Asian Mid-session Update: China devaluation panic subsides along with diminishing delta in Yuan fixing
***Economic Data***
- (KR) SOUTH KOREA CENTRAL BANK (BOK) LEAVES 7-DAY REPO RATE AT 1.50% (AS EXPECTED)
- (CN) China July Foreign Direct Investment (FDI) Y/Y: +5.2% v 0.7% prior
- (AU) AUSTRALIA AUG CONSUMER INFLATION EXPECTATION: 3.7% v 3.4% PRIOR; 6-month high
- (JP) JAPAN JUNE MACHINE ORDERS M/M: -7.9% (biggest decline since May 2014) V -4.8%E; Y/Y: 16.6% V 17.6%E; Cabinet office maintained assessment: Machine orders recovering
- (NZ) New Zealand REINZ JUL House Sales Y/Y: 37.8% v 29.2% prior; Median price y/y: +11.8% v +5.4% y/y prior
- (NZ) NEW ZEALAND JULY FOOD PRICES M/M: 0.6% V +0.5% PRIOR; 3rd straight increase
- (NZ) NEW ZEALAND JULY BUSINESS MANUFACTURING PMI: 53.5 V 55.1 PRIOR
- (UK) UK JULY RICS HOUSE PRICE BALANCE: 44% V 42%E; 1-year high
***Index Snapshot (as of 02:30 GMT)***
- Nikkei225 +0.4%, S&P/ASX +0.6%, Kospi +0.4%, Shanghai Composite +0.4%, Hang Seng +0.3%, Sept S&P500 flat at 2,086
***Commodities/Fixed Income***
- Dec gold -0.2% at $1,121/oz, Sept crude oil flat at $43.29/brl, Sept copper -0.5% at $2.34/lb
- USD/CNY: *PBOC SETS YUAN AT 6.4010 V 6.3306 PRIOR SETTING; implies 1.1% devaluation after yesterday's 1.6% move; weakest setting since Aug 2011
- GLD: SPDR Gold Trust ETF daily holdings rise 4.2 tonnes to 671.9 tonnes; First rise since July 13th
- SLV: iShares Silver Trust ETF daily holdings fall to 10,107 tonnes from 10,146 tonnes
- (CN) PBoC to inject CNY40B in 7-day reverse repos (15th consecutive injection); Injects net CNY5B this week v drained CNY5B prior
***Market Focal Points/FX***
- Sentiment in Asia Pacific is tracking the reversal on Wall St with marginal gains, as the panic from Chinese currency devaluation and the fears of a more pronounced currency war in the far east are in retreat. The PBoC fix, which acquired immense significance over the past 3 trading sessions, once again set the Yuan notably lower. However the depreciation slowed to 1.1% from 1.6% yesterday and the 1.9% initial devaluation move two days ago, leading to speculation that the PBoC's further adjustment will be even more benign. Offshore CNH rate spiked up to 6.50 from 6.47 on the fix, but then fell back below 6.44. US equity futures fell nearly 10pts to 2,076 but then recovered to 2,088. US 10-year yields rose 3bps to 2.17%, while the closely correlated to CNY devaluation trend AUD and NZD currencies reversed their thrusts lower to unchanged levels around 0.7380 and 0.6610 respectively.
- PBoC held a press conference to explain its policy moves and was also generally successful in restoring calm. Most telling commentary was from PBoC Dep Gov Yi Gang, who said the "adjustment is almost complete" and that the speculation on devaluation running as steep as 10% were "nonsense". Instead, Yi said the currency shift would be a positive for international confidence in Yuan as it allows a more market-driven determination for exchange rate value. Earlier, Chinese press op/ed also remarked that devaluation should not be perceived as a currency war, while an official with Chinese Academy of Social Science said revaluation serves to correct "reference rate was far from actual market conditions."
- Bank of Korea policy decision was the first regional central bank review of conditions since the China move. As widely expected, the BOK held rates steady at 1.50% in a unanimous decision, but acknowledged devaluation posing a risk to global growth. Otherwise, the BOK was more positive, noting economy is showing recovery and domestic demand experiencing a modest improvement. KRW, which also recovered lost ground from overnight lows of 1,190 to trade at 1,170, was little changed post BOK statement.
- In earnings, Lenovo was down sharply after Q1 results despite beating on profit and growing revenue. Investors noted 8% decline in consumer PC shipments and a 5% cut in the workforce. In Australia, Telstra and Whitehaven were notable decliners on FY results, falling 1.8% and 3.9% respectively. Stateside, Cisco results marked the tail end of the US earnings season, beating on both top and bottom lines while sending shares up over 4% afterhours.
***Equities***
US equities / ADRs:
- RNDY: Reports Q2 -$0.03 v -$0.04e, R$998.3M v $989Me; +9.1% afterhours
- NWSA: Reports Q4 $0.07 v $0.05e, R$2.14B v $2.19Be; begins strategic review of Digital Education segment; +4.8% afterhours
- CSCO: Reports Q4 $0.59 v $0.56e, R$12.8B v $12.7Be; +4.1% afterhours
- NTES: Reports Q2 $1.74 v $1.62e, R$779.5M v $692Me; -3.5% afterhours
Notable movers by sector:
- Consumer discretionary: Li Ning Co Ltd 2331.HK +4.4% (H1 result); Sun Art Retail Group 6808.HK -4.5% (H1 result); Fairfax Media Ltd FXJ.AU +6.4% (FY15 result); Goodman Group GMG.AU -0.2% (FY15 result); Tabcorp TAH.AU -1.0% (FY15 result)
- Consumer staples: Henan Shuanghui Investment & Development Co 000895.CN -1.7% (H1 result); Beijing Yanjing Brewery Co Ltd 000729.CN -1.7% (H1 result)
- Financials: China Everbright International 257.HK -1.8% (H1 result); Hong Kong Exchanges & Clearing Limited 388.HK -0.6% (H1 result); China Overseas Land 688.HK +1.1% (July result); China Life Insurance 2628.HK +1.7% (YTD premium income); China Pacific Insurance Group 2601.HK +1.2% (YTD premium income); Mirvac Group MGR.AU -0.5% (FY15 result)
- Industrials: Tianjin Port Development Holdings 600717.CN -3.8%, CMST Development Co Ltd 600787.CN -2.4% (Tianjin blast)
- Technology: Lenovo 992.HK -5.0% (Q1 result, job cuts); Tencent Holdings 700.HK +4.5% (Q2 result); TCL Corp 1070.HK -1.3% (H1 result); FIH Mobile Ltd 2038.HK -2.5% (H1 result); TCL Communication Technology 2618.HK +4.9% (H1 result)
- Materials: Baoji Titanium Industry Co Ltd 600456.CN +0.4% (H1 result); Whitehaven Coal WHC.AU -3.9% (FY15 result)
-Energy: GCL New Energy Holdings 451.HK +1.7% (H1 guidance); Korea Gas 036460.KR -5.6% (Q2 result)
- Healthcare: Tibet Rhodiola Pharmaceutical Holding Co 600211.CN -3.9% (H1 result)