Article / 01 December 2017 at 1:30 GMT

Morning Report APAC: US tax-reform developments lift Asia

APAC Sales Trading Desk / Saxo Capital Markets
Singapore

 

  • Asian markets were higher following the rally in the US overnight
  • US stocks rose on the increasing likelihood the Senate might pass the tax bill 
  • Oil prices are in focus after Opec and Russia agreed to extend their oil output cut 
  • The USD dropped but was then buffeted as US equities rallied


By Saxo APAC Sales Trading

Economic data of the day (Singapore Time; GMT + 8hrs)

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Speeches

  • 2205 – US – Federal Reserve James Bullard speaks in Little Rock, Arkansas
  • 2230 – US – Fed’s Robert Kaplan addresses symposium in McAllen, Texas
  • 2315 – US – Fed’s Patrick Harker speaks on Inclusive Economic Growth
  • 0800 – US – Fed’s Randal Quarles speaks in new York on Financial Regulations


Overnight news

United States

  • The PCE Core index was stable at 0.2% as expected MoM and 1.4% YoY. Data shows that the Fed will continue to fall short of the 2% target inflation
  • Personal income rose 0.4% in October vs. 0.4% prior, as wages and salaries advance a lesser 0.3% vs. 0.5%. In year-on-year terms, overall income is running at 3.4% vs. 2.9% prior, and wages and salaries are up 3.7% vs. 2.8% prior

Oil

  • Opec and its partners agreed to extend production cuts to the end of 2018. Libya and Nigeria accepted caps on their output for the first time, delegates in Vienna said. Oil fluctuated as producers left the door open to dropping supply cuts halfway through 2018. The cartel will review the accord at its next gathering in June, but any withdrawal will be very gradual, according to Saudi's oil minister.

 

Foreign exchange

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  • USD dropped sharply post selling ahead of month-end fixing but was then buffeted as US equities rallied (Dow finished above 24,000 for the first time) and 10-year yields climbed to as much as 2.4347%. The move was caused by optimism on the tax plan after Senator John McCain’s announcement he will support the tax bill. House lawmakers should be ready to vote on Monday evening on a motion to go to conference with the Senate on tax legislation, House Majority Leader Kevin McCarthy said in floor comments.
  • EUR found very good bids above the 100 day moving average and is confirmed the break above the inverted H&S. December is usually a good month to show medium-term trends and we should aim above 1.2000 quickly on lower liquidity
  • The GBP squeeze higher continues and is close to breaking year highs on positive Brexit talks. We don’t think the market is that long yet the pair.
  • NZD was the big underperformer of the night after the poor Business Confidence number yesterday. 0.6800 will be the big level to watch and AUDNZD managed to bounce off the 1.1000 level. The market will use opportunities now to go long AUDNZD to break the previous highs at 1.1291
  • Emerging markets: USD was bid against EM following the US rates; but expect to see some offers today following the equity inflows in the US that will translate into Asia.


Foreign exchange movements

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  • GBP volatilities are still very bid for topside strikes short dated from hedge funds that probably missed the boat.
  • The market seems short gamma sub 0.6800 and is looking to buy back.
  • We are seeing strong interest to sell 9 months and 1 year butterflies in USDJPY.


Rates
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  • US yields inched higher, supported by lifted PCE figures and momentum, as well as tax reform seeming it may get a pass in the Senate.
  • European yields were lower on the back of weaker inflation data. Peripherals outperformed especially Italy, which saw buying in the secondary market with fading expectation of another exchange auction.


Commodities  

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Equities

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United States

  • The Kroger was up more than 10% intraday but only managed to close 6% higher as it delivered a better than expected Q3 result yesterday. Since Amazon's acquisition of Whole Food, the grocery store chain was challenged and has been pressured since then.
  • Verizon Communications rose 2% as it plans to start selling home broadband services over its wireless network in late 2018. The stock is up 8% for the month and 6.3% in the last week. With the dividend yield ~4.5%, the stock is now trading close to its resistance level at $51.00
  • Juniper Networks closed $1.85 lower or 6.25% lower as Nokia said it is not in talks to buy the computer network equipment maker. This was a huge difference to yesterday's post-market trading as Juniper was seen trading 30% higher at one time.

Europe

  • Credit Suisse traded 2% higher as it raised its profit target for 2018. In its investor day in London, the second-largest Swiss bank announced new 2019 and 2020 yield targets and a plan to distribute half of its net profit to shareholders primarily through share buybacks or special dividends.
  • Shares of Dialog Semiconductor plunged as much as 18% as Apple plans to design its own power management chips in early 2018. 74% of Dialog Semiconductor’s revenue in 2016 alone came from Apple.

Hong Kong

  • The drop in tech stocks on Wednesday night in US led the decline for Hong Kong stocks yesterday as Tencent traded back below $HK400/share. However, positive development on tax reform in the US last night rallied the market and Asia is likely to open higher today. Key support is at 29,000 while the psychological resistance will be at 30,000 for now.


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 Energy prices will be a key focus today after Opec and Russia agreed on Thursday to extend their oil output cuts to the end of 2018. Photo: Shutterstock

 
– Edited by Gayle Bryant


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