Asian Mid-session Market Update: Australia elections too close to call; Ratings agencies assess the impact of political deadlock
***Economic Data***
- (AU) AUSTRALIA MAY BUILDING APPROVALS M/M: -5.2% V -3.5%E; Y/Y: -9.1% V -6.4%E
- (AU) AUSTRALIA JUNE ANZ JOB ADVERTISEMENTS M/M: +0.5% V +2.2% PRIOR; 2nd straight increase
- (AU) AUSTRALIA JUNE MELBOURNE INSTITUTE INFLATION M/M: +0.6% (2 1/2 year high) V -0.2% PRIOR; Y/Y: 1.5% V 1.0% PRIOR
- (JP) JAPAN JUNE MONETARY BASE Y/Y: 25.4% v 25.5% PRIOR; MONETARY BASE END OF PERIOD: ¥403.9T v ¥386.7T PRIOR
- (JP) BOJ Tankan Q2 CPI Survey: Japan Firms Expect 1 yr CPI 0.7% vs 0.8% Prior; 3 yr CPI 1.1% vs 1.1% Prior; 5 yr CPI 1.1% vs 1.2% Prior
***Index Snapshot (as of 04:00 GMT)***
- Nikkei225 +0.4%, S&P/ASX +0.4%, Kospi +0.4%, Shanghai Composite +1.8%, Hang Seng +1.6%, Sep S&P500 +0.1% at 2,098
***Commodities/Fixed Income***
- Aug gold +0.8% at $1,349/oz, Aug crude oil flat at $49.01/brl, Sep copper +0.6% at $2.23/lb
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.6472 V 6.6496 PRIOR
- (CN) PBOC to inject CNY90B in 7-day reverse repos
- (JP) BOJ offers to buy ¥70B in JGBs with maturity less than 1-yr, ¥200B in 10-25yr JGBs and ¥120B in JGBs with maturity over 25-yr
- (AU) Australia MoF (AOFM) sells A$400M in 2.75% 2035 Bonds; avg yield: 2.5142%; bid-to-cover: 2.34x
***Market Focal Points/FX***
- Asian equity markets continue to rally, taking cue from another strong session of gains in the US on Friday. With 4 straight session of gains, US markets have now erased the 2-day plunge that followed the surprise UK Brexit vote. Political uncertainty - this time in Australia - has again contributed to volatility to start the US holiday-thinned week. Labor Party has mounted a surprisingly strong challenge to the Conservative coalition on Saturday, and the results are deemed to be inconclusive until the absentee ballots are counted this week. AUD/USD fell over 50pips below 0.7450, though it has since pared most of those declines after credit ratings agencies commentary soothed concerns that Australia may lose its AAA rating on budget deadlock. In other FX majors, USD/JPY traded in a 40pip range below 102.80, NZD/USD was little changed around 0.7170, and GBP/USD initially fell 30pips below 1.3240 but then rose above 1.33. Precious metals - particularly silver, which rose 5% above $20 for the first time in nearly 2 years - also extended their gains.
- Australia Opposition leader Shorten said the one clear message from the weekend elections is that the Labor Party is back. Early reports suggested that Ruling Coalition is on track to win at least 74 seats and Labor to win at least 66 sets, but 76 seats are needed in the 150-seat parliament to form a majority. Moody's was the first to weigh in on the result and speculation that Australia's AAA could come under stress if another minority govt is forced to wade into the country's contentious fiscal negotiations, stating the political uncertainty in Australia has limited implications. Moody's added sovereign rating would be affected by the indecisive polls only if govt priorities changes. Later in the day, Fitch also remarked that Australia credit profile is still consistent with AAA rating, but acknowledged that a "close contest could mean a fiscal outlook and set of policies significantly different to those set out in the FY2017 Budget."
- Outside Australia elections, a HK press report citing a senior China stats bureau official noted China is evaluating new methodologies to more accurately measure GDP. NBS added that govt researchers are struggling to track scale of new economy including e-commerce and internet finance, which underestimates true GDP growth. In Japan, local press reported the BOJ would consider cutting its core CPI for FY16/17 from 0.5% to a range of 0% to 0.5% at its late July policy meeting. A BOJ Tankan survey also saw a 0.1pt reduction in Q2 CPI survey of companies to 0.7% for 1-year and 1.1% for 5-year forecasts, while 3-year CPI estimates remained at 1.1%.
- Outside Asia, FT reported that UK Fin Min Osborne intends to cut corporate tax rate from 20% to 15% to help support business investment in the economy post-Brexit, which would make UK rate the smallest in the G20. ECB's Coeure said it was too early to say if monetary policy will be affected by Brexit amid expectations of inevitable further easing to make up for anticipated growth hit from UK departure. In Germany, Bundesbank's Weidmann however called for fiscal vigilance in spite of Brexit decision, stating it should not be a factor that softens budget rules.
***Equities***
US equities / ADRs:
- TSLA: Reports Q2 vehicle production 18.3K, below 20K prior forecast (May 4th), +20% q/q; Delivered 14.4K, below 17K prior forecast; Exited Q2 with production capacity of just under 2K per week
- SPLS: Said to consider pulling out of UK market after failed merger bid with ODP - UK press
- IOC: Follow-up: Non-binding 3rd party offer said to have come from Exxon - Australian press
- RIO: Said to have cancelled its $20B Simandou iron ore project in Guinea; Project is too expensive - UK press
Notable movers by sector:
- Consumer discretionary: Treasury Wine Estates TWE.AU +3.0% (divestment, confirms guidance); Toray Industries 3402.JP +2.7% (Q1 result speculation); Ryohin Keikaku Co. 7453.JP -5.7% (Q1 result); L'Occitane 973.HK +0.6% (annual result)
- Consumer staples: Yashili International Holdings 1230.HK +0.6% (H1 guidance)
- Financials: SRE Group 1207.HK +2.5% (H1 guidance); China Vanke Co 000002.CN -10.0%, 2202.HK +7.6% (resume A-share trading after 6-month halt)
- Industrials: Austal ASB.AU -9.1% (guidance); Takata Corp.7312.JP +4.3% (costs cut)
- Technology: Truly International Holdings 732.HK % (spin-off); NEC Corp 6701.JP +1.7% (said to cut stake in JV with Lenovo)
- Materials: West China Cement 2233.HK -23.4%, Anhui Conch Cement 600585.CN +3.3% (acquisition deal fails); Evolution Mining EVN.AU +6.0%, Independence Group IGO.AU +9.5%, Northern Star Resources NST.AU +5.4% (gold price rises); Rio Tinto RIO.AU +3.9% (Guinea project)