Asian Market Update: Japan cabinet draws closer to announcing sales tax hike delay with rising risk of LDP discord and credit agency scrutiny
***Economic Data***
- (AU) AUSTRALIA Q1 COMPANY OPERATING PROFIT Q/Q: -4.7% (2nd straight decline; biggest decline in 7 quarters) V +0.4%E; INVENTORIES Q/Q: 0.4% V 0.0%E
- (AU) AUSTRALIA APR HIA NEW HOME SALES M/M: -4.7% V +8.9% PRIOR
- (JP) JAPAN APR RETAIL SALES M/M: 0.0% V -0.6%E; RETAIL TRADE Y/Y: -0.8% V -1.2%E
- (KR) SOUTH KOREA JUNE BUSINESS MANUFACTURING SURVEY: 74 (1-year high) v 73 PRIOR; NON-MANUFACTURING SURVEY: 73 v 75 PRIOR
***Index Snapshot (as of 04:30 GMT)***
- Nikkei225 +0.9%, S&P/ASX +0.1%, Kospi flat, Shanghai Composite +0.2%, Hang Seng +0.8%, Jun S&P500 +0.3% at 2,103
***Commodities/Fixed Income***
- Aug gold -1.0% at $1,204/oz, July crude oil -0.3% at $49.16/brl, Jul copper -0.6% at $2.10/lb
- According to ClearView Energy Partners, oil-supply outages have taken about 3.5M bpd off production - about 3% of global output; This is the highest level since 2003 - financial press
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.5784 V 6.5490 PRIOR; Weakest Yuan fix since Feb 2011
- (CN) PBOC to inject CNY65B in 7-day reverse repos
- (JP) BOJ offers to buy ¥350B in 1-3yr JGBs, ¥440B in 3-5yr JGBs, ¥450B in 5-10yr JGBs
***Market Focal Points/FX***
- Asian equity markets are modestly higher as investors continue to digest late-Friday comments from Fed Chair Yellen. She noted factors that pushed inflation lower seem to be stabilizing, echoing comments from some of the other Fed officials to state that a tightening would be appropriate in the next few months. Fed funds futures contract has pushed up toward 30% probability of a 25bp hike in June and a near 50% chance of a hike in either June or July. Weekend comments from Fed's Bullard brushed along the same lines, adding he believes global markets are prepared for a move as GDP rebound in Q2 appears to be materializing.
- In FX majors, USD/JPY tested above 111 for the first time in 1 month and EUR/USD below 1.11 for the first time in 2 months. AUD/USD was in a 30pip range above 0.7150 while NZD/USD in a 25pip range below 0.67. Gold tested below $1200 for the first time since mid-Feb.
- Japan PM Abe is now rumored to postpone sales tax hike by 2.5years to Oct 2019, leaving the decision to his successor since his term ends in 2018. Tax hike proponent Fin Min Aso said if the delay is announced, the govt should also call lower house elections and put the matter to a national vote. According to one survey, over 70% said delay to Japan's sales tax hike would not be a policy breach. However, analysts with Mizuho note that credit rating agencies may downgrade Japan if govt delays sales tax increase as planned without explaining how govt plans to reduce its deficit. LDP policy chief Inada is proposing a compromise, namely a more gradual 1% increase in tax next year.
- Notable press reports out of China saw some speculation that May new Yuan loans could top CNY800B - well above the 6-month low level of CNY556B in Apr. PBoC Dep Gov Chen was also quoted with a warning about the inherent risks of new business models in China's multi-layered financial system as private lending and internet finance have become more intertwined. Tracking firmer USD, PBoC also cut its Yuan fix to its lowest level since early 2011.
- Economic data out of Australia saw reversals into the negative in both April HIA new home sales and Q1 corporate profits. HIA economist said the peak for Australia housing cycle has passed, but the descent we're now observing is very mild, anticipating a modest decline in new home building in 2016.
***Equities***
US equities / ADRs:
- WMB: Said to express to ETE that it is open to amending terms of its $20B sale; Looking to resolve stalemate - financial press
- OSIR: Discloses criminal investigation opened by US Attorney for State of New York - filing
- TDG: To enter S&P 500 index, replacing BXLT, effective after close on June 2nd; HELE and BRCD to enter S&P MidCap 400
Notable movers by sector:
- Consumer discretionary: Select Harvests SHV.AU +5.2% (raises guidance); Qantas Airways QAN.AU +2.2% (Apr result)
- Consumer staples: Aeon Stores Hong Kong Co 984.HK -0.5% (H1 guidance)
- Financials: Noble Group NOBL.SG -1.6% (CEO to resign); Spotless Group SPO.AU +6.0% (reaffirms guidance)
- Industrials: CRRC Corp 1766.HK +2.1% (private placement); Mirvac Group MGR.AU +0.3% (JV with Ping An)
- Materials: ALS ALQ.AU -8.0% (FY16 result); Galaxy Resources GXY.AU +13.9% (To merge with General Mining); New Hope Corporation NHC.AU +1.4% (Q3 result)