Wednesday's Federal Open Market Committee outing saw the US central bank take a slightly more hawkish stance than was expected. Equities took only a minimal hit but the long-term impact on emerging markets could prove far more severe,
Article / 17 October 2016 at 1:57 GMT

Morning Report APAC: Yields surge on Yellen's speech

APAC Sales Trading Desk / Saxo Capital Markets


  • Asia markets opened mixed as traders digested Janet Yellen's speech 
  • Yellen's Boston speech sent the yield curve steepening
  • China’s PPI unexpectedly rose in September for the first time in nearly five years
  • The USD remains bid following the better-than-expected PPI numbers

By Saxo APAC Sales Trading


  • 1745 – EUR – European Central Bank board member Yves Mersch speaks in Luxembourg
  • 2245 – GBP – Bank of England Deputy Governor Ben Broadbent speaks in London

Overnight news

ChinaChina’s PPI unexpectedly rose in September for the first time in nearly five years (+0.1%, Exp. -0.3%) due to higher commodity prices. This rise should help corporate profits and the necessary cash flow to pay back some of their debts. Corporate China sits on $18 trillion in debt, representing around 169% of GDP. Prices of ferrous metals, non-ferrous metals and coal mining together rose 4.1% on-year, a key factor in the PPI turning positive, the statistics bureau said. The number of industries registering price increases also rose to 25, eight more than the previous month, indicating that a recovery in Chinese companies' pricing power was becoming more broad-based. (Reuters)

CPI rose more than expected to 1.9% in September (Exp. 1.6%). Food prices were up 3.2% in September on-year, compared with 1.3% in August.

United States: Retail sales rose as expected 0.6% MoM from -0.2%. Improved auto sales and increased gasoline prices drove the overall improvement. Spending at restaurants and bars leapt 0.8%, the largest one-month jump for the category since February. Sales at electronics and appliance stores dropped 0.9%. 

Producer Prices rose more than expected to 0.3% MoM (Exp. 0.2%) and 0.7% YoY. Core prices increased 0.2% MoM (Exp: +0.1%). Food prices rose 0.5% driven by a 26% increase in egg prices and a 10.5% spike in vegetable costs. Energy prices jumped 2.5% including a 5.3% increase in gasoline and an 11.7% surge in jet fuel.

University of Michigan Sentiment Index dropped to 87.9 from 91.2. The decline was concentrated among households earning less than $75,000 a year. 

Federal Reserve: Federal Reserve Chairwoman Janet Yellen said that in order to reverse “adverse supply-side effects” the central bank may need to temporarily run a "‘high-pressure economy’, with robust aggregate demand and a tight labour market".

 She said: “we of course need to bear in mind that an accommodative monetary stance, if maintained too long, could have costs that exceed the benefits by increasing the risk of financial instability or undermining price stability.” However Yellen also noted that the relationship between a tighter labour market and inflation seems to have weakened in recent years. “The influence of labour-market conditions on inflation in recent years seems to be weaker than had been commonly thought prior to the financial crisis.”

 Yellen did not address interest rates or immediate policy concerns directly. 


  • The USD remains bid following the better-than-expected PPI numbers. The dovish speech of Yellen didn’t change anything on the rally of US rates and the currency. The DXY is attempting to break the strong resistance at 98.00.
  • EURUSD continues to test new lows and close below 1.10000 in the NY session. We are just trading above the support of 1.0950. A break would push EURUSD to the the strong support of 1.0800.
  • USDJPY is testing the resistance of 104.50 after breaking the 100d MA. The first support will be at the top of the Ichimoku cloud at 103.50.
  • GBPUSD remains well offered and British Prime Minister Theresa May is under pressure to reveal her Brexit strategy. A cross-party group of British lawmakers demanded she publish an outline of her plans to exit the European Union and submit it to a vote in Parliament.  
  • In Emerging Markets, USDKRW, USDMYR and USDTWD remain bid. There are some resistance at 1137 in USDKRW but all the flows are on the RHS. Real Money flows managed to push USDPHP below 48.50 but the pair should find good support at 48.00.
  • USDSGD is rallying strongly following the break of the 200d MA at 1.3690 and the dovish MAS last week and weak GDP numbers. USDTHB is finding some support just above the 200d MA and the market is waiting for the Crown Prince to announce officially the takeover.

  • Gamma has been fairly offered since the squeeze in volatilities on Wednesday on Thursday in EURUSD.
  • There will be growing interest to buy USD calls against G10 currencies going into year end and it is a good way to play the different events we will have in the near future: US elections, Italian Referendum and the December Federal Open Market Committee meeting.


  • In the Boston Fed conference, Yellen hinted at letting US growth run hot as she pondered whether a "high-pressure economy" could boost areas like labour force participation. As a result, yield curve steepened and most yield spreads are close to at a month high now.
  • US 30-year yield rose more than 7 basis points to 2.55% and closed above its 200-DMA for the first time since Brexit.
  • US 10-year yield rose slightly by 5bps to 1.791% but still fails to break the 1.80% key psychological level. 





US stocks closed slightly higher on Friday, after a trio of bank quarterly earnings results topped analyst estimates and Yellen highlighted the benefits of a tight labour market. The S&P 500 index advanced 0.43 points to finish at 2,132.98, but a 1% decline on the week.

HP fell 4.4% after it disclosed a cautious forecast that cash flow will come up short in 2017, along with plans to cut 3,000 to 4,000 employees. shares jumped 5.2% following reports that the company has no more interest in buying Twitter, whose shares closed down 5.2%.

European stocks closed higher on Friday, as bank shares rose and mining stocks hiked on upbeat inflation news from China. The Europe Stoxx 600 bounced up 1.3% to finish at 339.95 with the financial sector leading the way. The FTSE 100 shot up 0.5% to end at 7,013.55.

Italian lender Banca Popolare dell’Emilia Romagna was up by 5.2%, after Reuters reported that it had sold a EUR 618 million portfolio of bad loans, and it will hold a shareholder vote this weekend on a proposed merger with Banca Popolare di Milano.

Tesco bounced up 4.4% after the supermarket chain resolved a pricing dispute with Unilever. As a settlement, Tesco had pulled Unilever products such as Marmite spread and Ben & Jerry’s ice cream from its online store. 

Asia-Pacific stocks

Hong Kong

Analyst ratings

- International (CTRP US): Raised to accumulate at Guotai Junan

- China United (600050 CH): Cut to neutral at Credit Suisse

- Zhuzhou CRRC Times Electric (3898 HK): Raised to outperform at Macquarie


- Airlines: China to let domestic airlines set prices more independently

- Banks: Concerned over Hong Kong land leases due 2047: Ming Pao

- Brokerages: China to cap number of investor stock trading accounts at three

- Petrochemicals: China unveils petrochemical, chemical industry 5-year plan: MIIT

- Television: Hon Hai, Sharp, Alibaba team up to develop internet TV: CNA

- Cangzhou Dahua (600230 CH): Says not informed over ChemChina Sinochem merger

- Cathay Pacific (293 HK): Sept. passenger yields still under pressure; bans Samsung Note 7 on all flights

- China Construction Bank (939 HK): in $743m debt program with Yunnan Tin; signs memo to boost cooperation with Nomura

- China Film (600977 CH): To buy 70% stake in Huachen Film Group for 553m yuan

- China Merchants Port (144 HK): To buy Qianhaiwan Property for 2.53b yuan

- CMEC (1829 HK): Wins $408m contract to build power station in Nigeria

- Dongfeng Group (489 HK): September passenger vehicle sales 267,385 units

- Huaneng Power (902 HK): to buy interests from group for 15.1b yuan

- Huayi Brothers (300027 CH): Says major issue involves asset buying

- HSBC (5 HK): Argentina unit considering 10-year peso loans for capital goods

- Infotmic (000670 CH): Probed by regulator for suspected violations

- Leshi Internet (300104 CH): Expects 9-mo. net 452.5m-527.9m yuan

- Shenwan Hongyuan (000166 CH): Jan.-Sept. net down 50.8% y/y to 3.85b yuan

- Sinopec Engineering (2386 HK): Jan.-Sept. new contract value drops 55.6% y/y

- TBEA (600089 CH): Signs $1.66b power grid contract in Bangladesh

- Tencent (700 HK): Sells 50% of voting rights for $850m to a group of investors in a consortium for supercell acquisition


Analyst ratings

- Nintendo (7974 JP) cut to neutral vs outperform at Macquarie

- Fujitsu (6702 JP) raised to buy at BofAML


- Tokyo Electric Power (9501 JP): Anti-nuclear candidate wins Niigata governor race, Kyodo reports

- Aderans (8170 JP): To be taken private for 29% premium

- Ajinomoto (2802 JP), Toyo Suisan Kaisha (2875 JP): Cos. dissolve noodle JV in Nigeria, citing falling oil prices; cos. also say JV in India to begin noodle output in Nov.

- Dowa Holdings (5714 JP): Preliminary 1H earnings beat outlook, with co. citing metal prices

- First Brothers (3454 JP): To move Tokyo listing to first section

- Ichigo (2337 JP): 1H oper. profit surged 205% y/y to 15b yen and net income jumped 183% to 11.9b yen

- J Front Retailing (3086 JP): Consolidated sales fall 7.8% y/y in Sept.

- Japan Display (6740 JP): Raised to outperform from neutral at SMBC Nikko Securities

- Japan Tobacco (2914 JP): Signs exclusive license agreement with JW Pharmaceutical for HIF-PHD inhibitor in South Korea

- Jin (3046 JP): FY oper. profit rose 2.8% y/y to 3.7b yen

- Kyowa Exeo (1951 JP): Raised to neutral from underweight at Mitsubishi UFJ Morgan Stanley

- Nankai Electric Railway (9044 JP): Upgraded to BBB+ at R&I, with stable outlook

- NTT Docomo (9437 JP): Extends tie-up with China Mobile and South Korea’s KT Corp. until Jan. 2022

- PanaHome (1924 JP): Lowers FY oper. profit forecast by 26% to 16b yen and net income projection by 24% to 10.1b yen

- Tokyo Gas (9531 JP): To form venture with Itochu (8001 JP) and Kansai Electric Power (9503 JP); to join N.Y. state thermal plant ops.

- Toyota Motor (7203 JP): European car sales up 8.4% in Sept. to 67,328 units

- TSI Holdings (3608 JP): Swung to oper. profit of 830m yen in 1H from oper. loss of 422m yen a year earlier

- Vector (6058 JP): 1H oper. profit climbed 54% y/y to 1b yen


Analyst ratings

- Oil Search cut to underperform vs neutral at Credit Suisse

- Santos cut to underperform vs neutral at Credit Suisse


- Aurizon (AZJ AU) Sept. quarter rail volumes

- Evolution Mining (EVN AU) 1Q production numbers

- Whitehaven Coal (WHC AU) 1Q production numbers

- Australia checking report Crown (CWN AU) employees detained in China

Source: CIMB / Bloomberg


 Asia markets opened mixed as traders digested Fed Chair Janet Yellen's speech
and awaited Chinese data due this week. Photo: Flickr

– Edited by Gayle Bryant

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. 

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