Article / 25 May 2016 at 2:13 GMT

Morning Report APAC: US, European rally to boost Asian equities

APAC Sales Trading Desk / Saxo Capital Markets
  • Expectations of a drop in US government stockpiles is pushing oil higher
  • Today's Bank of Canada rate decision will attract plenty of market attention
  • The BoC is expected to resist and calls to raise rates, and leave them at just 0.5%
  • Fed hike expectations are weighing on precious metals
  • Copper had its first gain in six sessions on robust new home sales in the US
  • Cocoa prices are rising on the back of global shortage
  • A break above ¥110 in the USDJPY may trigger more buying interest

By Saxo APAC Sales Trading

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

0645: NZD – Trade Balance (Act. 292 Mio, Exp. 25 Mio)
0645: NZD – Imports (Act. 4.01Bn, Exp. 3.98Bn), Exports (Act. 4.30Bn, Exp. 4.08Bn)
08am: SGD – GDP YoY 1 (Act. 1.8%, Exp. 1.9%), SAAR QoQ (Act. 0.2%, Prev. 0.6%)
1600: EUR – Germany IFO Business Climate (Exp. 106.8, Prev. 106.6)
1600: EUR – Germany IFO Current Assessment (Exp. 113.3, Prev. 113.2)
1600: EUR – Germany IFO Expectations (Exp. 100.8, Prev. 100.4)
2145: USD – Markit US Composite PMI (Prev. 52.4)
2145: USD – Markit US Services PMI (Exp. 53.0, Prev. 52.8)
2200: CAD – Bank of Canada Rate Decision (Exp. 0.5%, Prev. 0.5%)

1830: EUR - ECB Executive Board member Peter Praet Speaks in Madrid

Overnight news

  •  US: New-home sales enjoyed their largest monthly spike in 24 years, their fastest pace of sales in eight years and record prices during April. Purchases of New Home Sales rose 16.6% (Exp. 2.4%) to a seasonally adjusted 619k. The median price of a new home leapt 9.7% YoY to $321,100, the highest level on record. Based on the current sales pace, it would take 4.7 months to clear the supply of newly built homes on the market, down sharply from the 5.5 months during March
  • The Richmond Manufacturing Index dropped from +14 to -1. The index for shipments plunged 22 points to -8. The new orders index tanked 18 points to 0. The manufacturing employment index slipped four points to 4
  • Singapore: GDP first quarter growth reached 1.8% YoY (Exp. 1.9%) and annualised at 0.2% (Exp. 0.6%). This is below consensus but higher than the estimate from the Ministry of Trade and Industry which was estimating 0.0%. The statement says “The global economic outlook has weakened since early 2016, with global growth for the year now expected to be broadly similar to that in 2015. In particular, the growth outlook for the advanced economies has deteriorated marginally.
  • BREXIT: See analysis of poll and comments below.

Foreign exchange


Strong house sales added to a rise in US yields and stocks pushed the USD Index higher. EURUSD broke the 100 day moving average at 1.1165 before finding some support ahead of the 200day MA at 1.1103. The move was also triggered by EURGBP (see below). 

USDJPY has remained supported and has now managed to enter the bottom of the daily cloud at ¥109.82. The top of the cloud is at ¥111.30.

Commodity currencies were the only one to perform against the USD (and GBP) following a rebound in iron ore and oil overnight. Overall, AUD should be well offered with a resistance at 0.7255.

In Asia, the worst performer was USDMYR with stops above 4.1000 and SGDMYR getting closer to the 3.0000 level which is also close to the highs of the year


The interest in EUR downside is growing with the move lower yesterday and the gamma being particularly cheap historically, it made a good risk reward trade.

A stronger break above ¥110 and the 50 day MA in USDJPY would trigger more buying interest in upside.

There are still sellers of vols on rally in the G10 space but if the USD maintains a stronger bid tone the next few days, there will be good opportunities to buy USD calls



The UST curve steepened, with two year yields reversing earlier increases after a strong auction result. Primary dealers absorbed the lowest amount of securities since June 2003. Ten year UST yields were up 3bps as the probability of a rate hike by July was repriced to 54%.

European yields were little changed, with Germany flat and France down just 0.8bps.







European bourses reversed Asian declines and US indices rallied after April new home sales figures proved to be very strong. All of the S&P 500’s 10 main industries rose while the S&P index of homebuilders hit a three-week high following the jump in new-home sales and a better than expected result from Toll Brothers. KB Home soared 7.5%, while PulteGroup and Lennar gained nearly 4%.

The CBOE Volatility Index fell 8.9% to 14.42, the biggest drop in nearly two months. But stocks are prone to a correction after failing to react to Fed hike repricing and recent weakness in Chinese data.

Bayer offers to buy Monsanto for $122/share in cash, but Monsanto is said to reject the offer seeking higher price. Best Buy tumbled 7.4% after forecasting Q2 earnings that trailed estimates and announcing the departure of CFO Sharon McCollam who helped revamp the company’s operations and cut costs. Norfolk Southern lost 2.9% after the railroad predicted coal volume will be lower than an earlier forecast.




The rally in European equities has helped the CDS Indices in Europe to come off. Itraxx was down almost 4 basis points overnight, helped with the rally in the banking sector and Greece that will each a debt relief breakthrough with creditors

Hong Kong equity preview

Analyst views

  • Best Pacific (2111 HK): Cut to neutral at Haitong
  • China Resources Power (836 HK): Cut to reduce at BNP Paribas
  • Datang Intl Power (991 HK): Cut to reduce at BNP Paribas
  • Huaneng Power (902 HK): Cut to reduce at BNP Paribas
  • Huadian Power (1071): Cut to hold at BNP Paribas
  • Jiangsu Hengrui (600276 CH): Rated new buy at Haitong
  • Merchants Bank (3968 HK): Rated new buy at Haitong

Company news

  • Apple (AAPL) asks its suppliers to produce 72-78mln units of iPhone7 by end of 2016. (EDN).
  • Tencent (700)'s chairman Pony Ma said Q1 Internet service growth is better than expected.
  • Ping An (2318) becomes the first CH co. to cooperate with global fintech co. R3, aiming to develop and implement blockchain technology.
  • HKEx (388) said they are applying for OTC cross-currency clearing business with the SFC
  • Consortium led by Baofeng Tech bought 65% stake in MP & Silva, a London-based sports media.
  • CH Railway (1186) won a RMB13.6b proj, equivalent to 2.27% of 2015 revenue.
  • Gemdale PPTY (535) announced that its subsidiary SZ Xinwei Huida bought land in Suzhou at 514mln yuan.
  • GCL Poly (3800) to supply coal to Jiangsu Zhongneng for 3 years.
  • Glencore (805) said they have completed syndication of $7.7b loan.
  • Tianrui (1252) agrees to grant $30.1m loan facility to Shanshui (691).
  • Phoenix Health (1515) revises final div. to zero from $HK0.119.
  • Zhouheiya Food is said to file for IPO in Hong Kong in coming two weeks. (WSJ)

Japan equity preview

Analyst views

  • Kao (4452 JP): Downgraded to neutral from overweight at JPMorgan
  • Kirin Holdings (2503 JP): Raised to buy at Nomura
  • Kobe Steel (5406 JP): Cut to neutral at Mizuho
  • Lion (4912 JP): Cut to neutral at Goldman
  • Murata (6981 JP): Cut to equalweight at Morgan Stanley
  • Omron (6645 JP): Cut to underweight from neutral at Mitsubishi UFJ Morgan Stanley
  • Sankyu (9065 JP): Raised to overweight from neutral at Mitsubishi UFJ Morgan Stanley
  • Sumitomo Corp. (8053 JP): Downgraded to hold from buy at Jefferies
  • Suzuki Motor (7269 JP): Raised to buy at UBS
  • Unicharm (8113 JP): Cut to neutral from overweight at JPMorgan

Company news

  • GreenPeptide (4594 JP): To raise ¥5bn from sale of warrants to Merrill Lynch.
  • Sony (6758 JP): Forecasts full-year oper. profit ¥300bn vs est. ¥399.8bn (15 analysts).
  • Yahoo Japan (4689 JP): Yahoo! CFO says looking at best way to optimize Yahoo Japan.

Australia equity preview

Analyst views

  • Flight Centre (FLT AU) raised to outperform vs neutral at Credit Suisse
  • Westpac (WBC AU) raised to outperform vs neutral at Macquarie

Source: Bloomberg / CIMB


 Hot chocolate drinkers will feel the impact of a rising cocoa prices, with a global shortage pushing up prices for the agricultural commodity. Photo: iStock

– Edited by Robert Ryan

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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