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ICBC Financial Market Daily Review - May 16, 2018
 

I. Yesterday’s News
International News

1. North Korea on Wednesday threw into question an unprecedented summit between its leader Kim Jong Un and U.S. President Donald Trump scheduled for next month, denouncing military exercises between South Korea and the United States as a provocation and calling off high-level talks with Seoul. A report on North Korea’s official Korean Central News Agency angrily attacked the "Max Thunder" air combat drills, which it said involved U.S. stealth fighters and B-52 bombers. Any cancellation of the June 12 summit in Singapore would deal a major blow to Trump’s efforts to score the biggest diplomatic achievement of his presidency. "We have not heard anything from that government or the government of South Korea to indicate that we would not continue conducting these exercises or that we would not continue planning for our meeting between President Trump and Kim Jong Un next month," U.S. State Department spokeswoman Heather Nauert said.

2. U.S. retail sales increased marginally in April as rising gasoline prices cut into discretionary spending, but consumer spending appeared on track to accelerate after slowing sharply in the first quarter. The Commerce Department said retail sales rose 0.3 percent last month after surging 0.8 percent in March. April's increase was in line with economists' expectations. Retail sales in April advanced 4.7 percent from a year ago. Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.4 percent last month after increasing 0.5 percent in March. After the report, the U.S. dollar rallied, stocks on Wall Street were weaker, while U.S. Treasuries yields climbed.

3. Federal Reserve Chair Jerome Powell’s top deputies are edging toward a clash that could shape the pace of interest-rate hikes in coming months, as well as how the Fed should prepare for and combat the next economic downturn. The fault lines are technical as well as philosophical and include a debate over whether the economy has shifted into a higher gear, giving the Fed room for more interest-rate hikes and perhaps reducing the need for controversial tools like bond-buying to fight future recessions.

4. The United States is not seeking a trade war with China and top U.S. officials are looking to make a deal with Beijing, White House economic adviser Larry Kudlow said on Tuesday as talks between the two nations were set to resume. Kudlow also said that the United States and China should both take down trade barriers as part of any agreement. "Everyone is looking for some kind of deal," he told Politico in an interview, adding that no agreement had been reached yet. He said it was far from certain what steps the U.S. government would take on China's ZTE Corp, which he characterized as an enforcement, rather than trade, issue.

5. German economic growth slowed slightly more than expected in the first quarter of the year due to weak trade, a first estimate from the Federal Statistics Office showed on Tuesday. Europe’s biggest economy grew 0.3 percent in the first three months – the slowest rate since the third quarter of 2016 – after expanding 0.6 percent in the final three months of last year. The statistics office said positive contributions in the first quarter came mainly from domestic demand while trade was weak.

6. British employers hired many more workers than expected at the start of 2018 but wage growth has yet to accelerate sharply, according to data that probably do little to alter the outlook for Bank of England interest rates. Employment in Britain rose by 1,97,000 to 32.344 million during the first three months of this year, official data showed, the biggest jump since late 2015 and far exceeding the 1,30,000 consensus expectation. Annual growth in earnings, excluding bonuses, edged up to 2.9 per cent in the three months to March, as expected in a poll. That represented only a 0.4 per cent increase in pay in inflation-adjusted terms.

Domestic News

7. China is "entirely confident in, and capable of, winning the battle to prevent and resolve financial risks", Vice-Premier Liu He said in a special consultative conference on improving the system for the prevention of systemic financial risks. While attending the conference, Liu said that "serving the real economy should be taken as the ultimate object in doing financial work, and maintaining a prudent and neutral monetary policy should be combined with rigid regulatory policy to promote high-quality development."

8. China's General Administration of Customs said on Monday it has increased inspections of U.S. pork imports after finding problems recently. But China's customs administration said it had not taken extra steps to check imports of U.S. agricultural products.

9. China's central bank said that it had fined Dinpay 25.61 million yuan after uncovering illegal payment services and fraud for multiple overseas gold and forex Internet trading platforms.

II. Market Overview
FX
1. Global Market

The U.S. dollar rose against a basket of major currencies on Tuesday to its highest since December, as data showing a pickup in U.S. consumer spending exerted fresh selling pressure on U.S. government bonds and sent the yield on the 10-year Treasury note to its highest level since July 2011. The dollar index, which measures the greenback against a basket of six other currencies, was up 0.63 percent at 93.173, after rising as high as 93.457. Against the yen, the dollar was up 0.58 percent at 110.29 yen, its strongest since early February. The euro fell to a fresh 2018 low of $1.1821. The Turkish lira fell to a fresh record low against the dollar, bringing its losses this year to more than 13 percent. Sterling slipped to a new 2018 low of $1.3452 before paring losses to trade down 0.3 percent at $1.3513.

2. Home Market

China's yuan remained tight rangebound, following the midpoint lower as the overnight dollar index bottomed up. Yuan is expected to see seesaw trading in coming sessions as institutional investors were diverged on the dollar.

Precious Metals

Gold slid more than 1 percent on Tuesday, falling for a third day to hit its lowest this year as a rise in U.S. borrowing costs pushed up the dollar and overshadowed the impact of strife in Gaza. Downward momentum in gold picked up after the metal broke below support at its 200-day moving average at $1,306 an ounce. Spot gold closed at $1,290.24 an ounce, earlier hitting its lowest since late December at $1,289.40. U.S. gold futures for June delivery settled down $27.90, or 2.12 percent, at $1,290.30 per ounce.

Commodities
Crude Oil

Oil prices settled a shade firmer after retreating from multi-year highs hit early in the day on Tuesday, supported by concerns that U.S. sanctions on Iran are likely to restrict crude exports from one of the biggest producers in the Middle East. Brent crude oil settled at $78.43 a barrel, up 20 cents, or 0.3 percent, after reaching an intraday peak of $79.47 a barrel, up $1.24 and its highest since November 2014. U.S. light crude closed 35 cents, or 0.5 percent, higher at $71.31 a barrel, also not far off the day's peak at $71.92, its highest since November 2014.

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

A solid rise in U.S. retail sales in April supported hopes of pickup in economic growth in the second quarter on Tuesday and touched off a selloff in the Treasury debt market, propelling the benchmark 10-year note's yield to a near seven-year high. The 10-year Treasury yield reached 3.095 percent which was its highest level since July 2011. It was last at 3.091 percent, up almost 10 basis points from late on Monday. The two-year yield was up nearly 4 basis points at 2.585 percent after touching 2.585 percent, which was the highest since August 2008, Reuters data showed. The five-year Treasury yield touched its highest level in about nine years at 2.9323 percent.

2. Chinese bonds

China’s bonds in the inter-bank market slid slightly, with the CFFEX’s 10-year T-bonds falling 0.22 percent. Mixed economic data released today indicated steady macro economy, posing limited impact on bond market. Tightening liquidity is expected to send cash bond yields higher ahead of the tax-paying season.

Stock Market
1. U.S. Equities

A surge in U.S. government bond yields to their highest level in almost seven years sent Wall Street shares sliding on Tuesday after strong retail sales data stoked inflation concerns and investors fretted about looming trade talks between the United States and China. All three major U.S. stock indexes closed down, with the S&P 500 ending a four-day winning streak and the Dow Jones Industrial Average posting its first loss in eight sessions. The Dow Jones Industrial Average fell 193 points, or 0.78 percent, to 24,706.41, the S&P 500 lost 18.68 points, or 0.68 percent, to 2,711.45 and the Nasdaq Composite dropped 59.69 points, or 0.81 percent, to 7,351.63.

2. Hong Kong Equities

Hong Kong stocks snapped a six-day winning streak to end lower on Tuesday, amid renewed fears of a Sino-U.S. trade fear and worries about China economy. The Hang Seng index ended 389.05 points or 1.23 percent down at 31,152.03, while the China Enterprises Index closed down 0.83 percent at 12,440.75 points. The sub-index of the Hang Seng tracking energy shares dipped 0.26 percent, while the IT sector slipped 2.87 percent, the financial sector ended 1.08 percent lower and property sector dipped 0.5 percent.

3. China Equities

China stocks ended higher to an over one-month high on Tuesday, underpinned by optimism towards MSCI inclusion of 234 Chinese large caps. Market is expected to rise further on improved technical indicators. The Shanghai Composite Index closed up 18.09 points or 0.57 percent at 3,192.12 points, while the blue-chip CSI300 index ended 0.38 percent higher at 3,924.10.


(2018-05-16)
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