Article / 20 November 2017 at 1:26 GMT

Morning Report APAC: Weak US sentiment weighs on stocks, oil rebounds

APAC Sales Trading Desk / Saxo Capital Markets
Singapore

 

  • There was weak sentiment in the EU and US sessions on Friday
  • NAFTA negotiations continue this week, but the talks may not bear fruit
  • Base metals are stronger amid the weaker USD, with nickel heading higher again 
  • Iron ore prices gained ground, despite China’s moves to curb steel production
  • Oil rebounded on Saudi push to dispel rumours on Russian production curbs

By Saxo APAC Sales Trading

Economic data of the day (Singapore Time)
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Speeches (Singapore Time)

  • 0935 – Australia: Head of RBA's economic research department Jonathan Kearns gives speech in Sydney
  • 1150 – Australia: RBA head of Domestic Markets Department Marion Kohler gives speech in Sydney
  • 2200 – EU: European Central Bank president Mario Draghi speaks in Brussels
  • 2215 – EU: Vice President Vitor Constancio chairs panel in Frankfurt
  • 0230 – UK: Bank of England deputy governor for markets and banking Dave Ramsden speaks in London

Overnight news, US

  • There was weak sentiment in European and US sessions on Friday, triggered by news the Special counsel Robert Mueller would subpoena more documents from the Trump 2016 campaign. Risk assets close on their back foot with stocks ending down for the second week in a row.
  • USD ended lower, with some significant technical damage done. US yields closed the lower with the 2s10s curve the flattest it has been in decades. A worrying sign for the US outlook should this tip into inversion.
  • NAFTA talks began on Friday and will continue on Tuesday. Given the failure to reach an agreement at the last talks, the risks are heightened that this may again bear no fruit.
  • Canadian CPI slowed from the prior month, in line with expectations allowing the Bank of Canada time to assess incoming data and reaffirming their wait and see stance.

Overnight news, Europe

  • ECB president Mario Draghi talked positively about EU growth prospects while talked cautiously about EU inflation outlook where risks remain. This should continue to provide support for EU markets as ECB support continues while broad-based growth momentum continues.
  • The Eurozone current account balance continues to expand, pushing ever higher. The strength in the current account should continue to provide support to the EUR in the medium term.


 

Foreign exchange

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  • USD: USD ended the weak mixed, but lower against some key pairs, namely the EUR and JPY. Both the euro and JPY have broken key levels and the bias is for the USD to continue to weaken against these pairs going forward.
  • NZD: The New Zealand dollar remains a persistent underperformer, despite comments from RBNZ that the currency is now at fair value.
  • Emerging Markets: USD weakness translated into further emerging market strength as the relief rally continues. Strength in oil saw RUB rebound. ZAR and MXN the other top performers. 


Foreign exchange movements
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  • There was a pickup in vols at the end of the week as spot markets break key levels. USDJPY the most notable candidate.
  • The fall in the euro this morning has triggered some buying in the front end on vols. Market may be short on the downside in euro vols.
  • Vols in ZAR are marked higher for the end of this week with the risks of a ratings downgrade from both Moody’s and S&P.

Rates
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  • US treasuries gained on uncertainties over tax reform, and Mueller’s investigation into Russian involvement in the US election campaign creating some ripples for markets.
  • Price action in European bonds is subdued, despite Mario Draghi noting that the extension of QE has anchored interest rate expectations. Bunds were marginally higher and peripherals outperformed.  

Commodities 

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Equities, US

  • Footlocker  FL:nyse delivered a better than expected result which saw the apparel/retail stock jumped 28% on Friday. Comparable sales slumped despite the company beat expectations and said it may beat its previous holiday quarter guidance.
  • Abercrombie & Fitch, ANF:xnyse jumped $3 and traded to its all time high as the apparel stock also reported a stellar result as it rocketed 23% on Friday.  Top line revenue came in at 5% on a 4% rise in comparable-store sales and in addition, margin was also improved by improvement on the bottom line due to cost cuttings
  • Twenty-First Century Fox Inc, (FOXA:xnas) gapped 7% on Friday’s session as it was rumoured that Comcast is interested in buying some of its assets. Consolidation within the industry could be the trend as the traditional media companies could possible merge and take on new Media/Tv content like Netflix and HBO’s streaming services.

European equities

  • In Europe,  Elior Group (ELIOR:xpar), the third largest catering group in Europe, plunged 18% as the catering group downgraded its profit guidance due to impact from hurricane Irma. Stock plunged to its lowest level in 2017 and could see support at $18.84, its low in November 2016.

Hong Kong equities

  • The online gaming and advertising provider Tencent manage to close above $HK400 on Friday as the stock jumped 3% after bullish reports from analysts pushed it higher, and at the same time, contributing 101 points to the Hang Seng index. Credit Suisse upgraded Tencent to outperform as it lifted its target price from $HK416 to $HK460 after last week's better than expected results.


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Grains have moved higher on weather concerns, with the La Nina pattern likely to bring colder winters to the northern US, droughts to Brazil and rains to Asia.  Photo: Shutterstock

 

– Edited by Robert Ryan


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