Australia, NZ dollars rally on rate view and China relief

SYDNEY: The Australian dollar touched a four-week high on Friday as the market scaled back bets on a near-term cut in local interest rates, while Chinese data showed some resilience in September activity even as third-quarter growth slowed.

The Aussie dollar was firm at $0.6835 after jumping jumped almost 1% on Thursday alone as a break of major resistance at $0.6810 sparked a wave of short-covering.

The New Zealand dollar followed to its highest in five weeks at $0.6376, climbing 0.9% overnight.

The rally began when Australian jobs data showed an unexpected dip in unemployment in September, which dimmed speculation the Reserve Bank of Australia (RBA) would cut interest rates again soon.

It got a further lift when RBA Governor Philip Lowe told a conference in Washington that lower rates were working to improve the economy and a move to negative rates was “extraordinarily unlikely”.

The futures market responded by paring back the probability of a November rate cut to just 14%, compared with 34% a week ago. The chance of an easing in December dropped to 52%, after rising above 80% last week.

The central bank has already cut rates three times this year to a record low of 0.75% and is fast running out of room to ease more.

“The September labour report is likely to be good enough for the RBA to hold back and not follow through with another interest rate cut in November,” said Peter Dragicevich, a market strategist at Suncorp.

“But given the still sluggish domestic growth backdrop, external risks, trend of lower global interest rates and excess capacity that remains in the labour market, it still looks like a matter of when, not if, the RBA provides more support.”

As a result, the market is almost fully priced for an easing to 0.5% by March next year.

For now, the diminished chance of near-term easing weighed on bond futures. The three-year bond contract eased another 1.5 ticks to 99.250, the lowest in more than a month and some way from the recent all-time top of 99.460.

The 10-year contract slipped 1 tick to 98.8850, away from its recent peak of 99.1550.

The Aussie was unfazed by a mixed bag of Chinese data that showed economic growth slowed to 6.0% in the third quarter, just missing forecasts of 6.1%.

Yet industrial output beat estimates with an increase of 5.8% in September, while retail sales growth picked up to an annual pace of 7.8%, offering hints that stimulus was supporting activity to some extent.

“The numbers could have been worse. If anything there was some fear it might drop below 6% but that didn’t happen,” said Mitul Kotecha, senior emerging markets strategist at TD Securities in Singapore.

“The industrial production numbers highlight that there is a bit of a glimmer of hope on the manufacturing side and some hope that trade progress will help further,” Kotecha added. – Reuters

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Trump’s Huawei reversal buoys tech stocks on Bursa

PETALING JAYA: Technology stocks on Bursa Malaysia received a shot in the arm today after US President Donald Trump agreed to reverse the sanction against Huawei after a meeting with Chinese President Xi Jinping last Saturday.

Technology stocks such as Malaysian Pacific Industries Bhd (MPI), Greatech Technology Bhd and Pentamaster Corp Bhd were among the top winners today, with MPI emerging as the third top gainer.

MPI urged 6.51% to close at RM9.82 with 146,600 shares done while Pentamaster jumped 3.82% to close at RM2.99 with 3.15 million shares traded. ACE Market-listed Greatech saw its share price rise 15.46% to close at RM1.12 with 41.84 million shares done. It was also among the top active stocks today.

Besides Greatech, technology stocks that were on the top active list today included MyEG Services Bhd, Datasonic Group Bhd, Inari Amertron Bhd, Pre-stariang Bhd and Vsolar Group Bhd, which gained 2.7%, 9.73%, 3.75%, 10.98% and 5.3%, respectively.

The technology index opened higher at 32.76 points today and rose to an intra-day high of 33.18. It closed 3.22% stronger at 33.00 points against a 0.69% gain in the FBM KLCI to 1,683.62 points.

Hong Leong Investment Bank (HLIB) Research, which maintained its “neutral” rating on the technology sector, said the latest development is a win-win scenario and a silver lining amid dull outlooks for global semiconductor sales and capital spending.

“We cheer this development as this sanction relief will normalise the global semiconductor supply chain. As the largest telecommunication equipment vendor globally and second largest smartphone (19% market share in 1Q19) supplier, Huawei is a huge buyer of US technologies, be it chip, software or patents. US com-panies assessed that this restriction may impact their initial earnings forecasts up to 20%,” it said in its report today.

It said the truce between the US and China shows that China is not self-sufficient yet, as it relies on the US for leading-edge technologies while US companies are relying on China market for growth and profitability.

Separately, HLIB Research said Unisem (M) Bhd’s decision to shut its facility in Batam, Indonesia, is a another positive for the sector but warned that it may entail provisions for layoffs and impairments.

HLIB Research is cautiously optimistic and remains selective on technology stocks. It upgraded Frontken Corp Bhd to a “buy” from “hold”, with a higher target price of RM1.67. It expects Frontken to experience multi-year growth ahead on a sustainable global semiconductor market outlook, robust fab investment, leading-edge technology, oil and gas recovery, and strong balance sheet. The stock rose 5.22% to close at RM1.41 today.