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ICBC Financial Market Daily Review - January 23, 2018
 

I. Yesterday’s News
International News

1. U.S. senators struck a deal on Monday to lift a three-day government shutdown as Democrats agreed to end the standoff in exchange for President Donald Trump's Republicans promising a debate on the future of young illegal immigrants known as "Dreamers". Legislation to renew government funding was expected to pass both the Senate and House of Representatives, where if it gets approved it would go to President Donald Trump's desk, allowing government to reopen through Feb 8.

2. The International Monetary Fund on Monday revised up its forecast for world economic growth in 2018 and 2019, saying sweeping U.S. tax cuts were likely to boost investment in the world's largest economy and help its main trading partners. However, the IMF, in an update of its World Economic Outlook, also added that U.S. growth would likely start weakening after 2022 as temporary spending incentives brought about by the tax cuts began to expire. Pointing to growth in the United States and China, the IMF forecast global growth to 3.9 percent for both 2018 and 2019, a 0.2 percentage point increase from its last update in October. The IMF now expects the U.S. economy to expand by 2.7 percent in 2018, much higher than the 2.3 percent the fund forecast in October. U.S. growth was projected to slow to 2.5 percent in 2019, it said. China's economy was expected to expand 6.6. percent this year and slow to 6.4 percent in 2019.

3. Nearly three-quarters of Japanese companies expect the economy to keep expanding at least another year, extending an already strong run, although they were not as bullish as market estimates, a Reuters poll showed. But roughly half of firms expect the economy to stop expanding by the middle of next year with that number rising to 71 percent for predictions to end-2019. A planned sales tax hike, the petering out of public works spending related to the Tokyo 2020 Olympics as well as a deepening labour shortage were cited as impediments to future growth.

4. Netflix Inc snagged 8.33 million new streaming customers in the final quarter of last year - 2 million more than Wall Street expected - as the pioneering online video service kept pouring money into programming in a race to dominate internet television around the world. The results cheered investors who drove Netflix shares up 7.8 percent to a record high of $245.16 in after-hours trading on Monday, hitting a market capitalization of more than $100 billion for the first time.

5. European leaders will be out in force at the World Economic Forum in Davos this week to defend multilateralism before U.S. President Donald Trump arrives to deliver his "America First" message. Politicians, business chiefs, bankers and celebrities will meet in the Swiss Alps under the banner "Creating a Shared Future in a Fractured World" for the four-day gathering against an unsettling global backdrop.

Domestic News

6. China’s National Development and Reform Commission revealed that it has green lighted the issuance of 835.94 billion yuan in 384 corporate bonds in 2017, bringing the total to 4.9 trillion yuan by the end of last year, while the default cases and amount dropped to the lowest level, said Yan Pengcheng, spokesperson for the National Development and Reform Commission (NDRC). The commission will encourage more qualified high-quality firms to issue corporate bonds, Yan added.

7. Chinese insurers saw profits soar 29.72 percent year-on-year to 256.7 billion yuan in 2017, the industry regulator revealed on Monday. The investment return on capital hit 5.77 percent in 2017, up 1.11 percentage point from the previous year. Thanks to structural opportunities, China will further tighten regulations and crack down misconducts.

8. The China Banking Regulatory Commission’s bureau in Sichuan province delivered the 462 million yuan fine on the Chengdu branch of SPD Bank for falsifying loan deals and hiding non-performing assets. In a statement this month, the CBRC vowed to intensify its regulation on the sector and crackdown on lender misconduct to prevent financial risks.

9. The profits of China’s mutual funds dropped dramatically in the fourth quarter of 2017, plunging 35.7 percent from Q3’s 203.086 billion yuan to 130.565 billion yuan, of which currency funds top the list by realizing an earning of 68.826 billion yuan, followed by stock funds.

10. A cargo of U.S. soybeans shipped to China has become the first fully-fledged agricultural trade conducted using blockchain, participants said on Monday. Louis Dreyfus Co, Shandong Bohi Industry Co, ING, Societe Generale and ABN Amro took part in the trade where the sales contract, letter of credit and certificates were digitalised on the Easy Trading Connect (ETC) platform.

II. Market Overview
FX
1. Global Market

The euro rose against the U.S. dollar on Monday, just shy of the three-year high touched last week, as market participants awaited the outcome of the European Central Bank's meeting on Thursday for possible clues to future shifts in the bank's monetary policy. News of U.S. senators striking a deal to lift a three-day government shutdown failed to give a lasting boost to the weak dollar. The euro was up 0.3 percent against the greenback at $1.2257. The dollar index, which measures the greenback against six rival currencies, was down 0.2 percent at 90.388, close to a three-year low. Sterling was up about 1 percent against the dollar, reaching its highest level since the vote for Brexit in June 2016, on optimism that Britain will reach a favorable divorce deal with the European Union.

2. Home Market

China's yuan pared losses against the U.S. Dollar on Monday morning, while the the central bank's midpoint rates hit a 25-month high. The official midpoint rates opened lower than expected, but the dollar steadied for the time being, and yuan is expected to consolidate between 6.4 to 6.41 per dollar, awaiting new guidance, trader said. The U.S. Government shutdown imposed limited impact. Investors shall closely watch the European Central Bank’s view on the strong euro on Thursday.

Precious Metals

Gold steadied on Monday as the dollar hovered near three-year lows, but bullishness in the wider financial markets as the U.S. government shutdown ended capped the metal's gains. Before coming off its highs, platinum hit another four-month peak, earlier narrowing the price gap to sister metal palladium to below $100 per ounce. Spot gold edged at $1,333.70 per ounce. U.S. gold futures for February delivery settled down $1.20, or 0.1 percent, at $1,331.90 per ounce. Platinum dropped to $995.00 an ounce, after earlier touching its highest since Sept. 8 at $1,018.80, while palladium fell to $1,098.20 an ounce.

Commodities
1.Crude Oil

Oil settled higher on Monday after dollar fluctuations and the restart of some Libyan oil fields caused the market to vacillate, with prices testing lower before rallying to levels just below three-year highs. Brent crude futures for March delivery settled up 42 cents, or 0.6 percent, at $69.03 a barrel, after earlier rallying to $69.51. U.S. crude rose 12 cents, or 0.19 percent, to close at $63.49 a barrel.

2.Base Metals

Copper rose on Monday, leading broad gains across base metals as optimism over the outlook for global growth and supply concerns helped prices recover some of the previous session's losses. London Metal Exchange copper closed up 0.4 percent at $7,068 a tonne. LME aluminium finished the day up 1.4 percent at $2,249 a tonne.

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

Treasury yields rose on Monday after U.S. lawmakers reached a deal to reopen the federal government, three days into the shutdown. Benchmark government yields hit 2.672 percent, the highest since July 2014, and was last at 2.665 percent above its last close at 2.639 percent. In afternoon trading, the U.S. 2-year note yield was at 2.073 percent, after hitting 2.082 percent earlier in the day, its highest since September 2008.

2. Chinese bonds

Cash bond yields in China’s interbank bond market slipped on Monday morning, while Treasury bond futures bounced back after opening lower. The market steadied briefly after recent losses due to muted fundamentals and eased liquidity, traders said. But cash bonds are expected to remain weak rangebound with future direction remaining uncertain amid tight regulation.

Stock Market
1. U.S. Equities

U.S. stocks surged on Monday after senators in Washington reached a deal to reopen the federal government, ending a 2-1/2-day shutdown that world markets largely took in stride. The Dow Jones Industrial Average rose 142.88 points, or 0.55 percent, to 26,214.6, the S&P 500 gained 22.67 points, or 0.81 percent, to 2,832.97, and the Nasdaq Composite added 71.65 points, or 0.98 percent, to 7,408.03.

2. Hong Kong Equities

Hong Kong's benchmark Hang Seng Index rose to a fresh record on Monday, as mainland money continued to gush into the city's stocks. Chinese investors used 45 percent of the daily quota under the Shanghai-Hong Kong Stock Connect. At close of trade, the Hang Seng index was up 138.52 points or 0.43 percent at 32,393.41. The Hang Seng China Enterprises index rose 0.19 percent to 13,204.58.

3. China Equities
Chinese stocks rose for the fifth consecutive day on Monday, renewing an over two-year high. Major indexes opened lower due to pickup in new IPOs, but reversed the course led by coal and steel sector. The benchmark Shanghai Composite Index crossed above the key mark of 3,500, lifted by the medium and small caps in the GEM. It closed up 13.50 points or 0.39 percent at 3,501.36, approaching the peak of 3,539.18 hit on December 31, 2015. The Hushen 300 Index ended at 4,336.60, up 1.19 percent. The active futures of Hushen 300 Index rose 1.17 percent to 4,354.8.


(2018-01-23)
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