Morning Report APAC: USD keeps on keeping on
- JPY drops to an almost six-month low against a resurgent USD at 110.87
- Fed and ECB divergence drives US-German yield gap to a 27-year high
- MSCI Asia Pacific excluding Japan Index fell 0.1% in early trading
- WTI crude rose for a second day, adding 0.9% to $46.11/barrel
By Saxo APAC Sales Trading
- 09:30: JN - Bank of Japan's Masai makes a speech in Saitama City
- 1530: EU - Bank of Portugal's Costa speaks at conference on economy
- 2030: SP - Bank of Spain, Bank of France governors speak in Madrid
- 2100: US - Fed's Fischer speaks in New York
Fed Speech: The USD finished the week on firm footing continuing the post Trump election trend as US Treasuries continued to sell off. US stocks ended the week softer. The DXY ended the week well above the key 100 level at 101.4, levels not seen since 2003.
Continued strength in the USD wreaked havoc in emerging markets as portfolio outflows and sentiment continued to apply heavy pressure on all EM asset classes.
A very light data calendar ahead this week, and Thanksgiving holiday this coming Thursday. Take note of all holiday trading here.Europe: German PPI data on Friday, while still negative y/y showed an upside surprise versus expectations at -0.4% vs -0.9%.
The EURUSD traded particularly heavily last week, shedding 2.5%. With the ratcheting up of the political agenda ahead – Italian referendum on December 4 and German, French and Dutch elections next year – EUR should remain under pressure.
UK Chancellor Hammond will deliver his Autumn budget on Thursday.
EURUSD faced heavy selling pressure, breaking key levels as the markets focus shifted toward the Italian referendum and the political calendar of 2017.
Emerging markets currencies have been on the receiving end of a hiding by markets last week with those currencies most exposed to rising US rates facing heavy pressure on outflows, namely: TRY, COP, PLN, MYR and KRW.
Foreign exchange movements
EURUSD downside strikes continue to be put on. Interest has increased in the 6 month tenure which captures the French election. Yet to see significant interest below parity however.
Surprisingly, options traders continue to report an increase in USDJPY downside strikes being requested. The logic being traders owning spot but cautious about the risks of sharp JPY rallies and thus buying that protection as the pair moves higher.
Treasury 10-year note yields climbed five basis points to 2.35%, reaching the highest since November 2015.
Divergent paths for monetary policy by the Federal Reserve and the European Central Bank has driven the US-German yield gap to a 27-year high.
Italian bonds extended their decline to a fourth week on expectations for global inflation and a referendum next month that could change the nation’s prime minister. Italy’s 10-year yield rose seven basis points last week to 2.09 percent.
US stocks retreated marginally below their all-time highs amid signs of almost post-election profit taking and following a string of largely disappointing updates from the retail sector. The VIX gauge, a measure of volatility, sank 3.8%, to 12.85.
Abercrombie & Fitch (-13.8%) reported a Q3 profit of $7.9m, or $0.12 per share (est: $0.20) from $41.9m, or $0.60 per share a year ago, citing soft sales at tourist and flagship locations, weak traffic patterns, and under-performance in seasonal categories.
Total revenue dropped 6.5% and same-store sales slumped 6% to fall for a third successive quarter.
Gap (-16.7%) reported adjusted Q3 EPS of $0.60 (est: $0.59-$0.60) from $0.63 a year ago and sales declined 2% to $3.8bln (est: $3.8bln). Same-store sales at the Gap brand and Banana Republic stores dived 8%, while Old Navy grew 3%.
- China Railway Construction (1186 HK): Raised to buy vs hold at HSBC
- China Rail Group (390 HK): Raised to buy vs hold at HSBC
- AAC Tech (2018 HK): Raised to buy vs neutral at UBS
- Coolpad (2369 HK): Sees 2016 loss of about HK$3b
- CK Hutchison (1 HK): Bought back 1.22m shares for HK$115.5m Nov. 18
- Sino Resources (223 HK): Expects 6-month sales to fall, net loss to narrow
- WH Group (288 HK): Considers acquisition by end of next year: SCMP
- Dowa Holdings (5714 JP): Cut to neutral from overweight at Mitsubishi UFJ Morgan Stanley
- Fuji Machine (6134 JP): Raised to outperform from neutral at Tokai Tokyo
- Mitsui Matsushima (1518 JP): Rated new outperform at Iwai Cosmo
- Ono Pharma (4528 JP): Cut to neutral from outperform at Daiwa
- Stanley Electric (6923 JP): Downgraded to neutral from buy at Okasan Securities
- EPS Holdings (4282 JP): To buy back up to 3.1% of shares for as much as 2b yen
- Familymart Uny (8028 JP): Itochu (8001 JP) will spend ~40b yen to boost stake in co., Nikkei reports
- Fast Retailing (9983 JP): May revise U.S. strategy in wake of election, not interested in J. Crew, WSJ reports; G.U. brand to increase stores in Japan, Asahi reports
- Fujifilm (4901 JP): Teaming with China Resources on healthcare-related businesses
- Alacer Gold (AQG): Raised to outperform vs neutral at Macquarie
- Insurance Australia (IAG): Raised to hold vs reduce at Morgans
- Sigma Pharmaceutical (SIP): Cut to underweight vs equalweight at Morgan Stanley
- BHP (BHP): Brazilian judge accepts homicide charges in Samarco disaster; Appoints new top executive for acquisitions, divestments
- Newcrest (NCM): In JV with Randgold to expand exploration in Cote D’Ivoire; Scheduled to host investor day; NOTE: Co. in October forecast FY17 gold output 2.35m-2.6m ozs
- Northern Star (NST), Evolution (EVN), OZ Minerals (OZL), Saracen (SAR), Regis Resources (RRL), Resolute Mining (RSG): Gold punished by USD rally as silver nears bear market
- Qantas (QAN): American Airlines to object to U.S. ruling denying antitrust deal with co.
Sourced: CIMB / Bloomberg
– 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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