y to ¥8.5bn; full-year operating profit forecast raised 11.1% to ¥12bn. 
  • IPOs: Solasto (6197 JP): Begins trading on TSE after IPO priced at ¥1,300; Komeda (3543 JP): Begins trading on TSE after IPO priced at ¥1,960. 

Australia: 


Preview 

  • Perpetual raised to buy vs hold at Morningstar 
  • Qube raised to buy vs hold at Morningstar 
  • Sigma Pharmaceuticals cut to sell vs neutral at Goldman Sachs 
  • Australian Pharma raised to neutral vs sell at Goldman 
  • APN News & Media cut to neutral vs buy at UBS 
  • Evolution Mining cut to underperform vs neutral at Credit Suisse 
  • Caltex raised to overweight vs neutral at JPMorgan 
  • Mayne Pharma (MYX@AU) in trading halt as it undertakes A$888m capital raising after acquisition 
  • National Storage REIT (NSR@AU)) in trading halt as it undertakes A$260m raising after acquisition 
  • Rio Tinto (RIO@AU) says tax payments fell 32% in 2015 
  • Hellaby (HBY@NZ) announces sales of equipment group to private equity fund 

 

yen

 The main beneficiary of the pause in risk-off sentiment was USDJPY, which rallied 0.7%. 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. 

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