Asian Mid-session Market Update: Strong US jobs, expectations of more Japan stimulus after strong LDP showing sends USD/JPY higher; China inflation matches forecasts
***Economic Data***
- (CN) CHINA JUN CPI Y/Y: 1.9% V 1.9%E; 5-month low
- (CN) CHINA JUN PPI Y/Y: -2.6% V -2.5%E (52nd consecutive month of decline, smallest decline since Nov 2014)
- (JP) JAPAN JUNE M2 MONEY STOCK Y/Y: 3.4% V 3.4%E; M3 MONEY STOCK Y/Y: 2.9% V 2.8%E
- (JP) JAPAN MAY MACHINE ORDERS M/M: -1.4% (2nd straight decline) v +3.2%E; Y/Y: -11.7% (biggest decline in 18 months) V -8.7%E; Govt cuts Machine Orders assessment
- (AU) AUSTRALIA MAY HOME LOANS M/M: -1.0% V -2.0%E; biggest decline in 4 months
- (NZ) NEW ZEALAND JUNE CARD SPENDING M/M: 1.2% (biggest increase in 13 months) V 0.5%E; TOTAL M/M: +1.0% V -0.6% PRIOR
***Index Snapshot (as of 04:00 GMT)***
- Nikkei225 +3.6%, S&P/ASX +1.8%, Kospi +1.3%, Shanghai Composite +0.9%, Hang Seng +1.7%, Sep S&P500 +0.4% at 2,129
***Commodities/Fixed Income***
- Aug gold +0.9% at $1,370/oz, Aug crude oil -1.0% at $44.97/brl, Sep copper +1.7% at $2.15/lb
- (SA) Saudi Aramco to keep its full contractual oil supply to Asia customers in August - financial press
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.6843 V 6.6853 PRIOR
- (CN) PBOC to inject CNY30B in 7-day reverse repos
- (AU) Australia MoF (AOFM) sells A$500M in 3.75% 2037 Bonds; avg yield: 2.4196%; bid-to-cover: 2.29x
***Market Focal Points/FX***
- Asian equity markets are sharply higher, tracking an impressive rally on Wall St following a very strong set of jobs numbers out of the US on Friday. After last month's surprisingly disappointing NFP report, this month should soothe worries over the health of the health of the US labor market for the time being. Coupled with the expectations of the Fed staying pat for the balance of the year, investors are cheering the "goldilocks" scenario with more buying, as US futures extend Friday gains above 2,130 - multi-month highs. In Asia, the risk-on sentiment is further aided by lifting political cloud of uncertainty in Japan and Australia as those markets are leading the regional rally. Among FX majors, USD/JPY is up about 60pips above 101, AUD/USD is up 30pips above 0.7570, though NZD/USD is in a 20pip range, supported at 0.7280.
- Elections in Japan's upper house of Parliament delivered a 2/3rd "super-majority" to the ruling LDP party, which picked up a handful of seats despite the slow progress in PM Abe's economic agenda and the controversial govt push to revise the constitution to allow the country greater military involvement. Local press reports suggest PM Abe will also order a new round of fiscal stimulus as soon as this week that would include additional JGB issuance. Earlier, Cabinet Suga also replied to speculation of more fiscal stimulus by noting the govt will discuss the timing and content of economic package. More aggressive policy response in Japan remains justified by soft incoming economic data - today's forward-looking Machine Orders posted its biggest y/y decline in 18 months and sequential growth also slowed again, forcing the govt to cut its view on the sector.
- Over the weekend, China June CPI matched expectations of 1.9%, which was still a 5-month low. Food CPI slowed to 4.6% v 5.9% prior while non-food component was little changed at 1.2% v 1.1% prior. Annualized PPI decline continued to slow but remains in the red for 52nd straight month. Economists with HSBC said the latest inflation figures indicate that domestic demand has not fully recovered yet. Separately, the G20 communique delivered by China Commerce Min Gao warned that global investment is estimated to fall 10-15% this year, and the organization has already proposed actionable plans to boost trade. Deputy commerce min also warned that the fallout from Brexit will impact global trade and investment in the short term.
- One week after Australia went to the polls, PM Turnbull has claimed victory and opposition Labor leader Shorten has conceded. The govt is expected to be announced as soon as this week. In the meantime, Moody's followed last week's S&P's Outlook revision with a more benign assessment, noting that while political deadlock could be a credit negative in Australia, its economic momentum is robust amid low exchange rate and low interest rates supporting exports and consumption.
***Equities***
US equities / ADRs:
- LMT: Said to be near agreement with the Pentagon on a contract for as many as 160 fighter jets; Estimated contract value is over $14B - financial press
- HPE: Said to consider selling software assets; Discussions are in preliminary stages - financial press
Notable movers by sector:
- Consumer discretionary: Texhong Textile Group 2678.HK +12.5% (H1 guidance)
- Financials: Future Land Development Holdings 1030.HK +1.9% (H1 guidance); CITIC Securities 6030.HK +2.3% (June result); Onward Holdings Co 8016.JP +10.3% (Q1 result speculation)
- Consumer staples: Warrnambool Cheese & Butter WCB.AU +0.3% (guidance)
- Industrials: China Resource Cement 1313.HK -2.1% (H1 guidance); COSCO Shipping Co 600428.CN +0.9% (H1 result); AVIC Aviation Engine Corp 600893.CN +1.0% (H1 guidance); Taisei Corp 1801.JP +5.6%, Shimizu 1803.JP +5.3%, Obayashi Corp 1802.JP +5.3% (Japan PM Abe prepares stimulus package)
- Technology: Sun King Power Electronics Group 580.HK +6.4% (H1 guidance); Nintendo Co. 7974.JP +22.8% (new Pokemon game tops); NS Solutions Corp 2327.JP +10.6% (Q1 result speculation); Synnex Technology International Corp.2347.TW +7.1% (June result); Taiwan Semiconductor Manufacturing Co 2330.TW +3.3% (R&D expenditure target)
- Materials: Shandong Chenming Paper Holdings 1812.HK +6.7% (H1 guidance); Ausenco AAX.AU -1.3% (cuts guidance); Independence Group IGO.AU +8.5% (FY16 production results); Iluka Resources ILU.AU +10.5% (JPMorgan raises to Neutral)
- Healthcare: Primary Healthcare PRY.AU -2.2% (cuts guidance); Sirtex Medical SRX.AU +6.9% (worldwide dose sales)
- Telecom: Coolpad Group 2369.HK -3.6% (H1 guidance); Chunghwa Telecom Co. 2412.TW +3.8% (June result)
- Utilities: Kyushu Electric Power Co. Inc 9508.JP -7.7% (new gov to halt nuclear plant)