Asian Market Update: G7 communique notes rising downside risks, calls for restraint from FX war; Japan remains in deflation despite negative rates
***Economic Data***
- (CN) CHINA APR INDUSTRIAL PROFITS Y/Y: +4.2% V +11.1% PRIOR; YTD: 6.5% v 7.4% prior
- (JP) JAPAN MAY TOKYO CPI YOY: -0.5% (4th straight decline, 3-year low) V -0.5%E; CPI EX-FRESH FOOD YOY: -0.5% (5th straight decline, 3-year low) V -0.4%E
- (JP) JAPAN APR NATIONAL CPI Y/Y: -0.3% V -0.4%E; CPI EX FRESH FOOD (CORE) Y/Y: -0.3% (2nd straight decline) V -0.4%E
- (UK) MAY GFK CONSUMER CONFIDENCE: -1 V -4E (2nd straight decline)
***Index Snapshot (as of 04:00 GMT)***
- Nikkei225 +0.4%, S&P/ASX +0.6%, Kospi +0.3%, Shanghai Composite -0.3%, Hang Seng -0.3%, Jun S&P500 flat at 2,090
***Commodities/Fixed Income***
- June gold -0.3% at $1,216/oz, July crude oil -0.7% at $49.12/brl, Jul copper +0.4% at $2.11/lb
- (CN) PBOC SETS YUAN MID POINT AT 6.5490 V 6.5552 PRIOR; 2nd straight firmer setting
- (CN) PBOC to inject CNY95B in 7-day reverse repos; Injects net CNY70B this week v CNY50B injected in prior week
- (NZ) New Zealand sells NZ$150M in Apr 2033 bonds, avg yield 2.882%
- (JP) BOJ offers to buy ¥60B in inflation-linked JGBs, ¥240B in JGBs with 10-25 yr maturity, ¥160B in JGBs with maturity over 25-yr, and ¥2.0T in T-bills
- (AU) Australia MoF (AOFM) sells A$1.0B in 2.75% 2019 Bonds; avg yield: 1.62%; bid-to-cover: 3.01x
***Market Focal Points/FX***
- Asian equity markets are mixed heading into the weekend, with some added cautiousness observed ahead of remarks from Fed Chair Yellen in US Friday session. Traders are increasingly anticipating dovish overtones to overshadow some rather hawkish remarks from her colleagues in recent days, with Fed Funds futures contract probability of a June rate hike pulling back to mid-20s from mid-30s pct. Shanghai Composite is underperforming following disappointing industrial profits data, while Nikkei is on the rise thanks to another soft Japan inflation dataset renewing speculation of a BOJ move. In FX, USD/JPY rose over 40pips from the lows to test 110 level, AUD/USD was a in 20pip range above 0.7315, and NZD/USD fell some 40pips below 0.6730 early on and then traded in that range for the duration of the session.
- Negative interest rates have supported Japan economy since the start of the year, and yet Japan inflation keeps trending in the wrong direction. April national core CPI fell for 2nd straight day and May Tokyo slid deeper into the red. Another soft patch in the wake of Kumamoto earthquake is widely anticipated to produce a contraction in the economy in Q2, as local press continues to speculate that Japan govt will have to postpone the 2nd round of sales tax increase. Today's report suggested the delay could be as long as 2 years, and the formal announcement could come in days. Govt spokesperson however has yet again denied the rumor of a change in plans for sales tax hikes. Late in the day, there was a report that PM Abe will meet with Fin Min Aso - proponent of staying on schedule with tax hike - to explain the decision to delay.
- Communique from the G7 meeting in Tokyo brushed in broad strokes, noting downside risks to global economy. G7 vowed to stand ready with a coordinated response to economic conditions, but at the same time conceded that policy will be custom made according to each nation's conditions. G7 leaders spoke out against disorderly FX moves, though also called for refrain from competitive devaluation. There was little mention of the US-Japan tensions at the Fin Min meetings last week where the two sides disagreed over what is a disorderly move in the currency market. Brexit and excess steel capacity were also mentioned among risks facing the top economic powers.
- Early-session comments from New Zealand Fin Min English produced a ripple in the currency market when he said that he talked with RBNZ about an MOU on macro-prudential tools. Recall the last RBNZ financial stability report did not unveil any new policies to curb housing inflation, which would have allowed the central bank move leeway to cut rates. NZD rallied on that release and today's mention produced an opposite downside NZD response. English also said the govt can consider tax cuts and debt reduction in its policy options, as the finance ministry explained some of the assumptions of yesterday's annual budget.
***Equities***
US equities / ADRs:
- ULTA: Reports Q1 $1.45 v $1.29e, R$1.07B v $1.03Be; +8.3% afterhours
- VRX: Said to receive a bid from Takeda and TPG; Offer was rejected earlier this year before the company hired a new CEO - financial press; +6.0% afterhours
- DECK: Reports Q4 $0.11 adj v $0.06e, R$378.6M v $363Me; -2.5% afterhours
- WDC: Cuts Q4 $0.65-0.70 v $0.78e, raises Rev $3.35-3.45B v $3.00Be (prior $1.00-1.10, R$2.5-2.7B); reflects ownership of SanDisk; -2.6% afterhours
- SPLK: Reports Q1 -$0.02 v -$0.02e, R$186.0M v $175Me; -6.8% afterhours
- GME: Reports Q1 $0.66 v $0.61e, R$1.97B v $1.95Be; Guides Q2 $0.23-0.30 v $0.34e, SSS -7% to 4%; -8.3% afterhours
- PANW: Reports Q3 $0.42 v $0.42e, R$345.8M v $339Me; -9.9% afterhours
- YHOO: Verizon said to work with BofA on a bid for Yahoo assets - financial press
Notable movers:
- Toshiba 6502.JP: JPMorgan Chase and Co Raised 6502.JP to Overweight from Neutral, price target: $330-update; +10.2%
- ASE +10%, SPIL +6.3; ASE agrees to merge with SPIL through new holding company
- 2353.TW: Yuanta Securities Raised 2353.TW to Buy from Hold; +6.8%
- SYR.AU: Exec: production to ramp up in 2017 - AGM comments; +4.5%
- 18880.KR: Strength attributed to reports of becoming a supplier for Tesla's Model 3 - financial press; +3.5%
- Lenovo 992.HK: Reports Q4 Net profit $180M v $185Me, Rev $9.13B v $11.3B y/y; -3.2%
- 7312.JP: KKR may offer support to Takata; proposing to take ~60% stake; -6.5%
- 322.HK: Reports Q1 Net $58M v $107M y/y, R$2.10B v $2.32B y/y; -9.7%