Asian Mid-session Market Update: Nikkei slumps, Yen strengthens after sales tax hike delay; Australia trade deficit narrows again
***Economic Data***
- (AU) AUSTRALIA APR TRADE BALANCE (A$): -1.58B V -2.10BE; smallest deficit in 13 months
- (AU) AUSTRALIA APR RETAIL SALES M/M: 0.2% V 0.3%E
- (JP) JAPAN MAY MONETARY BASE Y/Y: 25.5% v 26.8% PRIOR; MONETARY BASE END OF PERIOD: ¥386.7T v ¥386.2T PRIOR
- (KR) SOUTH KOREA Q1 FINAL GDP Q/Q: 0.5% V 0.4%E; Y/Y: 2.8% V 2.7%E
***Index Snapshot (as of 04:30 GMT)***
- Nikkei225 -2.2%, S&P/ASX -0.9%, Kospi +0.1%, Shanghai Composite -0.2%, Hang Seng +0.1%, Jun S&P500 -0.3% at 2,093
***Commodities/Fixed Income***
- Aug gold +0.2% at $1,217/oz, Jul crude oil -0.1% at $48.94/brl, Jul copper -0.2% at $2.07/lb
- (US) Weekly API Oil Inventories: Crude: +2.3M v -5.1M prior; first build in 3 weeks
- GLD: SPDR Gold Trust ETF daily holdings rise 2.0 tonnes to 870.7 tonnes
- JGB: (JP) Japan MoF sells ¥2.18T in 10-year 0.1% JGBs; Avg yield: -0.094% v -0.096% prior; bid to cover: 4.11x v 3.44x prior
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.5688 V 6.5889 PRIOR; first stronger setting in 4 days
- (CN) PBOC to inject CNY70B in 7-day reverse repos
***Market Focal Points/FX***
- Asian equity markets are mixed, with the most notable decline coming in Tokyo on outsized 70pip slide in USD/JPY pair below ¥109 handle - a 2 week low. Traders are looking at the latest move by Japan PM Abe to delay consumption tax increase by over 2 years as a fiscal step that could potentially detract from more aggressive BOJ policy moves in the second half of the year, particularly as economy tackles the likely Q2 contraction headwind due to Kumamoto earthquake impact. USD was generally soft in the major pairs over the course of the US session, with Fed Funds futures probability of a June move sliding toward 20%. Fed Beige book assessments weren't terrible but also weren't stellar, with expectations of modest wage growth. Investors await Friday's non-farm payrolls for more clarity, even as some of the more tertiary employment indicators such as the latest online job ads data from the Conference Board paint a rather gloomy picture. In other FX majors, EUR/USD rose about 30pips above 1.1210, AUD/USD rallied 25pips to 0.7270 on improved Aussie trade data, and NZD/USD remained supported above $0.68 in the wake of the 2nd straight price rise in the dairy auction.
- The upcoming OPEC meeting in Vienna has also figured prominently in market sentiment. Oil prices rallied in late US hours after reports that OPEC is working on agreement that could accommodate Iran as it ramps up production to pre-sanction levels, and a ceiling to output was under consideration. Late in US session however, UAE oil officials said there were no new developments about OPEC output target plan to their knowledge. WTI contract retreated further below $49/brl after API inventories showed a build for the first time in 3 weeks.
- Australia economic data were mixed, with slightly lower than expected retail sales and a smaller than expected deficit in April. The two data points - frequently released together - typically elicit greater reaction to Retail print, but lately produced more pronounced move from trade data. AUD/USD rose over 20pips as Australian deficit was the smallest in 13 months, exports rose again (+1%), and shipments of Coal and Iron ore were little changed. S&P/ASX200 fell to 3-week lows below 5,280.
- Among notable speakers out of China, Vice Fin Min called for more communication with the Fed over its plans for rate decision this year given their impact on China's and global economy. Analyst with Moody's remarked that a financial crisis in China is not likely.
- In Japan, Chief Cabinet Sec Suga remarked that the scale of economic stimulus previewed by PM Abe as part of his decision to delay sales tax hikes has not been decided. In terms of sovereign credit impact of that delay, Fitch said it is awaiting more details before considering revising sovereign rating, but S&P raised Japan 2017 GDP target to 1.0% from 0.4%. Comments from BOJ's Sato underscored the challenge for Japan policymakers, as he expressed doubt over negative rates stimulating capital spending, voiced alarm over stability of financial system, and speculated that there's some chance of BoJ missing ¥80T annual asset purchase target. Sato added the road to 2% inflation target will be long, the economy is very fragile, and potential GDP rate in Japan is practically flat.
***Equities***
US equities / ADRs:
- GWRE: Reports Q3 $0.14 v $0.07e, R$98.9M v $92.7Me; +4.3% afterhours
- SMTC: Reports Q1 $0.30 v $0.28e, R$131M v $129Me; +0.8% afterhours
- BABA: Agreed to re-purchase 27.03M ordinary shares from SoftBank Group at $74.00/shr (1.08% of shares outstanding) and announces other share placements; +0.7% afterhours
- WFT: Offers $1.0B Exchangeable Senior Notes (~20% of market cap) through RBC Capital Markets and Citigroup; -5.1% afterhours
- BOX: Reports Q1 -$0.18 v -$0.23e, R$90.2M v $88.6Me; -8.1% afterhours
- COST: Reports May SSS (ex-gas) 4% y/y; US SSS (ex-gas) 4% y/y
Notable movers by sector:
- Consumer discretionary: Cheil Worldwide Inc 030000.KR +2.2% (failed deal with Publicis); Patties Foods PFL.AU +7.0% (acquisition offer)
- Financials: Challenger Financial Services Group CGF.AU -0.3% (on track to meet guidance); Bank of East Asia 23.HK +1.1% (to shut down units)
- Industrials: Hyundai Motor Co 005380.KR +0.4% (May car sales); Suzuki Motor Corp 7269.JP -2.9% (plant explosion)
- Technology: Yahoo Japan Corp 4689.JP +2.8% (Softbank may use fund from Alibaba sale to raise stake); Lenovo Group 992.HK -4.4% (Google to sell its share); HTC Corp 2498.TW +1.6% (to spin off VR business in Q3)
- Materials: South32 Limited S32.AU -0.9% (job cut speculation); OZ Minerals OZL.AU -1.8% (on track to meet guidance)
- Telecom: Softbank Coro 9984.JP -2.8% (not involved in Yahoo sale process of Alibaba, asset sales)