Article / 23 March 2018 at 2:15 GMT

Morning Report APAC: Trump trade moves hit Asia hardest

APAC Sales Trading Desk / Saxo Capital Markets
Singapore

 

  • Asian stocks followed their US counterparts lower after Trump’s tarffs on China
  • Equity indexes from Tokyo to Hong Kong tumbled more than 3% in early trade
  • JPY now moves past 105 per USD for the first time since November 2016 
  • China announced plans for reciprocal tariffs on $3 billion of US imports 


By Saxo APAC Sales Trading


Economic data of the day (Singapore Time)

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Speeches (Singapore time - GMT + 8) 


  • 20:00: RU – Bank of Russia Governor Nabiullina holds news conf. 
  • 20:10: US – Fed's Bostic Speaks on the Economic Outlook 
  • 20:30: EU - BOE's Vlieghe speaks in Birmingham. 
  • 22:30: US - Fed's Kashkari Speaks in Moderated Q&A 
  • 22:30: US - Fed's Kaplan Speaks in Austin, Texas


Overnight news

Trade war: US President Donald Trump put levies on at least $50 billion in Chinese imports. Now the trade office has 15 days to come up with a list of products that will face higher tariffs. 

He also instructed Treasury Secretary Steven Mnuchin to propose new investment restrictions on Chinese companies within 60 days to safeguard technologies the US views as strategic. As he signed the order, Trump told reporters: "This is the first of many." 

US Equities sold off between 2.5% and 2.9% and Treasuries rallied. The 10 year yield dropped 8 bps on a strong risk off day and CrossJPY sold off in FX. 

China will return fire, according to its ambassador to the US. "We don't want a trade war, but we are not afraid of it," Cui Tiankai said in a video. 

The measures are all based on Cold War-era laws meant to protect domestic industries, but which have been rarely used since the WTO started in 1995, the official Xinhua News Agency writes.

Bank of England: The Bank of England kept the rates unchanged at 0.50% as expected. The market is pricing a 90% of rate hike in the next meeting.

The MPC said on Thursday its “best collective judgment” was that an ongoing tightening of monetary policy over the forecast period would be appropriate. 

“All members agreed that any future increases in bank rate were likely to be at a gradual pace and to a limited extent. 











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Very strong selling in CrossJPY during this big risk off move. The very popular Carry trades such as AUDJPY, ZARJPY, TRYJPY saw some stops on an illiquid market. This is mainly driven by Japanese retail investors.

USDJPY is now breaking 105 and stops from Funds and retail. No word yet from the Bank of Japan.

Emerging Markets: USD was bid against EM on pure risk off trade. We doubt it’s a sustainable trend but we could have some short term stop while the dust settles around the tariffs. 


Foreign exchange movements

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CrossJPY and USDJPY vols trade really bid and the market is short Gamma and Vega below 105 in USDJPY.


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Flight to safe haven assets saw yields going lower as bonds are bought on possible outbreak of a trade war.

Key level to watch will be the 2.8% yield for the US 10 which has been supporting the 10 year treasury for the past 10 year. 

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US: Dow (-724 points) and S&P 500 (- 68 points), stocks fell sharply on Thursday, pressured by worries of a potential trade war and a decline in tech shares. The broader market was also pressured by a decline in bank stocks. Caterpillar, 3M and Boeing as the biggest decliners. 

Highly anticipated Micron Technology (MU) unveiled its latest quarterly earnings results. 

MU easily beat second-quarter earnings views, with per-share profit surging 313%. Micron also gave strong guidance for the current Q3. But shares fell 4% in late trading. 

The stock, which fell 3.1% to $57.07, also has run up sharply since clearing a 47.08 buy point from a shallow-double bottom on February 26. 

Meanwhile, competitor Western Digital (WDC), another big memory-chip maker and data storage group member, fell 2.01 points to $100.83 as it broke its own consolidation earlier this month.

Back to biotech space, Shares of pharma giant AbbVie (ABBV) plummeted 12.8% to $98.10 after the company announced disappointing results from a cancer drug trial and stated that it will not seek accelerated approval of the drug, meaning that AbbVie will likely not see revenue from it in 2018, as previously expected.
Meanwhile, the FANG stocks plus Apple (AAPL) have turned mixed. Alphabet (GOOGL), Apple and Facebook (FB) are each under their 10-week line. Amazon.com (AMZN) and Netflix (NFLX) remain above the line closed down 2.3% and 3.0% respectively.

Europe: European stock markets tumbled on Thursday's close as traders reacted to weakness seen on Wall Street, policy announcements from central banks and concerns surrounding global trade. The FTSE was down 86 points and Germany's Dax closed down 209 points. 

Amid the ongoing scandal involving social media space, tech stocks in Europe was one of the worst performing sectors, while additional pressure following earnings, with United Internet (UTDI) tumbling 9.5% after reporting its results for 2017, closed off at EUR 51.50 .

In individual stock news, Reckitt Benckiser was the best performer, finishing up 4.78% to GBP 5,895. 

This was after news that it had ended talks to buy the consumer healthcare division of Pfizer, stating that the business "did not fit in its acquisition criteria". 

GlaxoSmithKline, now seen as having a better chance of buying the Pfizer business, declined 1.7%. 

Hong Kong: The Hang Seng retreated 343 points or 1.1% to 31,071, as most sectors fell, with technology names dragging on the index, although oil producers firmed. 

Losses on the mainland also came after the People's Bank of China raised the interest rate on seven-day reverse repurchase agreements, referred to as reverse repos, by 5 basis points. That move came after the Federal Reserve raised rates overnight. 

Tencent (700.HK) settled the day down 5% at $439.4 and became the worst performing blue-chipper. Share price broke its 50 Day Moving Average level of 446.86. 

Furthermore, substantial shareholder in South Africa, Naspers, proposed to dump 190 million shares of TENCENT to cash in US$10.6 billion (equivalent to about HK$83.18 billion). 

Upon completion, the shareholding of Naspers in TENCENT will dilute to 31.2% from 33.2%. Naspers guaranteed it will not make further stake reduction in next three years.

Chinese financials broadly trended down. ICBC (1398.HK) and CCB (939.HK) respectively headed south 0.7% last printed 6.81 and 1.7% close off at 8.27. Insurance giant PING AN(02318.HK) retreated 0.7% to 87.70, intraday trading briefly touch its 50 DMA at 87.28 level. 

Against the market trend, CITIC SEC (6030.HK) leaped 2.5% to 18.76.

zzz
 US President Donald Trump may just have started a trade war with China. Photo: Shutterstock
 


– Edited by Adam Courtenay


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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