Forex - Asia Open - Overnight Highlights

Asia Overnight Highlights - 15 December 2017

Charu Chanana, PuoHua Lim

ASIA OUTLOOK

A busy day saw the ECB seen as dovish despite upgraded economic forecasts, and US markets make little response to strong data. The USD came under pressure, most notably versus JPY with eyes on equities and CAD after positive comments from BoC Governor Poloz.

Majors FX Highlights

The dollar index traded lower earlier on Thursday, remaining mostly under 93.500 but picked up traction later in the NY hours on strong US retail sales and initial claims data. A dovish ECB Draghi also added to dollar gains, which was seen bidding up to a high of 93.759 overnight, but growing concern that the Senate will struggle to pass the Republican tax overhaul package erased early dollar gains. European Central Bank raised growth forecasts but said that it still expects inflation to remain below its target, and the greenback slumped amid a decline in Treasury yields and strength in the Canadian dollar. EUR/USD rallied to 1.1863 on higher ECB forecasts, but slid all the way to drop below 1.1780 after a dovish tone from Draghi. A further low of 1.1765 was printed in early Asian trading hours this morning. GBP/USD was seen slipping below 1.3400 handle to a low of 1.3393 on upbeat US data and unchanged BoE, but rebounded to 1.3430+ subsequently in NY, only to see some weakness again in early Friday Asian trading hours. EUR/GBP peaked at 0.8834 but slid straight to 0.8760 later. USD/JPY traded in range around 112.70 for most of Thursday but plunged to 112.07 as UST yields moved lower. A modest recovery to 112.40-levels was however seen into NY close. USD/CAD, which had gone as high as 1.2865, saw a sharp slide after BoC Governor Poloz stated he was increasingly confident that less monetary stimulus would be needed over time. The move to a low of 1.2709 was assisted by AUD/CAD breaking back below .9800. AUD/USD sustained its gains seen on the strong jobs data however and printed a further high of 0.7680 in NY. NZD continued to trade with a bearish bias, finding some support around 0.6980.

Majors Data Highlights

US November retail sales came in at +0.8% and 1.2% net of revisions, ex auto +1.0% and 1.4% net of revisions and ex auto and gasoline +0.8% and 1.1% net of revisions. Initial claims suggest the labor market is increasingly strong, the 225k figure in the latest week down from 236k and the lowest since Oct 23. Nov import prices met expectations with a firm 0.7% increase but ex petroleum inflationary pressures still look subdued, with a rise of only 0.1%. UK November retail sales surged 1.1% m/m, a much better than expected outcome that was accentuated by an upward revision to October numbers.
Today in the US, we look forward to Dec Empire State manufacturing data and Nov industrial production, with Oct TICS capital flows late in the day. Nov existing home sales for Canada will also be due. Early focus will be on Q4 Tankan in Japan.

Emerging Asia FX Highlights

USD/Asians traded in a consolidative manner initially in NY before reversing later in the session. USD/CNY 1Y NDFs traded mostly above 6.7700 for most of NY but slid below the level just as NY session came to a close. USD/SGD saw a consolidative tone earlier on Thursday, trading around 1.3475-levels, before a dip to 1.3444 in the NY session as US yields moved lower. USD/IDR 1M NDFs traded in a choppy manner, slipping from 13620+ levels seen in Asian close to a low of 13586 before rebounding to 13600+ again in late NY/early Asia. Bank Indonesia kept policy rates unchanged and market impact was negligible. USD/INR 1M NDFs inched up to 64.5800 but the move was more than fully reversed as pair dipped to 64.3600 in early NY before some consolidation around 64.4500.

Emerging Asia Data Highlights

China growth metrics came in relatively stable in November, with industrial production slowing slightly to 6.1% y/y from 6.2% a month ago (4CAST: 6.3%). Retail sales improved to 10.2% y/y from 10% prior (4CAST: 10.2%). Fixed asset investment also slowed to 7.2% y/y from 7.3% previously. India's November WPI rises to 3.93% y/y from 3.59% y/y. Bank Indonesia kept policy rate unchanged on Thursday. Focus today on Indonesia's November trade data.

OVERNIGHT NEWS HIGHLIGHTS

- US weekly initial claims fell to 225k from 236k vs 236k exp.

- US Nov retail sales +0.8% vs 0.3% exp, ex auto +1.0% vs 0.6% exp.

- US Nov import prices +0.7% as exp.

- US Flash Dec Markit manufacturing PMI rose to 55.0 from 53.9, services fell to 52.5 from 54.5.

- US Oct business inventories -0.1% as exp.

- VIX index: 10.49 (+3.05%)

- Gold Spot: $1,253.49/oz (+0.04%)

- ICE Brent front contract: $63.31 (+$0.87)

- Nymex WTI front contract: $57.08 (+$0.04)

- Reuters/Jefferies Commodities Index: 184.22 (+0.47%)

- 10y UST: 2.349% (+1bp) (Asia morning)

- DJI: 24,508.66 (-0.31%); S&P: 2,652.01 (-0.41%); Nasdaq: 6,856.53 (-0.28%)

ASIA NEWS

China: China's central bank increased interest rates for the Standing Lending Facility by 5bps. - BBG

Indonesia: Bank Indonesia holds benchmark rate at 4.25%, sees monetary policy easing has been sufficient to boost the economy.

CURRENCIES

The USD initially stabilized in Europe after its post-FOMC losses. Ahead of the ECB the GBP saw a lift from strong retail sales but a modest hit from the unchanged BoE, noting the 9-0 vote and the BoE seeing data as mixed. EUR/CHF picked up after the SNB meeting, but this was largely reversed after the ECB, while EUR/GBP ended lower.

The ECB raised its growth and to a lesser extent inflation forecasts, but a dovish tone from Draghi weighed on the EUR. EUR/USD fell to a low of 1.1769 after a pop to 1.1862 on the ECB forecasts.

The USD failed to get much mileage from strong retail sales and a fall in initial claims, with UST yields not showing much response, and eventually moving lower at the long end as equities turned negative. This saw USD/JPY fall to near 112.00, while EUR/USD returned to around 1.1800. EUR/JPY touched below its Dec 6 low of 132.24.

BONDS

Better o/n selling particularly in the belly, tempering the post Fed move. Very impressive retail sales data struggled to add to the sell-off though & subsequent price action morphed into pivotal flattening again. Block buys noted at the long end with that grain. 2s +3.3bps @ 1.81%, 5s +2.2bps @ 2.13%, 10s +0.2bps @ 2.34%, 30s -1.8bps @ 2.71%

- Agency Spreads: Freddie/Fannie 5s +0.4/+0.1 bps, 10s -1.5/+0.2 bps.

- Swap Spreads: 2s -1.07bps, 5s -1.01bps, 10s -0.67bps.

EQUITIES

Early equity gains failed to hold, with a few Republican Senators unhappy with details of the tax bill and House Speaker Ryan reported to be considering stepping down after the 2018 midterms. Consumer discretionary stocks outperformed after the strong retail sales data.

ASIA CURRENCIES

USD/CNY: Onshore spot gapped lower to open at 6.6060 from previous close of 6.6195 on Thursday as PBoC raised rates. Pair traded in a narrow range between 6.6040-6.6115 in the day. Meanwhile, 1Y NDFs traded mostly above 6.7700 for most of NY but slid below the level just as NY session came to a close. 1M NDFs likely to be range-bound. For both USD/CNH and USD/CNY, we expect some range movement around the 6.6000-6.6100 handle in the coming days.

USD/CNH: Currency pair fell to a low of 6.6041 in early trading on Friday before inching up to a high of 6.6159 and then sliding down again and trading within a narrow range. We expect to see upside potential for the currency pair.

USD/SGD: Pair saw a consolidative tone earlier on Thursday, trading around 1.3475-levels, before a dip to 1.3444 in the NY session as US yields moved lower. However, pair retraced modestly and inched back upwards and was last seen consolidating at 1.3460 on Friday morning. For USD/SGD, the downside bias still remains in focus, eyeing on the support at 1.3420.

USD/IDR: 1M NDFs traded in a choppy manner, slipping from 13620+ levels seen in Asian close to a low of 13586 before rebounding to 13600+ again in late NY/early Asia. Bank Indonesia kept policy rates unchanged and market impact was negligible. USD/IDR onshore spot gapped lower to open at 13566 on Thursday from last close of 13585 as the US CPI data disappointed and post-FOMC Yellen was not as hawkish, leading to a plunge in the dollar. Pair consolidated around the opening level in early trading, but was bid up to 13575+ ahead of the Bank Indonesia policy decision. We expect some gains above 13550 to sustain, but we see no risk to 13600. Strong support at 13500 should continue to hold up.

USD/INR: 1M NDFs inched up to 64.5800 but the move was more than fully reversed as pair dipped to 64.3600 in early NY before some consolidation around 64.4500. USD/INR onshore spot gapped lower to open at 64.3500 on Thursday vs. last close of 64.4325 as the dollar plunged on weak US CPI and uninspiring FOMC. Pair printed a low of 64.2500 before inching back up to 64.3000-levels as wider current account deficit for the Sept quarter created some upside pressures. Range trading between 64.20-64.60 is expected ahead of the Gujarat election results on Monday, after which the focus will turn to RBI minutes.

DATA RELEASES DUE TODAY

- 23:50 GMT - JP: Tankan (Q4) [Mkt: 24, Prev: 22]

- n/a GMT - IN: Exports (Nov) [Prev: -1.1]

- n/a GMT - IN: Imports (Nov) [Prev: 7.6]

- n/a GMT - IN: Trade Balance (Nov) [Mkt: -13.25, Prev: -14.0188]

- 02:00 GMT - ID: Exports (Nov) [Mkt: 12.75, Prev: 18.39]

- 02:00 GMT - ID: Imports (Nov) [Mkt: 12.65, Prev: 23.33]

- 02:00 GMT - ID: Trade Balance (Nov) [Mkt: 860, Prev: 895]

- 10:00 GMT - EU: Trade Balance (nsa) (Oct) [Prev: 26.4]

- 10:00 GMT - EU: Trade Balance (sa) (Oct) [Mkt: 24.3, Prev: 25]

- 13:30 GMT - US: Empire State Survey (Dec) [Mkt: 18.8, Prev: 19.4]

- 13:30 GMT - CA: Manufacturing sales (Oct) 4cast:2.5 % m/m [Prev: 2.7]