Morning Report APAC: Theresa May to take centre stage with Brexit plan
- US markets were closed for Martin Luther King Day
- Markets await British PM Theresa May's speech on Brexit plan
- May expected to flag a new trading relationship with the Eurozone
- GBP was down more than 1%, just above psychological level of 1.2000
By Saxo APAC Sales Trading
Economic data of the day (Singapore Time: GMT plus 8 hours)
2030: Bank of Italy, ABI reps speak to lawmakers on bank decree
2145: US Federal Reserve's William Dudley speaks on consumer behaviour in New York
UK: Theresa May will reveal her Brexit plan today and will probably announce that she will seek a completely new trading relationship with the Eurozone. "We seek a new and equal partnership -- between an independent, self-governing, global Britain and our friends and allies in the EU," the PM will say, according to the extracts. "We do not seek to adopt a model already enjoyed by other countries. We do not seek to hold on to bits of membership as we leave."
Bank of England Governor Mark Carney said "Recently, there have been signs of continued solid consumer momentum domestically and a stronger growth outlook globally". He warned consumption-led growth "tends to be both slower and less durable" as it eventually overtakes earnings, leaving demand more sensitive to household employment and income changes. Reiterating the Monetary Policy Committee's neutral stance, Carney said interest rates can go up as well as down, and that there are limits to the extent to which inflation above the BoE's 2% target can be tolerated. The response of households to faster inflation as the UK negotiates its divorce from the European Union will be key.
China: The PBoC wants to encourage lenders to issue more dollar-dominated debt abroad, to keep foreign exchange reserves from falling too fast. It also increasingly favours short-term lending channels to manage credit flow over adjusting banks' required reserves. This has allowed it to add almost six times more funding than cutting the RRR by a half-percentage point.
The PBoC said on Friday that it offered 305.5 bn yuan ($44 bn) of funds through six-month and one-year mid-term lending operations, an effort that analysts said can stabilise liquidity ahead of the week-long Chinese New Year starting at the end of this month.
The PBoC increased the total outstanding of its Medium-term Lending Facility last month to a record 3.46 tn yuan. That compares with the 600 bn yuan that economists estimate was added to the banking system after the last required reserve ratio cut in February, when it was lowered by half a percentage point. Bank deposits stood at 155 tn yuan in December, greater than US gross domestic product. (Bloomberg)
The DXY was fairly subdued overnight with the US holiday, following the USD selling we had over the past few days. EUR is sitting just above the 50-day moving average and is trying to confirm the break higher.
The main mover in the G10 space was GBP, down more than 1% and trading just above the psychological level of 1.2000. Theresa May's speech today will be key in the next move of GBP. Market-wise, we have been hearing a lot of funds saying they want to buy on a dip below 1.2000 but it remains to be seen if anyone dares put any bids on a negatively perceived speech by May.
Emerging Markets: USDPHP 1M NDF broke the 50.00 level due to strong buying interest from London funds overnight. Finance Secretary Carlos Dominguez said that the Philippines may breach the budget deficit ceiling of 3% of GDP, make its fiscal position unsustainable and lead to a credit-rating downgrade below investment grade.
USDTRY still trading at highs. Turkish interbank repo funding jumped 50% on Friday to a record 63.6bn lira ($16.8bn) after the central bank moved to bolster the currency by limiting funding at its main one-week repo rate. Now interbank funding is getting squeezed too, as the central bank pushes lenders to borrow instead at its highest rate, the so-called late liquidity window. That window, where rates are 10%, was used only as a last resort before the central bank began cutting its other sources of funding last week.
Foreign exchange movement
Regular trading for US financial markets was closed on Monday in observance of the Martin Luther King Jr. holiday.
European stocks slumped, with automakers and banks losing ground as investors mulled policy signals coming from the UK and the US. The FTSE 100 retreated 0.2%, breaking a 14-day winning streak.
Volkswagen AG sank 2.2%, Daimler AG slumped 1.5%, and BMW AG shed 1.5% after US President-elect Donald Trump, in an interview with European newspapers, reiterated his call for a 35% import tax on cars built in Mexico that will be exported to the US.
Facing the prospect of losing passporting rules that make for easier access into the EU market, Barclays PLC declined 1.8% and Royal Bank of Scotland Group PLC shed 2.8%.
The Italian eyewear giant Luxottica jumped 8.3% and Essilor surged 11.9% after reaching a €46bn ($49 bn) merger deal.
Asia Pacific Stocks
- CIFI Holdings (884 HK): Raised to outperform at Credit Suisse
- Heilan Home (600398 HK): Cut to neutral at Credit Suisse
- China Modern Dairy (1117 HK): Cut to neutral at Credit Suisse
- Poly Property (119 HK): Raised to neutral at Credit Suisse
- Shui On Land (272 HK): Cut to neutral at Credit Suisse
- Yuexiu Property (123 HK): Raised to outperform at Credit Suisse
- Yuzhou Properties (1628 HK): Cut to neutral at Credit Suisse
- Zhongsheng (881 HK): Raised to overweight at JPMorgan
- Banks: China big 4 banks Dec. new yuan loans 204.5bn yuan
- Power: China 2016 power consumption rises 5%
- Anhui Fengyuan (000153 CH): May buy pharmaceutical distribution assets
- Anxin Trust (600816 CH): Expects 2016 net income to rise about 75% on year
- BoCom (3328 HK): BoCom Intl submits application for HK listing
- Bank of Jinzhou (416 HK): Expects full-year profit to increase at least 35% y/y
- Cathay Pacific (293 HK): To revamp fuel hedging, workforce; shares climb
- CK Property (113 HK): Spent HK$210.2m buying back shares
- China Huarong Energy (1101 HK): To issue up to HK$751m convertible bonds
- China Merchants Shekou (001979 CH): Expects 2016 net income to rise up 102%
- China Sanjiang (2198 HK): Expects FY net to be 550m yuan vs loss year ago
- China Southern (1055 HK): December passenger capacity increased 12.6% y/y
- Fosun Pharma (2196 HK): To invest 2bn-3bn yuan each year on R&D
- Gezhouba (600068 CH): 2016 new contract value 214bn yuan
- Guangdong Shaoneng (000601 CH): Expects 2016 net income to rise 51%-70%
- Hainan Rubber (601118 CH): Expects net income in 2016 vs net loss in 2015
- Hopson Development (754 HK): 2016 contract sales drop 18.8% on year
- Kingboard Chemical (148 HK): Expects 2016 net profit to rise 190%-200%
- KWG Property (1813 HK): Attributable pre-sales value 22.3bn yuan
- Logan Property (3380 HK): 2016 sales 40% more than in 2015
- Meidong Auto (1268 HK): Expects full-year net to increase more than 35% on year
- PCCW (8 HK): 2016 net income HK$2.05bn, est. HK$1.90bn
- Pacific Century (432 HK): Doesn't recommend final dividend
- Rentian Tech (885 HK): Issues positive profit alert for 2016
- Sa Sa (178 HK): 3-mo. Hong Kong, Macau same-store sales drop 2% Y/y
- Shanxi Meijin (000723 CH): Expects 2016 net up to 750m yuan vs loss year ago
- Fast Retailing (9983): Cut to sell from neutral at UBS
- Maruichi Steel Tube (5463): Cut to neutral from buy at Mizuho
- Recruit Holdings (6098): Rated new buy at Goldman Sachs, PT 6,000 yen
- Genky Stores (2772): Lifts full-year operating profit forecast 21% to 4bn yen
- Hogy Medical (3593): Raises full-year operating profit forecast 4.7% to 7.52bn yen
- Japan Post Holdings (6178): Govt confirms plan to sell down stake in co.; no plan yet for sale of additional shares in JP Bank (7182) or JP Insurance (7181)
- Matsumotokiyoshi (3088): To be added to Nikkei 500, replacing Mitsumi
- NGK Spark Plug (5334): Fined 741m won by Korean Fair Trade Commission over pricing of oxygen sensors
- Rizap (2928): Plans tender offer for Jeans Mate (7448)
- Toho (9602): 9-month operating profit +29% to 41.5bn yen; boosts planned full-year dividend to 45 yen/share from 25 yen
- Energy World (EWC): LNG tanker arrived in Philippines
- Galaxy Resources (GXY): Barings Resources Fund buys shares
- IDP Education (IEL): To buy Hotcourses for enterprise value of GBP30.1m
- Rio Tinto (RIO): Scheduled to report fourth quarter production data
- Tawana Resources (TAW): Starts feasibility study at Bald Hill Mine
- Yowie Group (YOW): Responding to rumours, says products continue to be stocked at Walmart in US
– Edited by Susan McDonald
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