Asian Mid-session Market Update: Bank of Korea out with a surprise rate cut; New Zealand and Brazil central banks on hold
***Economic Data***
- (NZ) NEW ZEALAND CENTRAL BANK (RBNZ) LEAVES OFFICIAL CASH RATE UNCHANGED AT 2.25%; AS EXPECTED
- (KR) BANK OF KOREA (BOK) CUTS 7-DAY REPO RATE BY 25BPS TO 1.25% (record low); NOT EXPECTED; First rate cut in 12 months
- (BR) BRAZIL CENTRAL BANK (BCB) LEAVES SELIC TARGET RATE UNCHANGED AT 14.25%; AS EXPECTED
- (CN) CHINA MAY CPI Y/Y: 2.0% V 2.2%E (4-month low)
- (CN) CHINA MAY PPI Y/Y: -2.8% V -3.2%E (51st consecutive month of decline, smallest decline since Nov 2014)
- (JP) JAPAN APR MACHINE ORDERS M/M: -11.0% (biggest decline in 5 months) V -3.0%E; Y/Y: -8.2% (biggest decline in 17 months) V -1.8%E
- (JP) JAPAN MAY M2 MONEY STOCK Y/Y: 3.4% (7-month high) V 3.3%E; M3 MONEY STOCK Y/Y: 2.8% V 2.7%E
- (UK) MAY RICS HOUSE PRICE BALANCE: 19% V 35%E
***Index Snapshot (as of 04:30 GMT)***
- Nikkei225 -1.2%, S&P/ASX -0.5%, Kospi -0.2%, Shanghai Composite closed, Hang Seng closed, Jun S&P500 -0.2% at 2,115,
***Commodities/Fixed Income***
- Aug gold +0.3% at $1,266/oz, Jul crude oil +0.6% at $51.54/brl, Jul copper +0.6% at $2.07/lb
- JGB: (JP) Japan MoF sells ¥2.18T in 0.1% (0.1% prior) 5-year JGBs; Avg yield: -0.232% v -0.225% prior; Bid-to-cover: 4.66x (highest rate since Aug 2014) v 4.15x prior
- (JP) Japan investors bought net ¥894B in foreign bonds v sold ¥549B in prior week; Foreign investors sold net ¥97.8B in Japan stocks v sold ¥175B in Japan stocks in prior week
***Market Focal Points/FX***
- Trifecta of interest rate decisions in the Asia session kept produced some notable surprises and offered some macro volatility, even with markets in China out for the holidays. RBNZ decision was practically a coin flip, and a Neutral Hold sparked a 120pip rally in NZD/USD. Korean central bank cut for the first time in 12 months, calling the policy move "preemptive", while Brazil central bank signaled the recent progress on inflation may soon allow more flexibility with some room to ease. US futures point to a lower open with a 4pt slide below 2,115 as investors note retreat in China inflation data, large declines in Japan's forward looking machinery orders, and reports that George Soros has returned to trading with a large bearish bet on stocks due to concerns over slowdown in global economy. In FX majors, USD/JPY is down about 40pips below 106.60, AUD/USD is at the bottom of a 40-pip range that was capped at technically-pivotal $0.75 level, and NZD/USD seems to defy gravity after spiking to a 1-year highs above 0.7140.
- Although China market were closed for Dragon Boat Festival, Beijing released its May inflation data. As signaled in input price components of the latest PMI figures, inflation eased after several months of steady increases. CPI fell to a 4-month low of 2.0% y/y, as m/m contracted by -0.5% v -0.2% prior. Non-food CPI was unchanged at 1.1%, while food component slowed to 5.9% y/y v 7.4% prior. Wholesale PPI data remains in negative territory for over 4 years, though the declines were the lowest since late 2014.
- RBNZ was on hold at 2.25% but did not signal an imminent rate cut as was speculated even by those analysts who predicted no-change. Instead, RBNZ added that inflation will "strengthen reflecting the accommodative stance of monetary policy, increases in fuel and other commodity prices, an expected depreciation in NZD", and also upgraded its quarterly projections for CPI by 0.2pts for 2016-end and 2017-end to 1.3% and 2.0% respectively. The statement still maintained that further easing may be required, and subsequent comments from Gov Wheeler indicated that another rate cut is still built into projections. However, NZD was bid sharply higher as the central bank sent a message of inflation expectations stabilizing, and even more mentions of potential for more macro-prudential policy easing did little to sway sentiment away from the communicated neutral stance due to discomfort with housing inflation.
- Bank of Korea's 25bp rate cut was a major surprise, considering that last month's decision was unanimous after 2 members called for a cut back in April. Instead, today's decision also saw no dissent, as BOK statement expressed concern with rising household debt, slowdown in inflation (even if it was mainly due to agricultural increase), weakening consumption, and ongoing decline in exports. BOK Gov Lee spoke extensively after the decision, stating that growth projections are now expected to train the latest forecasts in April, economy is yet to show a clear recovery, corporate restructuring poses a threat to labor, and outflows from emerging markets are a risk due to anticipated Fed tightening.
- Brazil central bank was more in line with expectations, but even here there were hints of impending policy change. BCB noted there has been progress in fight against inflation, particularly its 2nd-round effects, suggesting that the high policy rate of 14.25% may finally see some relief.
- BOJ Dep Gov Nakaso also spoke at length ahead of next week's policy meeting, noting growing downside risks from overseas and commitment to add to easing if needed. Nakaso added there was no change to commitment to meet 2% target at earlier time possible, even with increase in monitoring of the health of JGB market in the environment of negative interest rates.
***Equities***
US equities / ADRs:
- EVHC: Said to be in merger discussions with Amsurg; deal may be announced next week - press; +9.1% afterhours
- EAT: Affirms FY16 near low end of $3.55-3.65 v $3.54e; Sees SSS to improve from Q3 but remain negative; Guides FY17 $3.40-3.50 v $3.45e; +5.5% afterhours
- ABM: Reports Q2 $0.31 adj v $0.28e, R$1.26B v $1.25Be; +3.6% afterhours
- SRPT: Announces proposed offering of $37.5M in common stock (~3% of market cap); -0.7% afterhours
- RH: Reports Q1 -$0.05 v $0.05e, R$455M v $459Me; Cuts FY16 guidance; -18.8% afterhours
Notable movers by sector:
- Consumer discretionary: Surfstitch Group SRF.AU -25.9% (guidance)
- Industrials: Amcor AMC.AU -7.9% (guidance); Southern Cross Electrical Engineering SXE.AU +18.6% (acquisition)
- Technology: LG Electronics Inc 066570.KR +4.4% (to become electric car part supplier to VW); Samsung SDI Co 006400.KR +1.4% (may supply batteries to Tesla); Toshiba Corporation 6502.JP +4.4% (Westinghouse confirms deal for nuclear reactors)
- Materials: Itochu Corp 8001.JP -1.4% (acquisition)
- Energy: Liquefied Natural Gas LNG.AU +4.4% (speculation of takeover interest)
- Telecom: Softbank Corp 9984.JP -2.0% (plans to merge certain units); Telstra Corp. TLS.AU -1.3% (considers sale of Autohome stake)