Asian Market Update: China inflation spikes on rising food costs; RBNZ surprises with a rate cut, while BOK remains dovish in a hold
***Economic Data***
- (CN) CHINA FEB CPI Y/Y: 2.3% V 1.8%E; highest level since July 2014
- (CN) CHINA FEB PPI Y/Y: -4.9% V -4.9%E; 48th consecutive month of decline; smallest decline in 8 months
- (NZ) NEW ZEALAND CENTRAL BANK (RBNZ) CUTS OFFICIAL CASH RATE BY 25BPS TO 2.25% (record low); NOT EXPECTED
- (KR) BANK OF KOREA (BOK) LEAVES 7-DAY REPO RATE UNCHANGED AT 1.50%; AS EXPECTED
- (AU) AUSTRALIA MAR CONSUMER INFLATION EXPECTATION: 3.4% V 3.6% PRIOR; 6-month low
- (JP) JAPAN FEB PPI M/M: -0.2% V -0.3%E; Y/Y: -3.4% V -3.4%E
- (UK) FEB RICS HOUSE PRICE BALANCE: 50% V 50%E
***Index Snapshot (as of 05:30 GMT)***
- Nikkei225 +1.4%, S&P/ASX flat, Kospi +0.8%, Shanghai Composite -1.1%, Hang Seng +0.8%, Mar S&P500 +0.1% at 1,990
***Commodities/Fixed Income***
- Apr gold -0.5% at $1,251/oz, Apr crude oil -0.2% at $38.23/brl, May copper +0.2% at $2.24/lb
- (SA) Saudi Arabia to keep full contracted oil supply to Asia in April - financial press
- (CN) PBOC SETS YUAN MID POINT AT 6.5129 V 6.5106 PRIOR; 2nd straight weaker setting
- (CN) PBOC to inject CNY20B in 7-day reverse repos
- JGB: (JP) Japan MoF sells ¥2.29T in 0.1% (0.1% prior) 5-year JGBs; Avg yield: -0.142% v -0.138% prior; Bid-to-cover: 3.59x v 3.57x prior
- (JP) Japan investors net buy ¥1.54T in foreign bonds v net buy ¥934B in prior week; Foreign investors net sell ¥139B in Japan stocks v net sell ¥1.01T in Japan stocks in prior week
***Market Focal Points/FX***
- Asian equity markets are mixed to positive, tracking the modest rally on Wall St, as investors prepare for Thursday's mammoth ECB decision amid growing expectations of further policy easing. In the Asia-Pacific, RBNZ got the ball rolling with a surprise 25bp rate cut, while the Bank of Korea maintained its cautious rhetoric in a split-decision hold. China inflation data was somewhat hotter than expected, but the bulk of the gains was due to pre-holiday spike in food costs. In FX, NZD/USD fell over 150pips in the wake of the rate decision to 0.6620, AUD/USD was down about 20pips below 0.7470, USD/JPY rallied 70pips toward 113.80, and EUR/USD came in about 30pips to 1.0970 session low.
- China Feb CPI of 2.3% hit its highest level since July 2014, though the food components spiked up to 7.3% from 4.1% going into the Lunar New Year while non-food CPI actually slowed to 1.0% v 1.2% prior. There was also increasingly more chatter devoted to China's property sector - a PBoC official warned about the risks of a "subprime"-like crisis in housing, adding that regulators should only incentivize activity in 3rd-tier and 4th-tier cities rather than the 1st-tier cities where prices have already heated up.
- RBNZ cut its cash rate to 2.25% against majority expectations of a rate hold at 2.5% and also lowered its forecast for 2016 end CPI to 1.1% (1.6% prior), GDP to 0.7% (0.8% prior), and 90-day bill rate to 2.2% (2.6% prior). In its statement, RBNZ cited deteriorating global growth, weakness in China, slowdown in Europe, and expectations of longer period required to reach inflation target in New Zealand against the backdrop of higher trade-weighted exchange rate since the last decision in explaining its rationale. Gov Wheeler remarked that the outlook implies potentially one more rate cut this year, though he also maintained that economic data could still change those projections.
- Bank of Korea stayed on hold at 1.50% as expected but reiterated that inflation remains low, consumption is weakening, economic sentiment is sluggish, and exports are soft. BOK also noted increased uncertainty on oil prices and global central bank policies. BOK Gov Lee later added that inflation would likely remain around 1% for some time, and that the BOK is monitoring capital flows.
- With the debate about the need to delay the 2nd round of sales tax hikes in Japan heating up, BOJ Gov Kuroda said the next increase will likely have about half of the impact relative to the first, which sent Japan into recession. Kuroda did acknowledge that the impact of that initial hike was bigger than anticipated. Separately, Fin Min Aso expressed his support for that 2nd round of tax hikes, stating that higher rates were unavoidable but that it would ultimately be up to PM Abe to decide on the timing.
***Equities***
US equities / ADRs:
- BOX: Reports Q4 -$0.26 v -$0.29e, R$85.0M v $81.7Me; +11.8% afterhours
- SQ: Reports Q4 -$0.20 (ex $0.14 stock div*) v -$0.14e, Total Rev $374M v $341Me; +0.3% afterhours
- OME: Reports Q4 $0.29 v $0.48e, R$82.3M v $109Me (2 est); -22.6% afterhours
Notable movers by sector:
- Consumer discretionary: Surfstitch Group SRF.AU +11.0% (CEO resigns)
- Financials: Ping An Bank Co 000001.CN -0.8% (FY15 result); Dalian Wanda Commercial Properties 3699.HK +0.9% (YTD result)
- Industrials: Daewoo Shipbuilding & Marine 042660.KR +5.1% (expects Q1 profit); China Rongsheng Heavy Industries Group 1101.HK +11.7% (to settle debt issue)
- Materials: Lynas Corp.LYC.AU -6.2% (H1 result)