Article / 24 January 2017 at 1:57 GMT

Morning Report APAC: Trump withdraws from TPP; dollar index breaks 100

APAC Sales Trading Desk / Saxo Capital Markets
Singapore









  • Donald Trump withdraws US from Trans-Pacific Partnership negotiations
  • Beijing is ready to fill the vacuum in Asia left by the withdrawal 
  • USD is sold off after comments from Treasury Secretary nominee Mnuchin
  • The US dollar index breaks the 100 level

 

By Saxo APAC Sales Trading

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

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Speeches
 

1600: EC – European Central Bank's François Villeroy speaks in Paris

16:00: FR – Bank of France Governor Villeroy speaks on economic shocks 

17:05: EC – ECB's Philip Lane speaks in Dublin 

22:50: UK – Bank of England bond-buying operation


Overnight news

 

US: Donald Trump has signed an executive action to withdraw from the negotiating process of the Trans-Pacific Partnership. He had argued it was harmful to American workers and manufacturing. The TPP was negotiated under Barack Obama but never ratified by Congress, so withdrawing from it will not have an immediate, real effect on US economic policies, although it does signal a new and very different US outlook on trade under Trump.

Beijing is ready to fill the vacuum in Asia left by Trump's withdrawal from the Washington-initiated TPP, which excluded China. Its leaders have stepped up globalisation efforts and championed free trade, pushing a 16-nation replacement called the Regional Comprehensive Economic Partnership. The pact doesn't include the US and lacks some of the TPP's labour and environmental safeguards. 

The other executive actions signed on Monday included reinstating the Mexico City abortion rules and instituting a hiring freeze for federal agencies. Here are a few facts about the Mexico City policy: It requires foreign non-governmental organisations not to provide or promote abortion services if they receive funds from the US government. Specifically, the funds would come from the United States Agency for International Development, and abortion cannot be presented as a “method of family planning". Promoting abortion services includes work such as counseling that includes language on abortions. The policy was named for Mexico City because it was announced at the United Nations International Conference on Population in that location.

US Treasury Secretary nominee Steven Mnuchin said an “excessively strong dollar” could have a negative short-term effect on the economy. “The strength of the dollar has historically been tied to the strength of the US economy and the faith that investors have in doing business in America,” he said. “From time to time, an excessively strong dollar may have negative short-term implications on the economy.” 

Mnuchin also reiterated his intention to review “the issue of Chinese currency manipulation”, which he sees as a “serious infraction of free trade principles and needs to be effectively addressed,” according to his written response to the Senate Finance Committee. “I will ensure that we defend American jobs by combating currency devaluation through legislative processes established by Congress,” he said.

 

Foreign exchange

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USD was offered following the comments from Mnuchin on the too-strong USD. DXY is back to the strong support of 100, levels we have not seen since mid-November and early December. The large macro funds are still very long USD since November and a break of 100 could trigger another round of massive stops.

USDJPY is one of the most crowded positions on the long side and seems to find good resistance at 115 as well as from the weak long positions. The next support is at the 112.50/112.00 area.

EUR has also benefited from the USD selloff and the next target is the 100-day moving average at 1.0829. The commodities currencies continue to perform well and we still favour the long side.

Emerging Markets: USD sold off slightly less against EM but the trend also helped the currencies to appreciate. There are still good foreign inflows in some countries such as Brazil and Korea. USDCNH is well offered in spot despite some interest from macro funds to pay the points.

Foreign exchange movement

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USD Gamma remains bid against G10 and EM currencies.

The market is pricing a 2.5%-3% move for the Turkish Central Bank meeting today.

USDMXN Gamma is also extremely bid due to some headline risks from Trump.


Rates

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US Treasuries gained across the board as yields logged their largest decline in more than two weeks. CFTC positioning data released on Friday show non-commercial (speculator) shorts were trimmed across all tenors .

The Treasury will auction a series of new two, five and seven-year notes, a total of $88bn, this week .

Long-end France lagged, wider by ~2bps vs Germany, as concession builds with many participants looking for the widely expected green bond sale (15-25 years) this week.


Commodities 

 

 

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Equities

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Overall, US stocks declined on uncertainty over the policies of President Donald Trump and as a batch of corporate quarterly results came out mixed.

McDonald’s Corp. dropped 0.7% after reporting earnings that came above expectations. While revenue slid 5% due to refranchising, global comparable sales rose 2.7% and US same-store sales dropped 1.3% to reflect “the challenging comparison against the prior-year launch of the very successful All-Day Breakfast.” 

Halliburton Co. fell 2.9% after the company posted a sales miss, despite beating profit expectations. 

Qualcomm Inc. plunged 13% after Apple Inc.(up 0.02%) filed a lawsuit for $1bn late on Friday, alleging the company sought “onerous” terms in a chip deal. 

Humana Inc. bounced back from losses to gain 2.24%, while Aetna Inc. AET lost 2.72% following reports that the merger between the two insurers has been blocked on antitrust grounds. 

Assicurazioni Generali SpA jumped 3.9% following a report by Italian newspaper La Stampa that Allianz SE (down 1.17%) is intending to bid for the insurer.


Asian equities preview

Hong Kong analysts views

  • Chow Sang Sang (116 HK): Raised to outperform at Macquarie 
  • Shenzhou Intl (2313 HK): Cut to neutral at Macquarie 
  • Yestar Intl (2393 HK): Rated new add at CIMB

Hong Kong stock preview

  • China brokerages to prepare for Shanghai-London link: News 
  • Developers: Shanghai new home prices rise 2.72% on week: Uwin; MTR Corp.’s Wong Chuk Hang site draws at least 26 bids: SCMP 
  • Gas producers: China 2016 natgas consumption rises 6.6% on year: NDRC 
  • Rail: China Dec. railway cargo rises 9.8% to 316m tons 
  • Refiners: China Dec. gasoline output rises 5.6% to 11.2m tons 
  • Anyang Steel (600569 CH): Sees 2016 profit vs 2015 loss 
  • China Intl Travel (601888 CH): 2016 net rises to 1.74bn yuan 
  • China First Heavy (601106 CH): Sees 2016 loss of abt 5.7bn yuan 
  • China Merchants Bank (3968 HK): 2016 net rises 7.6% to 62.1bn yuan 
  • CIMC (2039 HK): Expects FY net income to fall 50%-100% 
  • CKI Holding (1038 HK): Capital Group cut stake to 5.99% 
  • Gome (493 HK): To buy mobile data platform stake from holder 
  • HengTen Networks (136 HK): Says Shenzhen Grandland stake purchase lapsed 
  • Huadian Power (1071 HK): Sees 2016 net falling 47%-57% 
  • L’Occitane (973 HK): 9-month net sales rise 1.7% 
  • Merchants Secs (6099 HK): Expects 2016 net to fall 40%-60% 
  • MTR Corp. (66 HK): Wong Chuk Hang site draws at least 26 bids: SCMP 
  • Nine Dragons (2689 HK): Expects 6-mo. net to rise at least 45% 
  • Northeast Electric (42 HK): Holder to sell stake for 1.3bn yuan 
  • Shandong Gold (600547 CH): Sees 2016 net rising 100%-150% 
  • Shanghai Fosun (656 HK): Agrees 1bn yuan foreign-bank syndicated loan 
  • Sinovel Wind (601558 CH): Expects 2016 loss of about 2.88bn yuan 
  • Sunac China (1918 HK): Chairman raises stake to 54.47% 
  • Zhongjin Gold (600489 CH): Expects FY net to rise about 323%

Japan analysts views

  • DeNA (2432): Cut neutral from overweight at JPMorgan 
  •  Kansai Electric (9503): Cut to sell from neutral at Goldman 
  •  Nikkon Holdings (9072): Rated new hold at Mitsubishi UFJ Morgan Stanley, PT 2,500 yen 
  •  Takamatsu Construction (1762): Rated new buy at Mitsubishi UFJ Morgan Stanley, PT 3,400 yen

Japan stock preview

  • Accordia Golf (2131): Cuts full-year operating profit forecast 16% to 6.1bn yen 
  • Aichi Steel (5482): Lowers full-year current profit forecast 48% to 6bn yen 
  • Daiichi Kasei (4235): To sell 3.12bn yen worth of securities Ultrafabrics executives 
  • Don Quijote (7532): 1H operating profit to beat co. forecast, Nikkei says 
  • Electronic components: Oct-Dec orders at six majors rose for first time in five quarters, Nikkei says; Alps Electric (6770) up 17%, TDK (6762) up 10% 
  • Honda (7267): Credit outlook cut to negative from stable at S&P, A+ rating affirmed; co. sees margins recovering on three best-selling models, Nikkei reports 
  • IHI (7013): To book Q3 loss of 15.5bn yen related to project in North America; will also book provision for loss on guarantees of 11bn yen related to UMN Pharma (4585) 
  • JX Holdings (5020): Says Petronas LNG 9 Sdn., where co. is invested in, will initiate commercial output in Jan. 
  • Koa (6999): Prelim. nine-month operating profit 1.96bn yen vs co. forecast 1.65bn yen 
  • Mitsubishi Heavy Industries (7011): Delays delivery of Mitsubishi Regional Jet by two years to mid-2020 
  • Oriental Land (4661): Nine-month operating profit flat y/y, Nikkei says 
  • Otsuka Holdings (4578): To be added to Nikkei 225 from Tuesday 
  • Saibu Gas (9536): Nine-month operating profit down 33% to 3.63bn yen; confirms tender offer for STrust (3280) at 800 yen/share vs 753 yen close yesterday 
  • Segue Group (3968): Plans to conduct 2-for-1 stock split on April 1 
  • Sharp (6753): Co. will produce 45-, 55-, 80- and 90-inch LCD TV panels for Foxconn at its 8G factory in Japan from this year, according to DigiTimes 
  • Shimamura (8227): Jan. same-store sales up 1.9% y/y 
  • SoftBank (9984): Sprint unit buys 33% stake in music-streaming service Tidal for reported $200m 
  • Takara Leben (8897): Nine-month operating profit more than triples y/y to 3.55bn yen 
  • Takata (7312): TSE widens share move daily limit for today to 160 yen from 80 yen 
  • Teac (6803): Renaissance Technologies cuts stake in co. to 4.23% from 5.36% 
  • Toshiba (6502): Banks agree to continue loans through February, Jiji reports 
  • Toyota Motor (7203): Sumitomo Metal Mining (5713) increases stake in co. to ~0.166%, or about 5.48m shares, from ~0.15% 
  • Yaskawa Electric (6506): Raises full-year operating profit forecast 11% to 31bn yen; Q3 OP 7.8bn yen vs analyst est. 6.95bn yen

Australia analysts views

  • 360 Capital Industrial (TIX): Raised to buy from hold at Moelis 
  •  McGrath (MEA): Cut to hold from buy at Bell Potter 
  •  Suncorp Group (SUN): Cut to hold from buy at Bell Potter

Australia stock preview

  • Estia Health (EHE): Seven Group (SVW) takes 7.53% stake 
  •  Hunter Hall (HHL): Pinnacle Investment Management (PNI) plans to bid A$1.50/share cash 
  •  Macquarie Group (MQG): Interested in EU800m Ardian stake in CLH, Expansion reports 
  •  Oil Search (OSH): Scheduled to release fourth-quarter production data 
  •  Paladin Energy (PDN): MGT Resources to buy 30% of Manyingee project for $10M 
  •  Pact Group (PGH): Rated new overweight at JPMorgan 
  •  Sandfire Resources (SFR): Set to release Q2 output data 
  •  Bank of New York Australia ADR Index up 0.5% 
  •  BHP Billiton ADR up 1% to A$26.63 equivalent, 0.3% premium to last Sydney close 
  •  Rio Tinto ADR up 2% to A$57.81 equivalent, a 7.4% discount to last Sydney close 
  •  Companies trading above 20/50/200 DMAs, Bollinger upper band with RSI above 70: Infigen Energy (IFN) 
  •  Companies trading below 20/50/200 DMAs, Bollinger lower band with RSI below 30: Premier Investments (PMV), Brambles (BXB), Seven Group (SVW)

 

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 China is pushing a 16-nation TPP replacement called the Regional Comprehensive Economic Partnership. Photo: iStock

 

– Edited by Susan McDonald


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