Asian Market Update: RBA cuts inflation outlook in quarterly update; Japan LDP continues to clamor for tax hike delay as Services PMI contracts
***Economic Data***
- (AU) AUSTRALIA APR AIG PERFORMANCE OF CONSTRUCTION INDEX: 50.8 V 45.2 PRIOR (1st expansion in 5 months)
- (JP) JAPAN APR SERVICES PMI: 49.3 (first contraction since Mar 2015) v 50.0 PRIOR; COMPOSITE PMI: 48.9 v 49.9 PRIOR
- (JP) JAPAN APR MONETARY BASE Y/Y: 26.8% v 28.5% PRIOR; MONETARY BASE END OF PERIOD: ¥386.2T V ¥375.7T PRIOR
- (CN) CHINA MAR LEADING INDEX: 99.1 V 99.0 PRIOR
***Index Snapshot (as of 04:00 GMT)***
- Nikkei225 -0.8%, S&P/ASX -0.5%, Kospi closed, Shanghai Composite -1.9%, Hang Seng -1.3%, Jun S&P500 -0.1% at 2,041
***Commodities/Fixed Income***
- June gold +0.7% at $1,280/oz, June crude oil -1.1% at $43.83/brl, Jul copper +0.3% at $2.15/lb
- GLD: SPDR Gold Trust ETF daily holdings rise 3.9 tonnes to 829.4 tonnes; highest since Dec 2013 (update)
- SLV: iShares Silver Trust ETF daily holdings fall to 10,454 tonnes from 10,538 tonnes prior; first decline since Apr 17th
- USD/CNY: *(CN) PBOC SETS YUAN MID POINT AT 6.5202 V 6.5128 PRIOR (3rd consecutive weaker setting; weakest Yuan setting since Mar 28th)
- (CN) PBOC to inject CNY30B in 7-day reverse repos; Drains net CNY220B this week v drained CNY290B prior
- (AU) Australia MoF (AOFM) sells A$700M in 1.75% 2020 Bonds; avg yield: 1.7989%; bid-to-cover: 3.24x
***Market Focal Points/FX***
- Asian equity markets remained under pressure as bearish momentum appears to have permeated investor sentiment going into the key data point of the week. A strong US non-farm payrolls on Friday could justify seemingly more hawkish rhetoric from Fed officials hinting that June FOMC Meeting remains live in spite of the fixed income market indications to the contrary. Alternatively, a soft report, as hinted by this week's 3-year low in ADP, could help reverse those expectations and weaken the dollar. Among FX majors, USD/JPY is in a 40pip range above 107. AUD/USD lost about 100pips to a trade at a 2-month low below $0.74 after latest RBA projections, also weighing on NZD/USD which fell 40pips from the highs to 0.6850. PBoC's Yuan fix was weaker yet, with China FX reserves and trade figures on tap for this weekend.
- After a surprise rate cut by the RBA this week, today's quarterly policy statement expanded on the central bank's inflation worries. RBA cut its 2016-end CPI target to 1-2% from 2-3% and also cut its 2017-end target to 1.5-2.5%. 2018 H1 outlook was set at 1.5-2.5%, down from 2-3% prior and long-term target range, suggesting the central bank is leaving itself a window for more easing. RBA's statement said that much as well, while also pointing to uncertainty around economic outlook for China while also concluding that non-mining sector emergence remains subdued. Australia short-term rates fell on the announcement, tracking a large downsize move in AUD, with 3-year yield at a record low below 1.6%.
- China policymakers took more steps to address the growing debt bubble, as regulators had reportedly imposed tighter underwriting requirements for private company bonds. Effective later this year, brokers will require potential issuers to have credit rating higher than AA. Optimism over China property sector - a brighter area of the slowing economy recently - was also reined in. According to a CASS report, growth in prices in top tier cities is expected to slow, while prices in 3rd and 4th tier cities would continue to fall. Report suggested the govt may further reduce downpayment requirement in 3rd and 4th tier to 15% from 20%.
- Japan resumed its trade after a 3-day break with outsized declines in shares of Sharp after recent speculation of deep FY15/16 net loss. On the macro front, Japan LDP party VP raised the possibility of a delay to sales tax hike, echoing concern of his colleague Yamamoto. Japan Services PMIs would justify that type of caution as the index fell into contraction for the first time since last March. Forward looking backlog component saw sharp declines, while input prices increased at the weakest rate since February 2015, underscoring Japan's ongoing challenge with defeating deflation.
***Equities***
US equities / ADRs:
- HLF: Reports Q1 $1.12 (adj) v $1.07e, R$1.12B v $1.04Be (1 est); +13.2% afterhours
- YELP: Reports Q1 +$0.08 v -$0.15e, R$158.6M v $156Me; +9.0% afterhours
- ATVI: Reports Q1 $0.23 adj v $0.13e, R$908M v $818Me; +6.3% afterhours
- WYNN: Reports Q1 $1.07 v $0.83e, R$998M v $987Me; +2.0% afterhours
- MSI: Reports Q1 $0.52 v $0.41e, R$1.19B v $1.18Be; -0.2% afterhours
- CERN: Reports Q1 $0.53 v $0.53e, R$1.14B v $1.17Be; -4.1% afterhours
- GPRO: Reports Q1 -$0.63 v -$0.58e, R$184M v $171Me; Delays Karma drone rollout; -5.1% afterhours
- FEYE: Reports Q1 -$0.47 v -$0.50e, R$168M v $172Me; Announces several management changes; -9.3% afterhours
- SQ: Reports Q1 -$0.29 v -$0.13e, Total Rev $379M v $346Me; Raises FY16 guidance; lockup expires May 16; -12.1% afterhours
Notable movers by sector:
- Consumer discretionary: Wynn Macau 1128.HK -1.7% (Q1 result); Fairfax Media FXJ.AU -1.0% (guidance)
- Financials: Macquarie Group MQG.AU 0.6% (FY16 result)
- Industrials: Great Wall Motor 2333.HK -2.3% (Apr result); Nufarm NUF.AU +1.8% (reaffirms guidance); Geely Automobile Holdings 175.HK -1.3% (Apr result)
- Technology: FIH Mobile 2038.HK -21.0% (guidance); MYOB Group MYO.AU +1.2% (reaffirms guidance)