Asian Market Update: RBNZ commences tightening cycle with a hawkish 25bp hike; Strong Australia jobs figures quiet speculation over more RBA cuts
***Economic Data*** - (NZ) NEW ZEALAND CENTRAL BANK (RBNZ) RAISES OFFICIAL CASH RATE BY 25BPS TO 2.75%, AS EXPECTED - (NZ) NEW ZEALAND FEB FOOD PRICES M/M: -1.0% V +1.2% PRIOR (first decline in 4 months) - (AU) AUSTRALIA FEB EMPLOYMENT CHANGE: 47.3K V 15.0KE (10-month high); UNEMPLOYMENT RATE: 6.0% V 6.0%E - (AU) AUSTRALIA MAR CONSUMER INFLATION EXPECTATION: 2.1% V 2.3% PRIOR (3-month low) - (JP) JAPAN JAN MACHINE ORDERS M/M: 13.4% V 7.1%E (10-month high); Y/Y: 23.6% V 18.9%E - (JP) Japan investors sold ¥618.5B (2nd consecutive week of net sales) in foreign bonds last week vs sold net ¥759.0B in prior week; Foreign Investors bought net ¥383.8B in Japan stocks v sold net ¥4.1B in prior week - (KR) BANK OF KOREA (BOK) LEAVES 7-DAY REPO RATE UNCHANGED AT 2.50% (AS EXPECTED; 10TH STRAIGHT PAUSE) - (UK) UK JAN RICS HOUSE PRICE BALANCE: 45% V 52%E (6-month low)
Market Snapshot (as of 04:30 GMT): - Nikkei225 +0.5%, S&P/ASX +0.7%, Kospi +0.6%, Shanghai Composite +1.2%, Hang Seng +0.5%, Mar S&P500 +0.3% at 1,873, Apr gold +0.1% at $1,371, Apr crude oil +0.3% at $98.32/brl
***Highlights/Observations/Insights*** - Reserve Bank of New Zealand became the first central bank of a developed economy to embark on a tightening campaign. And while the 25bp rate hike was largely priced in by the fixed income markets, NZD rose about 100pips after the initial tip to as high as $0.8560. Specifically RBNZ justified the hike by warning that inflationary pressures are expected to continue to rise over the next 2 years, that LVR lending limits policies are having a faster than expected impact, and domestic expansion is becoming more broad based amid very high consumer and business confidence. A research note from Westpac said the decision was more hawkish than expected, with an increase in 90-day bill interest rate projections implying 3.75% OCR by year-end as well as extension of rate forecast to 2017 with an eye on at least 5.00% key rate.
- Australia employment surprised to the upside with a much higher than expected 47K net new jobs, sparking a debate on whether the figure is due to sampling adjustment (recall last year's Feb employment was also much, much stronger) or truly a sign of healing down under, reflecting the leading indicators of stronger AiG Services and ANZ job ads. According to local press, UBS and NAB economists are on the side of "sampling error", noting RBA will either stay on hold or even cut policy before the end of 2014. CBA economist said the improvement is legitimate, forecasting a rate hike as early as November and some 20-30K in jobs gains on a monthly basis over the near term. JPMorgan said unemployment rate would have to rise further to 6.5% for the RBA to consider more easing. Note that despite the rise in employment, jobless rate remained unchanged at 6.0% due to a sound increase in the participation rate, which hit a 5-month high. AUD/USD was up about 80pips above $0.9070 after the jobs data.
- Bank of Korea was on hold for the 10th consecutive month, in line with unanimous analyst forecasts. In his last rate decision before stepping down, BOK Gov Kim reiterated the negative production gap is seen sustained going forward but will narrow gradually, and also noted inflation would rise in the medium term but remain low for now. USD/KRW was little changed after the decision just below KRW1,068.
- China premier Li addressed the delegates as the National Peoples Congress drew to a close, most notably promising the govt will not allow systemic risks to arise from debt defaults even though defaults were unavoidable in some cases. Li also said 2014 would be more challenging, but the State Council would seek to raise the quality and efficiency of growth. Li further noted the govt is more concerned with employment and living standards than GDP - a veiled reference to the "elastic" nature of the 7.5% GDP target set for 2014 at the start of the conference. Shanghai Composite is leading the regional indices to the upside, with most pronounced gains made during the premier Li remarks.
***Fixed Income/Commodities/Currencies*** - (AU) Australian 3-yr yield rises to 3.07%, highest since Dec 11th - (JP) BOJ offers to buy ¥400B in 5-10yr JGB and ¥170B in JGB with maturity over 10-yr - (CN) PBoC to drain CNY100B in 28-day repos (8th consecutive drain); Drains CNY40B this week v drained CNY70B prior (5th week of drain) - (CN) China Qinhuangdao coal price falls to CNY530-540/t (9th consecutive decline; lowest since late Oct) - GLD: SPDR Gold Trust ETF daily holdings fall 1.5 tonnes to 811.2 tonnes (first decline since Feb 19th)
***Equities*** US markets: - CALL: Reports Q4 $0.69 v $0.50e, R$38.2M v $36.0Me (only 1 est.); +19.6% afterhours - KKD: Reports Q4 $0.12 v $0.13e, R$112.7M v $119Me; increases buyback program to $80M (1.4% of market cap); +10.2% afterhours - WSM: Reports Q4 $1.38 v $1.35e, R$1.466B v $1.43Be; raises dividend 6% to $0.33 from $0.31; +6.7% afterhours - VOCS: Said to be considering sale process after hiring Stifel as advisor - press; +2.4% afterhours
Notable movers by sector: - Consumer Discretionary: Tan Chong International 693.HK +3.4% (positive profit alert); Zhejiang Aokang Shoes 603001.CN +10.0% (cooperation with Alibaba) - Financials: Beijing North Star 601588.CN -0.8% (FY13 results); Powerlong Real Estate Holdings 1238.HK -6.9% (FY13 results); China CITIC Bank 998.HK +2.1% (speculation on online credit card with Alibaba and Tencent) - Industrials: Leighton LEI.AU -0.9% (revised offer from Hochtief); Teijin 3401.JP +2.3% (Airbus order) - Technology: NCsoft Corp 036570.KR +7.3% (to release game); Shenzhen Zowee Tech 002369.CN +0.4% (confirmed as Xiaomi's supplier) - Healthcare: Guizhou Bailing Group Pharmaceutical 002424.CN +7.8% (FY13 results)