Article / 28 February 2018 at 2:03 GMT

Morning Report APAC: Stocks slide after Wall St rally runs out of puff

APAC Sales Trading Desk / Saxo Capital Markets

  • Powell’s testimony was interpreted as hawkish in forex, equities markets
  • His testimony reinforced the view that there will be four Fed hikes this year
  • Base metals were generally lower amid the stronger US dollar 
  • Oil lost ground; a renewed focus on US output is applying downward pressure
  • European stocks closed in red, as investors waded through corporate news

By Saxo APAC Sales Trading


Speeches (Singapore Time)

  • 2100 – EU: ECB’s Ignazio Angeloni speaks in Singapore.
  • 0305, Thursday – US: Federal Reserve’s Neel Kashkari speaks on wages and policy roundtable.

Overnight news, Powell's hike talk

  • Jerome H. Powell, the new Federal Reserve chairman, said in his public debut on Tuesday that his expectations for domestic economic growth have increased since the beginning of the year, citing the passage of the $1.5 trillion tax cut and stronger global growth. The Fed plans to continue increasing its benchmark interest rate only gradually.
  • Powell said the Fed “will continue to strike a balance between avoiding an overheated economy” and allowing inflation to tick up toward the Fed’s target of a 2% annual pace.
  • Powell reaffirmed to House members that the Fed intends to loosen some limits on banks. One change could reduce capital requirements for some large banks, allowing them to rely more heavily on borrowed money.
  • “There’s always a risk of a recession at any point in time, but I don’t see it as at all high at the moment,”. “I would expect the next two years on the current path to be good years for the economy.”

Highlights of Powell speech (from the NY Times and Bloomberg)

  • Powell's testimony reinforces the view that there will be four hikes this year and the curve continues to flatten in the longer end with 5s50s now at 49.85 basis points, close to the recent lows of 42 bps. Then we will go to the levels seen in 2005/06, at around 0.

Overnight news, US

  • Durable goods orders dropped 3.7% from the previous rise of 2.6% (a 2.0% drop had been expected) in line with a significant reduction in Boeing orders. Durables ex-transport also dropped -0.3% from +0.7% (Exp. +0.4%).

Overnight news, European inflation

  • German CPI came in lower than expected at just 1.4% YoY from 1.6% (Exp. 1.5%) and 0.5% MoM as expected, down from 0.7%. This number will give the ECB time to remove its stimulus, as its main mandate is to manage inflation.




  • There was a knee-jerk reaction in the equity market following Powell's speech, and USD rallied slightly with it. The market is pricing in more hikes in the US, which should be supportive for the USD for the time being.
  • The market is still short USD and we will see some short covering before we resume the move lower in the USD. The large banks saw mixed flows last night despite the move higher in the USD. In the commodity space in particular (NZD, AUD, GBP), we had good two-way flows from Real Money investors and hedge funds.
  • Emerging Markets: in EM, we had clear flows from hedge funds buying back some USD following the selloff in Equities especially against KRW, TWD and IDR. There is mixed interests in USDCNH at around 6.3000.

Foreign exchange movements


  • USDCAD Gamma is still very bid, but realized vol are not performing.
  • We are seeing some interest in USDCNH upside again, with the points so low.



  • US treasuries were sold off; 10 year spiked above the 2.90 level and closed slightly below it, as Powell’s testimony brought four hikes to the table and was interpreted as being hawkish.
  • Core European bonds slide following US treasuries after Powell’s testimony. Peripheral spreads narrowed and Italy outperformed, pointing to reduced election hedge trades.







US equities

  • The Dow (down 299 points) and S&P 500 (which fell 35 points) both lost ground after four days of gains, after comments from new Federal Reserve Chair Jerome Powell sent rates higher. Disney (DIS) and Home Depot (HD) weighing down the index, while real estate, consumer discretionary and telecommunications pulled S&P market lower.
  • Merger news in the entertainment space gave the market a little action. Comcast (CMCSA) fell 7% to 36.66, Walt Disney (DIS) dipped 4.50% to 104.87 and 21st Century Fox (FOX) down 3.28% to 37.14 as news reports detailed a $31 billion takeover offer from Comcast for certain assets of U.K.-based satellite broadcast Sky. CMCSA's offer topped a prior bid from Fox. In addition, DIS had agreed earlier to buy Sky and certain other assets from Fox in a $52 billion deal.
  • In earnings, Fitbit Inc's (FIT) shares fell 12%, closed at $4.86 below the stock's all-time low of $4.90, after the company said its newly launched smartwatch was not selling as expected, raising concerns about the company's ability to become profitable again in the near term. Revenue fell 0.5% to $570.8 million – missing consensus estimates by $18.09 million.
  • On the winning end, the retailer Macy's, Inc (M) which jumped to one of the biggest gains after reporting sales and profits that were comfortably ahead of expectations, share price was up 3.46% last traded at $28.40. The retail giant also gave a forecast for 2018 earnings that was higher than analysts expected.

European equities

  • European stocks closed in red, as investors waded through the latest corporate news, while keeping an eye on a testimony by Federal Reserve chairman. Britain's FTSE 100 (-7 points) and Germany's Dax both closed off lower (-36 points), while France's CAC (-0.33 points) was flat.
  • Corporate results were in focus, with UK housebuilder Persimmon (PSON) advancing to £2,604, up nearly 5% after it reported a jump in full-year earnings and a higher reservations rate and boosted its interim dividend.
  • Shares in Sky PLC (SKYB) jumped more than 20.5%, closed at £1,331.50 on the back of Comcast’s $31 billion offer, which could scupper Fox’s plan to buy out Sky and sell it to Walt Disney (DIS.N). Sky shares were trading well above Comcast’s offer price, suggesting some investors expect Fox/Disney to come back with a higher offer.

Hong Kong equities

  • The Hang Seng Index (HSI) closed 229 points / 0.7% lower, and sank below its 20 day moving average. On the contrary, AIA (1299.HK) announced that for the year ended November 2017, it reported 28% yearly growth in value of new business, close to the upper end of street consensus. The stock bucked the market to leap 3.7% to $65.55, being the best performer of blue chips.
  • The bank Standard Chartered, also known as Stanchart (2888.HK), shot up over 3% at most after midday and inched up 0.7% to $91.40. Company announced that for 2017, underlying profit before taxation of $3.01 billion was up 175.4% yearly, the lower limit of market estimates.



 Grains buckled the trend in other commodities and closed generally higher, led by gains for wheat on the back of a USDA report of poor conditions for the US winter. Photo: Shutterstock

– Edited by Robert Ryan

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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