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ICBC Financial Market Daily Review - August 16, 2018
 

I. Yesterday’s News
International News

1. The United States on Wednesday ruled out removing steel tariffs that have contributed to a currency crisis in Turkey even if Ankara frees a U.S. pastor, as Qatar pledged $15 billion in investment to Turkey, supporting a rise in the Turkish lira. Despite the political tensions, the lira rebounded some 6 percent on Wednesday, strengthening to around 6.0 to the dollar. Turkish President Tayyip Erdogan got a shot in the arm from Qatar's Emir, who approved a package of economic projects, investments and deposits after the two met in Ankara.

2. U.S. retail sales rose more than expected in July as households boosted purchases of motor vehicles and clothing, suggesting the economy remained strong early in the third quarter. Other data on Wednesday showed manufacturing output rising steadily last month and worker productivity growing at its fastest pace in more than three years in the second quarter, though a drop in labor costs pointed to moderate wage inflation. Strong domestic demand supports expectations the Federal Reserve will raise interest rates in September for the third time this year, despite volatility in emerging markets that was sparked by an economic and political crisis in Turkey. The dollar was trading near a 13-month high against a basket of currencies and prices for U.S. Treasuries rose on Wednesday. Stocks on Wall Street fell sharply as the currency crisis in Turkey and ongoing concerns about trade policy hurt sentiment.

3. The United States on Wednesday imposed sanctions on a Russian port service agency and Chinese firms for aiding North Korean ships and selling alcohol and tobacco to Pyongyang in breach of U.S. Sanctions. In a statement, the U.S. Treasury said China-based Dalian Sun Moon Star International Logistics Trading Co. Ltd and its Singapore-based affiliate SINSMS Pte. Ltd had netted over $1 billion a year by exporting alcohol and cigarette products to North Korea. Additionally, the department sanctioned Russian-based Profinet Pte Ltd and its director general, Vasili Aleksandrovich Kolchanov, for providing port services on at least six occasions to North Korean-flagged ships.

4. Indonesia's central bank stepped up its battle to defend a beleaguered currency on Wednesday, raising interest rates for the fourth time since mid-May on top of government import curbs as Turkey's financial crisis ripples across emerging markets.
Bank Indonesia (BI) raised its benchmark interest rate by 25 basis points to 5.50 percent, as expected by 7 of 19 analysts in a Reuters poll. The deposit and lending facilities have also been raised by 25 bps to 4.75 and 6.25 percent, respectively. The move gave the rupiah a leg-up to 14,585 against the dollar.

5. Britain's inflation rate picked up for the first time this year in July, leaving many British households still feeling squeezed by prices that are still rising at about the same pace as their salaries. Official data also underscored the weakness seen in the country's property market since the 2016 Brexit vote with house prices rising at their slowest pace in almost five years while prices in London fell at their fastest pace since 2009. Overall consumer price inflation rose an annual rate of 2.5 percent in July after holding at 2.4 percent in each of the previous three months, the Office for National Statistics said, in line with economists' forecasts in a Reuters poll. It was the first time since November last year that inflation gained pace in annual terms, showing how slow the recovery in spending power is for many households.

6. A measure of Australian consumer sentiment fell back in August, undoing some of the previous month's surprise jump, as the mood on the economic outlook turned more cautious. The Melbourne Institute and Westpac Bank index of consumer sentiment fell 2.3 percent in August, versus July when it climbed 3.9 percent. Wednesday's index, compiled from a survey of 1,200 people, was still up 8.6 percent on August last year at 103.6, meaning optimists continued to outnumber pessimists.

Domestic News

7. China Banking and Insurance Regulatory Commission (CBIRC) required its big four state asset management companies (AMC) to reduce risk in the P2P sector as a measure to safeguard social stability, two sources said on Wednesday.

8. Chinese technology giant Tencent Holdings Ltd on Wednesday reported a surprise 2 percent fall in second-quarter net profit, due to slower growth in mobile games and a drop in PC gaming. Smartphone games revenue declined 19 percent from the previous quarter. Tencent said it would try to reinvigorate its mobile game revenue growth by launching more measures, adding that it may take several months to take effect. Its April-June profit fell 23 percent to 17.867 billion yuan from the first three month’s 23.29 billion yuan, lagging the 19.672 billion yuan average of analyst estimates compiled by Thomson Reuters. The reading is also lower than the 18.231 billion yuan recorded in the same period of last year. Earnings per share fell 2 percent to 1.893 yuan.

9. The data in the January-July period showed that the potential impact on China’s economy of ongoing trade frictions with the US are limited and controllable, said China's top economic planner. China has many in its toolbox to cope with the impact and ensure economic and social stability as planned at the beginning of the year.

II. Market Overview
FX
1. Global Market

The dollar ended little changed on Wednesday after reaching a 13-month peak against a basket of currencies as investors briefly added to their safe-haven holdings of the greenback on worries about slowing Chinese growth and Europe's exposure to Turkey. The dollar's initial gains faded as the euro recovered following news that Qatar pledged to invest $15 billion in Turkey. This move is seen supportive of Turkey's banking system and reduced anxiety about European banks' exposure in Turkey. It helped euro to rebound from a 13-month trough versus the dollar and Swiss franc. The euro hit $1.13010, the lowest in 13 months before moving up to $1.13430, flat on the day. The single currency was steady at 1.12790 Swiss franc, EBS data showed.

2. Home Market

China's yuan weakened to a 15-month low against the dollar on Wednesday after the dollar reached a 13-month peak. The yuan slumped 219 bps to 6.9049 per dollar, and crossed below the mark of 6.91 in post-trade settlement.

Precious Metals

Gold fell to a more than 18-month low on Wednesday as the dollar climbed towards its highest in over a year on concerns about global market contagion triggered by recent declines in the Turkish lira. Spot gold closed at $1,174.28 per ounce. U.S. gold futures for December delivery settled down $15.70, or 1.3 percent, at $1,185 per ounce. Spot platinum slumped to its lowest since October 2008 at $752.25 per ounce. It was last trading down at $763.00 per ounce. Palladium declined at $842.50 per ounce, earlier hitting $834.50, its lowest since July 2017. Spot silver lost at $14.42 an ounce after falling to its lowest since February 2016, at $14.32.

Commodities
1.Crude Oil

Oil futures slid on Wednesday, with U.S. crude settling 3 percent lower after government data showed a surprise weekly increase in domestic crude stockpiles, compounding worries about the global economic growth outlook. U.S. crude futures settled at $65.01 a barrel, down $2.03, or 3 percent. Brent crude futures were down $1.70, or 2.35 percent, at $70.76 a barrel.

2.Base Metals

Industrial metal prices tumbled on Wednesday on concerns about the hit to global growth and demand from trade disputes and political tensions, as well as a stronger dollar. Benchmark copper on the London Metal Exchange hit a 15-month low of $5,773 a tonne and zinc touched $2,291, a level last seen in October 2016. Lead dropped as low as $1,919.50, the worst since September 2016 and the biggest daily loss in nearly seven years. Copper closed down 4 percent at $5,801 and tin finished down 3.2 percent at $18,405. Aluminium ended down 2.2 percent to $2,025, zinc slid 6.3 percent to $2,300, lead lost 7.1 percent to $1,927 and nickel shed 4.3 percent to close at a six-month low of $12,850 a tonne.

U.S. Treasuries
1. U.S. Bonds

U.S. Treasury yields fell on Wednesday after two straight days of gains as risk appetite soured amid nagging concerns about fallout from the Turkish crisis hitting other emerging markets. The yield curve also flattened, with the spread between U.S. 2-year and 10-year notes narrowing to 23.2 basis points , the tightest gap since at least March 2010, according to Reuters data. In afternoon trading, U.S. 10-year yields fell to 2.849 percent, down from Tuesday's 2.895 percent. U.S. 30-year yields slid to 3.022 percent, from 3.062 percent late on Tuesday. On the front end of the curve, U.S. 2-year yields eased to 2.604 percent from 2.633 percent on Tuesday.

2. Chinese bonds

China’s spot debts and debt futures weakened after the central bank renewed the MLF expired in the open market. Street talks that the Xinjiang Production and Construction Corps Agricultural Construction Sixth Division will complete the delayed payment of principals and interests of its ultra-short financing bonds due Monday also gave credit bonds a lift.

Stock Market
1. U.S. Equities

Wall Street fell in a day of heavy trading on Wednesday with the S&P 500 posting its biggest percentage drop since late June as investors turned risk-averse on disappointing earnings and escalating global tariff worries. Chinese technology company Tencent Holdings Ltd reported its first profit decline in almost 13 years, putting pressure on the U.S. tech sector. Technology stocks were the biggest drag on the S&P 500 and the Nasdaq, with the S&P 500 technology index down 1.1 percent. The Dow Jones Industrial Average fell 137.51 points, or 0.54 percent, to 25,162.41, the S&P 500 lost 21.59 points, or 0.76 percent, to 2,818.37 and the Nasdaq Composite dropped 96.78 points, or 1.23 percent, to 7,774.12.

2. Hong Kong Equities

Hong Kong stocks extended declines on Wednesday, with the benchmark Hang Seng index tumbling to its lowest in nearly one year, pulled down by losses in technology firms. The Hang Seng index dropped 1.55 percent to 27,323.59 points. While the Hong Kong ChinaEnterprises Index fell 1.95 percent to 10,535.14 points.

3. China Equities

Shanghai stocks tumbled over 2 percent, extending the losing streak to the third day. Disappointing economic data added to the volatile emerging markets and weak Asian stocks in hurting market sentiment. The Shanghai Composite Index plunged 57.70 points or 2.07 percent to 2,723.26, the largest one-day decline since the 2.52 percent loss hit on July 2. The turnover of Shanghai A shares rose to 118.5 billion yuan from 112.3 billion yuan. Hushen 300 index closed at 3,291.98, down 2.4 percent.


(2018-08-16)
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