Morning Report APAC: Wheeler keeps shots in locker
- RBNZ chief Graeme Wheeler plans to keep his powder dry after latest cut
- USD's continued slide helped rise in NZD
- All markets waiting for outcome of Janet Yellen and Jackson Hole
By Saxo APAC Sales Trading
Economic data of the day (Singapore Time; GMT+8)
– 12:00: JPY: Kuroda speaks at BoJ’S fintech conference
– 18:30: EUR: ECB’s Coeure Lane, Smets on panel in Geneva
New Zealand central banker Graeme Wheeler said that while he intends to lower interest rates further to revive inflation, a series of rapid cuts is not justified:
- We do not believe the outlook and balance of risks warrants a position of no policy change, nor a position of rapid easings.
- Rapid ongoing decreases in interest rates would likely result in an unsustainable surge in growth and capacity bottlenecks, and further inflame an overheating property market.
- Low headline inflation could bring down inflation expectations in a self-perpetuating spiral that would be hard to correct, the main reason for the decision to ease rates this month.
- Cutting rates too quickly “would use up much of the bank’s capacity to respond to the likely boom-bust situation that would follow and place the Reserve Bank in a situation similar to many other central banks of having limited room to respond to economic or financial shocks.
- Chicago Fed National Activity Index rose to +0.27 (Mkt est: +0.20) from +0.05 in June. The sales, orders and inventories category inched up to +0.01 from -0.01. The contribution of the personal consumption and housing category was steady at -0.06. A barometer of national economic activity, it improved to a year high in July.
- Hawkish Fed speeches didn’t work and USD sold off overnight against most currencies.
- The biggest mover was NZD, which rallied almost 1% helped by USD selling and Wheeler comments saying RBNZ is not in a rush to cut further.
- In emerging markets, there was also some lesser USD selling following Short USD stops in EM currencies. The market is now waiting on Jackson Hole from Friday night.
Foreign exchange movements
- There is a lot of buy interest in short-dated USD Calls (Monday) in case Janet Yellen’s speech at the weekend holds surprises. The interests are in AUD, EUR and USDJPY.
- Hedge funds are also buying the next BoJ date in USDJPY at the market (ATM).
- In emerging markets, the rally in long-dated forward points in USDCNH is triggering buying interest in 1-year volatility.
- 1-year ATM moved from 6.3 to 6.8 in four sessions but is still below long-time support of 7 volatilities.
- US benchmark yields declined across maturities as oil prices slipped and equities fluctuated, 10-year note yields falling most in more than a week.
- Market pricing of the Fed funds rate firmed slightly, implying about a 25% chance of a rate hike in September, a 65% chance by December and 100% by August 2017.
- Benchmark German 10-year bunds advanced on Monday with euro-area counterparts after sliding last week. JPMorgan enter shorts in 10Y Germany; turn bearish on duration into September with yields close to record lows, risks of ECB resumption in supply; reduced exposure to periphery tighteners.
- Yield on 10-year JGB rises 2bp to -0.070% on position adjustment ahead of 20-year bonds auction.
- Following the Wheeler comments, market is pricing in only 29.4% chance of cut by RBNZ for September and 68.4% chance in November, mainly for a 25bp cut.
- S&P 500 and DJI logged losses as energy sector was hit by oil price declines, while Nasdaq bucked the trend to eke out a gain as investors Jackson Hole.
- Pfizer (-0.4%) confirmed its plan to buy biotech Medivation (+19.7%) for about $14 billion cash to expand its line-up of oncology treatments at $81.50 a share, a 21% premium on Medivation’s Friday close.
- Valeant Pharmaceuticals International surged 8.8% after confirming it has hired a new chief financial officer.
- European stocks inched higher as strength in healthcare and financials overcame energy sector weakness.
- Syngenta surged 10.6% after the US Committee on Foreign Investment cleared China National Chemical’s $43 billion takeover bid.
- Teleperformance leapt 8.9% as the outsourcing company said it is buying translation services company LanguageLine Solutions in a $1.52 billion deal.
- Anhui Conch (914 HK): Raised to hold at Jefferies
- Guangzhou Yuexiu (000987 CH): Rated new buy at Northeast Sec
- Kingsoft (3888 HK): Raised to outperform at Credit Suisse
- Huatai Securities (601688 CH): Raised to buy at Northeast Sec
- Sinopec Engineering (2386 HK): Cut to neutral at Nomura
- Sinopharm (1099 HK): Cut to neutral at Credit Suisse
- Wuhan Dept Store (000501 CH): Rated new add at Northeast Sec
- HK&CH Gas (3) 1H net profit HK$4.33bn, +3% YoY. Sales HK$14.2bn
- K Wah (173)’s Lui Che-woo said he hopes government will relax housing measures to enable citizens to change flats
- Vanke (2202) said there were 31 projects postponed or cancelled Jun-Aug due to ownership raid
- CK PPTY (1113) is said to sell its 75% stake in The Center at HK$34.8b
- Wanda (3699) seeks to extend $500m loan and a waiver for delisting and having breached a financial covenant
- Chong Hing BK (1111) 1H net profit HK$592m, -18.5% YoY
- Central CH Sec (1375) 1H net profit RMB306mln, rev RMB1.5bn
- CH National Buildg Material (3323) said restructuring with the parent co. has been approved
- Anhui Conch (914) net profit RMB3.36b, -29% YoY. Rev RMB24b, -1.03% YoY
- Tianrui (1252) 1H net profit RMB178.1mln, -27.5% YoY. Rev RMB3.1b, -10.9% YoY
- CRRC (1766) 1H net profit RMB4.79bn, +2% YoY. Rev RMB92.3bn, +0.55% YoY
- Sinopec Eng (2386) says it may win refining contract in Iran in 2H. Its FY target of new contracts is RMB46bn
- Modern Dairy (1117) 1H net loss RMB565.7mln vs RMB477mln profit yr ago. Rev RMB2.23bn, -8.6% YoY
- Dah Chong Hong (1828) 1H net profit HK$220m, -21.4% YoY
- Zhengtong Auto (1728) 1H net profit RMB253mln, -26.98% YoY. Rev RMB14.5bn, +5.23% YoY. Car sales 44.5k units, +10.8% YoY, of which luxury brands 31.5k units, +14.2% YoY
- Hoshizaki (6465 JP): Cut to neutral at Tokai Tokyo
- Nippon Paper (3863 JP): Resumed at underweight at Mitsubishi UFJ Morgan Stanley
- Nissin Foods (2897 JP): Raised to overweight from underweight at JPMorgan
- Tokyo Gas (9531 JP): Raised to buy at Daiwa
- Tokyu (9005 JP): Raised to buy at Okasan
- Japara Healthcare (JHC@AU) cut to underweight v equalweight at Morgan Stanley
- Primary Health (PRY@AU) cut to underweight v equalweight at Morgan Stanley
- IAG (IAG@AU) cut to sell v hold at Shaw & Partners
- NIB Holdings (NHF@AU) cut to underperform at Credit Suisse
- Automotive Holdings (AHG@AU) cut to hold at Bell Potter
- Infigen (IFN@AU) raised to buy at Canaccord Genuity
- Synlait Milk (SML@NZ), A2 Milk (ATM@NZ) reaffirm infant formula supply arrangements
- Mercury (MCY@NZ) full-year underlying earnings rise 2.3% to NZ$493mln
- NZ Refining (NZR@NZ) first-half net profit falls 82% YoY to NZ$11.1mln
- Tourism Holdings (THL@NZ) full-year net profit NZ$24.4mln
- Comvita (CVT@NZ) full-year earnings
- Aconex (ACX@AU) full-year earnings
- Monadelphous (MND@AU) full-year earnings
- Greencross (GXL@AU) full-year earnings
- Virtus Health (VRT@AU) full-year earnings
- Caltex (CTX@AU) first-half earnings
- Scentre Group (SCG@1H) first-half earnings
- Oil Search (OSH@1H) first-half earnings
- Vocus (VOC@AU) full-year earnings
- Healthscope (HSO@AU) full-year earnings
- Blackmores (BKL@AU) full-year earnings
- Fisher & Paykel Healthcare (FPH@NZ) annual meeting
- Macquarie (MQG@AU) CEO Nicholas Moore speaks at British Chamber of Commerce
- AGL (AGL@AU) CEO Andrew Vesey speaks at CEDA event, Melbourne
Source: CIMB / Bloomberg
The ball is firmly back in RBNZ's Graeme Wheeler's court after he dampens
the outlook for more cuts. Photo: iStock
– Edited by John Hampshire
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