Article / 21 July 2016 at 2:03 GMT

Morning Report APAC: Shares gain on Japan, Europe stimulus hopes

APAC Sales Trading Desk / Saxo Capital Markets

  • Asian stocks rose to a three-month high after positive US earnings surprises
  • The USD strengthened across the board overnight - except versus GBP
  • USDJPY continued to trend higher, with US yields on a tear higher
  • JPY and New Zealand’s dollar slid to six-week lows in early Asian trade
  • Japan reportedly considering a 20 trillion yen ($187 billion) stimulus program

By Saxo APAC Sales Trading

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

- 0645       NZ        Net Migration SA 
- 0930       AU        NAB Business Confidence
- 1100       NZ        Credit Card Spending
- 1230       JN         All Industry Activity Index
- 1400       JN         Machine Tool Orders
- 1445       FR        Business Survey Overall Demand        
- 1445       FR        Business Confidence   
- 1445       FR        Manufacturing Confidence       
- 1445       FR        Production Outlook Indicator  
- 1445       FR        Own-Company Production Outlook      
- 1630       UK        Retail Sales Ex Auto Fuel MoM  Jun     
- 1630       UK        Retail Sales Ex Auto Fuel YoY   Jun     
- 1630       UK        Retail Sales Inc Auto Fuel MoM Jun      
- 1630       UK        Retail Sales Inc Auto Fuel YoY  Jun      
- 1630       UK        Public Finances (PSNCR)           Jun      
- 1630       UK        Public Sector Net Borrowing     Jun      
- 1630       UK        PSNB ex Banking Groups          Jun      
- 1945       EU        ECB Main Refinancing Rate      
- 1945       EU        ECB Deposit Facility Rate         
- 1945       EU        ECB Marginal Lending Facility  
- 1945       EU        ECB Asset Purchase Target   
- 2030       US        Chicago Fed Nat Activity Index Jun      
- 2030       US        Initial Jobless Claims   
- 2030       US        Continuing Claims       
- 2030       US        Philadelphia Fed Business Outlook      
- 2030       US        FHFA House Price Index MoM   May    
- 2030       US        Bloomberg Economic Expectations    
- 2030       US        Bloomberg Consumer Comfort          
- 2200       US        Existing Home Sales    Jun     
- 2200       US        Leading Index  Jun  


- 1125: GBP – Bank of England governor Mark Carney, China’s Li, IMF’s Lagarde speaking in Beijing

Overnight news

  • NZ: It's crunch time. In this morning’s economic update the Reserve Bank of New Zealand indicated that further easing will likely be required. While we expect the RBNZ will ease at the August meeting, the statement was not as dovish as it could have been. The statement tied the OCR outlook more explicitly to the NZD, noting: “The high exchange rate is adding further pressure to the dairy and manufacturing sectors and, together with weak global inflation, is holding down tradeable goods inflation. This makes it difficult for the Bank to meet its inflation objective. A decline in the exchange rate is needed.”
  • UK: The BoE’s July Agents’ Summary of Business Conditions noted watchfulness on the part of firms post Brexit. It noted: “A majority of firms spoken with did not expect a near-term impact from the result on their investment or staff hiring plans. But around a third of contacts thought there would be some negative impact on those plans over the next twelve months. As yet, there was no clear evidence of a sharp general slowing in activity”.

Foreign exchange


The USD strengthened across the board except versus sterling. The GBP, by comparison, was bid all session. A better-than-expected labour market report showed the unemployment rate falling below 5% and highlighted positive pre-Brexit momentum.

Latest gains have followed comments from Bank of England member Kristin Forbes that the BoE needs to see more evidence of Brexit’s negative impact to cut rates. Forbes says this is not a ‘Lehman moment”.
USDJPY continued to trend higher, with US yields on a tear higher. This grind higher in USDJPY could continue into the Bank of Japan and the 106.85/107.32 region on a weekly closing basis has meaning.

Also note Kyodo headlines making the rounds – claims that the Japanese government is eyeing a JPY20tn stimulus package. That’s double what some market participants had been expecting.
EURUSD showed resilience at 1.1000, and this did not go unnoticed. Flows may help to explain this recent price action but looking forward to Thursday’s European Central Bank meeting, downside risks remain.

The NZD can’t wait until the RBNZ’s assessment. AUDNZD has not budged and on the Reserve Bank of New Zealand's report, short-term risk is likely most concentrated in cross’s downside should it read hawkish.

USDTRY reached a record high of 3.0973 following the S&P’s decision to downgrade it from BB+/stable to BB/negative and announcement of a new 3m state of emergency.

There was no spillover in G10 like recent days but developments from here remain firmly on investors’ radar. Key now: further rating agency decisions and what else President Erdogan’s government decides to do.

Foreign exchange movements


xxx US Treasury prices declined, pushing yields higher, in a day marked by an increased appetite for risky assets. The yield on the 10-year note rose to 1.582%, but is still down nearly 0.7 percentage points this year.

Fed Funds futures markets are pricing in a 24.6% chance of a rate increase in September and a 41% by December. The Federal Reserve is expected to leave interest rates unchanged when they meet on July 26-27.
The European Central Bank is also expected to leave its policy unchanged during its first rate setting meeting since Brexit today, but many market participants are anticipating hints of fresh stimulus.






The Dow Jones Industrial Average tacked on 36.02 points, or 0.2%, to 18,595.03. The S&P 500 climbed 9.24 points, or 0.4%, to 2,173.02.

The Nasdaq rose 53.56 points, or 1.1%, to 5,089.93. The Dow had since rose for a ninth day and posted its seventh consecutive all-time record high close.

In Europe, the FTSE 100 added 31.62 points, or 0.5%, to 6,728.99 and In Frankfurt the Dax jumped 160.77 points, or 1.6%, to 10,142.01.

Morgan Stanley's earnings fell but still beats estimates. Profits fell 14% in the second quarter, the bank said Wednesday, reflecting difficulties investment banks have had due to market volatility before and after Britain's vote last month to leave the European Union. Morgan Stanley closed 2.1% higher to 28.78.

German business software maker SAP spiked 5.7% after it posted a 73% surge in Q2 net profit, as it was boosted by lower restructuring costs and growth in its cloud-services business.

HSBC rallied 1.7% despite news that Mark Johnson, HSBC’s global head of foreign-exchange cash trading, was arrested at JFK Airport and charged with front-running a customer order.Asia Pacific Stocks.

Asia Pacific equities

Hong Kong

Analyst ratings
-      Citic Securities (600030 CH) rated new ’buy’ at Haitong
-      Cosmo Lady (2298 HK) cut to ’neutral’ at Haitong
-      Guangzhou Auto (2238 HK) cut to ’sell’ at Daiwa Securities
-      New World Dev (17 HK) Raised to ’outperform’ at Credit Suisse

-      Ajisen China (538 HK) expects 1H profit to rise by at least HK$500m
-      Avic Real Estate (000043 CH) plans asset sale to China PolyGroup Citic Bank (601998 CH) investment chief can’t be contacted:
    Business News
-        Citic Securities (600030 CH): Rated new buy at Haitong
-        HKEX (388 HK) to wait before making London-HK connect plans after Brexit
-        HSBC (5 HK) bankers are first individuals charged in currency probe
-        ICBC (601398 CH) executive director Wang resigns due to job change
-        Midea (000333 CH) has 86% of robot-maker in $4.4 billion bid
-        Muyuan Foodstuff (002417 CH): 1H net 1.07b yuan vs 46.8m yuan
-        L’Occitane (973 HK) bought back 1.5m shares for HK$23.2m Wednesday
-        Sundart Holdings (1568 HK) to raise HK$800.3m from top-up placement
-        361 Degrees (1361 HK) 2Q core brand same-store sales growth 7%
-        ZTE (000063 CH) banks on basketball as it shoots for No.3 in American phones

Analyst ratings:
-      Itochu (8001 JP): Raised to neutral at Macquarie
-      Kyocera (6971 JP): Cut to reduce at BNP Paribas

-      3pm: Nissin Electric (6641 JP)
-      3pm: CyberAgent (4751 JP)
-      3:30pm: Chugai Pharmaceutical (4519 JP)
Equities information source: Bloomberg

Markets riding on reports the Bank of Japan wants to double stimulus measures. Photo: iStock 

– Edited by Adam Courtenay

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