Asia Mid-Session Market Update: Asia bond market strain continues while US TIC flows see record foreign outflows
***US Session Highlights***
- EUR/USD: *EURO MOVES BELOW $1.0460 FOR ITS LOWEST LEVEL SINCE JAN 2003
- (US) DEC EMPIRE MANUFACTURING: 9.0 V 4.0E; new orders and 6-month conditions jump
- (US) NOV CPI M/M: 0.2% V 0.2%E; CPI EX FOOD AND ENERGY M/M: 0.2% V 0.2%E; CPI INDEX NSA: 241.353 V 241.413E
- (US) INITIAL JOBLESS CLAIMS: 254K V 255KE; CONTINUING CLAIMS: 2.02M V 2.00ME
- (US) DEC PHILADELPHIA FED BUSINESS OUTLOOK: 21.5 V 9.1E (highest since Nov 2014)
- (US) DEC PRELIMINARY MARKIT MANUFACTURING PMI: 54.2 V 54.5E (highest since March 2015)
- (US) DEC NAHB HOUSING MARKET INDEX: 70 V 63E (largest one month gain in 20 years)
***US markets on close: Dow +0.3%, S&P500 +0.4%, Nasdaq +0.4%***
- Best Sector in S&P500: Healthcare
- Worst Sector in S&P500: Industrials
- Biggest gainers: UHS +6.9%, XLNX +6.1%, LLY +5.5%, ILMN +5.2%, MDLZ +4.4%
- Biggest losers: YHOO -6.1%, PVH -6.1%, RL -4.7%, COH -3.7%, R -3.3%
- At the close: VIX 12.8 (-0.4pts); Treasuries: 2-yr 1.27% (flat), 10-yr 2.58% (+5bps), 30-yr 3.15% (flat)
***US movers afterhours***
- JBL: Reports Q1 $0.69 v $0.64e, R$5.1B v $4.93Be; +10.5% afterhours
- GILD: Merck wins $2.54B judgement against Gilead over Hep C patents; -2.1% afterhours
- ORCL: Reports Q2 $0.61 v $0.61e, R$9.07B v $9.11Be; -2.2% afterhours
- AGIO: Withdrew AG-519 investigational new drug application; global Phase 2 study AG-348 to continue for pyruvate kinase (PK) deficiency treatment; -19.4% afterhours
***Asia Key economic data:***
- (NZ) NEW ZEALAND DEC ANZ CONSUMER CONFIDENCE INDEX: 124.5 V 127.2 PRIOR; M/M: -2.1% V +3.5% PRIOR
- (SG) SINGAPORE NOV NON-OIL DOMESTIC EXPORTS M/M: +13.1% V -1.5%E; Y/Y: +11.5% V -2.7%E
- (US) OCT TOTAL NET TIC FLOWS: +$18.8B V -$152.9B PRIOR; NET LONG-TERM TIC FLOWS: +$9.4B V -$26.2B PRIOR
- (US) NORTH AMERICA NOV SEMI BOOK/BILL RATIO: 0.96 V 0.91 PRIOR; 2nd straight month below parity
- (US) NPD: Nov Video Games Sales -24% y/y at $2.0B
- (PE) PERU CENTRAL BANK (BCRP) LEAVES REFERENCE RATE UNCHANGED AT 4.25%; AS EXPECTED
***Asia Session Notable Observations, Speakers and Press***
- Unintended and far-reaching consequences of a more hawkish than anticipated outcome from yesterday's FOMC policy decision have produced a sizable ripple in the bond and currency markets, even if equities appear to have pared their losses. EUR/USD is consolidating its drop around the 14-year low but back above $1.04 handle, while USD/JPY is off its highs though still above the 118 handle breached overnight. Asia-Pacific currencies, however, continued their swift decline against king dollar - Yuan fix was set at the weakest level since May 2008 and HKD is down sharply for the 3rd straight day, with USD/HKD at a 6-month high of HK$7.763.
- Bond market turbulence, as evidenced by China halting its futures trading overnight on limit-down moves, was more persistent and required some attention from officials. Ahead of next week's BOJ meeting, 10-yr JGB yield hit an 11-month high of 0.1% in early trade before retreating to 0.08%. In China, the CSRC called for brokerage to continue trading despite a liquidity crunch without setting restrictions on counter parties. Separately, the PBoC has stepped in with a CNY394B MLF liquidity operation, up from last week's CNY339B. Hong Kong's 3-month HIBOR was also indicative of a strain with a 14th consecutive day of increase.
- US October TIC data, while lagging, have also underscored the negative bias in govt bonds and the implied need for liquidity. Foreign central banks sold $403B in US Treasuries - a record high. China operations were especially notable - Beijing sold US bonds for the 5th straight month in a largest sale since June, taking its holdings to the lowest level since June 2010. Also of note, Japan's holdings of US debt now top those of China for the first time in years.
- Focus turns to next week's release of Australia's MYEFO budget update on Monday and potentially immediate sovereign credit rating review. BOJ decision and the anticipated upgrade in Japan's economic assessment are expected on Tuesday.
China
- (CN) China to support funding demand for steel sector - financial press
- (CN) Bank of China economist: China bond yields to continue to rise in 2017 but at a slower pace - press
- (CN) China CSRC ordered market-making brokerages to continue trading amid market volatility - financial press
- (CN) Former researcher at Chinese Academy of Social Sciences (CASS), Yi Xianrong: FOMC hike may lead to more capital outflows from China, with large impact in stock and property markets - Chinese press
- (CN) China govt editorial says the US Fed rate hike will create some downward pressure on the yuan, but not 'huge' pressure - China People's Daily
Japan
- (JP) Japan Chief Cabinet Sec Suga: Reports of Trump-Abe talks in January are false; Talks with Russia's Putin were meaningful and included peace treaty - press
Australia:
- (AU) Australia Fin Min Cormann confirms A$43.6B cash deficit for FY15/16 v deficit of A$37.6B in FY14/15
- (AU) Analysts' consensus for Australia's upcoming MYEFO projections for FY16/17 is for deficit of A$37.1B - press
- (AU) Capital Economics: Even if rating agencies take away Australia's AAA rating after Monday's MYEFO report, "we doubt it would rattle economy or markets" - press
***Asian Equity Indices/Futures (23:30ET)***
- Nikkei +0.7%, Hang Seng +0.1%, Shanghai Composite flat, ASX200 -0.4%, Kospi +0.2%
- Equity Futures: S&P500 flat; Nasdaq flat, Dax -0.1%, FTSE100 -0.1%
***FX ranges/Commodities/Fixed Income (23:30ET)***
- EUR 1.0405-1.0435; JPY 117.95-118.40; AUD 0.7350-0.7370; NZD 0.7015-0.7050
- Feb Gold +0.2% at 1,132/oz; Jan Crude Oil +0.7% at $51.23/brl; Mar Copper flat at $2.60/lb
- GLD: SPDR Gold Trust ETF daily holdings fall 7.1 tonnes to 842.3 tonnes; 20th straight decline; lowest since May 11th
- SLV: iShares Silver Trust ETF daily holdings fall to 10,534 tonnes from 10,608 tonnes prior; 10th straight decline; lowest since July 5th
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.9508 V 6.9289 PRIOR; weakest Yuan setting since May 2008
- (CN) PBOC to inject CNY105B in 7-day reverse repos, CNY35B in 14-day reverse repos, and CNY40B in 28-day reverse repos; Injects net CNY150B this week v drained CNY130B prior
- (CN) China MOF sells 91-day bonds, avg yield 2,8991%; sells 182-day bonds, avg yield 2.9565%
- (JP) BOJ offers to buy ¥70B in JGBs with maturity less than 1-yr, ¥200B in 10-25yr JGBs and ¥120B in JGBs with maturity over 25-yr
- (AU) Australia Finance Ministry (AOFM) sells A$600M in 5.75% 2021 bonds; avg yield 2.1935%; bid-to-cover 4.125x
***Asia equities / Notables / movers by sector***
- Consumer discretionary: Crown Resorts CWN.AU +1.4% (block offering); FAW Car Co 000800.CN +4.7%, Tianjin FAW Xiali Automobile Co 000927.CN +10.0%, Dongfeng Motor 489.HK +1.8% (merger speculation); Surfstitch Group SRF.AU +12.1% (completes sale); PMP PMP.AU -6.6% (guidance)
- Consumer staples: China Huishan Dairy Holdings Co 6863.HK -2.1% (Muddy Waters report)
- Financials: Far East Horizon 3360.HK -1.7% (asset disposal); Dai-Ichi Mutual Life Insurance 8750.JP +2.0% (JPMorgan raised to overweight); Dai-Ichi Mutual Life Insurance 8750.JP +2.0% (JPMorgan raised to overweight)
- Industrials: Nippon Paint Co 4612.JP -3.1% (acquisition)
- Technology: Nintendo Co. 7974.JP -4.1% (Super Mario Run smartphone game debuts)
- Materials: Orora ORA.AU +6.8% (Credit Suisse sees acquisitions provides further diversification); Orocobre ORE.AU +8.9% (Citi raised to neutral); Newcrest Mining NCM.AU -6.9%, Saracen Minerals SAR.AU -8.6% (gold prices fall); Fortescue Metals Group FMG.AU +0.6% (CEO comment)
- Energy: Caltex Australia CTX.AU -3.4% (JPMorgan cuts to underweight)
- Healthcare: Takara Bio 4974.JP +5.5% (sells HF10 rights to Otsuka); Mayne Pharma MYX.AU -10.2% (update on DOJ investigation)