Asian Mid-session Update: Asia joins the risk-on parade on the eve of expected FOMC liftoff
***Economic Data***
- (JP) JAPAN DEC PRELIMINARY PMI MANUFACTURING: 52.5 V 52.6 (8th straight month of expansion)
- (AU) AUSTRALIA NOV SKILLED VACANCIES M/M: 1.2% V 1.6% PRIOR
- (AU) AUSTRALIA NOV WESTPAC LEADING INDEX M/M: -0.2% V +0.1% PRIOR; first decline in 3 months
- (NZ) NEW ZEALAND Q3 CURRENT ACCOUNT BALANCE (NZ$): -4.7B V -4.9BE
- (KR) SOUTH KOREA NOV UNEMPLOYMENT RATE: 3.4% V 3.4%E
- (US) OCT NET LONG-TERM TIC FLOWS: -$16.6B V $33.6B PRIOR; TOTAL NET TIC FLOWS: +$68.9B V -$175.1B PRIOR; China Total holding of US Treasuries: $1.254T v $1.258T prior; 2nd straight month of reduced holdings
***Index Snapshot (as of 04:30 GMT)***
- Nikkei225 +2.6%, S&P/ASX +2.3%, Kospi +2.1%, Shanghai Composite +0.7%, Hang Seng +2.2%, Feb S&P500 +0.3% at 2,042
***Commodities/Fixed Income***
- Feb gold +0.2% at $1,063/oz, Jan crude oil flat at $37.08/brl, Mar copper +0.3% at $2.06/lb
- (US) API Petroleum Inventories: Crude: +2.3M v -1.9M prior; largest build in 3 weeks
- (CN) China MOF sells 7-yr bonds, avg yield 2.98%
- USD/CNY: (CN) PBoC sets yuan mid point at 6.4626 v 6.4559 prior; multi-year low Yuan setting
- (JP) BOJ offers to buy ¥350B in 1-3yr JGBs, ¥350B in 3-5yr JGBs, ¥400B in 5-10yr JGBs
***Market Focal Points/FX***
- The popular risk-off trends of the couple of weeks - namely short high-yield debt, short stocks, short energy, and long JPY - are all being unwound over the last 24 hours, as investors look ahead to Wednesday's monumental Fed announcement that will likely signal the start of the tightening campaign. US yields were higher, even though the markets generally expect a "dovish" hike that will underscore the gradual pace of rising rates. Thus the focus will be not only on the Fed funds rate and the statement but also the latest projections, particularly the changes in the "dot plot" that will guide the velocity of the policy tightening expectations. Asia markets have joined in on the rally, with most impressive gains in Tokyo on weakness in the Yen. USD/JPY was up nearly 40pips approaching 122 late in the day, tracking higher US yields. In other USD majors, AUD/USD traded about 15pips around 0.72 handle, NZD/USD fell nearly 40pips to a low of 0.6740 on cautious Fin Min comments, and EUR/USD was in a 30pip range below $1.0950. New Zealand's Fin Min English noted exporters prefer weaker NZD against USD, somewhere in mid to low $0.60s.
- Most notable economic data came out of Japan with an early look into December conditions via prelim Manuf PMI data. 52.5 print was a decimal below last month but remained in expansion for 8th month. New orders also rallied to 54.1 v 53.6 prior, while new export orders slid to 52.4 v 53.2 prior. Markit economist said the growth in total new work picked up to the second-highest since October last year, supported by strong overseas demand. The data come on the heels of cautious commentary in Nikkei press about inflation, pointing to yesterday's Tankan CPI view and low TIPS yields suggesting market participants were not too optimistic on BOJ's 2% inflation target.
- Bank of Korea unveiled a lower CPI target for 2016-18 period of 2.0% vs 2.5% -3.5% target for 2013-15. BOK also cut 2015 GDP target to 2.7% from 3.1% prior forecast and 2016 GDP to 3.1% from 3.3% prior forecast. Economists with ANZ noted the revisions pave the way to more BOK easing with two 25bps moves in Q1 and Q2 of next year.
- In China, PBoC adviser Fan Gang said economy is facing adjustments but still has potential to grow over the long term. Fan pointed to continued issues around industry overcapacity, bad loans, and Internet finance as key risks. Separately, Pres Xi spoke at World Internet Conference calling for internet security and global cooperation, while also acknowledging China economy is facing "certain downward pressure." Also of note, China energy names were higher as China temporarily stopped adjusting domestic gasoline prices in response to latest air quality issues - a move speculated as weighing on demand.
- Stateside, House speaker Ryan announced US Congress has reached a $1.1T agreement on the budget. Among its most notable provisions, US lawmakers agreed to lift the ban on crude exports and also includes 5-year solar tax credit extension.
***Equities***
US equities / ADRs:
- JRJC: Reports Q3 $0.39 v -$0.11 y/y, R$37M v $21.1M y/y; Signed a framework agreement to sell 90% of equity stake in Shanghai Meining Computer Software; +44.5% afterhours
- HPY: Global Payments to acquire Heartland Payment Systems for $100/shr or $4.3B, combining leading payments technology companies; +11.8% afterhours
- DOV: Cuts FY15 guidance to $3.69 (ex charges) v $3.73e (guided $3.73-3.80 prior); Guides initial FY16 EPS $3.85-4.05 v $4.01e, Rev +2-5%; -3.0% afterhours
- GPN: Adjusts Q2 and FY16 guidance following HPY acquisition; -3.4% afterhours
Notable movers by sector:
- Consumer discretionary: Shimamura 8227.JP -0.4% (9-month result speculation); Park24 Co Ltd 4666.JP +3.5% (FY14/15 result); Crown Limited CWN.AU +13.7% (said to return certain assets to private hands); Dulux Group DLX.AU -0.2% (guidance)
- Financials: WesFarmers WES.AU +3.6% (divestment)
- Industrials: Xinyi Glass Holding Co 868.HK +2.6% (profit alert)
Samsung Engineering Co; 028050.KR +11.5% (guidance)
- Technology: Advanced Semiconductor Engineering 2311.TW +2.9% (raises bid for Precision Industries)
- Materials: Iluka Resources ILU.AU +2.7% (cuts guidance); Metallurgical Corporation of China 601618.CN -0.6% (YTD result); China Polymetallic Mining 2133.HK -3.3% (in talks for acquisitions); Drillsearch Energy DLS.AU +4.8% (recommends to vote for merger with Beach); Whitehaven Coal WHC.AU +8.3% (raises guidance)
- Energy: Xinyi Solar 968.HK +1.5% (profit alert); China Coal Energy 1898.HK +3.8%(Nov result)