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ICBC Financial Market Daily Review - December 13, 2017
 

I. Yesterday’s News
International News

1. U.S. producer prices rose in November as gasoline prices surged and the cost of other goods increased, leading to the largest annual gain in nearly six years. The fairly strong report from the Labor Department on Tuesday suggested a broad acceleration in wholesale price pressures, which could assuage concerns among some Federal Reserve officials over persistently low inflation. The dollar firmed against a basket of currencies on the data, while prices for U.S. Treasuries fell. U.S. stock index futures were trading mostly higher. The Fed officials were due to gather for a two-day policy meeting starting later on Tuesday. The U.S. central bank is expected to raise interest rates on Wednesday, for a third time this year, with a robust labor market and strengthening economy expected to overshadow policymakers' earlier concerns about tame inflation.

2. U.S. Secretary of State Rex Tillerson offered on Tuesday to begin direct talks with North Korea without pre-conditions, backing away from a key U.S. demand that Pyongyang must first accept that any negotiations would have to be about giving up its nuclear arsenal. Tillerson - whose influence has appeared to wane within the administration - said in his speech that Trump "has encouraged our diplomatic efforts." Trump, however, tweeted in October that Tillerson was "wasting his time trying to negotiate with Little Rocket Man," using his derisive nickname for North Korean leader Kim Jong Un.

3. Toshiba Corp and its chip business partner Western Digital Corp agreed to settle a long-running dispute over the embattled Japanese conglomerate's plans to sell its chip unit, the companies said in a statement, removing a key obstacle to the deal. The settlement calls for Western Digital to drop arbitration claims seeking to stop the sale to the Bain consortium in exchange for Toshiba allowing the U.S. partner to invest in a new production line starting next year for advanced memory chips. As part of the settlement, Toshiba and Western Digital will extend existing agreements for their chip joint ventures in Yokkaichi, central Japan, until 2027 or later. The chip unit sale may, however, face more complications.

4. Virtual currency bitcoin hit another all-time peak on Tuesday. Bitcoin was up 5.1 percent on the Luxembourg-based Bitstamp exchange on the day. Earlier on Tuesday bitcoin hit a record high of $17,428.42, registering a roughly 20-fold increase in its price for the year. The CME Group is expected to launch its futures contract on Dec. 17. The technical analysis suggests an extension of a wave, which could mean that bitcoin would easily surge above the psychologically important level of $20,000, according to the Reuters analysis.

Domestic News
5. Reining in North Korea's nuclear ambitions will top South Korean President Moon Jae-in's agenda in Beijing during a visit this week aimed at breaking the ice after a furious row with China over Seoul's deployment of a U.S. anti-missile system.

6.China on Thursday lowered forecasts for corn output to 216 million tonnes in the 2017/18 crop year, down 3.66 million tonnes from last year. A committee from the Ministry of Agriculture (MOA) also raised forecasts on industrial consumption of corn by 2 million tonnes to 63.3 million tonnes lifted by processing demand and recent government plan to encourage the use of bioethanol gasoline. But high stockpiles will keep corn market oversupply.

II. Market Overview
FX
1. Global Market

The U.S. dollar rose to almost one-month highs against a basket of currencies on Tuesday as the Federal Reserve began a two-day policy meeting where it is widely expected to raise interest rates for the fifth time since 2015. The dollar index hit 94.219, the highest since Nov. 14, before falling back to 94.138. The New Zealand dollar also set a one-month high as investors welcomed the appointment of national pension fund chief Adrian Orr to head the Reserve Bank from March. The kiwi was last up 0.29 percent against the U.S. dollar at 69 cents.

2. Home Market
China's yuan fell slightly against the U.S. dollar in the morning session on Tuesday, as mid-month forex demand grew and the dollar index steadied up, casting a shadow on market expectations. There’s also no signs that yuan will break away from current trading range.

Precious Metals

Gold prices retreated to a near five-month low on Tuesday as investors braced for a widely expected U.S. interest rate increase this week and looked for clues about further hikes from the Federal Reserve. Spot gold rose slightly to $1,243.46 an ounce, after hitting its lowest since July 20 at $1,235.92. U.S. gold futures for February delivery settled down $5.20, or 0.4 percent, at $1,241.70 per ounce.

Commodities
1.Crude Oil

Oil prices fell sharply on Tuesday, as traders took profits after prices surged early to a two-year high on an unplanned closure of the pipeline that carries the largest North Sea crude oil grade. Brent crude settled down $1.35, or 2 percent, at $63.34. U.S. crude settled at $57.14 a barrel.

2.Base Metals

Zinc prices rose on Tuesday after miner and trader Glencore held its output forecast steady for next year, disappointing investors who had largely bet it would restart more capacity. London Metal Exchange zinc ended up 1 percent at $3,157 a tonne. Lead , which is mined alongside zinc, closed up 1.2 percent at $2,517. Aluminium closed down 0.3 percent at $2,016 a tonne, copper ended down 0.1 percent at $6,663, nickel closed down 1.6 percent at $11,065 and tin closed down 1.2 percent at $19,165. 

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

U.S. Treasury yields rose on Tuesday as stronger-than-forecast data on producer prices in November offset average demand at a $12 billion auction of 30-year bonds. The 10-year Treasury yield was 2.407 percent, up 2.2 basis points from late on Monday, while the 30-year yield increased 1.5 basis points to 2.787 percent. Two-year yields edged up 0.8 basis point at 1.831 percent.

2. Chinese bonds

The cash bond yields bounced off highs in China’s interbank market on Tuesday as Treasury bond yields pared losses after a central bank official Sheng Songcheng opposed to raise interest rates. But caution will continue in the near term as financial data came out better than expected in November and as market was till waiting the central bank’s response to the interest rate hike in the Federal Reserve’s policy meeting.

Stock Market
1. U.S. Equities

The S&P 500 and the Dow industrials registered record closing highs on Tuesday with a boost from bank stocks as investors eyed a potential cut in U.S. corporate taxes and continued economic growth after strong inflation data. The Dow Jones Industrial Average rose 118.77 points, or 0.49 percent, to 24,504.8, the S&P 500 gained 4.12 points, or 0.15 percent, to 2,664.11 and the Nasdaq Composite dropped 12.76 points, or 0.19 percent, to 6,862.32.

2. Hong Kong Equities

Hong Kong stocks dropped on Tuesday, as index heavyweight Tencent slumped over 3 percent, and declines in other technology shares also weighed on sentiment. Investors are wary about higher borrowing costs ahead, with the U.S. Federal Reserve widely expected to raise interest rates this week. The Hong Kong dollar is pegged to the U.S. dollar. At close of trade, the Hang Seng index was down 171.41 points or 0.58 percent at 28,793.88. The Hang Seng China Enterprises index fell 1.04 percent to 11,312.57.

3. China Equities

Chinese stocks tumbled over 1 percent on Tuesday, pared all gains logged the previous two sessions. But strong support can be found at 3,250. The Shanghai Composite Index is expected to remain rangebound at 3,300.


(2017-12-13)
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