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ICBC Financial Market Daily Review - October 16, 2018
 

I. Yesterday’s News
International News

1. A joint Turkish and Saudi team will search the Saudi Arabian consulate in Istanbul as part of an investigation into the disappearance of prominent journalist Jamal Khashoggi, a Turkish diplomatic source says. U.S. President Donald Trump said Saudi Arabia could face "severe punishment" if it's confirmed that missing journalist Jamal Khashoggi was killed inside the Saudi consulate in Istanbul. He had dispatched U.S. Secretary of State Mike Pompeo to meet with Saudi Arabia’s King Salman.

2. Italy's cabinet on Monday approved the country's expansionary 2019 budget bill, Prime Minister Prime Minister Giuseppe Conte said. Conte told reporters the budget "keeps our promises while keeping public accounts in order", adding that the government had sent the budget framework to the European Commission in Brussels for its review.

3. Prime Minister Theresa May said that both the United Kingdom and European Union shall not allow her country to leave the EU without any agreement due their discrepancy over Irish border. She wish that a new customs arrangement could be reached before December 2021. European Council President Donald Tusk said on Monday that the 27 states remaining in the bloc after Britain leaves must be ready for a no-deal Brexit, a scenario he said was “more likely than ever before”. Tusk said all parties must do their best to reach a deal, adding that he had invited British Prime Minister Theresa May to address her 27 EU peers on Brexit on Wednesday evening, the first day of a two-day summit of EU leaders he will chair.

4. U.S. retail sales barely rose in September as a rebound in motor vehicle purchases was offset by the biggest drop in spending at restaurants and bars in nearly two years. But other details of the report from the Commerce Department on Monday were upbeat and suggested that consumer spending ended the third quarter with strong momentum, which should provide a boost to economic growth despite anticipated drags from weak exports and a struggling housing market. Retail sales edged up 0.1 percent last month after a similar gain in August. Excluding automobiles, gasoline, building materials and food services, the so-called retail sales jumped 0.5 percent last month. August’s figure was revised down to unchanged from a 0.1 percent rise.

5. Apple Inc shares fell after Goldman Sachs said there were multiple signs of rapidly slowing consumer demand in China, which could affect demand for iPhones this fall. Goldman Sachs said its current December-quarter iPhone unit estimate of 80 million units includes 13 million from China, or 16 percent of total iPhone units and kept its 12-month price target at $240. Much of Apple's upside potential in our thinking was centered on Chinese demand for larger screen sizes.

Domestic News

6. The People’s Bank of China has sufficient room in its tool box, including interest rates, reserve-requirement ratios and monetary condition, to deal with uncertainties, said China central bank Governor Yi Gang. Since the Federal Reserve is raising interest rates, China’s current interest rate level is appropriate, Yi said.

7. China will scrap property tax and land use tax for less than two years for enterprises that were closed or shut down production on de-capacity and restructuring regulation, starting from the next month that these enterprises were shut down or halt production. 

8. Lai Xiaomin, the former chairman of China Huarong Asset Management, has been expelled from the Communist Party and will be prosecuted for suspected corruption, China’s top anti-graft agency said on Monday. He had been expelled from the party, it said. His illegal gains would be confiscated and the case would be transferred to judicial bodies for investigation, it added.

9. China's centrally administered SOEs posted continued growth in profits in the first three quarters of the year, booking 1.35 trillion yuan and up 21.5 percent in the period, the State asset watchdog said on Monday. SOEs have seen their profitability increase by over 20 percent for five consecutive months, booking a net profit of 984.13 billion yuan and up 19.2 percent year-on-year, said SASAC. For September alone, the cumulative profits amounted to 146.21 billion year, up 8.4 percent year-on-year. For the next step, China will focus on ownership, market mechanism and supply-side structural reforms.

10. A report from the Bank of Communications Financial Research Centre said risk appetites of wealthy household sin stocks and FX dropped sharply due to subdued sentiment in stock and FX markets, while safe-haven sentiment in precious metals improved.

II. Market Overview
FX
1. Global Market

The U.S. dollar dipped on Monday after retail sales data for September missed economists’ expectations, and as benchmark U.S. Treasury yields consolidated after hitting seven-year highs last week. Safe haven currencies the Japanese yen and the Swiss franc gained on Monday as stocks weakened, with rising tensions between Western powers and Saudi Arabia adding to a cocktail of concerns that battered global stocks last week. Sterling traded at one-week lows on Monday. The euro closed at 1.1577 against the greenback late in New York. The dollar ended at 111.76 against the yen, and 0.9868 against the Swiss Franc. Sterling closed at 1.3150 versus the dollar.

2. Home Market

China’s yuan rose slightly against the dollar in the morning, while the midpoint rates slipped to a 21-month low in a 10-day losing streak. The dollar steadied on mounting safe-haven demand. The yuan is expected to remain stable ahead of the incoming U.S. Treasury semi-annual report.

Precious Metals

Gold rose to its highest level in 2-1/2 months on Monday as a slide in global stock markets, exacerbated by mounting tensions between Western powers and Saudi Arabia, forced investors to find safety and unwind some bearish bets in the metal. Spot gold rose to $1,226.54 per ounce, having earlier climbed more than 1 percent to touch a peak of $1,233.26, the highest since July 26.

Commodities
1.Crude Oil

Oil prices steadied on Monday, supported by geopolitical tension over the disappearance of a Saudi journalist that has stoked worries about supplies from Riyadh, but weighed by concern over long-term demand outlook. Brent crude futures for December delivery rose 35 cents to settle at $80.78 a barrel. U.S. West Texas Intermediate (WTI) crude futures rose 44 cents to settle at $71.78 a barrel.

2.Base Metals

Lead jumped to its highest in six weeks on Monday, helped by a weaker dollar and falling inventories, but U.S-China trade tensions kept pressure on most metals. Benchmark lead ended 1.6 percent higher at $2,085 per tonne, after touching its highest since Sept. 4 at $2,116. Copper ended mostly unchanged at $6,301 per tonne.

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

U.S. Treasury yields rose on Monday despite stock market volatility stemming from rising borrowing costs and geopolitical risks, while the outlook for U.S. economic growth was tempered by weaker-than-expected data on domestic retail sales. The yield on 10-year Treasury notes was up 1.5 basis points at 3.156 percent, while the 30-year yield climbed by the same increment to 3.332 percent.

2. Chinese bonds

The major 10-year interest rate bonds were little changed in China’s interbank debt market. Ample liquidity boosted the 1-year CDB bonds. Institutional investors still stayed on the sidelines ahead of September’s financial reports.

Stock Market
1. U.S. Equities

U.S. stocks ended lower in a choppy trading session on Monday, dragged down by technology stocks amid lingering worries over interest rates and corporate earnings. The Dow Jones Industrial Average fell 89.44 points, or 0.35 percent, to 25,250.55, the S&P 500 lost 16.34 points, or 0.59 percent, to 2,750.79, and the Nasdaq Composite dropped 66.15 points, or 0.88 percent, to 7,430.74.

2. Hong Kong Equities

The Hong Kong stock market closed lower on Monday, weighed down by the falling mainland market and concerns over the US-China trade conflict continued to limit investors' appetite. The Hang Seng index was down 1.38 percent at 25,445.06. The Hang Seng China Enterprises index fell 1.5 percent to 10,144.34.

3. China Equities

China stocks fell over 1 percent on Monday, hitting a four-year low, as headwinds persisted despite of regulators’ remarks to boost market confidence, and dampened by falling Asia-Pacific stock markets. Turnover continued to shrink. The Shanghai Composite Index lost 1.49 percent to 2,568.095 points, down 38.818 points.


(2018-10-16)
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