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ICBC Financial Market Daily Review - January 12, 2018
 

I. Yesterday’s News
International News

1. The European Central Bank should revisit its communication stance in early 2018 and gradually adjust its language pertaining to various dimension of the monetary policy stance and forward guidance to reflect improved growth prospects, the accounts of the bank's December policy meeting showed on Thursday. A change in the ECB's policy message would likely be taken by investors as a sign that rate-setters are getting ready to wind down their 2.55 trillion euros bond-buying programme, the key plank of their stimulus policy for the past three years. The euro surged against the dollar, and German bond yields hit their highest levels in over five months on the comments.

2. U.S. producer prices fell for the first time in nearly 1-1/2 years in December amid declining costs for services, which could temper expectations that inflation will accelerate in 2018. The Labor Department said its producer price index for final demand slipped 0.1 percent last month. That was the first drop in the PPI since August 2016. In a second report on Thursday, the Labor Department said initial claims for state unemployment benefits increased 11,000 to a seasonally adjusted 261,000 for the week ended Jan. 6, the highest level since late September. Economists had forecast claims falling to 245,000 in the latest week. The dollar fell against a basket of currencies, prices of U.S. Treasuries fell, while stocks on Wall Street rose broadly.

3. The Bank of Japan maintained the amount of its bond purchases on Thursday, helping to soothe a market rattled earlier this week by a cut in its buying of longer-dated debt that fanned worries the central bank may be moving to turn off its stimulus. Most market players expected the BOJ to avoid causing another shock in the market, especially after U.S. bond markets were shaken by a report that China, the biggest foreign holder of U.S. Treasuries, could slow or stop buying government bonds. Given the BOJ is already holding almost a half of the market after nearly five years of massive bond buying, many traders believe the central bank has little choice but to continue with its gradual reduction in bond purchase.

4. One of the Federal Reserve's most influential members on Thursday offered a point-by-point critique of U.S. President Donald Trump's sweeping tax cuts, warning they put the country on an unsustainable fiscal path that will imperil the economy's stability down the road. New York Fed President William Dudley said the new cuts to corporate and individual taxes will provide a short-term boost but leave the economy more vulnerable in the years to come. Not only could the bill eventually hurt U.S. creditworthiness, it is unlikely to bring about spending since corporations and the rich benefit the most, he said. Major indexes in the Wall Street pared gains after his comments.

Domestic News

5. China’s Premier Li Keqiang has said China's economy, while maintaining stability, performed better than expected in 2017. Gross domestic product (GDP) is expected to rise 6.9 percent, unemployment rate has been the lowest in recent years, import & export reversed the downside course in the past two years, while household income, fiscal income and corporate profits has increased steadily, Li said.

6. China’s Premier Li Keqiang said China will help countries along the Mekong River carry out long-term win-win cooperation to realize development in hydraulic engineering, reservoir, irrigation and drinking water engineering in accordance with the concept of sustainable development. Lancang-Mekong capacity cooperation also has bright outlook in the construction of railway, road, port, airport, telecommunication and other areas.

7. A report that China is considering slowing or halting purchases of U.S. Treasury bonds may be based on erroneous information and could be "fake," the country's foreign exchange regulator said on Thursday. The forex reserves investment in U.S. Treasury bonds is a market activity, with investment professionally managed according to market conditions and investment needs, it said.

II. Market Overview
FX
1. Global Market

The euro rallied against the greenback on Thursday after the European Central Bank said it could revisit its communication stance in early 2018, boosting expectations that policymakers are preparing to reduce their vast monetary stimulus programme. The euro was up 0.77 percent to $1.2037, on pace for its biggest single-day percentage gain against the greenback in about two months. The dollar index, which measures the greenback against six rival currencies, was down 0.5 percent at 91.869, after falling to a nearly one-week low of 91.787. The Canadian dollar recovered ground against the greenback after hitting a nearly two-week low.

2. Home Market

China's yuan pared some gains against the U.S. Dollar after opening higher slightly on Thursday morning, while the central bank's midpoint rates also edging higher. The impact of adjustment in the counter-cyclical factor had been priced in, while turnover in the morning session was less than $6 billion due to lackluster trading appetite, traders said. Yuan is expected to continue to follow the dollar index.

Precious Metals

Gold prices on Thursday approached a four-month high set on the previous day after minutes of a European Central Bank meeting showed a more aggressive tone and boosted the euro against the U.S. Dollar. Spot gold was at $1,322.34 an ounce. U.S. gold futures for February delivery settled up $3.20, or 0.2 percent, at $1,322.50 per ounce. Platinum was up at $984.10 an ounce after hitting $985.10, its highest since Sept. 15. Palladium rose 0.2 percent to $1,083.24 an ounce.

Commodities
1.Crude Oil

Oil prices retreated from big gains on Thursday, but still managed to settle at three-year highs after the global Brent benchmark hit $70 a barrel on signs of tightening supply in the United States. Brent crude futures settled 6 cents higher at $69.26 a barrel, after hitting $70.05 a barrel during the session, its highest level since November 2014. Brent's settlement still represents a three-year closing high. U.S. West Texas Intermediate (WTI) crude futures settled at $63.80 a barrel, up 23 cents, the highest since December 2014.

2.Base Metals

Nickel fell on Thursday as traders took profits after pushing the metal to its highest level in 2-1/2 years in the previous session, while zinc headed towards its highest in more than a decade amid a supply crunch. Benchmark nickel on the London Metal Exchange (LME) ended down 2.4 percent at $12,620 a tonne. Zinc ended up 1.5 percent at $3,386. Copper ended down 0.2 percent at $7,140.

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

Treasury yields fell on Thursday after China disputed a report that its government officials had recommended the country slow or halt its purchases of U.S. Bonds. Benchmark 10-year notes gained 6/32 in price to yield 2.53 percent, after rising as high as 2.597 on Wednesday, the highest since March 15. The back up in yields nonetheless helped draw buyers to the Treasury Department’s $12 billion auction of 30-year bonds. Indirect bidders, which includes fund managers, insurance companies and other bidders, took a record share of 71.49 percent of the sale while dealers took a record low, at 21.23 percent.

2. Chinese bonds

China’s interbank bond market weakened sharply on Thursday morning, as the U.S. Treasury yields edged higher overnight for the second days in a row, panic sentiment picked up on shrinking liquidity and concerns over regulation and data. Yields of 10-year CDB bonds kept rising after crossing over 5 percent, while 10-year Treasury bonds yields also climbed 4 bps, drawing near to 4 percent, highs since last November.

Stock Market
1. U.S. Equities

Wall Street closed at record highs on Thursday as rising oil prices lifted energy stocks and investors bet on a strong U.S. corporate earnings season. The Dow Jones Industrial Average rose 205.6 points, or 0.81 percent, to 25,574.73, the S&P 500 gained 19.33 points, or 0.70 percent, to 2,767.56 and the Nasdaq Composite added 58.21 points, or 0.81 percent, to 7,211.78.

2. Hong Kong Equities

Hong Kong's benchmark stock index rose for the 13th consecutive session on Thursday, as strength in financial shares offset losses of 2.5 percent for index heavyweight Tencent Holdings. At close of trade, the Hang Seng index was up 46.67 points or 0.15 percent at 31,120.39. The Hang Seng China Enterprises index rose 0.05 percent to 12,295.52.

3. China Equities

Chinese stocks rose for the tenth consecutive day, hitting at an over 1-1/2-month high on Thursday, led by growth names. Major index remained at highs in shrinking volume, suggesting losing steam after recent gains. A pullback is expected to correct overbought technical indicators. The benchmark Shanghai Composite Index closed up 3.52 points or 0.10 percent at 3,425.35. The trading volume of Shanghai A-shares fell to 218.2 billion yuan from 254.3 billion yuan. The Hushen 300 index ended at 4,205.59, down 0.05 percent.


(2018-01-12)
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