Market Recap U.S. stocks fell: The S&P 500 Index fell 0.3% as concern over slowing growth in China and other developing nations amid a deepening commodities selloff. Emerging-market stocks dropped: The MSCI Emerging Markets Index declined 0.8% to a 2011 low as a deadly bombing in Bangkok and speculation China will reduce stimulus measures worsened investor sentiment. Chinese stocks tumbled: The Shanghai Composite Index sank 6.1% to 3,748, as traders reduced stimulus bets and speculated the government will pare back efforts to prop up equities. Table: Daily Market Movement (Aug 18, 2015) Aug 19, 2015 Published from Tuesday to Friday Equity Market Indices Close Change % Commodity Futures U.S. Energy & Metals Close % S&P 500 Index 2,096.92-5.5-0.3% WTI Crude Oil (USD/bbl) 42.62 +1.8% Dow Jones Industrial Average 17,511.34-33.8-0.2% Brent Crude (USD/bbl) 48.81 +0.1% NASDAQ Composite Index 5,059.35-32.4-0.6% Natural Gas (USD/MMBtu) 2.70-0.9% Europe COMEX Gold (USD/oz) 1,116.6-0.1% Stoxx Europe 600 Index 388.13 +0.9 +0.2% LME Copper (USD/MT) 5,035.0-1.6% DAX Index 10,915.92-24.4-0.2% Bond Yields & CNY Japan U.S. Treasuries - Yields Close TOPIX Index 1,672.22-0.6 0.0% 3-Month - Yield (%) 0.07 Nikkei 225 Stock Average 20,554.47-65.8-0.3% 5-Year - Yield (%) 1.58 China / Hong Kong 10-Year - Yield (%) 2.19 Hang Seng Index 23,474.97-339.7-1.4% 30-Year - Yield (%) 2.86 Hang Seng China Enterprises 10,770.05-192.2-1.8% USD/CNY Close % Shanghai SE Composite 3,748.16-245.5-6.1% China Renminbi Spot 6.39 0.0% Data Source: Bloomberg L.P. Hot News: China stocks fell on speculation the government may not increase the scale of supportive measures Change +0.01 +0.01 +0.02 +0.04 Chart: MXCN Sectors US$ denominated Debt as % of Total Debt at ~8% Source: Bloomberg L.P. and Citi, as of August 17, 2015 The Shanghai Composite Index sank 6.2% The Shanghai Composite Index sank 6.2% to 3,748 at the close, while more than 600 companies plunged by the daily 10% limit. China Securities Regulatory Commission (CSRC) said last Friday that, China Securities Finance Corp generally will not enter the market operation except when there is intense abnormal volatility which may lead to systemic risks. Meanwhile, investors also started to worry about China s foreign debt exposure given recent RMB weakness and also U.S. rate hikes. Citi analysts view: Government supportive measures: The CSRC statements indicate reducing administrative intervention in the domestic equity market unless there are systemic risks, which is positive in our view given offshore clients recent significant concerns about such intervention. The stock market direction afterwards without significant intervention may be more driven by market-oriented drivers. China s foreign debt exposure: Our top-down checks suggest little risk for China s overall foreign debt exposure. As of 2014, China had total foreign debt exposure at US$0.9trillion, 80% of which was US$ denominated. China s foreign debt as % GDP has been declining in the past decade to 8.6% as of 2014, well below the global risk threshold line at 20%. For listcos, we estimate the MSCI China listcos weighted avg 8% of total interest-bearing debt is US$ denominated. Sectors with big exposure include transportation, energy, property, etc. Outlook: OurbasecaseforecastsaCSI300mid- 2016 index target at 4,100 (7% potential upside), downside supported by further policy easing while upside capped by rich valuation, IPOs, etc. 1
FX & Commodity Technical Corner CCY FX Rate Source: Bloomberg L.P. (cut off time is NY Time 5:00pm) USD rose and EUR fell: U.S. Housing Starts rose from 1204K to 1206K in Jul, topped market estimates. AUD plunged: China equities fell sharply yesterday, triggering concern over China slowdown. NZD rebounded: The GlobalDairyTrade overall price index rose 14.8% this morning. GBP climbed: U.K. CPI growth (YoY) rose from 0.0% to 0.1% in Jul, topped market expectations. Daily FX Focus GBP/USD may range trade between 1.5425-1.5717: YESTERDAY PERFORMANCE FX TREND TECHNICAL 1.5717 (Aug top) 1.5425 (Aug low) GBP Outlook: CPI inflation edged up to 0.1% YoY in July from zero in June. The split shows upward pressure on the YoY rate from two specific items: air fares, plus clothing and footwear prices. Renewed weakness in petrol prices, plus continued weakness in food and imported consumer goods may pull the headline YoY rate back down to zero in the Aug and keep it around zero for a few more months. With the disinflationary effects of the strong pound and modest external growth, 2016 inflation may be average just 1.1% YoY well below the 2% target. We are scaling back our forecast for 2016 MPC tightening. We still pencil in the first hike for Q1-2016, but now expect only one further hike in 2016 to 1.0%. With GBP currently priced in line with rate differentials we expect sideways from GBP vs USD over the next 3 months, but to strengthen vs EUR in medium term. 1) RSI: Neutral; 2) Supported by 100MA since May; 3) Failed to stay above 1.57. Technical indicators suggest that GBP/USD may range trade between 1.5425-1.5717 in the short term. The next resistance may find at 1.5815. Citi Foreign Exchange Forecast: Close Price Day High Day Low Short Term 0-3 6-12 Support Resistance Comment Months Months USD 97.04 97.07 96.68 Neutral 96.29 99.99 96.42 104.71 EUR/USD 1.1024 1.1094 1.1017 Neutral 1.0809 1.1215 1.12 1.00 USD/JPY 124.41 124.51 124.18 Bullish 123.68 125.86 126.00 127.00 GBP/USD 1.5661 1.5717 1.5563 Neutral 1.5425 1.5815 1.56 1.47 USD/CAD 1.3059 1.3127 1.3041 Bullish 1.2835 1.3274 1.32 1.35 AUD/USD 0.7341 0.7386 0.7320 Neutral 0.7216 0.7440 0.72 0.68 NZD/USD 0.6601 0.6605 0.6557 Neutral 0.6403 0.6739 0.65 0.63 USD/CHF 0.9772 0.9796 0.9752 Neutral 0.9725 1.0029 0.98 1.07 USD/SGD 1.4037 1.4093 1.4008 Bullish 1.3941 1.4212 1.44 1.47 GOLD 1117.79 1121.23 1109.62 Bearish $1,032 $1,131 1000 1025 NOTE: The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $7.75 exchange rate for reference, and 1,000 yen per unit for JPY/HKD. 2
EUR/GBP may trade inside 0.6936-0.7160: EUR/GBP Outlook: EUR may be pressured on uncertainty that the German parliament may pass the 0.7160 (27 Jul top) Greece bailout deal. Citi analysts expect the deal will likely be passed but the rebellion may be much larger 0.6936 (17 Jul low) compared to the dissenters when parliament 0.6800 (6-12 months forecast) was asked to support opening negotiations with Athens on a third bailout programme. In short term, the improving EU economic data may limit the downside risk in EUR. However, in longer term, the further divergence in monetary policies in ECB and BoE may pressure EUR/GBP lower. 1) The pair fell again after a brief breach of resistance at 0.7160; 2) RSI: falling We expect EUR/GBP may trade inside the range of 0.6936-0.7160 with downside bias. A break of 0.6936 may extend recent decline toward 0.6800. AUD/USD may trade inside 0.7216-0.7440: 0.7216 (12 Aug low) 0.7440 (fibo 0.236) Although AUD/USD recovered strongly from 0.7216, upside was limited at 0.7440. We expect the pair may trade inside the range of 0.7216-0.7440 with mild downside bias. AUD Outlook: The RBA minutes show the bank remaining in a neutral to slightly dovish policy stance, by repeating the view that economic and financial information would continue to inform the Board s assessment of the outlook and determine whether the current stance of policy remained appropriate. The minutes repeated the more optimistic view about the labour market, and said to expect a weaker profile for non-mining business investment, suggesting a delay before pick-up in non-mining business investment may not be a surprise. However, Citi analysts are less optimistic as we expect the consumption boost from the Budget s small business assistance package to fade and retain concern over the quality of the labour force data. Citi analysts still expect the RBA may cut the interest rate again by the end of this year. NOTE: The brackets are the exchange rates in terms of Hong Kong dollar, with HKD $7.75 exchange rate for reference, and 1,000 yen per unit for JPY/HKD. 3
Important Economic Data (Aug 17, 2015 Aug 21, 2015) Time Importance Event Period Actual Survey Prior Monday 08/17/2015 07:50 JN!! GDP Annualized SA QoQ 2Q -1.60% -1.80% 4.50% 08/17/2015 20:30 CA! Int'l Securities Transactions Jun 8.51B -6.00B -5.46B Tuesday 08/18/2015 04:00 US! Total Net TIC Flows Jun -$110.3B -- $109.6B 08/18/2015 09:30 AU!! RBA Aug. Meeting Minutes Aug 08/18/2015 16:30 UK!! CPI YoY Jul 0.10% 0.00% 0.00% 08/18/2015 20:30 US!! Housing Starts MoM Jul 0.20% 0.50% 12.30% 08/18/2015 20:30 US!! Building Permits MoM Jul -16.30% -8.00% 7.00% Wednesday 08/19/2015 07:50 JN! Trade Balance Adjusted Jul - 368.8B - 158.6B - 283.4B 08/19/2015 16:00 EC! ECB Current Account SA Jun -- -- 18.0B 08/19/2015 20:30 US!! CPI YoY Jul -- 0.20% 0.10% 08/19/2015 20:30 US!! CPI Ex Food and Energy YoY Jul -- 1.80% 1.80% Thursday 08/20/2015 02:00 US!!! U.S. Fed Releases Minutes Aug 08/20/2015 16:30 UK!! Retail Sales Ex Auto Fuel YoY Jul -- 4.10% 4.20% 08/20/2015 16:30 UK!! Retail Sales Inc Auto Fuel YoY Jul -- 4.40% 4.00% 08/20/2015 20:30 US!! Initial Jobless Claims Aug -- 270K 274K 08/20/2015 22:00 US!! Existing Home Sales MoM Jul -- -1.30% 3.20% 08/20/2015 22:00 US! Leading Index Jul -- 0.20% 0.60% Friday 08/21/2015 14:00 GE! GfK Consumer Confidence Sep -- 10.1 10.1 08/21/2015 20:30 CA! Retail Sales MoM Jun -- -- 1.00% 08/21/2015 20:30 CA! Retail Sales Ex Auto MoM Jun -- -- 0.90% 08/21/2015 20:30 CA!! CPI YoY Jul -- -- 1.00% 08/21/2015 20:30 CA!! CPI Core YoY Jul -- -- 2.30% Source: Source: Bloomberg L.P. (K = Thousand, M = Million, B = Billion) 4
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