Asia Market Update: North Korean announces successful hydrogen bomb test; China Services PMI slide catches up to manufacturing
***Economic Data***
- (HK) HONG KONG DEC PMI: 46.4 V 46.6 PRIOR (10th month of contraction)
- (CN) CHINA DEC CAIXIN PMI SERVICES: 50.2 V 51.2 PRIOR; 17-month low
- (CN) China Dec Westpac Consumer Confidence index: 113.7 v 113.1 prior
- (JP) JAPAN DEC NIKKEI SERVICES PMI: 51.5 V 51.6 PRIOR; COMPOSITE PMI: 52.2 V 52.3 PRIOR
- (TW) TAIWAN DEC CPI Y/Y: 0.1% V 0.5%E; WPI Y/Y: -7.1% V -7.5%E
- (UK) DEC BRC SHOP PRICE INDEX Y/Y: -2.0% V -2.1% PRIOR (32nd consecutive monthly decline)
***Index Snapshot (as of 03:30 GMT)***
- Nikkei225 -1.5%, S&P/ASX -1.4%, Kospi -0.7%, Shanghai Composite +0.7%, Hang Seng -0.9%, Mar S&P500 -0.9% at 1,993
***Commodities/Fixed Income***
- Feb gold -0.1% at $1,077/oz, Feb crude oil +0.1% at $36.00/brl, Mar copper -0.3% at $2.09/lb
- (US) API Petroleum Inventories: Crude: -5.6M v +2.9M prior; largest draw in 4 months
- SLV: iShares Silver Trust ETF daily holdings fall to 9,884 tonnes from 9,888 tonnes; lowest since Nov 21st
- (NZ) Fonterra Global Dairy Trade auction: Dairy Trade price index: -1.6% v +1.9% prior; First decline after 2 straight rises
- USD/CNY: (CN) PBoC sets yuan mid point at 6.5314 v 6.5169 prior; weakest Yuan setting since Apr 2011
- (JP) BOJ offers to buy ¥400B in 1-3yr JGBs, ¥420B in 3-5yr JGBs, and ¥450B in 5-10yr JGBs
***Market Focal Points/FX***
- Geopolitical turmoil sent investment sentiment under assault once again, though this time the culprit resides just above the 38 parallel. After 3 prior tests going back as far as 2006, North Korea has announced it has conducted a successful nuclear hydrogen bomb test, vowing to use its new capability for defensive purposes and to act responsibly as a new member of the nuclear club. In response, South Korea has called for an emergency meeting of the UN Security Council, while Japan cabinet officials indicated they would consider further sanctions on Pyongyang. S&P e-mini futures were down as much as 1% or 20pts below 1,990, and safehaven JPY and US Treasuries strengthened. Among Asia-Pac indices, ASX is weighed down by mining names with iron ore falling, Nikkei is down on firmer JPY, and Shanghai is boosted by speculation of continued policy accommodation on soft economic data.
- More PMI data from the Far East has also continued to cloud investment landscape. This time, the services Caixin report from China was surprisingly disappointing at a 17-month low, even though the official non-manufacturing data out earlier was more rosy. Caixin economists noted marginal increase in new work at service providers, sending new orders component down for 2nd straight month. Payrolls continued to rise but at a slower pace, and backlog was little changed. Caixin survey saw China companies express "relatively low level of optimism towards the 12-month business outlook in December." Hong Kong PMI was also a disappointment, remaining in contraction for the 10th straight month with a deeper dive. Economists noted both output and new orders fell at faster rate due to weaker client demand in China, as private sector companies cut back on their purchasing activity again in December. Rate tightening at the FOMC was also cited as adding to uncertainty. Lastly, Japan's Services PMI was flat, though new business growth "accelerated to a four-month high in December, supporting a further increase in both output and employment."
- Outside the PMI prints, both China and Japan saw some notable press reports and commentary. China outlets echoed CSRC commentary that the ban on large shareholder stake reduction would remain in place until new rules are announced so as to prevent quick sales in between the policy guidelines. In Japan, Nikkei reported that top management execs are increasingly cautious to boost base wages in the coming spring negotiations like they did the last 2 years, citing China's economic slowdown and Middle East turmoil.
- Among FX majors, USD/JPY fell as much as 70pips from the highs to around 118.40 lows, EUR/USD was flat around 1.0750, while AUD and NZD fell over 0.5% against USD on broad risk aversion to respective lows near 0.7110 and 0.6630. NZD/USD was under added pressure after the latest Fonterra auction saw prices fall after 2 straight increases, and analysts questioned whether the co-op could meet its payout target. PBoC Yuan fix was also set sharply lower yet again - the weakest since Apr 2011 - as offshore currency rate spiked up above 6.66 against USD.
***Equities***
US equities / ADRs:
- VZ: Reportedly begins sale process for data centers; Hopes to secure over $2.5B as it looks to focus on core business- financial press
- SONC: Reports Q1 $0.24 v $0.24e, R$145.8M v $145Me; -3.7% afterhours
- VRX: Said to search for a new leader; CEO Pearson remains hospitalized; Unclear if appointment would be permanent - financial press; -7.3% afterhours
Notable movers by sector:
- Consumer discretionary: Li Ning 2331.HK +4.3% (profit alert)
- Technology: Sharp 6753.jp -2.5% (speculation of 9-mo loss)
- Financials: China Vanke 2202.hk -11.4% (resumes trade after dilution)
- Materials: BHP -2.5%, Rio Tinto -3.0%, Fortescue -5.7% - renewed decline in iron ore price after protracted rise
- Industrials: China Airlines 2610.TW +2.2% (China-Taiwan air transit); Mitsubishi Heavy 7011.jp -2.7% (ends Brazil JV); South Korea defense stocks rise on North Korea's nuclear test