Market Update

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Major Asian bourses suffered deep losses after Friday’s slump on Wall St as markets re-price expectations for the Fed’s tightening cycle
•    Price action in FX was relatively muted in which most major currencies languished after Friday’s post-NFP losses against the greenback
•    Looking ahead, highlights include Eurozone, UK and US services PMI, ISM non-mfg PMI


A bloodbath was seen across equity markets in Asia trade as most major bourses suffered deep losses after Friday’s slump on Wall St, where stocks failed to benefit from the better than expected NFP jobs data and sold-off on the bond market weakness as markets reprice expectations for the Fed’s tightening cycle . ASX 200 (-1.6%) and Nikkei 225 (-2.5%) opened with firm losses amid a continued rout in US equity futures, while mining and oil-related sectors were the worst performers following weakness in the commodities complex. Hang Seng (-1.3%) conformed to the downbeat tone with notable pressure in the energy giants, while Macau gambling stocks also racked up losses on competition concerns after reports that China is drafting a proposal to permit gambling on Hainan Island. Conversely, Shanghai Comp (+0.5%) pared opening losses and outperformed the region after encouraging Chinese Caixin Services and Composite PMI data releases, in which the former posted its highest since May 2012. Finally, 10yr JGBs were relatively flat and held on to Friday’s BoJ-induced gains, with only brief support seen amid a wide-spread risk-averse tone.

Chinese Caixin Services PMI (Jan) 54.7 vs. Exp. 53.5 (Prev. 53.9); highest since May 2012. (Newswires)
Chinese Caixin Composite PMI (Jan) 53.7 (Prev. 53.0)

PBoC skipped open market operations again today. (Newswires)
PBoC set CNY mid-point at 6.3019 (Prev. 6.2885).


UK PM May will face a coup that would install a “dream team” of “three Brexiteers” if she persists with plans to keep Britain in a customs union with the European Union, Tory MPs warned last night. Eurosceptics approached Foreign Secretary Boris Johnson on Friday and urged him to agree a pact that would see Michael Gove, the environment secretary, become his deputy prime minister and Jacob Rees-Mogg appointed chancellor if the prime minister is forced out. (Sunday Times)

It was then reported that UK's Downing Street ruled out joining a customs union with the EU. (The Guardian) Although, a separate article suggested Reports that ministers are preparing a Brexit compromise regarding the EU’s customs union and that the Brexit war cabinet will meet for 2 days beginning on Wednesday to try to break the deadlock regarding UK's post-Brexit relationship with the EU. (Times)

EU and UK said to seek quick Brexit agreement on defence and security. (Newswires)

The EY Item Club has lifted its UK GDP estimates for 2018 to 1.7pc, up from the 1.4pc predicted in its Autumn Forecast in October last year. (Telegraph)

The Bank of England is expected to raise interest rates twice this year after a surprisingly strong showing from the economy at the end of last year and a brightening outlook in 2018, leading economists say. (Times)


German government coalition talks which previously had a self-imposed deadline on Sunday, will continue today. Furthermore, there were also reports that German coalition negotiators could drop proposal to abolish air transport tax. (Newswires)

Reports stated that Italian election polls could be downplaying possibility that centre-right coalition backed by Berlusconi could be closer to a majority victory at election next month. (Newswires)

Cyprus President Anastasiades is set to win the presidential race for a 2nd term in office. (Newswires)

Fitch affirmed Sweden at 'AAA'; Outlook Stable and affirmed Slovakia at 'A+'; Outlook Stable. DBRS confirmed European Stability Mechanism at AAA, stable outlook and confirmed Finland at AA (high), stable trend. (Newswires)


Price action was relatively muted in which most major currencies languished after Friday’s post-NFP losses against the greenback. As such, GBP/USD was flat but briefly attempted a breakdown of the 1.4100 handle amid further reports of Brexit-bickering with Conservative MPs said to warn that UK PM May will face a coup to install a “dream team” of “three Brexiteers” if she persists with plans to keep Britain in a customs union with the EU, which in turn prompted Downing Street to quickly rule out a customs union. Elsewhere, the risk-averse tone spurred further flows into safe-haven JPY, while AUD/USD attempted to nurse some losses after support held at the 0.7900 level and as participants digested the strong Chinese PMI data.
Canadian PM Trudeau said on Friday that Canada is willing to walk away from NAFTA. (Newswires)


Commodities began the week lacklustre after Friday’s USD strength pressured commodity prices. This saw WTI crude futures extend on recent weakness in which prices retreated under USD 65/bbl, while gold languished near post-NFP lows. Elsewhere, copper was uneventful with demand sapped by a broad risk-averse tone.  

US Baker Hughes Total Rig Count (Feb 2) 946 (Prev. 947). (Newswires)

Iran Oil Minister Zanganeh stated that OPEC’s step to push up oil prices is short-lived and that any country that builds oil output capacity will ultimately win, while he also suggested to wait until June meeting for decision regarding an extension of cuts. (Newswires)
US Secretary of State Tillerson said that they are considering Venezuela oil sale restrictions and sanctions, while he also added that they are studying how to ease impact on US firms from potential Venezuelan sanctions. (Newswires)


North Korean official stated that the country's nuclear capabilities will deter US President Trump from showing off on the Korean peninsula, while there were also reports that South Korea is to be prepared for communication chances with North Korea. (Newswires)
Reports stated that there was a chemical attack in Idlib, Syria that resulted in 7 cases of suffocation by chlorine gas. (Twitter)


Fed's Williams (voter, neutral) said Fed should continue raising rates gradually and that expects inflation to pick up this year and next. Furthermore, Williams also stated that wage growth is slowly picking up which he expects to intensify, and that the economy is performing as expected. (Newswires)

Fed’s Kaplan (non-voter, soft hawk) said US will see some inflationary pressure this year and reiterated view that he sees 2018 GDP growth at 2.5% to 2.75%. Kaplan also stated the Fed should be removing accommodation gradually but deliberately, and that although his base case is for 3 hikes in 2018, it could be more. (Newswires)

Outgoing Fed Chair Yellen stated that asset valuations are generally elevated but added that she doesn’t want to call it a bubble. (Newswires)
Larry Lindsey withdrew from consideration for the Fed Vice Chair position. (Newswires)