Asian Market Update: US and Japan officials at odds over "orderly" FX moves at G7; Japan trade figures disappoint with more annual declines in Exports and Imports
***Economic Data***
- (JP) JAPAN APR TOTAL MERCHANDISE TRADE BALANCE: ¥823.5B (3rd straight surplus) V ¥540BE; ADJUSTED TRADE BALANCE: ¥426.6B V ¥274BE
- (JP) JAPAN MAY PRELIM PMI MANUFACTURING: 47.6 V 48.2 PRIOR; 3rd straight contraction, biggest decline since Dec 2012
***Index Snapshot (as of 04:00 GMT)***
- Nikkei225 -1.1%, S&P/ASX -0.3%, Kospi +0.3%, Shanghai Composite +0.5%, Hang Seng +0.3%, Jun S&P500 flat at 2,050
***Commodities/Fixed Income***
- June gold +0.2% at $1,255/oz, Jul crude oil -0.5% at $48.1/brl, Jul copper +0.2% at $2.06/lb
- (IR) Iran Dep Oil Min Javadi: Iran has no plans to join any freeze in output; Ramp-up of production to pre-sanction levels will not be done until H2 of 2016 - financial press
- Goldman Sachs raises WTI crude oil price target for 2016 to $45/brl from $38; Cuts 2017 to $53 from $58; Maintains 2018 target at $60
- GLD: SPDR Gold Trust ETF daily holdings rise 9.0 tonnes to 869.3 tonnes; 11th straight increase; highest since Oct 2013
- SLV: iShares Silver Trust ETF daily holdings rise to 10,451 tonnes from 10,421 tonnes prior
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.5455 V 6.5510 PRIOR; 2nd straight firmer setting
- (CN) PBOC to inject CNY65B in 7-day reverse repos
- (JP) BOJ offers to buy ¥70B in JGBs with maturity less than 1-yr and ¥450B in 5-10yr JGBs
***Market Focal Points/FX***
- Asian equity markets are mixed in the wake of inconclusive rhetoric out of G7 in Japan and more hawkish Fed-speak over the weekend. Shanghai Composite and the Hang Seng are up modestly while Nikkei225 is down over 1% amid renewed selling in USD/JPY. The pair fell over 50pips from Friday close below 109.70 after disappointing Japan trade components and more warning against further intervention from US Treasury's Lew at the G7. In other USD majors, AUD/USD traded up about 40pips toward 0.7260 and NZD/USD rose 40pips to test $0.68.
- G7 summit of Fin Mins in Tokyo yielded no common commitments to fiscal stimulus or even a communique. Finance officials largely discussed some of the most pressing issues in financial system, such as reliance on negative interest rates, need for FX stability, risks related to Brexit, and Germany's reluctance to take more budget measures despite having more leeway. Friction between Japan and US on FX was particularly notable - Fin Min Aso described the recent spike in Yen as a disorderly move that leaves the door open to govt intervention, while US Treasury Sec Lew suggested the volatility was normal and not disorderly. The two sides appeared to agree to disagree, though Aso also smoothed tensions stating there was no "heated debate" with Lew.
- Japan may still get some help from the US in terms of generating more Yen weakness as there were further comments from Fed officials suggesting the FOMC is drawing close to another rate hike. FOMC voter Rosengren in an interview with FT said some recent data have been positive on spending, latest payrolls miss is still consistent with gradually tightening labor market, and concluding that the conditions for the hike laid out in the latest Fed minutes as of right now seem to be close to being met. Fed's Williams also said that this year's presidential cycle will not keep the FOMC from acting as close to the elections as Sept or Oct.
- Economic data for the session was also largely centered around Japan. Apr trade balance was the 3rd straight month of surplus, but components deteriorated as exports fell for the 7th month and imports for the 16th months. Both of those declines were wider than expected, as overall shipments to Asia and US declined by over 11%, reaching double digits from mid-high digit declines previously. Japan flash Manuf PMI for May also sank into its biggest contraction since Dec 2012, with Markit economist pointing to the aftermath of the earthquakes and slack in foreign demand.
- Outside of Asia, UK Treasury report estimates that UK economy would take a 3.6pt hit and a likely recession in the event of a Yes vote on Brexit. In Athens, Greek ruling party MPs voted in favor of more austerity measures to secure continued funding despite thousands of protesters rallying against tax hikes. Also of note, a UBS report said investors have pulled out from funds tracking European equity and debt markets for nearly 15 straight weeks - the longest such period since 2008 - due to economic malaise, weak banks, and risky political climate.
***Equities***
US equities / ADRs:
- BA: Confirms $11.3B order for 737MAX planes from Vietjet
- MON: Bayer expected to make an all-cash offer for Monsanto on Monday - FT
- TOT: (FR) Union protestors have forced the shutdown of some operations at Donges (231K bpd capacity) and Feyzin (119K bpd capacity) refineries in France
Notable movers by sector:
- Consumer discretionary: Mando Corp 204320.KR +4.6% (to jointly develop with Tesla)
- Financials: Macquarie Group MQG.AU +1.0% (job cuts speculation)
- Industrials: Cardno CDD.AU -2.7% (non-cash impairment charge); China Shipbuilding Industry Company 601989.CN +1.2% (integration)
- Technology: Tokyo Electron 8035.JP +1.1%, Hitachi Kokusai Electric Inc 6756.JP +2.7% (Applied Materials forecast sales above expectations); Toshiba Corporation 6502.JP +0.9% (to cut capex); InnoLux Corp 3481.TW+5.8% (reports of higher TV panel prices)
- Materials: Bluescope Steel BSL.AU +6.8%(raises H1 guidance)
- Telecom: Ten Network TEN.AU +0.7% (deal with WIN)