Asian Mid-session Market Update: China manufacturing PMIs diverge; Fed's Dudley sees markets underprice policy tightening expectations
***Economic Data***
- (CN) CHINA JULY CAIXIN PMI MANUFACTURING: 50.6 V 48.8E; 1st expansion since Feb 2015
- (CN) CHINA JULY MANUFACTURING PMI (GOVT OFFICIAL): 49.9 V 50.0E (1st contraction in 5 months); NON-MANUFACTURING PMI (SERVICES): 53.9 V 53.7 PRIOR (7-month high)
- (JP) JAPAN JULY FINAL PMI MANUFACTURING: 49.3 V 49.0 PRELIM; confirms 5th straight contraction
- (AU) AUSTRALIA JULY MELBOURNE INSTITUTE INFLATION M/M: -0.3% (biggest decline in 6 years) V +0.6% PRIOR; Y/Y: 1.0% V 1.5% PRIOR
- (AU) AUSTRALIA JUNE HIA NEW HOME SALES M/M: +8.2% V -4.4% PRIOR; 3-month high
- (AU) AUSTRALIA JULY CORELOGIC RPDATA HOUSE PRICES M/M: 0.8% V 0.5% PRIOR
- (AU) AUSTRALIA JULY AIG MANUFACTURING INDEX: 56.4 V 51.8 PRIOR; 4-month high; 13th month of expansion
- (KR) SOUTH KOREA JULY PMI MANUFACTURING: 50.1 V 50.5 PRIOR; 4th straight expansion
- (KR) SOUTH KOREA JULY TRADE BALANCE: $7.8B V $8.7BE; Exports Y/Y: -10.2% v -4.4%e; Imports Y/Y: -14.0% v -10.6%e
- (KR) SOUTH KOREA JUNE CURRENT ACCOUNT BALANCE: $12.2B (record high) V $10.4B PRIOR; GOODS BALANCE: $12.8B (record high) V $10.7B PRIOR
- (ID) Indonesia July PMI Manufacturing: 48.4 v 51.9 prior; lowest reading since Dec 2015
- (ID) INDONESIA JULY CPI M/M: 0.7% V 0.8%E; Y/Y: 3.2% V 3.6%E; CPI CORE Y/Y: % V 3.5% V 3.6%E
- (TH) THAILAND JULY CPI M/M: -0.3% V 0.0%E; Y/Y: 0.1% V 0.5%E; CPI CORE Y/Y: 0.7% V 0.8%E
***Index Snapshot (as of 04:00 GMT)***
- Nikkei225 +0.3%, S&P/ASX +0.7%, Kospi +0.7%, Shanghai Composite -1.3%, Hang Seng +1.3%, Sep S&P500 +0.4% at 2,176
***Commodities/Fixed Income***
- Dec gold flat at $1,357/oz, Sep crude oil +0.3% at $41.74/brl, Sep copper +0.2% at $2.22/lb
- GLD: SPDR Gold Trust ETF daily holdings rise 3.9 tonnes to 958.1 tonnes
- SLV: iShares Silver Trust ETF daily holdings rise to 10,877 tonnes from 10,842 tonnes prior; multi-year high
- FCG.NZ: Maintains FY16/17 payout forecast at NZ$4.75-4.85/kg
- (SA) Saudi Aramco to cut its official selling prices for Asian customers by 10% in Sept
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.6277 V 6.6511 PRIOR; 5th straight firmer Yuan fix; strongest Yuan fix since Jun 24th
- (CN) PBOC to inject CNY120B in 7-day reverse repos
- (JP) BoJ offers to buy ¥70B in 1-yr and under JGBs; ¥400B in 1-3 yr JGBs, ¥420B in 3-5 yr JGBs, and ¥1.25T in T-Bill
- (KR) South Korea Finance Ministry sells KRW1.65T vs. KRW1.65T indicated 3-year treasury bonds, avg yield 1.205% v 1.215% prior
***Market Focal Points/FX***
- Asian equity markets are mixed, with Shanghai Composite lagging following disappointing set of China PMI data while other indices continue to rally on expectations of easy Fed for longer after a particularly soft US advance Q2 GDP on Friday. Fixed income markets are no longer pricing in a rate hike until Sept of 2017 as USD consolidated the Friday selloff in the Asia session. USD/JPY traded in a 50pip range above ¥102, AUD/USD traded 15pips around the 0.76 figure ahead of tomorrow's RBA decision, and NZD/USD traded up about 40pips from the lows to $0.7230 following affirmed FY16/17 payout outlook from Fonterra.
- Fed is in damage control as traders flocked to Treasuries after disappointing Friday's Q2 GDP report put validity of FOMC assertions of economy prepared for removal of accommodation into question. New York Fed Pres Dudley - one of the more dovish members - said it is still premature to rule out a hike before the end of 2016, adding the market expectations of 1 hike through 2017 is too complacent. Dudley said he still sees US GDP at about 2% over 18 months even with medium-term risks skewed to the downside. He did acknowledge that aftershocks from Brexit could pose some medium-term risks and that a sizeable economic pickup remains unlikely given softer business investment going into US elections.
- China's official July PMI saw manufacturing contract for the first time in 5 months, even as services hit a 7-month high. Key PMI components were also mixed - New Export Orders slowed to 49.0 v 49.6 m/m, but Employment rose to 48.2 v 47.9 m/m and Input prices reached 54.6 v 51.3 m/m. In contrast, Caixin Manuf PMI figure was surprisingly strong at 50.6 v 48.8 prior - the 1st expansion since Feb of last year. Resident economist noted stabilizing due to the gradual implementation of proactive fiscal policy, though adding the pressure on economic growth remains, and supportive fiscal and monetary policies must be continued. Economist with ANZ explained the divergence as a function of weaker CNY, noting that SMEs (measured more closely by private Caixin) stand to benefit from Yuan depreciation much more than the bigger SOEs.
- Investors are still digesting the underwhelming BOJ announcement late last week that only expanded ETF program rather than cutting rates deeper and adding to annual asset purchases. Given the rally in financials that have been struggling under negative rate environment, there is a wide range of views whether this was appropriate policy and also what the BOJ will deliver at the Sept meeting after it reviews economic conditions. Nomura argues that Sept meeting could feature changes of how the easing program is structured and may potentially start to target specific level of JGBs rather than the pace of buying, while Barclays claims that while there is some benefits to ETF buying, it will not produce immediate benefits in terms of sparking more inflation. PM Abe's advisor Hamada recommends that Japan acknowledges it is already monetizing its debt and proceed with an aggressive joint monetary/fiscal program.
***Equities***
Notable movers by sector:
- Consumer discretionary: Gome Electrical Appliances Holdings 493.HK -5.3% (profit warning); Clarion Co 6796.JP +7.4% (Q1 result); Kose Corp.4922.JP +8.4% (Q1 result); Panasonic Corporation 6752.JP -7.1% (Q1 result); Fairfax Media FXJ.AU -1.2% (impairment charge); Fonterra FCG.NZ +1.8% (maintains payout forecast)
- Financials: Future Land Development Holdings 1030.HK -0.8% (H1 result); Fosun International 656.HK +0.4% (asset sales plan); SOHO China 410.HK +5.3% (property disposal)
- Industrials: NGK Spark Plug Co 5334.JP +8.0% (Q1 result); China Shipping Development Co 1138.HK +5.7% (profit alert); Sumitomo Chemical Co 4005.JP -10.2% (Q1 result)
- Technology: MediaTek Inc 2454.TW +2.3% (Q2 result); NEC Corp 6701.JP -10.9% (Q1 result); Tech Pro Technology Development 3823.HK +4.4% (bounce from short seller report); Hoya Corp 7741.JP +8.2% (Q1 result)
- Materials: Citic Resources 1205.HK -1.2% (H1 result); Tokuyama Corp 4043.JP +8.5% (Q1 result); St Barbara SBM.AU +7.6%, Newcrest Mining NCM.AU +2.7% (gold gains)
- Energy: Sundance Energy Australia SEA.AU -3.3% (quarterly result); Inner Mongolia Yitai Coal Co 3948.HK +2.8% (profit alert); Huadian Fuxin Energy Corp.816.HK +5.0% (profit alert)
- Healthcare: Mediceo Paltac Holdings Co 7459.JP +6.7% (Q1 result); Miraca Holdings 4544.JP +12.3% (Q1 result)