Asian Market Update: China unveils 2016 GDP target of 6.5-7.0% range, raises fiscal deficit and cuts retail spending expectations
***Economic Data***
- (AU) AUSTRALIA FEB ANZ JOB ADVERTISEMENTS M/M: -1.2% V +0.9% PRIOR
- (AU) AUSTRALIA FEB AIG PERFORMANCE OF CONSTRUCTION INDEX: 46.1 V 46.3 PRIOR; 3rd month of contraction and 1-year low
- (JP) JAPAN FEB OFFICIAL RESERVE ASSETS: $1.25T v $1.25T PRIOR
- (JP) JAPAN JAN PRELIMINARY LEADING INDEX CI: 101.4 V 101.6E; COINCIDENT INDEX: 113.8 V 113.8E
***Index Snapshot (as of 04:30 GMT)***
- Nikkei225 -0.5%, S&P/ASX +1.1%, Kospi +0.3%, Shanghai Composite +0.8%, Hang Seng +0.2%, Mar S&P500 -0.1% at 1,993
***Commodities/Fixed Income***
- Apr gold -0.8% at $1,260/oz, Apr crude oil +2.% at $36.64/brl, May copper -0.4% at $2.25/lb
- SLV: iShares Silver Trust ETF daily holdings rise to 10,035 tonnes from 9,777 tonnes ; highest since Dec
- GLD: SPDR Gold Trust ETF daily holdings fall 0.2 tonnes to 793.1 tonnes; first decline since Feb 12th
- (CN) China's 5-year plan seeks to cap energy consumption at a maximum of 500B MT of standard coal by 2020, up 16% from 4.3B tons in 2015
- USD/CNY: *(CN) PBOC SETS YUAN MID POINT AT 6.5113 V 6.5284 PRIOR; strongest setting since Jan 4th; 3rd consecutive stronger CNY setting
- (CN) PBOC to inject CNY30B in 7-day reverse repos
- (AU) Australia MoF (AOFM) sells A$500M in 3.25% Bonds; avg yield: 2.82%; bid-to-cover: 2.72x
- (KR) South Korea MoF sells 3-yr bonds at 1.52%
***Market Focal Points/FX***
- Asian equities are somewhat firmer, as the rhetoric from China Premier Li and his release of 2016 economic projections were just as mixed as the US February non-farm payrolls report on Friday which saw slightly higher than expected job growth against lower wages. While the anticipated GDP was set as a range of 6.5-7.0% for the first time in years, investors are taking solace in reassurances that a hard landing will be avoided and that policymakers are ambitious on the fiscal side despite the rise in govt debt levels. Shanghai Composite is up nearly 1%, China iron ore futures are limit up, oil has rallied about 2% in electronic trade, and gold has retreated. In FX, the latest risk-on flows are consolidated in Asian trade, with USD/JPY in a 40pip range below ¥114, AUD/USD in a 30pips range above $0.74, and NZD/USD down as much as 40pips below $0.6780.
- In addition to the GDP forecasts which included expectations of at least 6.5% annual growth in 2016-20 period, China Premier Li's other 2016 forecasts were as follows: CPI was maintained at 3% vs 1.4% actual 2015 print, budget deficit set at 3% of GDP - not as high as 4% speculated but also up from 2.3% 2015 target and 2.4% actual figure, M2 money supply raised to 13% from 12% target, retail sales cut to 11% from 13%, and fixed asset investment cut to 10.5% from 15%. China trade projections were notably absent from Li's address after widely missing estimates last year. China also maintained its goal of creating 10M new jobs, keeping urban jobless rate below 4.5%, and lowering defense budget growth to 7.6% from 10.1% last year. Li added that downward pressure on economy is growing, promising the PBoC monetary policy will be "prudent with flexibility" and fiscal policy will stay proactive. Exchange rate would remain basically stable, to which end China continued to strengthen Yuan fix today to its highest level since early Jan.
- On the 2nd day of the People's Congress in Beijing, other speakers weighed in with their assessment of the economy and offered some more forecasts. Fin Min Lou said China banks' NPLs would continue rising due to structural reforms, but the financial system is not in crisis management. Lou also said the increase in deficit ratio would allow spending on big projects, and while there is some further room to increase that debt ratio, any increase will be gradual and not large. PBoC Dep Gov Yi called FX reserves as stable and ample as markets await the release of monthly FX flows data, while the overall assessment of cross-boder flows was seen as manageable. State planning agency NDRC chairman declared that speculators' predictions of a hard landing in China will fail, though policy makers are cognizant of global challenges including unstable financial markets, falling prices of commodities and risks of geopolitical nature. China Stats officials added Yuan will remain volatile due to Fed policy expectations and IMF SDR basket related movements.
- Commentary from Japan officials were fairly boilerplate as markets look ahead to tomorrow's final GDP numbers. PM Abe pushed for businesses to raise wages with the start of the new fiscal year in April. BOJ Gov Kuroda also spoke extensively in defense of negative rates, stating that lower rates are justified in the fight against deflation even if they produce turbulence in money markets and weigh on the earnings of financials. Kuroda also said the economy has improved over the past 3 years, and while the most recent perception appears to be that of deterioration, the recent JPY rise was due to macro risk aversion outweighing the impact of negative rates policy. Note that Kuroda comments appear to be more defensive in light of the latest opinion polls showing cabinet approval ratings well below 50% and the latest disapproval rating for Abenomics rising 3pts to 47%.
**US Saturday/Sunday primaries**
- Trump wins Louisiana and Kentucky
- Cruz wins Kansas and Maine
- Rubio wins Puerto Rico
- Clinton wins Louisiana
- Sanders wins Nebraska, Kansas, and Maine
***Equities***
- Toshiba 6502.JP: Reportedly planning to sell controlling stake in medical business for ~¥700B - financial press; +7.5%
- Sharp 6753.JP: Hon Hai expected to sign agreement to acquire Sharp as soon as Wednesday - Japan press; +6.6%
- China iron ore futures trading limit up - financial press; FMG.AU +19.3%, BHP +5.3%, RIO +3.7%
- Gold prices lower; NCM.AU -1.5%, EVN.AU -3.3%
- 000720.KR: Awarded KRW1.85T contract from Kuwait National Petroleum Company; Construction to take about 5 years' +1.7%
- 316.HK: Reports FY15 Net $284M v $270M y/y; Rev $5.95B v $6.52B y/y; -1.8%