Asian Market Update: Japan GDP contracts, marks a technical recession, seals the sales tax hike delay; Shanghai-Hong Kong trading link goes live
***Economic Data*** - (JP) JAPAN Q3 PRELIM GDP Q/Q: -0.4% V 0.5%E; ANNUALIZED GDP: -1.6% V 2.2%E; NOMINAL GDP: -0.8% V 0.4%E; 2nd consecutive GDP contraction, marks a TECHNICAL RECESSION in Japan - (NZ) NEW ZEALAND Q3 RETAIL SALES EX-INFLATION Q/Q: 1.5% (5-quarter high) V 0.8%E; Ex-Autos: 1.4% (5-quarter high) v 1.2% prior - (NZ) NEW ZEALAND OCT PERFORMANCE SERVICES INDEX: 57.8 V 58.0 PRIOR; 4-month low - (AU) AUSTRALIA OCT NEW MOTOR VEHICLE SALES M/M: -1.6% V +2.8% PRIOR; Y/Y: -0.5% V +0.6% PRIOR - (TH) THAILAND Q3 GDP Q/Q: 1.1% V 1.5%E; Y/Y: 0.6% V 1.0%E - (UK) UK NOV RIGHTMOVE HOUSE PRICES M/M: -1.7% (3-month low) V 2.6% PRIOR; Y/Y: 8.5% V 7.6% PRIOR
***Index Snapshot (as of 02:30 GMT)*** - Nikkei225 -2.6%, S&P/ASX -0.8%, Kospi -0.2%, Shanghai Composite +0.3%, Hang Seng -0.4%, Dec S&P500 -0.5% at 2,028
***Commodities/Fixed Income*** - Dec gold flat at $1,185, Dec crude oil -0.5% at $75.47/brl, Dec copper flat at $3.05 - (JP) BOJ offers to buy ¥110B in JGB with maturity less than 1-yr and ¥400B in 5-10yr JGB - (KR) South Korea sells 10-yr govt bond at average yield of 2.795%
***Market Focal Points/Key Themes/FX*** - Unexpected contraction in Japan Q3 preliminary GDP has taken markets across the globe on a wild ride, as the world's 3rd largest economy entered another technical recession with a 2nd consecutive quarter of falling growth. A closer look at GDP components revealed private consumption - about 60% of Japan's economy - growing just 0.4% vs 0.8% consensus estimate. Similarly, corporate CAPEX component indicated lingering impact of the April sales tax hike to 8% spilling over into other sectors of the economy, falling 0.2% against expected increase of 0.9%. USD/JPY jumped to 7-year highs of ¥117 on the release, but risk aversion took over and sent the pair back down below 115.50. Nikkei225 is down over 2.5% on the release, S&P500 futures down 10 handles or 0.5% below 2,030, US 10-yr yield is down 4bps below 2.3%, and gold rose above $1,190 - up $10 from the lows.
- The surprise Japan GDP contraction should effectively seal the decision to postpone the 2nd round of consumption tax increase. Indeed, local press has already reported PM Abe will hold a special press conference tomorrow formally announcing that delay. Subsequent comments from LDP finance chief called for the tax hike to be postponed by at least 6 months. Econ Min Amari said the weak GDP was affected by slow inventory adjustment amid stagnating household spending, adding that disinflationary impact from higher sales tax would be particularly detrimental. Amari did contest the implications of a recession from these figures, stating that YTD Japan is still growing.
- Shanghai Composite is a relative outperformer with the formal launch of the trading link with Hong Kong. Separately, a report from National Energy Administration (NEA) saw Oct power consumption - one of Premier Li's preferred gauges of activity - rising 3.1%, up from 2.7% increase last month and the fastest annual rise in 4 months. On the flip side, China Banking Regulatory Commission warned about the rise in non-performing loans, as Q3 NPLs rose by CNY72.5B to CNY766.9B, the highest increase since 2005.
- Final communique from the G20 summit this weekend pledged to boost global GDP by about 2.1% over the next 5 years, making global growth recovery the govts' top priority. G20 leaders pledged to be flexible with fiscal strategies, looking at expanding investment in infrastructure and trade. G20 also announced they would further rein in the banking sector by welcoming proposals requiring more loss-absorbing capacity at too-big-to-fail institutions, strengthen energy markets through natural gas development, and also work together to contain the spread of Ebola. Finally, G20 announced they would look to set up a "global infrastructure hub" that would unlock as much as $2T in global infrastructure capacity by 2013. Separately, the anti-protectionist sentiment of the G20 was reflected further with confirmation of China-Australia and South Korea-New Zealand Free Trade agreements.
***Equities*** US markets: - AGN: Actavis said to be in early agreement to acquire Allergan for $62.5B (vs $59.2B market cap as of Friday close) - financial press - DWA: Hasbro said to have broken off merger talks with DWA - press - BHI: Talks on combination said to be snagged on price issues and possible required assets sales; HAL could go hostile - financial press; BHI: Baker Hughes Announces Receipt of Director Nominations from Halliburton; BHI considers this a pressure tactic - DNR: To cut CAPEX by 50% in 2015; Raises 2015 dividend by 60%; Exercises Capital Restraint in 2015 Planning Amid Declining Oil Prices and Announces Management Changes
Notable movers by sector: - Consumer Discretionary: Toray Industries 3402.JP +3.4% (secures ¥1T from Beoing); Asahi Group Holdings 2502.JP -2.1% (reaches settlement in New Zealand acquisition) - Financials: Dai-Ichi Mutual Life Insurance 8750.JP -4.2% (H1 results) - Materials: Posco 005490.KR +2.2% (to supply steel plate products to Volkswagen) - Industrials: NSK Ltd 6471.JP -3.5%, Jtekt Corp 6473.JP -4.0% (US DOJ files indictments against executives); Elders ELD.AU +3.8% (FY14 results); SAIC Corp 600104.CN +1.9%, Daqin Railway 601006.CN +6.1%, Kweichow Moutai 600519.CN +4.4% (Shanghai-Hong Kong trading link launches)