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ICBC Financial Market Daily Review - October 31, 2018

I. Yesterday’s News
International News

1. U.S. consumer confidence rose to an 18-year high in October, driven largely by a robust labor market, bolstering expectations that strong economic growth would continue through early 2019. The Conference Board said its consumer confidence index reading rose to 137.9 this month, the highest since September 2000. But a weakening housing market and tightening financial market conditions are casting a shadow on the economic expansion that is in its ninth year, the second longest on record. Home price gains slowed further in August, other data showed, another sign that higher mortgage rates were weighing on housing demand.

2. The euro zone economy grew less than expected in the third quarter as the public mood turned darker, with signs of distress in Italy highlighting concerns that the bloc's third-ranked state is becoming one of its weakest links. Tuesday's data, suggesting the slowdown has further to run, will make uncomfortable reading for the European Central Bank as it moves towards ending in December the programme of asset purchases it introduced in 2015 to boost inflation and economic growth. Economists said the quarterly growth dip to 0.2 percent from 0.4 percent in the second quarter was unlikely to change those plans, though it might push back the date of the ECB's first post-stimulus hike in interest rates.

3. Chinese intelligence officers conspired with hackers and company insiders to break into private companies' computer systems and steal information on a turbo fan engine used in commercial jetliners, according to a U.S. indictment unsealed on Tuesday. The indictment said at the time of the intrusions, a Chinese-state owned aerospace company was working to develop a comparable engine for use in aircraft manufactured in China and in other countries. The 10 people charged conspired to steal sensitive data "that could be used by Chinese entities to build the same or similar engine without incurring substantial research and development expenses," the indictment released by the U.S. Department of Justice said. It said more than a dozen companies were targeted, but only Capstone Turbine Corp was identified by name.

4. New Zealand's trade minister on Wednesday said that a major 11-member Pacific trade pact would enter into force on December 30 after the required six nations ratified the deal. "This triggers the 60 day countdown to entry into force of the Agreement and the first round of tariff cuts,” Trade Minister David Parker said in an emailed statement, referring to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The final version of the landmark agreement aimed at cutting trade barriers in some of Asia-Pacific's fastest growing economies was released in February after the withdrawal of star member the United States the previous year.

5. Monetary policy in Canada is still stimulative despite an increase in interest rates last week and more hikes will be needed to achieve the Bank of Canada’s inflation target, the central bank’s chief said on Tuesday. “The appropriate pace of increases will depend on our assessment at each fixed announcement date of how the outlook for inflation and related risks are evolving,” Governor Stephen Poloz told the House of Commons Finance Committee.

Domestic News

6. China will continue to support the real economy amid rising downward pressure on economy, as the real economy is not only the pivot of the country’s economic development, but the base for making economic policy, the official People’s Daily said, offering more confidence to the entrepreneurs and practitioners of the real economy.

7. U.S. President Donald Trump said he thinks there will be "a great deal" with China on trade, but warned that he has billions of dollars worth of new tariffs ready to go if a deal isn't possible.

8. More than 70 percent of U.S. firms operating in southern China are considering delaying further investment there and moving some or all of their manufacturing to other countries as the trade war bites into profits, a business survey showed on Monday.

9. Yi Huiman, Chairman of the Industrial and Commercial Bank of China Ltd (ICBC), said the bank would form a consortium with the central bank and the China Bond Insurance Co. to support private enterprises' bond financing, and to address private firms' liquidity problems.

II. Market Overview
1. Global Market

The dollar rose to a 16-month high against a basket of major currencies on Tuesday, amid growing signs the United States economy is outperforming its peers. The dollar index, which measures the greenback against six major currencies, was 0.4 percent higher at 97.004. Earlier in the session, the index hit a high of 97.02, its strongest since 30 June, 2017.

2. Home Market

China's yuan slipped to an over 10-year low at 6.9724 against the U.S. dollar on Tuesday, before paring some losses. The midpoint rates slumped over 200 bps to the lowest since May 21 2018. The dollar index rose overnight, putting yuan under pressure. The midpoint rates came well below market expectations on escalating trade tensions between the U.S. and China.

Precious Metals

Gold prices fell on Tuesday as concerns about a further escalation of the U.S.-China trade war boosted the U.S. dollar, eroding bullion's appeal as it tested a key technical support. Spot gold was down at $1,222.59 per ounce, having touched $1,219.37, its lowest since Oct. 18. U.S. gold futures settled down $2.30, or 0.19 percent, at $1,225.3.

1.Crude Oil

Oil prices dropped more than 1 percent on Tuesday on signs of rising supply and concern that global economic growth and demand for fuel will fall victim to the U.S.-China trade war. Brent crude futures fell $1.43, or 1.9 percent, to settle at $75.91 a barrel. U.S. West Texas Intermediate (WTI) crude futures fell 86 cents to settle at $66.18 a barrel, a 1.3 percent drop.

2.Base Metals

Aluminium slumped to its lowest in more than a year, with other base metals also falling on Tuesday, on fresh concerns that a U.S.-China trade war was dampening global growth. Three-month aluminium on the London Metal Exchange ended 0.8 percent lower at $1,967 a tonne, its weakest since August 2017. LME copper dropped 2.1 percent to $6,032 a tonne, its lowest since Sept. 18. LME copper stocks slid to their lowest since July 2008, having slumped 64 percent since peaking in late March.

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

Yields on U.S. Treasury bonds were steady in light trading on Tuesday as investors held off on making big moves ahead of this week's spate of economic data. Daily trading volume was at its lowest in more than a week. The yield on the benchmark 10-year government note was up around 2 basis points, as were yields on the 30-year bond and two-year note.

2. Chinese bonds

Overnight weighed interest rates plunged almost 30 bps, drawing near to the lows hit in early August. Liquidity is expected remain ample in the near term on increasing fiscal spending at month-end, despite that the central bank drained a net 240 billion yuan in the past two days.

Stock Market
1. U.S. Equities

Major U.S. stock indexes jumped more than 1 percent on Tuesday, helped by strong gains for chip and transport stocks as investors took advantage of cheaper prices following a steep recent pullback for equities. The Philadelphia semiconductor index jumped 4.2 percent, its biggest one-day percentage gain since March. Intel surged 5.2 percent and gave the biggest single-stock boost to the S&P 500.

2. Hong Kong Equities

Hong Kong's main Hang Seng index closed at its lowest in nearly 18 months on Tuesday after a choppy day for regional markets, as tepid investor sentiment outweighed promises of support for mainland markets by China's securities regulator. At the close, the Hang Seng index was down 0.91 percent at 24,585.53 points. The China Enterprises Index lost 0.14 percent to 9,998.95 points.

3. China Equities

Shares in China rebounded 1 percent on Tuesday, led by financials after securities regulator pledged to enhance market liquidity, and boosted by repo by some companies. Easing sell-off on Chinese liquor giant Kweichow Moutai also bolstered market morale. The Shanghai Composite Index closed up 1.02 percent or 25.95 points at 2,568.05 points. The turnover of Shanghai A shares rose to 152.3 billion yuan from 122.4 billion yuan. The blue-chip CSI300 index closed 1.08 percent higher at 3,110.26 points.