Morning Report APAC: UK property hit by Brexit after-effects
- The GBP was the biggest mover in the past two days; a result of Brexit aftershocks
- More UK property funds froze withdrawals as panic spread
- AUD is consolidating at the high end of the range with strong resistance at 0.7600
By Saxo APAC Sales Trading
Economic data of the day (Singapore Time: GMT +8 hours)
- 1400: EUR – Germany IP MoM (Exp. 0.1%, Prev. 0.8%), YoY (Exp. 1.5%, Prev. 1.2%)
- 1630: GBP – UK IP MoM (Exp. -1.0%, Prev. 2.0%), YoY (Exp. 0.5%, Prev. 1.6%)
- 1630: GBP –UK Manufacturing Production MoM (Exp. -1.2%, Prev. 2.3%), ToT (Exp. 0.4%, Prev. 0.8%)
- 1930: EUR – ECB account of the monetary policy meeting
- 2015: USD – ADP Employment Rate (Exp. 160k, Prev. 173k)
- 2030: USD – Initial Jobless Claims (Exp. 269k, Prev. 268k), Continuing Claims (Exp. 2120k, Prev. 2120k)
- China Foreign Reserves (Exp. $3167.0 billion, Prev. $3191.7bn)
- 0830: JPY - BOJ's Kuroda to Speak at Branch Managers' Meeting
- 1800: EUR - ECB's Lautenschlaeger Speaks in Madrid
- ISM Non-Manufacturing PMI came in at 56.5 for June vs 52.9 in May. The new orders component jumped 5.7 points to 59.9%. The production index rose to 59.5%. Employment increased 3.0 points to 52.7%, suggesting a rebound from a slowdown in May. In June, only one ISM index component, backlogs, was in contraction.
- Markit US services PMI showed marginal expansion at 51.4 in June, up fractionally from 51.3 in May. The June reading was the best in three months.
- The US trade deficit in May widened by 10% to a three-month high of $41.1 billion, thanks to high prices and stronger demand by consumers for imports such as cellphones, sneakers and home furnishings. Petroleum imports also shot up as the cost of a barrel rose to the highest level of 2016. As a result, US imports increased 1.6% in May to a seasonally adjusted $223.5 billion. US exports, meanwhile, slipped 0.2% to $182.4 billion. The US exported fewer autos, airplanes and computer accessories in May.
Federal Reserve Bank
- The Federal Reserve’s June meeting showed officials were unnerved by May’s weak payrolls report. Some participants suggested the decline in new positions might be statistical noise, and many bankers at the pre-Brexit meeting favoured raising rates should hiring return to a faster pace.
- Many were reluctant to change their outlook “materially” based on one data release; participants generally expected to see resumption of monthly gains in payrolls sufficient enough to promote strengthening of labour market.
- More UK property funds froze withdrawals as panic spread in Brexit's aftermath. Henderson, Columbia Threadneedle and Canada Life suspended trading in at least £5.7 billion ($7.4 billion) of funds. Aberdeen cut the value of a real estate pool by 17% and briefly halted redemptions so that investors who asked for their money back have time to reconsider. This follows Standard Life, Aviva and M&G investments
- The People's Bank of China will from August 15 begin imposing a 20% reserve requirement on offshore financial institutions trading foreign-exchange forwards for clients. The money will have to be deposited when the firms settle trades in the onshore market, and it will be held at zero interest for one year.
The GBP was the biggest mover the past two days with the aftershock of the Brexit vote starting to kick in. The outflows seen in the property funds (see news above) and the overall risk-off sentiment triggered strong selling interest in GBPUSD and GBPJPY from the hedge fund community. Several banks are calling for a bigger move lower – some mentioned another 7%.
There is a lot of onshore selling in USDJPY and cross/JPY. It has been the case for a while but this time, New York stopped buying since the June month-end.
The AUD is consolidating at the high end of the range with the strong resistance at 0.7600.
Foreign exchange movements
US 10-year Treasury yields fell 5.7 basis points to a session low of 1.318% in European trading hours, and later bounced off and closed up 2 bps at 1.37%, aided by better June ISM service data. However, yields settled around the low, as the risk-off mood is still lingering in the market sparked by June Brexit. The market is only pricing in a full Fed rate hike possibility in February 2018.
The 10-year yields in the UK keep testing record lows and closed at 0.765%, with equity markets heading down hard and currencies devalued to new lows. Concurrently, German 10-year yields hit a record low of minus 0.205% and peripheral countries also traded at record lows, reflecting increasing demand of bonds with the market digesting impacts from Brexit.
The market is pricing 75% of probability of a cut in the UK in the July meeting; this has increased substantially from just above 50% last week. The probability for the August meeting now stands at 84.9%.
Despite renewed Brexit anxiety, US stocks closed higher Wednesday, lifted by rising oil prices and Fed June minutes revealed policymakers were prudent to wait before raising rates.
The S&P 500 index advanced 0.5% as the healthcare and consumer discretionary sectors led gains, while defensives declined. The jump higher was most pronounced in the tech-heavy Nasdaq, which gained 0.8%, led by sharp gains in biotechnology shares. The iShares Nasdaq Biotechnology ETF was up 2.4%.
Several European bank shares hit record lows Wednesday, due to concerns on super-low interest rates and the economic outlook after Brexit. Credit Suisse Group AG (-1.7%) ended at its lowest and below the psychological level of CHF10 for first time ever. Deutsche Bank AG (-5.6%) and Commerzbank AG (-3.6%) also logged their lowest finishes.
Henderson fell 0.9%, while Columbia Threadneedle-parent Ameriprise Financial slipped 0.5%. Standard Life was off 3.5%, Aviva slumped 6.2% and M&G-parent Prudential dropped 4.3%.
Hong Kong analyst ratings
- China Telecom (728 HK): Raised to buy at Daiwa
- China Unicom (762 HK): Raised to buy at Daiwa
- Geely Auto (175 HK): Raised to buy at UBS
- HKT Trust (6823 HK): Cut to hold at HSBC
- Rusal (486 HK): Cut to sell at Deutsche Bank
Hong Kong equities preview
- Agile Property (96 HK): June pre-sales amounted to 6.79bn yuan
- AVIC (600048 CH): Plan property restructuring with Poly Group
- Cifi (884 HK): Raises 2016 contract sales target to 43.8bn yuan
- Fosun (656 HK): Plans more investment in Greece, official says
- Geely (175 HK): June vehicle sales rise 41% to 46,574 units
- Glorious Prop (845 HK): To decide on privatisation by July
- Shanghai Petrochemical (338 HK): Sees 70%-90% rise in 1H net
- Shui On Land (272 HK) June contract sales 3.27bn yuan
- IGG (799 HK): Temasek’s Vertex reduces stake to 5.96%
- Wanda Cinema Line (002739 CH): 1H box office revenue rises 41%
- Vanke (2202 HK): Largest shareholder raises stake again; hedge fund explores Vanke short sale on WeChat
Japan analyst ratings
JPMorgan rates banks:
- Mitsubishi UFJ Financial (8306 JP)
- Mizuho (8411 JP)
- Shinsei Bank (8303 JP)
- Sumitomo Mitsui Financial (8316 JP)
- Resona Holdings (8308 JP)
- Sumitomo Mitsui Trust (8309 JP)
- Aozora Bank (8304 JP)
- Askul (2678 JP): Raised to overweight at Mitsubishi UFJ MS
- Nippon Kayaku (4272 JP), Aisan Industry (7283 JP): Cut to neutral from outperform at Credit Suisse
- Furukawa Electric (5801 JP): Raised to overweight at Morgan Stanley MUFG
- Kyowa Hakko (4151 JP): Raised to buy at Nomura
- SMC (6273 JP): Rated new hold at Jefferies
- Sony (6758 JP): Raised to buy at Deutsche Bank
- Terumo (4543 JP): Cut to neutral from buy at Nomura
- THK (6481 JP): Rated new buy at Jefferies
- United Arrows (7606 JP): Cut to neutral from outperform at SMBC Nikko
- Yamato Holdings (9064 JP): Raised to overweight from underweight at Mitsubishi UFJ Morgan Stanley
Japan equities preview
- ABC-Mart (2670 JP): 1Q oper. profit up 7.9% to ¥14.4bn
- Aeon Co. (8267 JP): 1Q oper. profit minus 5.8% to ¥32.9bn; falls to net loss
- Aeon Delight (9787 JP): 1Q oper. profit up 7.9% to ¥3.91bn
- Aeon Mall (8905 JP): 1Q oper. profit up 1.7% to ¥11.3bn
- McDonald’s Japan (2702 JP): June same-store sales up18.5% y/y
- Mitsubishi Motors (7211 JP): Will no longer be equity affiliate of Mitsubishi Heavy; Mitsubishi raises stake in company to 14% from 10%
- Nachi-Fujikoshi (6474 JP): 1H oper. profit ¥6.45bn vs company forecast ¥8.5bn; cuts FY forecast 33% to ¥13b
- Welcia (3141 JP): 1Q oper. profit up 42% to ¥4.41bn
Australia analyst ratings
- Boral (BLD AU) upgraded to ‘Buy’ from ‘Neutral’ at Citi
- Beach Energy (BPT AU) rated new ‘Overweight’ at JPMorgan
- Fantastic Holdings (FAN AU) raised to ‘Overweight’ at JPMorgan
Australia equity preview
- Nuplex (NPX AU) - shareholders vote on Allnex deal
- Kogan (KGN AU) - scheduled to list on ASX at 1200 AEST
Source: CIMB / Bloomberg
– Edited by Gayle Bryant
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