Article / 27 September 2017 at 1:42 GMT

Morning Report APAC: Stocks mixed on weak Wall St lead, USD in focus

APAC Sales Trading Desk / Saxo Capital Markets
Singapore

 

  • Janet Yellen reinforced expectations for another Fed rate hike this year
  • The market is now price a 70% chance of rate hike in December
  • Precious metals dropped across the board  after Yellen’s speech
  • Copper retreated on the back of stronger USD and China demand concerns 
  • Oil prices are taking a break after hitting key resistance levels

By Saxo APAC Sales Trading

Economic data of the day (Singapore Time)

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Speeches (Singapore Time)

  • 2115 – US: Fed’s Neel Kashkari speaks at higher education event.
  • 2345 – Canada: Governor Stephen Poloz gives a speech.
  • 0055 – Canada: Bank of Canada governor Stephen Poloz press conference.
  • 0130 – US: Fed’s James Bullard speaks on economy and monetary policy.
  • 0200 – US: Fed’s Lael Brainard speaks at Minority Banker Forum.
  • 0700 – US: Boston Fed President Eric Rosengren to speak to Money Marketeers in New York.

Overnight news, Fed

  • Janet Yellen reinforced expectations for one more Fed interest-rate hike this year, saying it would be "imprudent" to wait until inflation reaches the 2% target. The central bank "should also be wary of moving too gradually".
  • Yellen noted that downward price pressures may "unexpectedly" persist, giving uncertainty over labor market strength and "the fundamental forces driving inflation."
  • The market is now price a 70% chance of rate hike in December compared to 63% previously.
  • There are still very different views from some Fed members. New York President Dudley signalled the likelihood of one more hike this year, calling factors holding down prices temporary why Chicago’s Evans said he wants to see clear signs of wages and price pressure before tightening.

Overnight news, North Korea

  • Following through on President Donald Trump’s executive order last week, the Treasury Department announced Tuesday it will sanction 10 North Korean banks and 26 nationals from the secretive state who act as representatives for its financial institutions. The individuals are operating in China, Russia, Libya and the United Arab Emirates, according to Treasury’s Office of Foreign Assets Control.
 

Foreign exchange

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  • Janet Yellen has helped the USD to keep its bid tone overnight by being more hawkish than the market anticipated and despite some dissenting voices within the Fed. Even though the market is not reacting much around the geopolitical risks, the Fed next hike should push the market to be more prudent with risky assets and EM high yielders.
  • DXY  is breaking the 93.00 resistance and the 50 day moving average at 92.913. The very short term support will be at 92.75 and the target at 94.000.
  • EURUSD had failed for a month to break 1.2000 level so it was a good opportunity to Sell around there. Hedge Funds are the main sellers of EUR overnight but now is the important level to watch because a lot of Corporate and Real Money were buying EUR at the current level previously.
  • NZDUSD continued its strong selloff since the election to trade close to the 200 day moving average at 0.7147. AUD followed the rest of the G10 move and USD higher so AUDNZD was fairly stable overnight.
  • Emerging Markets: There are some outflows now to note in EM, especially in Taiwan and Korean equities which will create strong support in the USD.
  • USDKRW is close to the 200 day moving average at 1140.88 and the hedge fund community will push to break that level. There is no confirmation but it seems that BOK is here to cap the move higher or at least attempt to slow it down following the escalation of the geopolitical risks.
  • USDCNH continues its big bounce higher. We traded at 6.4436 on stops early September to now trade at 6.6334. It all started after the removal of the 20% reserve charge to banks and Corporate onshore used that opportunity to buy USD. On top of that, Hedge Funds are getting out of their long CNH position.


Foreign exchange movements

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  • Most of the G10 curve is soft except USDCAD with the market waiting for the speech by Bank of Canada governor Poloz and the release of GDP numbers at the end of the week.
  • USDJPY downside strikes are still very bid for expiries over October 22 while any expiry bofre the elections are very offered
  • EURUSD downside are in demand from Hedge Funds so the R/R has moved a spread to the left to favour more the EUR Put.
  • Keep an eye on EM currencies which have been trading weak over the last days like ZAR, TRY, the vols are bid and EURHUF is also catching up some good bids in the vol market.

Rates
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  • US yields moved higher amid Yellen’s speech was interpreted as hawkish and possibility of rate hike has risen up to 70%. And Trump’s comments on big announcement on tax reform may be coming today.
  • Core European yields took the hint from US and edged higher, peripherals outperformed with Spanish and Portuguese spreads tightening. 


Commodities 

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Equities

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  • U.S. stocks was narrowly ranged amid technology stocks recovered some of their losses. The S&P500 edged up 0.18 points to 2,496.84, with Information Technology rising by just 0.40% being the worst performing sector.
  • GE dropped by 0.72% as it was reported that it is in danger of losing a $2.5 billion 11-year deal struck in 2015 to sell diesel locomotives in India, citing India intends to pull out of the deal and switch to exclusive use of electric locomotives.
  • Ascena surged by 5.53% after it reported a surprise profit, beating the expectation of a loss of 3cps for the quarter. Revenue also beat forecasts, and comparable sales fell only half as much as expected.

Asian equities preview

Hong Kong analyst views

  • (3380 HK): Logan Property Holdings Cut to Neutral at Goldman, price target $HK9.80.
  • (52 HK): Fairwood Holdings New Outperform at KGI Securities, PT $HK37.56.
  • AgBank (601288 CH): AgBank A Shares Cut to Neutral at Credit Suisse, PT 4 Yuan.
  • Bank of China (3988 HK): Bank of China A Shares Cut to Neutral at Credit Suisse.
  • Bocom (3328 HK): Bocom A Shares Cut to Underperform at Credit Suisse.
  • CCB (939 HK): CCB A Shares Cut to Neutral at Credit Suisse, PT 7.50 Yuan.
  • China Vanke (2202 HK): China Vanke A Shares Raised to Neutral at UBS, PT 27.90 Yuan.
  • Everbright Bank (601818 CH): Everbright Bank H Shares Raised to Neutral at Credit Suisse.
  • GCL-Poly Energy (3800 HK): GCL-Poly Energy Raised to Outperform at Credit Suisse.
  • ICBC (601398 CH): ICBC A Shares Cut to Neutral at Credit Suisse, PT 6 Yuan.
  • PICC Group (1339 HK): PICC Group H Shares Raised to Buy at UBS, PT $HK4.20.
  • Ping An Bank (000001 CH): Ping An Bank Cut to Underperform at Credit Suisse, PT 8.80 Yuan.
  • Poly Property (119 HK): Poly Property Cut to Neutral at Goldman, PT $HK4.90.
  • Shimao Property (813 HK): Shimao Property Raised to Buy at Goldman, PT $HK22.50.
  • Yanlord Land (YLLG SP): Yanlord Land Raised to Buy at Goldman, PT S$2.19.

Hong Kong stocks

  • BOE Tech (200725 CH): BOE Tech Expects 3Q Net Income of Up to 2.2bn Yuan.
  • China Railway Group (390 HK): China Railway Won 64.3B Yuan of Projects Recently.
  • Citic Bank (998 HK): PRICED: Ever Dragon $150m 2Y Bond 9%.
  • CK Hutchison (1 HK): CK Hutch, Ant Financial to Form JV for Digital Wallet in H.K.
  • CK Hutchison (1 HK): $2.25b Three-Part Debt Offering.
  • Guangzhou R&F (2777 HK): R&F Got Deal Approval From Holders Representing 65.7% Stake.
  • Guangzhou R&F (2777 HK): *R&F Properties: Main Investors Approved Wanda Hotel Assets Deal.
  • ICBC (601398 CH): ICBC Debt-to-Equity Implementation Unit Signs 83B Yuan of Deals.
  • Metallurgical Corp (601618 CH): Pakistan Extends Copper-Gold Exploration Pact With Chinese Co.
  • Ping An Insurance (2318 HK): Ping An Leasing Markets $300m 3Y Loan to Syndication.
  • Qinghai Salt Lake Industry (000792 CH): Qinghai Salt Lake Says Business Pressure Remains After H1 Loss.
  • Rusal (486 HK): Rusal Outlook to Positive From Stable by Moody’s, Rtg Affirmed.
  • TCL (000100 CH): TCL, AU Optronics Reach Settlement Over Display Technology IPR.
  • Tencent (700 HK): HERE Maps Says NavInfo, Tencent, GIC Abandon 10% Stake Purchase.

Japan analyst views

  • CMK (6958): Rated new buy at Okasan Securities.
  • Fanuc (6954): Rated new outperform at Bernstein.
  • Idec (6652): Raised to outperform at Iwai Cosmo.
  • Isuzu Motors (7202): Cut to neutral from overweight at JPMorgan.
  • Kyowa Kirin (4151): Rated new overweight at MUFJ-MS.
  • Shinmaywa (7224): Cut to neutral from buy at Okasan Securities.
  • Skylark (3197): Rated new outperform at SMBC Nikko.

Japan stocks

  • Hashimoto Sogyo Holdings (7570), JK Holdings (9896): To end merger discussions.
  • Idemitsu Kosan (5019), Toray (3402): To cooperate on OLED materials.
  • JAL (9201): To start codesharing on flights with Hawaiian Airlines from March.
  • Kansai Electric (9503): Plans to build 75-megawatt biomass power station in the southwestern Japanese prefecture of Fukuoka.
  • Mitsubishi Estate (8802): Revised design to build 51-story tower in London financial district recommended for approval by planners.
  • Nihon Nohyaku (4997): Lowers full-year operating profit forecast 21% to ¥3.1bn.
  • Rakuten (4755): To acquire Plus One Marketing’s mobile virtual network operator business in Japan.
  • Sumitomo Mitsui Financial (8316), Resona (8308): Detail plans to merge three regional Osaka banks, with Resona holding ~51% of new entity and SMFG holding as much as 26.3%.
  • Suzuden (7480): To cancel 3.3% of shares on September 29.
  • Tsubaki Nakashima (6464): Secondary share sale price at ¥2,394/share.

Australia analyst views

  • Investa Office (IOF): Investa Office Raised to Outperform at Credit Suisse, price target $A4.67
  • QBE Insurance (QBE): QBE Insurance Cut to Sell at Shaw and Partners, PT $A9.50.
  • Rio Tinto (RIO LN): Rio Tinto Cut to Hold at Canaccord, PT £37.80.

Australasian stocks

  • (FMS NZ): N.Z. Boatbuilder Future Mobility Agrees to Buy Willard Marine.
  • AIG (AIG): AIR Worldwide’s Maria Loss Estimate May Be High, Analysts Say.
  • Airwork (AWK NZ): Airwork Says China’s RIFA to Make Full Takeover Offer.
  • Brambles (BXB AU): PRICED: Brambles EU500m 10Y Bonds MS +70.
  • Equifax (EFX): Equifax’s Interim CEO Brings Charm, Focus on Growing Beyond U.S.
  • Exxon (XOM): CARBON: EU Permits Cut Losses as France Repeats Call for Floor.
  • NZX (NZX NZ): NZX Begins Consultation on Review of Listing Rules.

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Corn dropped ahead of the release of stockpile data from the USDA, which is expected to show a record jump in stocks of the grain.  Photo: Shutterstock

 
– Edited by Robert Ryan


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