Article / 11 May 2016 at 1:42 GMT

Morning Report APAC: Switch to risk-on sentiment boosts Asian equities

APAC Sales Trading Desk / Saxo Capital Markets
Singapore
  • Gold fared well for a risk-on environment, with prices holding their ground
  • Brent and WTI crude prices made gains on supply disruptions
  • The USDJPY made gains, and oil-related emerging nation currencies rallied
  • The USDA forecast lower crop stockpiles, boosting agricultural commodities

 By Saxo APAC Sales Trading

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

0700: KRW  – Unemployment Rate (Est. 3.8%, Prev. 3.8%)
0750: JPY – Official Reserve Assets (Prev. $1262.1B)
0830: AUD – Westpac Consumer Conf  MoM (Prev. -4%)
0930: AUD – Home Loans MoM (Est. 1.5%, Prev. 1.5%)
1530: THB – BoT Benchmark Interest Rate (Est. 1.5%, Prev. 1.5%)
1630: GBP – Industrial Production MoM (Est. 0.5%, Prev. -0.3%) YoY (Est. -0.4%, Prev. -0.5%)
1630: GBP – Manufacturing Production MoM (Est. 0.3%, Prev. -1.1%) YoY (Est. -1.9%, Prev. -1.8%)
1900: USD – MBA Mortgage Applications (Prev. -3.4%)

Speeches

0700: NZD – Reserve Bank of New Zealand Governor Graeme Wheeler News Conference on Financial Stability Report

Overnight news

  • US wholesale inventories rose 0.1% in March, as expected, while sales rose 0.7% (verus 0.5% expected). This is the first rise in both for six months. The Atlanta Fed’s model revised its forecast for Q2 GDP from 1.7% to 2.2%. The latest Job Openings and Labour Turnover Survey  job openings rose rose from 5.445 milion to 5.757 mln (vs 5.450 mln expected). That implies demand for labour remains very strong, as supported by the NFIB survey that showed firms find increasingly hard to fill positions. Quitters (a metric closely watched by Federal Reserve Chair Janet Yellen) increased by 25,000 to 2,980,000. Elsewhere, wholesale inventories rose 0.1% in March and the inventory/sales ratio remained elevated at 1.36, implying a subdued outlook for manufacturing. The dichotomy in the economy seems to be continuing.

  • French manufacturing production dropped 0.9% m/m with output has now negative in four out of the past six months. The weakness in March was broad-based, affecting many different sectors from machinery equipment to food. German industrial production (outside of energy and construction) fell 1.2% m/m, raising some concerns about a loss of momentum in the economic upswing. The data were accompanied by remarks from Banque de France President François Villeroy de Galhau that interest rates will remain at very low levels long after quantitative easing has ended (the target date September 2017). Italian March industrial production, meanwhile, was unchanged on the month. 

  • UK March trade data was a touch better than expected. The goods trade deficit amounted to £11.2bn vs a downwardly revised £11.4bn in February. The narrowing in the goods deficit reflected a £0.4bn rise in exports. For Q1, the goods trade deficit widened £1.4bn to £34.7bn as the shortfall with the EU widened £0.7bn to £23.9bn. In 2015, exports to the EU accounted for 47% of total exports. The widening trade deficit and weakness in primary and secondary income flows have put upward pressure on the current account deficit, which hit 7% of GDP in Q4 and was 5.4% of GDP for 2015 as a whole. That will be a critical factor for sterling in the event of a Brexit vote.

 

Foreign exchange

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The US dollar index (DXY) rose slightly. The euro fluctuated in a slightly lower range of $1.1360-$1.1410 after failing to respond to much weaker output data from Germany and France. USDJPY rose from ¥108.75 to ¥109.35, the yen again underperforming, and a long way clear of the May 3 level of ¥105.55, a low print in the wake of Bank of Japan’s steady hand on policy.

This morning, the NZDUSD reacted positively and jumped through 24-hour high on short-covering after the Reserve Bank of New Zealand signaled that it is only at the assessment stage of further macro-prudential controls on the housing market.

In emerging markets, the oil-related currencies rallied overnight with USDMXN down 1% and below the support of 18.0000 (Now trades at 17.9865). The next support is at the 100 day moving averate at 17.85. USDRUB dropped 0.5% and the saga continues in Brazil, with USDBRL down 1.2% after the market regained confidence that the impeachment procedures will go on and that a new government might be able to pull Brazil out of its worst recession in a century. The initial support line is at 3.4500.

After a speech from Turkish President Erdogan in New York saying that “more attention should be paid” to him on the subject of lowering interest rates, USDTRY rallied 0.5% and has now confirmed a break above the 200 day moving average at 2.9195.

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USDJPY vols continue to trade lower as spot pushes back above ¥109.00. There is continued demand for upside strikes over the June Federal Open Market Committee date. USDCNH vols also saw some demand as spot was back to 6.5400 and there is some renewed interest to buy skew further out the curve as well.


Rates
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The US 10 year treasury yield ranged sideways between 1.75% and 1.77%, the 2 year between 0.71% and 0.73%, despite a sharp decline in risk aversion. The 3 year auction coming through also likely contributed to the lack of a selloff. Market pricing gives a June 2016 hike only a 5% chance, rising to a 60% chance by the end of 2016.

The yield on Greek 10 year bonds continued to decline, falling below 8% amidst quiet confidence that some sort of aid/debt relief deal may be struck.

Commodities 

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Equities

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Equities markets rally as commodities rebound. The S&P500 rallied more than 20 points by mid-afternoon, driven by stronger commodities prices.

Credit Suisse leapt 5% after it reported a smaller-than-expected Q1 loss of CHF302mln (market estimate was CHF344mln) and despite downbeat commentary on current conditions. CEO Tidjane Thiam said, "While we saw tentative signs of a pick-up in activity in March and then in April, subdued market conditions and low levels of client activity are likely to persist in the second quarter of 2016 and possibly beyond."

Gap Inc. (-11.5%) warned of weak sales and said it would take steps to restructure its business, including a review of its Banana Republic and Old Navy operations outside North America.

In Asia, watch for the better risk sentiment to extend here and see a rally on the stock market with commodities signalling higher.

Credit

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Hong Kong highlights

  • China Shanshui Cement (691 HK): Asia Cement (1102 TT) and China National Building Material (3323 HK) agreed not to proceed with buy offer.
  • West China Cement (2233 HK): CFO says status of Conch (914 HK) deal unchanged.

Japan Highlights

  • Idemitsu Kosan (5019 JP): Forecasts net profit ¥70bn after ¥36bn loss for latest fiscal year.
  • Kubota (6326 JP): Trims full-year operating profit forecast 4.3% to ¥225bn vs est. ¥231.7bn (18 analysts); to buy back up to 0.6% of shares.
  • Mitsui Fudosan (8801 JP): Forecasts oper. profit +8.7% to ¥220bn vs est. ¥223bn (16 analysts); projects dividend of ¥32/share vs ¥28 BDVD est.
  • NTT Data (9613 JP): Forecasts oper. profit +4.1% to ¥105bn vs est. ¥114.4bn; plans to buy remainder of NJK (9748 JP) for ¥675/share.
  • SoftBank (9984 JP): Posts full-yr oper. profit ¥999.5bn vs ¥1.06 trillion est. (18 analysts); no profit forecasts; projects dividend of ¥44/share vs ¥40 BDVD est.

Singapore Highlights

  • Fraser & Neave (FNN SP): 2Q net income S$11.6m vs restated profit $S8.8mln.
  • Noble Group (NOBL SP): Set to get $3bn credit facilities: Reuters.
  • SIA Engineering (SIE SP): Q4 profit unchanged y/y at $S41.4mln.
  • Wilmar (WIL SP): 1Q net $239.4mln vs restated profit $232mln.
  • Ziwo Holdings (ZIWO SP): Warns of net loss for Q1 on “weak mkt conditions”.

 Source: Bloomberg

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 Gold fared well for a risk-on environment, with prices holding their ground on support from strong ETF buying for the yellow metal. Photo: iStock

 

– Edited by Robert Ryan


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