Asia Overnight Highlights - 08 February 2017
While it was a quieter day in European bonds, the risk tone generally remained off, and core bonds bid on dips. Cable had a lively day.
Majors FX Highlights
The dollar index gained some strength overnight and was bid up to an over 1-week high of 100.720 on Tuesday as some correction was seen from the earlier lows. Gains against the euro which was weighed by political uncertainty in Europe bolstered the dollar as well. EUR/USD broke below 1.0700 to print a low of 1.0656 before a slight recovery later in the session. ECB speakers have been across the wires; Coeure said the EUR level is appropriate, while Villeroy said the US Gov't should refrain from comment on currencies, a view backed up later by Weidmann. USD/JPY regained the 112.00 handle but the high remained limited to 112.58 before a brief dip below the key figure again only to settle around 112.40 into the close of the NY session. GBP/USD saw wild movements despite the lack of catalysts. Priced dipped to a low of 1.2347 entering the NY session but saw a sharp bounce all the way to 1.2246 subsequently. BoE's Forbes warned that the central bank may have to tighten sooner than expected, but the rally cannot be completely attributed to her comments which came a good bit ahead. The commodity currencies are mainly a shade softer, NZD giving back most of the gains made in the local session and not getting any lift from a small lift in prices at the GDT dairy auction. USD/CAD managed to correct from a run over 1.32 despite softer crude prices (WTI -$1), but AUD/CAD holding comfortably over 1.00. The RBNZ board is scheduled to meet on the 9th of February and we believe the Bank would keep the interest rates unchanged at historic lows of 1.75% after cutting the OCR by 25 bps in November.
Majors Data Highlights
Dec's $44.3bn trade deficit was narrower than the $45.0bn we and the market had expected but the surprise is largely offset by an upward revision to Nov's deficit to $45.7bn from $45.2bn.
A quiet day ahead in the US, but the final commons vote on the Article 50 Bill is scheduled for today.
Emerging Asia FX Highlights
A mixed day for USD/Asians. USD/CNY 1Y NDFs recovered from the near 3 month low of 7.0717 printed in the Asian session on Tuesday to a high of 7.1075 as FX reserves dropped below psychological USD 3 trillion. USD/SGD saw further gains in NY and gains were only seen stalling at the 1.4200 handle after the dollar strengthened from Europe political concerns. USD/IDR 1M NDFs however retreated in consolidation to 13340 from >13360 levels earlier. USD/INR 1M NDFs also saw an offered bias overnight, slipping to 67.5000 levels from a high of 67.6500 earlier.
Emerging Asia Data Highlights
No key data was reported in Asia on Tuesday, but we are looking ahead at India's RBI policy decision due later today where we see a rate cut on the table with low inflation levels and the government's fiscal prudence in the Budget announcement.
OVERNIGHT NEWS HIGHLIGHTS
- US Dec Trade Balance USD -44.3 bn from -45.7 vs Mkt -45
- VIX index: 11.29 (-0.70%)
- Gold Spot: $1,233.96/oz (+0.00%)
- ICE Brent front contract: $54.68 ($-1.04)
- Nymex WTI front contract: $52.17 ($-0.84)
- Reuters/Jefferies Commodities Index: 191.37 (-0.41%)
- 10y UST: 2.393% (-1bp) (Asia morning)
- DJI: 20,090.29 (+0.19%); S&P: 2,293.08 (+0.02%); Nasdaq: 5,674.22 (+0.19%)
- China: China's forex reserves fell below $3t for the first time since Feb., 2011, according to data from People's Bank of China. - BBG
- Singapore: Monetary Authority of Singapore is proposing a list of amendments to its banking regulations, requiring its approval for banks that are setting up money-changing or remittance businesses. - BBG
- Singapore: Foreign-exchange reserves rise to US$252.74b, up 2.5% from $246.58b a month ago, Monetary Authority of Singapore says on website. - BBG
- Indonesia: Foreign reserves rise to $116.89 billion in January, equivalent to 8.7 months imports or 8.4 months imports and payment of govt external debts, Bank Indonesia says. - BBG
- There was some movement to keep the FX markets interested, GBP providing the most interest with a sharp sell-off in the morning followed by a sharp bounce around the 16.00gmt fix that made it all back. There was no obvious catalyst for either move. While BoE's Forbes has got some credit for the bounce her comment that UK rates may soon came a good bit ahead of the break above 1.2400. A final leg higher reached 1.2545 after 1.2500 gave way, getting EUR/GBP below .8550.
- EUR/USD looked heavy through the first half of the day and made a low at 1.0653, but that was as far as it was going to get. The p.m. rally was put in the shade by the Cable but highs above 1.0700 were seen.
- USD/JPY regained the 112 handle seeing a high just over 112.50. As UST yields fell a move below 112.00 was seen but the day's lows held, a 112 handle returned as UST yields found a base.
USTs initially led off the overnight best levels by the bund action, before being better bid again through the European close, at the long end especially, encouraged by a flattener trade, seeing profit taking on the steepeners. The 3yr auction then saw strong bidding, from indirects especially, but after touching fresh lows immediately after the auction, the front end in particular saw yields correct higher. 2s +1.6bps @ 1.17%, 5s -0.3bps @ 1.84%, 10s -2.0bps @ 2.39%, 30s -3.1bps @ 3.02%.
- Agency Spreads: Freddie/Fannie 5s -0.6/+0.6 bps, 10s 0.0/-0.2 bps.
- Swap Spreads: 2s -1.42bps, 5s +0.25bps, 10s 0.00bps.
Another pretty flat day, with earlier upside efforts rebuffed as the general risk tone turned softer through the day, oil for one giving up some ground. Still largely idling overall on the S&P at present.
USD/CNY: 1Y NDFs recovered from the near 3 month low of 7.0717 printed in the Asian session on Tuesday to a high of 7.1075 as FX reserves dropped below psychological USD 3 trillion. Onshore spot also rallied to 6.8853 into the close of the late trading session from the opening low of 6.8625. USDCNY likely to be caught within the two forces of tightening liquidity and medium term worries. While 1Y NDF points could narrow to within 20 big figures, prices close to 7.0500 should still represent a bargain in the medium term.
USD/CNH: Pair surged to a high of 6.8408 early this morning after consolidating just below 6.8400 in NY on FX reserves disappointment. A negative 5-6 figure spread has been maintained after the CNY holidays and we do not expect anything different for the rest of the week.
USD/SGD: Pair saw further gains in NY and gains were only seen stalling ahead of the 1.4200 handle after the dollar strengthened from Europe political concerns. Eyes on a break of the 1.4200 handle today, and next resistance is seen at 1.4211.
USD/IDR: 1M NDFs retreated in consolidation to 13340 from >13360 levels earlier. Onshore spot saw a firm opening but slid to a fresh 2-week low of 13313 this morning. Prices however recovered to inch back above 13330 in the afternoon. Support at 13300 should continue to hold, as we have long argued. Some gains to 13400 are likely, but we do not see any risk to the 13500 handle.
USD/INR: 1M NDFs saw an offered bias overnight, slipping to 67.5000 levels from a high of 67.6100 earlier. Onshore spot recovered from the near 3-month low of 67.1425 printed on Monday to gap up higher at 67.2900 vs. Monday's close of 67.2125. Prices were seen trading mostly above 67.3500 as the RBI meeting kicks off, possibly with a rate cut on the table, and traded around 67.4000 into the close. Focus has now turned to the highly anticipated RBI decision due this week, and some consolidation around 67.5000 is likely.
DATA RELEASED TODAY MORNING AND DUE TODAY
- 23:50 GMT - JP: Bank Lending Data (Jan) [Prev: 2.6]
- 23:50 GMT - JP: Current Account (Dec) [Mkt: 1183.3, Prev: 1415.5]
- n/a GMT - JP: Economy Watchers Survey (Jan) [Mkt: 51.8, Prev: 51.4]
- 00:30 GMT - TW: CPI (Jan) [Mkt: 2.02, Prev: 1.7]
- 00:30 GMT - TW: WPI (Jan) [Mkt: 1.5, Prev: 1.41]
- 04:00 GMT - MY: Exports (Dec) [Mkt: 9.4, Prev: 7.8]
- 04:00 GMT - MY: Imports (Dec) [Mkt: 11.2, Prev: 11.2]
- 04:00 GMT - MY: Trade Balance (Dec) [Mkt: 8.68, Prev: 9.03]
- 07:00 GMT - TH: BoT - Overnight Repo Rate (Feb 8) [Mkt: 1.5, Prev: 1.5]
- 09:00 GMT - IN: RBI - Repo Rate (Feb 8) 4cast:6 % [Mkt: 6, Prev: 6.25]
- 09:00 GMT - IN: RBI - Reverse Repo Rate (Feb 8) 4cast:5.5 % [Mkt: 5.5, Prev: 5.75]
- 13:15 GMT - CA: Housing starts (Jan) 4cast:200 k [Mkt: 200, Prev: 207]
- 20:00 GMT - NZ: RBNZ Interest Rate (Feb 9) 4cast:1.75 % [Mkt: 1.75, Prev: 1.75]
- 21:45 GMT - NZ: Building Permits (Dec) [Prev: -9.2]
- 23:50 GMT - JP: Key Machinery Orders (Dec) [Mkt: 3.1, Prev: -5.1]
- 23:50 GMT - JP: Key Machinery Orders (Dec) [Mkt: 4.5, Prev: 10.4]
EVENTS & AUCTIONS
- EU: EU's Jourova Speaks in Brussels
- AU: RBA's Lowe Speaks in Sydney (to 9th)
- 13:00 GMT - UK: BoE's Cunliffe Speaks In Birmingham
- 21:00 GMT - NZ: RBNZ's Wheeler Speaks (to 9th)