Asian Mid-session Market Update: Japan trade surplus wider than expected; G20 vows to support growth; Verizon on track to announce Yahoo deal
***Economic Data***
- (JP) JAPAN JUNE TOTAL MERCHANDISE TRADE BALANCE: ¥692.8B V ¥474BE; ADJUSTED TRADE BALANCE: ¥335B V ¥244BE
***Index Snapshot (as of 04:30 GMT)***
- Nikkei225 +0.4%, S&P/ASX +0.5%, Kospi -0.1%, Shanghai Composite +0.2%, Hang Seng -0.3%, Sep S&P500 flat at 2,166
***Commodities/Fixed Income***
- Aug gold -0.5% at $1,317/oz, Sep crude oil -0.1% at $44.13/brl, Sep copper +0.2% at $2.24/lb
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.6860 V 6.6669 PRIOR; first weaker Yuan fix in 4 sessions
- (CN) PBOC to inject CNY150B in 7-day reverse repos
- (JP) BOJ offers to buy ¥375B in 1-3yr JGBs, ¥440B in 3-5yr JGBs, ¥430B in 5-10yr JGBs
- (AU) Australia MoF (AOFM) sells A$1B in 5.50% 2023 Bonds; avg yield: 1.7343%; bid-to-cover: 3.0x
***Market Focal Points/FX***
- Asian equity markets are tracking Wall St gains on Friday as negative sentiment from Thursday's selloff fails to take hold. The focus is also turning to the coming week, where a busy earnings calendar will be supplemented by policy decisions from the Fed and the BOJ. The former is expected to be very careful in managing expectations of fresh tightening as it awaits more evidence of minimal impact from Brexit, while the latter is anticipated to unveil some further policy stimulus. Traders have also taken note of proactive remarks out of the G20 Communique over the weekend along with chatter of a potential compromise between EU and UK to minimize economic fallout from Brexit process. In FX majors, USD/JPY rose about 60pips to test 106.70 before a late-session retreat, AUD/USD traded in about a 25pip range below 0.7480, and NZD/USD rallied above 0.7010 before the technically-driven retreat below 0.6960. Gold prices have remained under pressure since Friday below 1,325, and PBoC Yuan fix was weaker for the first time in 4 sessions.
- G20 meeting in Chengdu, China yielded a communique that promised to use "all policy tools" to boost growth. Officials stated the G20 nations are "well positioned to proactively address the potential economic and financial consequences", though Brexit as well as "geopolitical conflicts, terrorism and refugee flows" have added to global risks. Guardian reported that EU officials are considering a 7-year exemption for UK on freedom of movement while allowing it to retain access to single market - a pact that would assuage the immigration component of Brexit supporters and concerns over economic impact from Brexit opponents. Also of note in Europe, Italian Fin Min Padoan acknowledged there was a "limited" number of key banks with large amount of non-performing loans for which market-based solutions are being considered, but also reiterated that impact on Italian banks' balance sheets of a prolonged recession is, on aggregate, much less than feared, adding the worries over Italian banking problem are overblown.
- Japan posted the only economic data point of the session, with June merchandise trade surplus exceeding expectations. Exports fell for the 9th straight month, but the 7.4% decline was smaller than 11.3% expected and also marked the first month when exports decline slowed in 5 months. Imports decline was also slightly smaller than expected but down for the 18th straight month. BOJ's much anticipated policy meeting is widely expected to produce a fresh round of stimulus - in fact, one report saw 32 out of 41 analysts forecast an easing, the highest percentage anticipating a move since BOJ Gov Kuroda's first decisions 3 years ago. A local Nikkei report however saw some BOJ officials express reluctance to ease more, deeminng the current mechanisms behind inflation as working properly. Japan Econ Min Ishihara remarked that JPY trading has been calmer now after a period of strength. Cabinet Office has also issued a monthly report maintaining economic assessment for July but cutting its view of business conditions due to Brexit worries.
- In China, a PBoC policy adviser said the economy can still achieve 2016 GDP target of over 6.5% but noted building downward pressure. A separate report from China Academy of Social Sciences (CASS) warned that home price growth may start to slow in the coming months after rapid increase in the first half as inventories in 2nd and 3rd tier cities expand.
- In corporate news, Verizon and Yahoo are said to be in late-stage talks, and a deal of core asset acquisition is expected to be announced before Monday open. Nintendo was down sharply after Friday's report that the company does not expect material financial impact from Pokemon. In Australia, Woolworths saw solid gains after announcing it was closing a 17 loss-making stores and laying off as many as 500 staff.
***Equities***
US equities / ADRs:
- YHOO: Verizon said to have agreed to pay nearly $5B for Yahoo core assets; Deal expected to be announced before Monday open - financial press
- HSY: Reportedly Hershey Trust, the controlling shareholder, agrees to governance changes - press
Notable movers by sector:
- Consumer discretionary: Alibaba Pictures Group 1060.HK -2.8% (profit warning); Hotel Shilla Co 008770.KR -4.3% (Nomura cuts to Reduce)
- Consumer staples: Lianhua Supermarket Holdings 980.HK -4.1% (profit warning); Asaleo Care AHY.AU -1.3% (guidance); Woolworths Limited WOW.AU +7.1% (To close under guidance)
- Financials: Haitong Securities 6837.HK +0.2% (H1 result); Hana Financial Group 086790.KR +6.9% (JPMorgan raised to Overweight); WesFarmers WES.AU +0.7% (Q4 result)
- Industrials: Qinhuangdao Port 3369.HK -16.4% (profit warning); CITIC 267.HK -0.7% (profit warning); Mazda Motor Corp 7261.JP +6.1% (Q1 result speculation); Fujitsu General 6755.JP +2.2% (Q1 result); Dongfeng Motor 489.HK +5.0% (Credit Suisse said its JV raised sales target); Nidec Corp 6594.JP +4.5% (Q1 result)
- Technology: BAIOO Family Interactive 2100.HK -2.5% (profit warning); Nintendo Co. 7974.JP -17.5% (impact from Pokemon Go to be limited)
- Materials: China Aluminum Cans Holdings 6898.HK +3.0% (positive profit alert); OJI Holdings Corp 3861.JP +3.8% (Q1 result speculation); Newcrest Mining NCM.AU -2.5% (Q4 production result); Sims Metal Management SGM.AU -3.3% (Macquarie cuts to Underperform)
- Energy: Sinopec Engineering Group Co 2386.HK -5.0% (profit warning); China Oilfield Services 2883.HK -1.3% (profit warning)