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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 03 April 2018 at 1:44 GMT

Morning Report APAC: Trade friction heats up, Wall St gloom spreads

APAC Sales Trading Desk / Saxo Capital Markets
Singapore

 

  • Wall St kicked off the second quarter with a share-driven tumble on Easter Monday
  • Trump's tariffs have imposed a cost burden on industries using metals as raw materials
  • Safe haven investments such as gold rose as China retaliated with its own tariffs
  • The White House said Beijing should not target "fairly traded US exports”
  • Crude oil hit its lowest point in two months on trade friction concerns

By Saxo APAC Sales Trading

Economic data of the day (Singapore Time)
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 Speeches (Singapore Time)
  • 2130: US – Neel Kashkari, president of the Minneapolis Federal Reserve, speaks at Regional Economic Forum
  • 0430, on Wednesday: US – Lael Brainard, member of the board of governors of the Fed, speaks on Financial Stability.

Overnight news, tech stock drop

  • Tech stocks were in focus in the US pushing the stock markets down. the Nasdaq dropped 2.74%, S&P500 fell 2.23% and the Dow tumbled by 1.90%.
  • Shares in the online shopping giant Amazon dropped 3.3%, Tesla is attempting to break the support at $250 but is on a strong downward trend. Facebook is consolidating at around $150 and remains well under the 200 day moving average. Trump continued his negative tweets on Amazon saying he would change how much the country’s largest online retailer pays in shipping fees.
  • The White House issued a statement on China’s weekend tariff decisions. China should not target "fairly traded US exports,” said a statement. “China’s subsidization and continued overcapacity is the root cause of the steel crises," White House spokeswoman Lindsay Walters said in a statement. "Instead of targeting fairly traded US exports, China needs to stop its unfair trading practices which are harming US national security and distorting global markets.”
  • The direct result of that in other markets was a strong rally in Gold of 1.2%, US 10yr yields down 2 basis points to 2.73%, but we believe it’s time to start looking at the high yield bond markets that could see the next big selloff
  • The High Yield iShares ETF HYG is attempting to break a big level at 85
  • The US High Yield Credit Default Swap is trading at the year highs of 368

 Overnight news, US data

  • The ISM Manufacturing came in slightly lower than expected at 59.3 (Exp. 59.6, Prev. 60.8). The tariffs are hurting some sectors of the economy. A lot of industries who need to buy steel and aluminium as raw materials are facing a lack of supply or prices increases which will hurt American factories in the medium term.
  • In four out of nine direct highlights from the press release, survey respondents cited tariffs as posing a risk to their profits. That concern explains why prices paid jumped nearly four points in the March report, serving as the only major component to gain.
 

Foreign exchange

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  • USDJPY was well offered all day following the drop in equity market. CrossJPY found also very good selling interests.
  • GBP was the other currency that rallied against the US mainly due to seasonality. In the past 10 years, GBP ended up higher in the month of April
  • Emerging Markets: Trump singled out Mexico, saying that “Mexico is making a fortune on Nafta...They have very strong border laws - ours are pathetic. With all of the money they make from the US, hopefully they will stop people from coming through their country and into ours, at least until Congress changes our immigration laws!” making the pair very volatile. It rallied first from 18.20 to 18.35 before finding some good offers.

Foreign exchange movements

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  • The vol market overnight was just a reaction to the stock market buying USDJPY and CrossJPY vols.

Rates
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  • US yields dropped to lowest level since February amid the equity markets soldoff, led by the semiconductor industry following news that Apple will begin using its own chips.

Commodities 

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Equities

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US equities

  • The Dow Jones (-458 points) and S&P 500 (-58 points) both fell on Monday. The Dow Jones hit a new low for the year , falling below the low touched during the slide in Februaru. On the first trading day of the quarter, stocks tanked on anxiety about a trade war with China, and fears about the tech industry getting hit with regulation.
  • In the tech space, among the notable declines, Facebook In (FB) fell 2.8% to $155.39 while Google-parent (GOOGL) was down 2.3% to $1012.63. Snap's stock also fell 8.9% after Moffett Nathanson reiterated its sell rating, noting it found students were "uniformly disapproving" of the company's app redesign. While Intel Corp (INTC) shares dropped sharply after report saying that Apple would ditch Intel chips for an in-house model on their Mac computers. INTC shares fell 6% to 48.92, below its 50 day moving average.
  • Share in the mid-cap biotech Alkermes (ALKS) plunged 22%, closed at 45.23 - its worst day since January  2016 - after the company reported that the Food & Drug Administration refused to accept its application for a new depression drug without further clinical data to prove its effectiveness.
  • The leading data management specialist Commvault Systems Inc (CVLT) jumped nearly 11% on Monday trading to $63.40, putting it on track to open at an eight-month high. The company said activist investor Elliott Management disclosed a 10.3% stake in the data management company. That would make Elliott the largest shareholder, share prices has been running up 7.9% over the past three months.
  • Shares in Humana (HUM)  jumped 4.4% last printed at $280.70 in the first day of trading since news reports emerged last week that the company was in talks with Walmart that could end in a merger between the companies. On the other hand, Walmart stock tumbled 3.8% to just $85.55 on the news.

European equities

  • Markets were closed for the Easter Monday public holiday.

Hong Kong equities

  • Markets were closed for the Easter Monday public holiday.


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Own goal ... Trump's tariffs on steel and aluminium hurt US firms that rely on the metals as raw materials, and Beijing's retaliation in kind will hurt US exports of pork, wine and aluminium. Photo: Shutterstock

 

– Edited by Robert Ryan


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