MKS PAMP Group - Daily Asia Wrap

Range Asian Hours (from Globex open) 

  
MACRO: U.S. equities tumbled toward the worst levels of last month’s pullback as global equities slid amid a rout in commodity and biotechnology shares. The Standard & Poor’s 500 Index fell -2.6%, down for a fifth consecutive session to a 1 month low, taking the index down -8.8% in the third quarter, poised for its worst fall since 2011. The benchmark is almost -12% below its all time high (2,134.72) set only in May this year. A gauge of global equities slumped to a level unseen since 2013 as the Russell 2000 Index of smaller companies reached a low for the year and U.S. biotechnology shares fell deeper into a bear market. Yesterday the Dow Jones Industrial Average sold off -312.78 points, or -1.92% to 16,001.89, the S&P500 cratered -49.57 points, or -2.57% to 1,881.77 and the Nasdaq fell capitulated -142.527 points, or -3.04% to 4,543.969. All 11 sectors suffered losses, with Healthcare (-3.84%), Energy (-3.58%) and Materials (-3.24%) suffering the worst of it. European stock markets faced similar woes hurt by more weak China data, slumping commodities and more steep losses for car manufacturers. The FTSE Euro First 300 sank -2.21% to 1,344.13, the DAX gave up -2.12% to 9,483.55, the FTSE100 lost -2.46% to 5,958.86 and the CAC40 plummeted -2.76% to 4,357.05. FX markets saw EUR and JPY rally against the USD while EM currencies sold-off, as price action continues to be driven by equities and global growth concerns. The USD popped briefly on the back of decent PCE and spending numbers along with a slightly hawkish Dudley, but the move proved to be temporary, as the dollar story gave way to risk sentiment, and price action quickly reversed, led by EURUSD. In EM space, USDCNH under serious selling pressure from agent banks, sending USDCNH now through onshore spot closing levels (this has not happened since the revaluation), a notable stand-out on a session otherwise dominated by risk-off price action.   

On the data front, the US pending home sales index declined -1.4% in August (+0.4% expected, +0.5% prior) and has now declined in two of the past three reported months. Pending home sales typically become existing home sales in one or two months, so the recent weakness in this index suggests that we could see further declines in existing home sales to come (existing home sales already fell -4.8% in August). Despite the recent weakness evident in the data on the existing home sales market, not all of the recent housing reports have been bad; for example, separate data on new home sales hit a new high for the expansion in August. Elsewhere U.S. consumption data was positive with core PCE inflation trend sitting at +1.3% YoY. Both real and nominal spending increased +0.4% in August and monthly growth figures for real consumption were revised up by +0.1% in April, May, June, and July to +0.3%, +0.6%, +0.1%, and +0.3%, respectively. The trend in real consumption has looked solid over the past year (+3.2%), and according to a JP Morgan report they are forecating "real consumption will be up around 3.7% saar in 3Q". 
  
New York Fed President Dudley added his voice to those of Fed officials predicting a rate hike by the end of 2015. In a web-cast interview with the Wall Street Journal, he emphasised data dependency and global headwinds. However, he said he would not 'overweight' international developments and that if the economy continues on the current path, there is a strong case for lift-off in 2015. He also emphasised that October remains a ‘live’ meeting. The more dovish Chicago Fed President Evans continued to sound reluctant to hike rates in 2015. However, even he concurred that the time for rate hikes is not far and that he expects to hike by +75bp in 2016, which would put the Fed funds rate well above the +72bp implied by the January 2017 Fed funds future. 

PRECIOUS: Commodities suffered across the board yesterday (BCOM -1.3% and CRB -1.5%) with heavy losses across energy (WTI -$1.23 or -2.69% to $44.47) and base metals (Aluminium -1.02%, Copper -1.15%, Nickel -0.75% and Zinc -0.15%) as well as the precious metals. It was a quiet session for gold to start the week yesterday, initially having a peak above $1147 early in the day but settling between $1145-46 as the Asian centres that were open stepped in. The SGE traded at a $1.50-2.50 USD premium over the loco London price, after opening quite a bit lower. The flows on the exchange however were very light as if we have already shifted into the long Chinese holiday which commences 1st Oct. As the books were handed over to Europe the risk of sentiment started to build with losses on European equity markets picking up steam. Gold broke through the recent support zone at $1140-42, with some small to moderate sized stops being tripped and we quickly traded down to $1136. After a few hours of consolidation without any real sign of a bounce, losses extended towards the days lows of $1128.50 just before NYK stepped in. Gold did manage to edge up slightly during NYK however the risk off tone across all markets did not attract any buying, with small real money selling persisting throughout the session. The white metals were dumped in tandem with the capitulating equities, silver down -3.8% and platinum (-3.1%) still being haunted by the diesel fuel emissions story - Audi yesterday confirming that 2.1 million vehicles are effected while Skoda reported 1.2 million. With platinum generally being used in catalytic converters of diesel motors it has suffered, while palladium which is generally used for gasoline motors has proven fairly resilient to the headlines. 

As we head into the week long Chinese holiday commencing this Thursday, physical demand, which has been modest at best, will likely dry up further in Asia. As we approach this period we may see further downward pressure in gold as specs either unwind longs into quarter end or look to go short in China's absence. Immediate support now sits at $1130-31, while immediate resistance resides between $1138-41. 
        
ASIA TODAY: Another slow day for Asia with gold contained to a tight $3 range as China move closer to their week long 'Golden Week' celebrations. The yellow metal opened at $1132.50, right where it left off in NYK, and some light retail buying inched the metal up to the highs. The SGE open saw some light bids come in with the premium higher this morning, most likely as a result of the lower prices, sitting around $3-4 over Loco London. Nothing to really report however in the gold moving sideways for the majority of the session on weak volumes. Platinum ran into some Japanese selling into the Tocom open, not surprising really given Tocom is still decently long the white metal. This forced the spot price down to fresh 6 year lows testing towards $910 and still feels heavy here, with a test of $900 just around the corner we suspect. As it stands platinum is now trading at a USD $220 discount to gold, which going back over the last 20 years has never been eclipsed. Silver has remained fairly flat on the day as has palladium. Just before the SGE reopened for the afternoon the precious is under pressure, all constituents trading to the lows of the day with turnover picking up substantially on the move. 

Most of the action was seen in equity markets today, with the major regional indices copping a pounding following the heavy losses from Europe and the States overnight. At time of writing the Nikkei has been smashed -3.8% to 16,970, the Hang Seng is off -3.6% to 20,426 and the Shanghai Composite is -1.85% at 3,043. Currencies were also on the move USDJPY down -0.4% on the day and approaching trendline support at 119.25-30, while EURUSD was seeing support +0.2% to 1.1265 and AUDUSD looks to be on shaky ground, down -0.6% on the day and hovering just above 0.6950. On the data calendar today look out for German CPI, Euro zone Consumer confidence, U.S. consumer confidence and Case Shiller Index. Have a good day ahead.