Article / 03 May 2016 at 2:14 GMT

Morning Report APAC: Watch for Australian dollar volatility today

APAC Sales Trading Desk / Saxo Capital Markets
Singapore
  • Gold briefly pushed above $1300/oz on monetary policy speculation
  • There was no base metals trading with the LME closed for May Day
  • Expect volatility in the Australian dollar today, with the RBA to decide on rates
  • BoJ's Haruhiko Kuroda says the high yen will have unwelcome effects on GDP
  • Crude was weaker after Iraq announced it had shipped 3.36mln barrels/day in April

 By Saxo APAC Sales Trading

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

0700: KRW – CPI MoM (Actual. 0.1%, Est. 0.1%) YoY (Actual 1%, Est. 1%)
093m: AUD – Building Approvals MoM (est. -2%, Prev. 3.1%) YoY (Est. -14%, Prev. 9%)
0945: CNY – Caixin China PMI Mfg (Est. 49.8, Prev. 49.7)
1130: MYR – Nikkei Malaysia PMI (Prev. 48.4)
1230: AUD – RBA Cash Rate Target (Est. 2, Prev. 2%)
1700: EUR – PPI MoM (Est. 0%, Prev. -0.7%) YoY (Est. -4.3%, Prev. -4.2%)
1700: EUR – European Commission Economic Forecasts
2100: SGD – Purchasing Managers Index (Est. 49.5, Prev. 49.4)

Speeches

1515: EUR – European Central Bank board member Benoit Coeure speaks in Paris
1515: EUR – ECB board member Yves Mersch speaks at Asian Development Bank annual meeting in Frankfurt

Overnight news

  • US: ISM Manufacturing came in below expectations in April at 50.8; down from 51.8, but remains the second highest result in the past eight months. New orders were at 55.8, from 58.3, and production was at 54.2, from 55.3 in March. There was a continued drawdown in inventories, with the index at 45.5, from 47.0. The ISM prices paid index spiked to the highest level since September 2014 at 59.0 (market expectation: 52.0) from 51.5. The spike is partly due to the recent rebound in commodity prices and price pressures from the lower US dollar. The final Markit manufacturing PMI was at 50.8, in line with the market and matching the initial estimate.
  • US construction spending expanded 0.3% m/m in March (the market expected 0.5%) and there were backward revisions to January and February. Private sector spending (+1.1%), led by a 1.5% gain in residential construction, was able to offset a 1.9% fall in public spending in March. The firmer spending data will provide a modest upward revision to Q1 GDP data.
  • Eurozone: The euro area manufacturing PMI edged up 0.1 point to 51.7 in April. A rise in Germany, Italy, and Spain offset the weaker reading for France.
  • ECB President Mario Draghi said that the central bank’s policy is helping the Eurozone economy get back on its feet. “Today, faced with a persistent output gap and too-low inflation, our monetary policy is stimulating the economy by steering market rates below their long-term levels,” he said. “There is little doubt that question marks over the future of the euro area, and the European Union in general, are contributing to uncertainty for individuals and firms, and that this can hold back consumption and investment,” he said. “Removing this uncertainty will help boost consumption and unleash investment across the continent.”
  • Markets in Japan are closed from today, and back again on Friday, while China, Hong Kong, Singapore, Taiwan, Malaysia and Thailand have returned from a long weekend. 

 

Foreign exchange

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Forex markets weren’t particularly busy on Monday, taking their cue from overseas where many markets were closed for May day holiday. Of note though, was the US dollar, which remained on the back foot as the ISM declined to match the Markit PMI. The euro moved higher, supported by higher-than-expected Eurozone PMI data and the weaker than expected US data.

Meanwhile, Bank of Japan governor Haruhiko Kuroda was out saying the strong yen would have unwelcome effects on the economy and be closely watched for market impact. However his talk had little impact on forex markets, and the USDJPY remained at around 106.40.

Traders bought the AUD ahead of the Reserve Bank of Australia interest rate announcement due today, despite the 50/50 risk of a rate cut. Expect plenty of volatility in the Australian dollar today.  

nnn
It was a quiet day in vols space. USDJPY gamma was initially bid as spot pushed lower but was eventually offered as spot found some stability. The vega part of the curve is largely unchanged but skew remains well bid. The AUDUSD overnight breakeven was around 1.2% after pricing in the RBA rate decision event today, which translates to spot levels of 7580 and 7770.


Rates

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With markets closed for holidays in most markets, price action was thin. US yields rose marginally on ISM data with US 10 year yields up (+3.9bps).

Commodities nnn

 


Equities

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It was a quiet session overnight with London closed for the May Day holiday. Global equities were mixed on thin volumes.

In Europe, Italian bank Intesa Sanpaolo slid 2% after it announced the sale of its Setefi and Intesa Sanpaolo card-payments units for €1.04bln in cash to a consortium of PE funds.

In the US, the minor gains came off the biggest weekly retreat since February and were led by bank stocks and a continued climb by Amazon. Halliburton Co. (+1.8%) and Baker Hughes Inc. walked away from their planned merger, one that had been valued at as much as $35bln, due to regulatory opposition on several continents.

In Asia, with one of the biggest markets Japan, closed, while other markets are playing catch up from being closed yesterday, expect some divergence across the regions. 

Credit

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Stocks to watch in Asia today

  • China Construction Bank (939 HK): Q1 net 68bn yuan vs 67bn yuan y/y.
  • PICC Property & Casualty (2328 HK): AIG raises $1.25bn selling PICC stock near the bottom of range.
  • Centurion (CENT SP): To buy four UK student accommodation assets for £20.1mln.
  • OCBC (OCBC SP): Cut to hold at CIMB.


 nnn

 Markets were closed in several nations to mark May Day on Monday, including China (above), while Japan is observing public holidays from May 3 to 5. Photo: iStock

 

– Edited by Robert Ryan


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