Market Snapshot Friday, 07 February 2014 Wall Street Has Best Day in 2014 as Markets Embrace Jobs WHAT S NEWS US weekly jobless numbers fall 20,000 to beat analyst estimates. The European Central Bank and Bank of England keep rates steady. Singapore manufacturing PMI rises into expansionary territory for January. EQUITY MARKETS S&P 500 DJ Euro Stoxx 600 Nikkei-225-0.2% 1.2% 1.5% THE DAY AHEAD MSCI Asia ex-japan 0.8% The US monthly jobless numbers and unemployment rate are released, and they are crucial to Federal Reserve policy. India 3Q GDP is released. DEVELOPED MARKET EQUITIES US Markets Bounce on Jobs Data US markets had their best day in 2014, as encouraging weekly jobs numbers revived hopes of a good year for growth. With no bad news overnight, Wall Street embraced weekly jobless claims with enthusiasm. The Dow Jones Industrial Average, the S&P 500 and the Nasdaq all climbed more than 1.1% by the closing bell. Gold and oil gained while bonds tanked. The US Department of Labor said the number of Americans filing unemployment claims dropped by 20,000 to a seasonally adjusted 331,000, beating estimates. This bodes well for the monthly unemployment numbers a bellwether for US Federal Reserve s bond-buying programme - out later today. Expectations are for a 180,000 change in non-farm payrolls and for the unemployment rate to stay at 6.7% for January. Elsewhere, US Speaker of the House John Boehner said there would be no twiddling of thumbs over the debt ceiling and was confident lawmakers would reach a deal by the end of February. The suspension of the US debt ceiling ends today, and the government has to use extraordinary measures to pay what it owes until a new deal is reached. Europe equities leapt as data, accommodative policy from the European Central Bank and good earnings sent the DJ Stoxx 600 up 1.5%. ECB chief Mario Draghi said demand in the bloc was gaining, and it was recovering (*More below in Currencies). Daimler, the maker of Mercedes-Benz automobiles, said 4Q net profit rose 45% on-year as earnings beat forecasts, according to Bloomberg News. MSCI Emerging Markets Shown in local currency terms, as of the last business day. US TREASURY YIELD CURVE 1M 3M 6M 1YR 2YR 3YR 5YR 7YR 10YR 30YR 1M 3M 6M 1YR 2YR 3YR 5YR 7YR 10YR 30YR The curve shows the yield to maturity of current US bills, notes and bonds. All data is as of the close of the last business day. CALENDAR One year ago Event Period Survey Prior MA Exports (YoY) Dec -- 6.70% IN GDP (YoY) 3Q -- 5.00% US Change in Nonfarm Payrolls Jan 180K 74K US Unemployment Rate Jan 6.70% 6.70% Source: Bloomberg, DBS Group Research Last Close 1.4% 4.0% 5.0% 3.0% 4.0% 3.0% 2.0% 2.0% 1.0% 1.0% 0.0% 0.0%
Market Snapshot 7 February 2014 2 Japan equities dipped slightly as investors waited on several crucial US jobs data releases for direction. After several days of losses, the Nikkei 225 fell 0.2% to bring its year-to-date losses to just over 13%. In corporate news, tech giant Sony Corp. said it would slash 5,000 jobs globally by March next year and made a 180 degree turn on its profit forecast for the full-year ending March. Sony now says it expects to lose JPY110 billion from an earlier prediction of a JPY30 billion profit. It also said it would spin off its personal computer unit. ASIA EQUITIES Asia Stocks Mostly Higher on Bargain-Hunting Asia s stock markets were mostly higher as traders ploughed into the market in search of bargains after days of bleeding. Investors also appeared to be looking ahead to a positive US jobs number to end the week. China markets will reopen after an extended Lunar New Year break. Hong Kong s Hang Seng was up 0.7% in light trade as casino operators rallied along with energy plays. Sands China was up 7% while Galaxy was up around 4%, a day after Macau said gaming revenue grew 7% in January, its slowest pace since October 2012. In Southeast Asia, Singapore s STI closed nearly 1% up after the government said January manufacturing PMI rose to 50.5 in January from 49.7 in December. A figure above 50 indicates expansion. Singapore Airlines meanwhile, reported a sharp decline in profit. It also said advance passenger sales were lagging entering the fourth quarter of its fiscal year. The airline, an industry yardstick, said net profit for the three months to December was at SGD50.1 million, compared to SGD142.5 million a year ago. Malaysia s KLCI rose 0.7%, while Indonesia s JCI climbed 0.9% after the government reported good GDP numbers for the Oct-Dec quarter. India s Sensex climbed 0.3% as consumer staples companies helped the index up. After falling six of the past nine sessions, mainly over capital outflows, India stocks rallied ahead of the much-anticipated monthly non-farm payrolls numbers in the US. FIXED INCOME US Treasuries fell for a third day ahead after weekly jobless claims showed signs of strength in the US economy ahead of monthly nonfarm payrolls numbers later today. Benchmark 10-year yields rose to 2.7%. COMMODITIES Oil on the Nymex gained, led by weekly jobless claims, which fuelled expectations for a positive monthly non-farm payrolls report later today. A good number typically shapes expectations for increased demand for crude in the world s largest energy consumer. Gold futures ticked up, but investors were reluctant to enter the market for precious metals until after the Labor Department reports US unemployment figures late today. Source: Bloomberg, DBS Group Research and Vickers (DBS), Dow Jones Newswires, Reuters, Agence France-Presse Equity Markets Returns of equity indexes around the world, in local currency terms. Index Close Overnight YTD US DJIA 15628.53 1.22% -5.72% S&P 500 1773.43 1.24% -4.05% NASDAQ 4057.12 1.14% -2.86% Europe Euro Stoxx 600 322.77 1.49% -1.67% Germany DAX 9256.58 1.54% -3.09% France CAC-40 4188.10 1.71% -2.51% UK FTSE100 6558.28 1.55% -2.83% Asia MSCI AxJ 513.52 0.84% -6.88% Japan Nikkei-225 14155.12-0.18% -13.11% China SHCOMP 2033.08 0.00% -3.92% Hong Kong Hang Seng 21423.13 0.72% -8.08% Taiwan TWSE 8311.01 0.56% -3.49% South Korea Kospi 1907.89 0.88% -5.14% Indonesia JCI 4424.71 0.92% 3.52% Malaysia KLCI 1797.90 0.67% -3.70% Singapore STI 2988.27 0.95% -5.66% India Sensex 20310.74 0.25% -4.06% Emerg. Mkt MSCI EM 929.80 1.44% -7.27% Government Bonds Benchmark yields of major 10-year government bonds. Latest yield Previous yield Change (bps) US 2.70% 2.67% 3.28 Germany 1.70% 1.64% 6.00 Japan 0.62% 0.60% 1.70 China 4.53% 4.53% 0.00 Taiwan 1.63% 1.61% 1.65 South Korea 3.54% 3.55% -0.50 Indonesia 9.07% 9.07% 0.10 Singapore 2.40% 2.41% -1.00 India 8.72% 8.71% 0.70 Commodity futures Prices of one-month futures contracts, grouped by commodity type. Close 1-day change 1-yr high 1-yr low WTI crude ($/bbl) 97.84 0.47% 112.24 85.61 Gold ($/oz.) 1257.60 0.02% 1682.10 1179.40 Copper ($/ton) 7181.50 1.31% 8353.00 6722.00 Corn (cents/bu.) 443.00-0.06% 800.00 406.25 Soybean (cents/bu.) 1325.75 0.72% 1630.00 1255.00 Wheat (cents/bu.) 580.75-1.15% 770.75 550.00 Coffee (cents/lb) 135.75-5.14% 160.10 104.15 Sugar (cents/lb) 437.80-1.02% 537.40 409.60 Source: Bloomberg, as at the close of the last business day. O/N refers to overnight. YTD refers to year-to-date returns.
Market Snapshot 7 February 2014 3 CURRENCIES The Aussie rose after Canberra said it posted a large jump in its trade surplus in December on mining exports. Mining companies have been aided by a fall in the AUD, down around 15% from its 2013 peak. Australia s December trade surplus was AUD468 million compared to AUD83 million in November. Analysts surveyed by Dow Jones Newswires were expecting a AUD200 million shortfall. The euro leapt after European Central Bank chief Mario Draghi chose not to add to any stimulus, which typically devalues currencies. He said the bloc was in no danger of deflation as it kept interest rates at a record low 0.25%. Mr. Draghi took pains to explain that while inflation was low (0.7% in January), there were no deflationary dangers and said the ECB was on watch for volatility in Emerging Markets. The CAD was flat despite Ottawa saying its merchandise trade deficit increased for the third straight month, exceeding forecasts. The December deficit stood at CAD1.66 billion and followed November s CAD1.53 billion. Source: Bloomberg, DBS Group Research and Vickers (DBS), Dow Jones Newswires, Reuters, Agence France-Presse SGD Against Major Currencies 113 108 103 98 93 USD/SGD AUD/SGD NZD/SGD GBP/SGD EUR/SGD 88 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 FX Round-up Currencies as of New York close. Last Overnight change Day high Day low EUR/USD 1.3590 0.42% 1.3619 1.3484 GBP/USD 1.6322 0.08% 1.6349 1.6273 USD/JPY 102.1100 0.65% 102.17 101.25 AUD/USD 0.8959 0.55% 0.8981 0.8909 NZD/USD 0.8248 0.40% 0.8283 0.8209 USD/CAD 1.1070-0.12% 1.1122 1.1051 USD/SGD 1.2684 0.03% 1.2700 1.2671 AUD/SGD 1.1364 0.58% 1.1389 1.1295 NZD/SGD 1.0462 0.45% 1.0496 1.0413 GBP/SGD 2.0703 0.12% 2.0726 2.0637 EUR/SGD 1.7237 0.45% 1.7271 1.7097 EUR/AUD 1.5169-0.13% 1.5197 1.5024 AUD/NZD 1.0861 0.15% 1.0905 1.0829 XAU/USD 1258 0.02% 1267.1 1253 Source: Bloomberg. USD Against Major Currencies 112 110 108 106 104 102 100 98 96 EUR/USD GBP/USD USD/JPY AUD/USD NZD/USD 94 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Source: Bloomberg. Technical Summary Short-term technical readings with a two-week horizon. All figures are as of the last business day. Currency Short term Direction Support 1 Support 2 Resistance 1 Resistance 2 EUR/USD Range 1.3475 1.3295 1.3715 1.3812 GBP/USD Range 1.6219 1.6050 1.6445 1.6566 USD/JPY Range 100.74 98.90 103.44 104.83 AUD/USD Range 0.8825 0.8658 0.9086 0.9167 NZD/USD Range 0.8184 0.8048 0.8304 0.8432 USD/CAD Bullish 1.0949 1.0860 1.1235 1.1348 USD/SGD Range 1.2610 1.2525 1.2757 1.2830 AUD/SGD Range 1.1261 1.1118 1.1450 1.1565 NZD/SGD Range 1.0382 1.0254 1.0569 1.0660 GBP/SGD Range 2.0425 2.0240 2.0940 2.1160 EUR/SGD Range 1.7070 1.6950 1.7337 1.7455 EUR/AUD Range 1.5020 1.4793 1.5480 1.5671 AUD/NZD Range 1.0723 1.0560 1.0941 1.1049 XAU/USD Range 1238 1218 1278 1318 Source: DBS CIO Office. Note: These are short-term technical readings with a two-week horizon. All figures are as of last business day.
Market Snapshot 7 February 2014 4 Insights Feature Asia: Policy + Surpluses = Less Volatility As risk aversion persisted the past week, Emerging Markets, or EM, concerns resurfaced. Funding concerns surrounding Turkey, Argentina and South Africa received significant headline attention. Moreover, the outsized policy rate adjustment in Turkey increased worries about how it was going to deal with the downsizing in US Federal Reserve asset purchases. uncertainty and the potential impact on economic growth has pushed down yields in the front end of the curve. Meanwhile, for Taiwan and South Korea, yields are less vulnerable to changes in risk appetite and bond yields are essentially unchanged since the beginning of 2014. Asia 10 Year Government Bond Yields However, emerging markets as a blanket term is not particularly meaningful especially as we consider that Asian yields have largely been stable even as risk aversion pushed down US Treasury yields and put upward pressure on EM yields. In terms of policy action, only India reacted by raising the reserve repo rate by 25 basis points. The muted reaction in Asian yields can largely be attributed either to timely policy actions or to sizable current account surpluses. Traditionally, the two economies most vulnerable to external funding risks are India and Indonesia. However, the increases in policy rates and market rates already took place the past few quarters. We think that the bulk of the adjustment is done. Indonesia s government bond yield spread over USTs have already normalised to the long-term averages while India s yield spread over USTs remains wide by historical standards. From a total return perspective, yields are starting to look attractive. For economies running balanced or surplus current accounts, Fed tapering causes a steepening of the yield curve, but short-term rates are unaffected. Recently, domestic factors have become dominant in explaining changes in Asian yields. In Malaysia and the Philippines, inflation worries have started pushing up yields. For Thailand, political Source: DBS Group Research Source report: DBS Group Research, Daily Breakfast Spread. 3 February 2014. Summarised by DBS Group Wealth Management /CIO Office. Bond risk rating changes Risk rating Effective Bond Name Issuer New Existing Reason -- -- -- - - -- Information updated as of 04 February 2014.
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