Asia Mid-Session Market Update: USD, Nikkei225 rally on repriced Fed hike expectations after less dovish Yellen and Fischer
***Economic Data***
- (CN) China July Industrial Profits Y/Y: 11.0% v 5.1% prior; YTD: +6.9%
- (AU) AUSTRALIA JULY HIA NEW HOME SALES M/M: -9.7% V +8.2% PRIOR
***Index Snapshot (as of 04:00 GMT)***
- Nikkei225 +2.4%, S&P/ASX -1.0%, Kospi -0.2%, Shanghai Composite +0.1%, Hang Seng -0.4%, Sep S&P500 -0.1% at 2,167
***Commodities/Fixed Income***
- Dec gold flat at $1,324/oz, Oct crude oil flat at $47./brl, Dec copper flat at $2.09/lb
- (US) National Hurricane Center (NHC): New Tropical Depression (Nine) forms in the Florida straits; Expected to move into Gulf of Mexico
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.6856 V 6.6488 PRIOR; Weakest Yuan setting since July 23rd
- (CN) PBOC to inject CNY60B in 7-day reverse repos and CNY30B in 14-day reverse repos
- (KR) South Korea sells 3-year govt bonds at 1.26%
***Market Focal Points/FX***
- Asian equity markets are mixed as investors digest the decidedly less dovish rhetoric from Fed officials at Jackson Hole symposium on Friday. Fed chair Yellen got the ball rolling with remarks that the case for rate hike has strengthened in recent months as economy is nearing FOMC targets on employment and inflation. While US stocks initially bounced on the comments, Fed vice chairman Fischer then implied that 2 rate hikes within the next 3 meetings, starting with September, is not entirely out of question. Those comments produced some selling late in the US session as greenback firmed and policy expectations were recalibrated. Fixed income markets now see a 33% chance of a September hike vs 21% before Friday's developments, while the outlook for 1 hike by the end of year rose to 60% from 53%. Nikkei225 is thus rising sharply on weaker JPY, while EM and commodity dependent indices and sectors are under pressure from stronger dollar and higher borrowing costs. In FX, USD/JPY tested a 2-week high of 102.20, AUD/USD fell to 4-week low below 0.7550, and gold pared its recent gains below 1,325.
- Over the weekend, there were other Jackson Hole speakers - BOJ Gov Kuroda reiterated that there is ample space for additional policy easing in order to achieve inflation target, while ECB's Coeure cheered ECB's negative rates and asset purchases as "very effective" at supporting growth and inflation. Note that Fed's Bullard and Lockhart also spoke early on Friday with clear consideration of a hike sometime this year - perhaps as soon as the Sept meeting.
- In economic data, China put out its July industrial profits growing 11%, which was more than double the rate of annual growth in the prior month. China stats bureau researcher attributed the rise in profits to lower costs, recovery in commodity prices, and a relatively low comparison base. In Australia, July HIA new home sales fell nearly 10% after rising by a 3-month high of 8.2% previously. Despite the volatility in the numbers, HIA economist said that "short term outlook for healthy levels of new home construction remains intact", but hinted that 2017 could see more challenges in the property sector.
***Equities***
US equities / ADRs:
- GM: Unifor autoworkers (GM, Ford and Fiat) authorize strike
- MRK: US District Court rules company's patent on NuvaRing contraceptive is invalid - financial press
- AAPL: Company's tax arrears in Ireland may be around €500M to €1B - Ireland press
- AMZN: Said to consider teams that work 30-hour weeks; Workers would still receive same benefits as those working full time - Washington Post
- CZR: Judge rules company must face creditor lawsuit, potentially forcing into bankruptcy - NY Post
- SUNE: DE Shaw said to consider a bid for company's Terraform stake - financial press
Notable movers by sector:
- Consumer staples: China Shengmu Organic Milk 1432.HK +1.8% (H1 results)
- Energy: Sinopec 386.HK -1.1% (H1 results); Beach Energy BPT.AU +1.8% (FY16 results)
- Financials: China Pacific Insurance Grou 2601.HK -1.3% (H1 results)
- Industrials: Austal ASB.AU +10.4% (FY16 results); Lingbao Gold Co 3330.HK -2.3% (H1 results); Cardno Ltd CDD.AU -1.7% (FY16 results); BYD Company 1211.HK +2.8% (H1 results)
- Materials: Xingye Copper International 505.HK -3.9% (H1 results); Perseus Mining PRU.AU -2.1% (FY16 results); Regis Resources Ltd RRL.AU -1.8% (FY16 results)
- Technology: Inspur International 596.HK -8.0% (H1 results)