Asian Update: Markets fall to open 2016 as China PMI contractions continue; Saudi-Iranian tensions spark oil rally
***Economic Data***
- (CN) CHINA DEC CAIXIN PMI MANUFACTURING: 48.2 V 48.9E (10th straight contraction)
- (CN) CHINA DEC MANUFACTURING PMI: 49.7 (5th month of contraction) V 49.8E; NON-MANUFACTURING PMI: 54.4 (16-month high) V 53.6 PRIOR
- (CN) China Dec new home prices +0.7% m/m and +4.0% y/y to CNY10,980/sqm - Soufun.com
- (IN) INDIA DEC MANUFACTURING PMI: 49.1 V 50.3 PRIOR, (1st contraction in 26 readings and lowest since Aug 2013)
- (HK) Macau Dec casino revenue -21.2% y/y v -32.3% prior (19th consecutive decline); For 2015, casino revenue is down -34%
- (JP) JAPAN DEC FINAL PMI MANUFACTURING: 52.6 V 52.5 PRELIM
- (AU) AUSTRALIA DEC CORELOGIC RPDATA HOUSE PRICES M/M: 0.0% V -1.5% PRIOR
- (AU) AUSTRALIA DEC AIG MANUFACTURING INDEX: 51.9 V 52.5 PRIOR (6th consecutive expansion reading)
- (SG) SINGAPORE Q4 ADVANCED GDP Q/Q: 5.7% v 1.3%E; Y/Y: 2.0% V 1.2%E
- (KR) SOUTH KOREA DEC PMI MANUFACTURING: 50.7 V 49.1 PRIOR (1st expansion in 10-months)
- (KR) SOUTH KOREA DEC TRADE BALANCE: $7.2B V $8.7BE; Exports Y/Y: -13.8% v -11.7%e; Imports Y/Y: -19.2% v -18.0%e
- (TH) THAILAND DEC CPI M/M: -0.4% V -0.3%E; Y/Y -0.9% V -0.8%E (12th straight negative reading); CORE CPI Y/Y: 0.7% V 0.8%E
- (ID) Indonesia Dec PMI Manufacturing: 47.8 v 46.9 prior (14th month of contraction)
***Index Snapshot (as of 05:30 GMT)***
- Nikkei225 -2.7%, S&P/ASX -0.5%, Kospi -1.5%, Shanghai Composite -7.0% (halted for the day on 7% CSI circuit breaker threshold), Hang Seng -2.8%, Mar S&P500 -0.7% at 2,021
***Commodities/Fixed Income***
- Feb gold +0.3% at $1,063/oz, Feb crude oil +2.0% at $37.78/brl, Mar copper -1.6% at $2.10/lb
- USD/CNY: (CN) PBoC sets yuan mid point at 6.5032 v 6.4936 prior; Weakest Yuan setting since May, 2011
- (JP) BOJ offers to buy ¥70B in 1yr and under JGBs, ¥260B in 10-25yr JGBs, and ¥180B in 25-yr and longer JGBs
- (KR) South Korea sells KRW1.8T in 3-yr bonds, avg yield 1.670%
***Market Focal Points/FX***
- 2016 is off to a troubling start, with ongoing slowdown in emerging markets evidenced by disappointing PMI figures in China and India. Economists noted overall weakness in demand, both externally and at home. India conditions were exacerbated by domestic floods, while the start of the FOMC tightening was also widely cited by Markit economists. China's main indices were down some 5% in the afternoon session, triggering a new A-share circuit breaker trading halt, US S&P e-mini contract is down 16pts or 0.7%, and copper is down 1.5%. In FX, USD/JPY is down about 100pips from Asia session highs below 119.50, AUD/USD was down some 90pips below 0.7210, and NZD/USD down over 80 pips below 0.6750. EUR/USD reverse the earlier losses below 1.0830 to rise above 1.0880, as evidence of EM turmoil could spill into the Fed presumed expectations of 4 rate hikes in 2016. PBoC also set Yuan fix much lower once again above 6.50, while offshore Yuan hit new 5-year lows above 6.60 vs USD.
- Oil prices were up nearly 3% in early electronic trade above $38.10 in WTI Feb contract in spite the risk-on melt-down. Geopolitical/sectarian Saudi-Iran tensions have spooked investors concerned about possibility of supply disruptions. On Saturday, Saudi Arabia executed 47 people for crimes of joining "terrorist organisations" and implementing various "criminal plots" - among them, a prominent Shia cleric Nimr al-Nimr who was critical of the ruling royal family. In response, Saudi embassy in Iran has come under attack. Tensions in turn promted Riyadh to declare it was severing ties with Iran and demanded that all Iranian diplomats leave Saudi Arabia within 48 hours. In late Asia session, WTI electronic trade saw crude oil print just above $37.80.
- China twin PMIs saw new disappointing performance of the manufacturing sector, even as the services components held up well. Official manufacturing PMI of 49.7 was the 5th month of contraction and Caixin manufacturing was in contraction for the 10th straight month. Official non-manufacturing hit 16-month highs of 54.4 V 53.6 prior. Caixin economists pointed to rising risks of weakening in economy amid more fluctuations in global markets due to Fed tightening, calling on the govt to pay more attention and fine-tune macroeconomic policies accordingly. In other notable PMI prints, India moved to contraction for the first time in over 2 years, in part as a result of devastating floods in December. Markit economist here also noted continued depreciation of the rupee against the US dollar pushing inflation higher, with more currency weakness to result in further corporate strain through higher import costs.
- Japan PMI once again held up well, and Markit economist said this suggests that the official GDP figure for Q4 2015 will signal some growth. Comments from PM Abe noted the economy is firmly on a recovery path with Japan no longer in deflation. That upbeat sentiment follows a Nikkei report late last week speculating that the BOJ may lower FY16/17 CPI target to 1.0% from 1.4% prior forecast in its Jan 29th meeting. Japan's major business federation Keidanren chairman also called for govt and business sectors to work together to achieve 3% GDP before the next round of consumption tax increase in Apr 2017.
- Among notable Fed speak, hawk and new FOMC voter Mester said she may have preferred calling for a steeper pace in rate hikes as inflation weakness would prove to be temporary. Fed Vice Chair Fischer also said he may be in favor of higher rates if markets are overheating, though it would be difficult to respond with negative rates in the event of significant deterioration. Fischer added the equilibrium interest rate decline is likely due to persistent weakness in aggregate demand.
***Equities***
US equities / ADRs:
- TSLA: Delivers 17.4K Vehicles in Q4 (guided 17-19K on Nov 3rd) v 11.6K units in Q3; Total 2015 Deliveries Were 50,580 (guided 50-52 prior)
- YHOO: Investors said to be pushing management to sell the core internet business rather than spin it off into another public company - NY Post
- BXLT: Shire said to be in advanced talks to reach agreement on acquisition at $46.50-48/shr - financial press
- DIS: "Star Wars" remained the top earning film in weekend box office with $88.3M in N America sales
Notables in Asia:
- Technology: Samsung Electonics -3.9% (speculation about soft Q4); Sharp -0.8% (muted decline on speculation of partnership with Toshiba)
- Industrials: Hyundai Motor -3.7% (2015 sales / 2016 guidance)
- Energy names higher on rising oil prices.