Forex - Asia Open - Overnight Highlights


 23:54 (GMT) 14 Feb

  [Forex Highlights]

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Asia Open - Overnight Highlights (0100-LNNS-C01)

Asia Overnight Highlights - 15 February 2017

Charu Chanana

ASIA OUTLOOK

Yellen the big focus and all it took was the Fed chair to be upbeat on macro targets and wary of being behind the curve for US yields and dollar to stretch higher. Equities too prove resilient.

Majors FX Highlights

The dollar index saw a fresh rally overnight to 3-week highs of 101.38 as hawkish Yellen took the limelights. The Yellen testimony to the Senate was the Big Event of the day, the Fed Chair saying that rates are likely to go up at one of the forthcoming meetings and that all that was needed for the fast money to buy some USD. Yellen made no promises on a March move, though did put Wednesday's CPI in the spotlight when she said that the move would be dependent on inflation and employment developing as expected. Fed's Lacker was typically hawkish saying there is a strong case for a March move, and Kaplan more notably hawkish later on. EUR/USD broke below the support at 1.0590 and printed a low of 1.0561, before consolidating around 1.0580 later, seeing only a modest bounce. USD/JPY spiked up to 114.50 from 113.25, and remained supported above 114.20 into the Asian morning. GBP/USD slid to 1.2444 in the European hours as UK CPI disappointed, and continued to trade around 1.2470 subsequently. AUD had been the best of the commodity currencies earlier so fell the furthest as the USD picked up, USD/CAD taking a look over 1.31 before seeing a correction. AUD/CAD saw a move below 1.00. NZD/USD hit a low of .7132 as AUD/NZD retreated from a look over 1.0700.

Majors Data Highlights

US Jan PPI makes a stronger than expected start to the New Year, 0.6% overall, 0.4% ex food and energy but a relatively moderate 0.2% in the less volatile ex food, energy and trade series. We saw strength in the core rates in Jan 2016 too (yr/yr growth in the core rates slowed) so it is unclear that this is a change in trend. PPI is more volatile than CPI but in this month we also expect core CPI, due tomorrow, to be on the firm side of trend. UK CPI fell by 0.5%m/m in January (prev: 0.5%m/m), translating to a higher y/y rate of 1.8%y/y (prev: 1.6y/y). However this falls short of market expectations for 1.9%y/y.

On the wires today will be US CPI, expected to be +0.4% m/m, with ex-food and energy at +0.3%. Core CPI merits attention as prices often see bounces in the New Year and input costs have risen recently. A 0.3% rise would leave y/y growth stable, a lack of a bounce would see it dip, but a strong bounce would mean risk of core PCE prices reaching 2.0% earlier than expected. The number could have a significant impact on Fed policy risks. January retail sales and February's Empire State survey will be released alongside CPI, the former expected to be flat on the headline but a solid +0.5% ex-autos and 0.4% ex-autos and gasoline. January production data follows and should post an improved +0.4% for manufacturing but be flat overall due to a correction in utilities. February's NAHB survey is also on the calendar. UK's employment data is likely to post a modest 1k rise in the claimant count and an unchanged ILO unemployment rate at 4.8%. Average weekly earnings for December are expected to be stable at 2.8% in 3m y/y terms.

Emerging Asia FX Highlights

USD/Asians saw an upward bias overnight as the dollar index was bid following Yellen comments. USD/CNY 1Y NDFs saw a mild recovery from the low of 7.0765 in the NY hours and traded on either side of 7.0900. USD/SGD recovered in NY and inched back above the 1.4200 handle. USD/IDR 1M NDFs saw steep gains to 13407 on Yellen testimony but a quick retreat to near-13350 levels was also noted. USD/INR 1M NDFs slipped to 66.9400 before Yellen's comments ignited a rally in dollar taking prices up to 67.1200 only to retreat again later.

Emerging Asia Data Highlights

China CPI and PPI for January both surprised on the upside, with CPI at 2.50% y/y vs 2.40% y/y market consensus, and PPI at 6.90% y/y vs market consensus of 6.60% y/y. India WPI also rose by 5.25% from a year earlier, the highest level since June 2014 and sharply quicker than the 3.39% increase in December. A busy day ahead with Indonesia's January trade and Singapore's December retail sales scheduled for release.

OVERNIGHT NEWS HIGHLIGHTS

- Fed's Yellen - at upcoming meetings, Fed will evaluate if inflation and employment evolving in line with expectations, in which case a further rate increase would likely be appropriate. Waiting too long would be unwise. Must be careful not to let labor mkt get too tight. Every meeting is live, cannot say whether next hike will come in Mar or Jun.

- Fed's Kaplan - moving sooner rather later will make it more likely that future removals of accommodation can be done gradually.

- Fed's Lockhart in 2 hikes in 2017 camp, felt it too early to factor in fiscal stimulus.

- US Jan PPI 0.6% m/m from 0.2 vs Mkt 0.3; ex Food & Energy 0.4% m/m from 0.1 vs Mkt 0.2

- VIX index: 10.74 (-2.98%)

- Gold Spot: $1,229.00/oz (+0.07%)

- ICE Brent front contract: $55.97 (+$0.38)

- Nymex WTI front contract: $53.05 ($-0.15)

- Reuters/Jefferies Commodities Index: 192.28 (+0.11%)

- 10y UST: 2.470% (+3bp) (Asia morning)

- DJI: 20,504.40 (+0.45%); S&P: 2,337.58 (+0.40%); Nasdaq: 5,782.57 (+0.32%)

ASIA NEWS

- China: Jan. aggregate financing 3.74t yuan; est. 3t yuan; Jan. new loans 2.03t yuan; est. 2.44t yuan; Jan. M2 +11.3% y/y; matching estimate. - BBG

- Singapore: Singapore forecasts slower growth in tourist arrivals in 2017. - BBG

Asia Open - Overnight Highlights (0100-LNNS-C03)

CURRENCIES

- The Yellen testimony to the Senate was the Big Event of the day, the Fed Chair saying that rates are likely to go up at one of the forthcoming meetings and that all that was needed for the fast money to buy some USD. EUR/USD finally managed to break stubborn support at 1.0590 without bouncing straight back, though 1.0555 support did hold out and we saw a very modest bounce.

- USD/JPY got a boost too, seeing a high at 114.49 but running into offers there despite the DJIA turning positive.

- GBP was the earlier interest as UK CPI fell short of expectation at 1.8% where may had been looking for a return to target. Cable dropped to a low of 1.2440 from around 1.2530 before the release, though was notably unmoved as the USD made strides on the Yellen testimony.

Asia Open - Overnight Highlights (0100-LNNS-C04)

BONDS

US PPI came in on the strong side but the UST market was in waiting mode until Yellen spoke. Yields did then see a decent pop higher as the red headlines hit the wires, as Yellen sounded an upbeat note on recent data being on track, thus implying the Fed 3 hike view was still on course, as well as emphasising the need to get on with tightening and not get behind the curve in terms of leaving policy too accommodative. US10s pushed on towards the 2.5% reference, while the 5s spike was a little short of 2%. Yields came of the highs in late trade, particularly at the long end. 2s +2.9bps @ 1.23%, 5s +4.3bps @ 1.96%, 10s +3.2bps @ 2.47%, 30s +2.8bps @ 3.06%.

- Agency Spreads: Freddie/Fannie 5s -1.1/-0.6 bps, 10s -0.2/-0.7 bps.

- Swap Spreads: 2s +0.23bps, 5s -0.75bps, 10s 0.00bps.

EQUITIES

Equities prove resilient to the 'hawkish' reaction to Fed's Yellen after briefly dipping, S&P pushing to a new high as the market continues to drive to next higher target levels despite overbought conditions.

Asia Open - Overnight Highlights (0100-LNNS-C02)

ASIA CURRENCIES

USD/CNY: 1Y NDFs saw a mild recovery from the low of 7.0765 in the NY hours and traded on either side of 7.0900. The PBoC restarted reverse repurchase agreements on the day, and CNY was correspondingly offered. Onshore spot traded to a high of 6.8910 after the higher midpoint fixing of 6.8898. USDCNY likely to be caught within the two forces of tightening liquidity and medium term worries. 1Y NDF points might have rebounded to near 25 big figures, but we still look for opportunities to buy at near 20 big figures levels.

USD/CNH: Pair saw a dip to 6.8465 in the European hours but a quick recovery above 6.8500 was noted, with the pair trading higher to >6.8600 levels as the dollar was boosted by a hawkish Yellen. Although we expected the CNHCNY spread to go back into positive this week, agent bank machinations showed that a >1 big figure spread was maintained in the day. Traders placing their bets on a positive spread would do well to come back in the latter half of the week, or even next week.

USD/SGD: Despite a sell-off into the European session to a low of 1.4156, prices recovered in NY with gains in the dollar index and inched back above the 1.4200 handle. Likely potential for gains to extend beyond the 1.4250 figure on Yellen, but some downside pressures are likely into the end of the week with expectations of an expansionary Budget next week. Support at 1.4150 should however remain intact.

USD/IDR: 1M NDFs saw steep gains to 13407 on Yellen testimony but a quick retreat to near-13350 levels was also noted. Onshore spot traded firmly around 13330 in the morning before turning a tad lower below 13325 in the afternoon as the dollar index weakened. Trading however remained thin ahead of the Jakarta governor elections on Wednesday and BI decision due on Thursday. Gains to 13400 are likely in case protests are seen during the elections, which seems unlikely. Focus on Fed Yellen's testimony later today, but markets remain closed on Wednesday for local elections.

USD/INR: 1M NDFs slipped to 66.9400 before Yellen's comments ignited a rally in dollar taking prices up to 67.1200 only to retreat again later. Onshore spot gapped slightly lower to open below the 67 handle at 66.9700 vs. last close of 67.0150, shrugging off any impact from the record low Jan CPI print reported on Monday night. Pair continued to trade around 66.9500 in the day, but some upside is likely today, and eyes will be on 67.2000.

DATA RELEASED TODAY MORNING AND DUE TODAY

- n/a GMT - ID: Exports (Jan) 4cast:19 % y/y [Prev: 15.57]

- n/a GMT - ID: Imports (Jan) 4cast:10 % y/y [Prev: 5.82]

- n/a GMT - ID: Trade Balance (Jan) 4cast:959 USD mn [Mkt: 853, Prev: 992]

- 00:30 GMT - AU: New motor vehicle sales (Jan) [Prev: 0.3]

- 05:00 GMT - SG: Retail Sales (Dec) 4cast:1.4 % y/y [Mkt: 1.4, Prev: 1.1]

- 05:00 GMT - SG: Retail Sales (sa) (Dec) 4cast:-2.2 % m/m [Mkt: -1.9, Prev: 0.5]

- 08:00 GMT - TW: GDP (Final) (Q4) [Mkt: 2.6, Prev: 2.58]

- 09:30 GMT - UK: Average Earnings (incl. bonus) (Dec) 4cast:2.8 % 3m y/y [Mkt: 2.8, Prev: 2.8]

- 09:30 GMT - UK: Claimant Count Change (Jan) 4cast:1 k [Mkt: 1, Prev: -10.1]

- 09:30 GMT - UK: Claimant Count Rate (Jan) 4cast:2.3 % [Mkt: 2.3, Prev: 2.3]

- 09:30 GMT - UK: ILO Unemployment Rate (Dec) 4cast:4.8 % [Mkt: 4.8, Prev: 4.8]

- 10:00 GMT - EU: Trade Balance (sa) (Dec) [Mkt: 22, Prev: 22.7]

- 13:30 GMT - US: CPI (Jan) 4cast:0.4 % m/m [Mkt: 0.3, Prev: 0.3]

- 13:30 GMT - US: CPI (ex Food & Energy) (Jan) 4cast:0.3 % m/m [Mkt: 0.2, Prev: 0.2]

- 13:30 GMT - US: Empire State Survey (Feb) [Mkt: 7, Prev: 6.5]

- 13:30 GMT - US: Retail Sales (Jan) 4cast:0 % m/m [Mkt: 0.1, Prev: 0.6]

- 13:30 GMT - US: Retail Sales (ex Auto) (Jan) 4cast:0.5 % m/m [Mkt: 0.4, Prev: 0.2]

- 13:30 GMT - CA: Manufacturing sales (Dec) 4cast:0 % m/m [Mkt: 0.3, Prev: 1.5]

- 14:15 GMT - US: Capacity utilisation (Jan) 4cast:75.4 % [Mkt: 75.5, Prev: 75.5]

- 14:15 GMT - US: Industrial production (Jan) 4cast:0 % m/m [Mkt: 0, Prev: 0.8]

- 15:00 GMT - US: Business inventories (Dec) [Mkt: 0.4, Prev: 0.7]

- 15:00 GMT - US: NAHB Builders survey (Feb) [Mkt: 67, Prev: 67]

- 21:00 GMT - US: Net Long-term TICS Flows (Dec) [Prev: 30.8]

EVENTS & AUCTIONS

- 15:00 GMT - US: Fed's Yellen Speaks in Washington

- 17:00 GMT - US: Fed's Rosengren Speaks in New York

- 17:45 GMT - US: Fed's Harker Speaks in Philadelphia

- 22:00 GMT - AU: RBA's Ellis Speaks

- 23:00 GMT - NZ: Finance Minister Joyce Speaks


Forex - China Flows: USD/CNY; PBoC restarts OMOs


 03:50 (GMT) 13 Feb

 [Forex Flows]

BBG: China's central bank restarted the use of an instrument that adds cash to the financial system, helping ease liquidity concerns before $153 billion of funds come due this week. The monetary authority sold a total 100 billion yuan ($14.5 billion) of reverse-repurchase agreements, the first auction after a six-day pause, a statement posted on its website showed. While the open-market operations resulted in a net withdrawal of 90 billion yuan because of maturing contracts, the resumption signals that policy makers don't want a sudden tightening of money supply.

The CNY 100 bn injected into the market was larger than the usual average of CNY 50, and signifies that the PBoC is cognizant of the fact that there is a limit to squeezing liquidity. The PBoC also demonstrated that they are comfortable with a weaker CNY fixing, with the latest number at 6.8898. Onshore spot seen between 6.8810 - 8910 in the morning session, and 1Y NDFs were seen rising to 7.1297 from 7.1185. Despite the advance, 1Y NDF points were actually slightly narrower, last at 24 big figures. Should the PBoC refrain from squeezing onshore liquidity again, we expect to see 1Y NDFs stay above 7.1000 for the whole of the week.


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