Article / 07 June 2016 at 2:41 GMT

Morning Report APAC: Yellen speech slows USD selloff

APAC Sales Trading Desk / Saxo Capital Markets


  • Yellen says current policy appropriate but rate will 'probably need to rise' over time 
  • She expects to see inflation moving to 2% over the next couple of years
  • Recent labour market report is 'disappointing', says Fed Reserve Chair
  • USD sell-off slows dramatically after Yellen's speech


By Saxo APAC Sales Trading

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

0830: TWD –CPI YoY (Act. 1.24%, Exp. 1.68%)

0900: PHP –CPI YoY (Act. 1.6%, Exp. 1.3%) 

1230: AUD – RBA Cash Rate Target (Exp. 1.75%, Prev. 1.75%) 

1330: INR  – RBI Cash Reserve Ratio (Exp. 4.00%, Prev. 4.00%) 

1330: INR  – RBI Repurchase Rate (Exp. 6.50%, Prev. 6.50%) 

1330: INR  – RBI Reverse Repo Rate (Exp. 6.00%, Prev. 6.00%) 

1400: EUR – Germany industrial Production SA MoM (Exp. 0.7%, Prev. -1.3%), YoY (Exp. 1.0%, Prev. 0.3%) 

1600: TWD – Taiwan Imp. YoY (Exp. -10.8%, Prev. -9.6%), Exp. MoM (Exp. -9.9%, Prev. -6.5%) 

1600: TWD – Taiwan Trade Balance (Exp. 4.95bn, Prev. 4.80bn) 

1700: EUR – Eurozone GDP SA YoY (Exp. 1.5%, Prev. 15%), SA QoQ (Exp. 0.5%, Prev. 0.5%) 

China Foreign Reserves (Exp. $3,200bn, Prev. $3,219.7bn) 

Indonesia Foreign Reserves (Prev. $107.7bn)

Overnight news

Federal Reserve speech : Federal Reserve Chairwoman Janet Yellen spoke and here are the highlights:

  • The economy has registered considerable progress over the past several years towards the Federal Reserve's goals of maximum employment and price stability. 
  • The labour market over the past year has been generally good, with significant job gains, the unemployment rate declining below 5%, rising household incomes, and tentative signs of faster wage growth. At the same time, recent signs of a slowdown in job creation bear close watching. 
  • The economy added 2.7 million jobs last year, an average of about 230,000 a month.  In the first three months of this year, payrolls were growing only modestly slower, at a little less than a 200,000 monthly pace. The unemployment rate had fallen to 5%, down from a peak of 10% in 2009. 
  • The increase in the quits rate is a sign that workers are feeling more confident about the job market and are likely receiving more job offers. 
  • This past Friday's labour market report was disappointing. Payroll gains were reported to have been much smaller in April and May than earlier in the year, averaging only about 80,000 per month. And while the unemployment rate was reported to have fallen further in May, that decline occurred not because more people had jobs but because fewer people reported that they were actively seeking work. 
  • An encouraging aspect of the report, however, was that average hourly earnings for all employees in the nonfarm private sector increased 2.5% over the past 12 months, a bit faster than in recent years and a welcome indication that wage growth may finally be picking up. 
  • One should never attach too much significance to any single monthly report. Other timely indicators from the labour market have been more positive. For example, the number of people filing new claims for unemployment insurance, which can be a good early indicator of changes in labour market conditions, remains quite low, and the public's perceptions of the health of the labour market, as reported in various consumer surveys, remain positive. That said, the monthly labour market report is an important economic indicator, and so we will need to watch labour market developments carefully. 
  • Inflation has been lower than our objective of 2%, but I expect it to move up over time. Speaking for myself, although the economy recently has been affected by a mix of countervailing forces, I see good reasons to expect that the positive forces supporting employment growth and higher inflation will continue to outweigh the negative ones. As a result, I expect the economic expansion to continue, with the labour market improving further and GDP growing moderately. And as I just noted, I expect to see inflation moving up to 2% over the next couple of years. 
  • Risks: More generally, in the current environment of sluggish growth, low inflation, and already very accommodative monetary policy in many advanced economies, investor perceptions of and appetite for risk can change abruptly. 

    One development that could shift investor sentiment is the upcoming referendum in the United Kingdom. A UK vote to exit the European Union could have significant
    economic repercussions.

    utlook for Chinese growth, which in turn has broad implications for commodity prices and global economic growth. Recently, the renminbi has moved in a more predictable fashion and Chinese capital outflows have abated. However, it is widely acknowledged that China faces considerable challenges as it continues to rebalance its economy toward domestic demand and consumption. 

  • Policies:  My overall assessment is that the current stance of monetary policy is generally appropriate, in that it is providing support to the economy by encouraging further labour market improvement that will help return inflation to 2%. At the same time, I continue to think that the federal funds rate will probably need to rise gradually over time to ensure price stability and maximum sustainable employment in the longer run. 

    But I stress that the economic outlook, including the pace at which the neutral rate may shift over time, is uncertain, so monetary policy cannot proceed on any preset 

US : The Federal Reserve’s index on labour market conditions sank for a seventh successive month and to its  lowest level in seven years during May. The labour market conditions index dropped to -4.8 (exp. -0.8) from a downwardly revised -3.4 in April (prev. -0.9).

Foreign exchange



The USD sell-off slowed down dramatically after Yellen’s speech but is still in place. USDJPY squeezed  higher on a more positive risk sentiment with stocks and US yields higher. 

The best performer of the night was CAD with USDCAD down 1.1% following the rally in oil. 

The market still seems long USD/EM and used any small rally to get out of the trade. USDCNH was notable, being bid all day during the Asia session before finding good selling interests from US funds. 

USDSGD, which is often use as a proxy trade, also dropped much lower than 1.3600.

Foreign exchange movement


With the small rally in USDJPY, we saw some Gamma sellers in USDJPY. There was a big seller of the 107.50 strike in the market during the Asian session.




Treasuries retreated after Federal Reserve Chair Janet Yellen said that “positive forces supporting employment growth and higher inflation will continue to outweigh the negative ones” and reaffirmed that “further gradual increases in the federal funds rate will probably be appropriate". The two-year note yield is up 2 basis points to 0.791%. The 10-year bond yield is higher by 3.5bps to 1.735%. 

The Australian fixed income markets are expected to tread water today with a slight bias to higher yields ahead of the RBA meeting.








European stocks edged higher despite continued caution ahead of the Brexit vote. Also, US equity markets traded broadly higher throughout the day, the S&P 500 index returning to a seven-month high. The Dow Jones Industrial Average climbed 0.6% to 17,920.33. The S&P 500 rose 0.5% to 2,109.41. The VIX volatility index rose 1.3% to 13.65. 

Higher commodity prices and a weaker dollar are a central focus this morning as markets bet the Fed will be forced to further delay rate increases. Stocks were propelled higher by a big jump in the energy sector as the dollar declines and crude prices rally. Higher commodity prices resulted in gains for miners and boosted the UK's FTSE index, as Rio Tinto, Anglo American and BHP Billiton all saw their shares rise by more than 5%. However, retailers were a drag on the market. Best Buy dropped 3.2% after CEO Hubert Joly sold $12.8 m in stock, cutting his stake by 44%.




The rally seen in Treasuries over the past two days has pushed lower the CDS indices, doing some catch -up. The main movers were Itraxx Europe.

HK equity preview

Analyst views: 

  • China Southern (1055 HK): Raised to buy at Everbright 
  • Great Wall Motor (2333 HK): Raised to neutral at JPMorgan 
  • H.K. & China Gas (3 HK): Cut to underweightat JPMorgan 
  • Stella Intl (1836 HK): Cut to sell at Goldman 
  • Xinjiang Goldwind (2208 HK): Rated new ’add’ at CIMB 

Equity preview:

  • Developers: Shanghai new home prices rise 6.67% on week: Uwin 
  • Agile Property (3383 HK): May pre-sales value 4.81bn yuan 
  • BOC H.K. (2388 HK): Joins yuan cross-border interbank payment system: CIPS 
  • Cheung Kong Infrastructure (1038 HK): JPMorgan said to seek bids for CKI stake in Spark Infrastructure: AFR 
  • Country Garden (2007 HK): Group Jan.-May contract sales 95.5bn yuan 
  • Everbright Bank (601818 CH): To sell up to 30bn yuan convertible bonds 
  • Evergrande (3333 HK): May contract sales up 30% y/y to 21.71bn yuan 
  • Geely Auto (175 HK): May sales rise 19% y/y to 45,850 units 
  • Gemdale (600383 CH): May contract sales value rises 50.7% y/y to 6.75bn yuan 
  • Great Wall Motor (2333 HK): May sales rise 9.5% y/y to 71,636 units 
  • Guangzhou Auto (2238 HK): May sales volume up 29% y/y to 135,389 units 
  • Haitong Securities (6837 HK): Unconsolidated may profit 338.5m yuan 
  • HSBC (5 HK): Lays out structure for reshaped investment banking unit 
  • Hybrid Kinetic (1188 HK): To develop luxury NEV with Pininfarina 
  • L’Occitane (973 HK): FY net income €110.3M; est. €106.8m 
  • Modern Land (1107 HK): Chairman raises stake to 69.69% 
  • Tencent (700 HK): Said to increase size of syndicated loan to $4.4bn 
  • Shui On Land (272 HK): May contract sales 4.85bn yuan 
  • Sunac China (1918 HK): May contract sales rise 106% y/y to 10.8bn yuan 
  • Southern Publishing (601900 CH): Says trading halt is for M&A 
  • Suning (002024 CH): Buys Inter Milan controlling stake for $306 m
  • Yongan Forestry (000663 CH): To sell 6.05m shares in Everbright 
  • Zijin Mining (2899 HK): Plans to buy mining co. for 1.56bn yuan 

Japan equity preview

Analyst views:

  • Ebara (6361 JP): Raised to outperform from neutral at SMBC Nikko 
  • Fuji Electric (6504 JP): Raised to buy from neutral at Mizuho Securities 
  • Hitachi Construction (6305 JP): Cut to underperform from neutral at SMBC Nikko 
  • Hosokawa Micron (6277 JP): Lowered to neutral plus from outperform at Iwai Cosmo Securities 
  • Keyence (6861 JP): Rated outperform at Bernstein 
  • Nihon Kohden (6849 JP): Cut to underperform from neutral at SMBC Nikko Securities; also 
  • lowered to neutral from overweight at Mitsubishi UFJ Morgan Stanley 
  • Nishio Rent All (9699 JP): Upgraded to outperform from neutral plus at Iwai Cosmo Securities 
  • Nisshin Seifun (2002 JP): Cut to neutral at Mizuho 
  • Omron (6645 JP): Raised to neutral plus from neutral at Iwai Cosmo Securities 
  • Pioneer (6773 JP): Cut to underweight from neutral at Mitsubishi UFJ Morgan Stanley 

Equity preview:

  • Digital Garage (4819 JP): Doubles dividend forecast for period ending June 30 to ¥30
  • Earth Chemical (4985 JP): Plans to buy 5.78% stake in Taiko Pharmaceutical (4574 JP) 
  • Kura (2695 JP): Operating profit climbed 27.7% y/y in 1H ended April 30; reaffirms full-year oper. profit forecast of ¥6.08bn maintained 
  • Pigeon (7956 JP): Operating profit rose 3.8% y/y in 1Q ended April 30; full-year operating profit forecast of ¥15bn maintained 
  • Takara Bio (4974 JP): Signs Japan distribution rights with US’s WaferGen Bio-systems 
  • Toho Gas (9533 JP): To buy Cameron project LNG from a unit of Mitsubishi Corp. (8058 JP); LNG agreement to cover ~200,000 tons/year and is good for 19 years from 2019 

Australia Equity Preview

  • Japara Healthcare (JHC AU) raised to add vs hold at Morgans 
  • Aurizon (AZJ AU) cut to underperform vs sector perform at RBC Capital 

Source: Bloomberg / CIMB



Janet Yellen: Fed funds rate will need to rise over time 'to ensure price stability and maximum sustainable employment in the longer run'. Photo: Flickr


– Edited by Susan McDonald

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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