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ICBC Financial Market Daily Review - November 17, 2017
 

I. Yesterday’s News
International News

1. Congressional Republicans took an important step on Thursday toward the biggest U.S. tax-code overhaul since the 1980s as the House of Representatives approved a broad package of tax cuts sought by senior lawmakers and President Donald Trump. The House vote shifted the tax debate to the U.S. Senate. That measure has already encountered resistance from some within the Republicans ranks. No decisive Senate action is expected until after next week's Thanksgiving holiday. The path forward for the tax plan in the Senate, where Republicans have a narrow majority, is fraught with obstacles about concerns over the deficit, healthcare and the distribution of tax benefits. Republicans can lose no more than two Senate votes if Democrats remain united in opposition.

2. U.S. industrial production recorded its biggest increase in six months in October as the drag from hurricane-related disruptions unwound, but the underlying growth trend in output at the nation's factories, mines and utility plants remained moderate. The Fed said industrial production accelerated 0.9 percent last month with output at factories surging 1.3 percent, while production was also buoyed by a 2.0 percent jump in output at utility plants. Other data on Thursday showed an unexpected rise in new filings for unemployment benefits last week in part because of the processing of a backlog of applications from Puerto Rico. The reports are consistent with an economy growing at a steady clip and tightening labor market conditions, likely keeping the Federal Reserve on course to raise interest rates next month. The dollar was little changed against a basket of currencies, while prices for U.S. Treasuries fell.

3. The world will still have a surplus of oil by end-March next year, Saudi Arabia's energy minister said on Thursday, signalling a willingness to extend output cuts when OPEC meets at the end of November. Khalid al-Falih also said he did not want oil prices to rise too fast and too soon to shock consumers, adding that the exit from production cuts would be gradual to make sure market reaction is smooth. "We need to recognise that by the end of March we're not going to be at the level we want to be which is the five-year average, that means an extension of some sort," he said, referring to inventory levels in the developed world.

4. U.S. industrial automation equipment company Emerson Electric Co raised its cash-and-stock offer to acquire Rockwell Automation Inc to $29 billion on Thursday, ratcheting up pressure on its smaller peer to engage in deal talks. On Thursday, Emerson made its new $225-per-share bid, seeing about $6 billion in savings from a potential deal. "As it did with Emerson’s prior proposals... the board of directors of Rockwell Automation will carefully review Emerson’s proposal to determine the course of action that it believes is in the best interest of the company and Rockwell Automation shareowners," Rockwell said in a statement on Thursday. Rockwell shares were up 2.59 percent. Emerson shares were down 0.14 percent.

Domestic News

5. China is stepping up regulation of public-private partnerships (PPPs) to stop them from becoming another financing platform for local governments to secretly rack up more debt, warning of a buildup of “hidden risks” in such deals, said Ministry of Finance (MOF) in an announcement.

6. China's non-financial outbound direct investment from January to October fell 40.9 percent year-on-year, while outbound investment in October fell 29.6 percent on-year to $8.28 billion, the Ministry of Commerce said. But the monthly decline is expected to narrow down as cross-border capital flow improves.

7. China will raise the retail prices of gasoline and diesel starting Friday, the country's top economic planner announced Thursday. As international oil prices have increased, the retail prices of gasoline and diesel will rise by 265 yuan and 250 yuan per tonne respectively under the current pricing mechanism, according to the National Development and Reform Commission (NDRC).

II. Market Overview
FX

1. Global Market

The U.S. dollar edged higher against a basket of major currencies on Thursday, rebounding from a more than three-week low in the previous session, after the U.S. House of Representatives passed their version of the tax overhaul bill. The dollar index, which measures the greenback against six rival currencies, was up 0.13 percent to 93.933. The dollar index was also boosted by a general improvement in risk appetite across financial markets. The euro was 0.23 percent lower at $1.1764. The Canadian dollar strengthened against its U.S. counterpart as data showing a surprise rise in domestic manufacturing sales in September offset lower oil prices. The greenback rose 0.55 percent against the Swiss franc after the Swiss National Bank signalled that it remained committed to its ultra-loose monetary policy.

2. Home Market

China's yuan inched down against the U.S. dollar, tracking the official midpoints. Yuan turned negative soon after opening, dragged down by mid-month forex-buying demand, despite of the dollar weakness on uncertainty over U.S. tax overhaul. Yuan is expected to remain wide rangebound before major currencies show clear direction.

Precious Metals

Gold prices were slightly lower on Thursday, trading in a tight range as the U.S. House of Representatives passed its version of sweeping tax cuts and investors weighed possible changes in fiscal policy against the impact of an expected rise in U.S. interest rates. Spot gold closed at $1,278.06 an ounce. On Wednesday, it touched a 3-1/2 week high of $1,289.09. U.S. gold futures for December delivery settled up 50 cents, or 0.04 percent, at $1,278.20 per ounce.

Commodities
1.Crude Oil

Oil prices ended lower again on Thursday on increased concerns about growth in U.S. production and inventories, despite expectations that major world producers will extend a supply-cut deal later this month. Brent crude futures settled 51 cents, or 0.8 percent, lower at $61.36 per barrel, running its streak of losses to five straight days. U.S. light crude fell for a fourth consecutive session, ending down 19 cents, or 0.3 percent, at $55.14 a barrel.

2.Base Metals

Copper and most other base metal prices fell on Thursday on persistent worries over Chinese demand, but losses in aluminium were tempered by expectations that a crackdown on polluting industry in China will cut supply. Nickel was the worst LME performer, hitting a three-week low. Benchmark copper on the London Metal Exchange closed 0.5 percent down at $6,737 a tonne. LME aluminium dipped by 0.2 percent to end at $2,102 a tonne. LME nickel slid 2.7 percent to close at $11,370 a tonne, the weakest since Oct. 27. Lead dropped 1.3 percent to close at $2,403.50 after touching its lowest since Oct. 30 at $2,401.50.

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

U.S. Treasury two-year yields hit a nine-year high on Thursday as risk appetite recovered globally and a batch of neutral to solid economic reports put the Federal Reserve on track to raise interest rates in 2018. The rise in two-year yields pushed the curve to its flattest in a decade. The yield curve has declined for four straight days. The gap between U.S. 2-year note and U.S. 10-year note yields contracted to 63.2 basis points, the tightest since November 2007. The gap was last at 65.1 basis points. The difference in five-year and 30-year yields narrowed to 72.4 basis points, the flattest since December 2011. It was last 74.1 basis points. In late trading, the 10-year Treasury yield rose to 2.355 percent. U.S. two-year yields climbed to a nine-year peak of 1.716 percent. Two-year yields were last at 1.712 percent. U.S. 30-year bond yields rose to 2.797 percent.

2. Chinese bonds

The benchmark CDB 10-year contract yields fell slightly in interbank market. Net injection by the central bank in the open market soothed market morale on cash bonds that underwent sharp losses, pulling yields off highs.

Stock Market
1. U.S. Equities

Wall Street's main indexes rose sharply on Thursday boosted by earnings-related gains in Wal-Mart and Cisco, while a tax bill expected to boost corporate earnings passed its first, if smallest, hurdle. The Dow Jones Industrial Average rose 187.08 points, or 0.8 percent, to 23,458.36, the S&P 500 gained 21.02 points, or 0.82 percent, to 2,585.64 and the Nasdaq Composite added 87.08 points, or 1.3 percent, to 6,793.29. The S&P and the Dow posted their largest daily percentage gains in more than two months.

2. Hong Kong Equities

Hong Kong stocks firmed on Thursday, helped by index heavyweight Tencent Holdings, which climbed to a record closing high after posting solid third-quarter results. The Hang Seng index rose 0.6 percent, to 29,018.76 points, while the China Enterprises Index gained 1.1 percent, to 11,533.96 points.

3. China Equities

China’s stocks closed down in a choppy trade on Thursday, extending losses to the third consecutive session, led by cyclical sector. A shares rebounded after opening underwater, dampened by weakness in global market, but the rebound was brief on subdued risk appetite among investors, traders said. Volatility is expected to expand in coming sessions. The Shanghai Composite Index closed 3.27 points or 0.10 percent lower to 3,399.25. Trading volume of Shanghai A shares fell to 220.7 billion yuan from 239.5 billion yuan.


(2017-11-20)
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