Asian Mid-session Update: China wades into the currency wars with a 2% devaluation in Yuan; Sends USD sharply higher and US futures lower
***Economic Data***
- (CN) CHINA JULY M2 MONEY SUPPLY Y/Y: 13.3%(one year high) V 11.7%E; M1 MONEY SUPPLY Y/Y: 6.6% V 4.9%E
- (CN) CHINA JULY NEW YUAN LOANS (CNY): 1.48T V 0.75TE; 6-year high
- (CN) CHINA JULY AGGREGATE FINANCING (CNY): 0.7T V 1.0TE
- (JP) JAPAN JULY M2 MONEY STOCK Y/Y: 4.1% V 3.9%E; M3 MONEY STOCK Y/Y: 3.3% V 3.2%E
- (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 112.5 V 112.9 prior
- (NZ) NEW ZEALAND JULY RETAIL CREDIT CARD SPENDING M/M: 0.4% V 0.5%E; TOTAL M/M: 1.1% V 0.6% PRIOR
- (NZ) New Zealand JULY ANZ Heavy Truckometer m/m: -0.3 V +2.0% prior
- (SI) SINGAPORE Q2 FINAL GDP Q/Q: -4.0% V -4.6%E; Y/Y: 1.8% V 1.6%E
- (UK) UK JULY BRC SALES LFL Y/Y: +1.2% V +1.0%E
***Index Snapshot (as of 02:30 GMT)***
- Nikkei225 -0.2%, S&P/ASX -0.7%, Kospi +0.7%, Shanghai Composite +0.4%, Hang Seng +1.2%, Sept S&P500 -0.2% at 2,094
***Commodities/Fixed Income***
- Dec gold -0.5% at $1,098/oz, Sept crude oil -0.9% at $44.56/brl, Sept copper -0.3% at $2.39/lb
- JGB: Japan's MOF sells 30-year JGB sells ¥730B in 1.6% 30-year bonds; Avg yield: 1.444 v 1.432% prior; Bid to cover 3.30x v 2.21x prior
- (CN) PBoC to inject CNY50B in 7-day reverse repos (14th consecutive injection)
***Market Focal Points/FX***
- The broad based rally in US stocks on Monday accompanied by weaker USD and a rebound in commodities are overshadowed by a shocking Yuan devaluation by the PBoC. After a soft round of trade data over the weekend, Beijing did in fact step in with a more aggressive response, but instead of cutting rates or RRR for local banks, it devalued the Yuan by about 2% so as to boost the struggling exporters. In its regular setting, PBOC brought the fix up nearly 2% toward the offshore rate. And even though PBoC said this is a one-off move, China wading into the treacherous waters of regional currency devaluation in turn sent a shockwave across the asset classes.
- USD is higher across the board - mostly against the commodity FX of the Asia Pacific impacted by the lower Yuan - with AUD/USD and NZD/USD falling by over 1% below 0.7320 and 0.6540 respectively. USD/CNH offshore Yuan pair saw the Chinese currency hit 3 year lows, rising over 2.5% above 6.35. S&P500 eminis are down about 9pts of 0.4% at 2,090, metals tracked strong USD to the downside, and US Treasuries are bid with the 10-yr yield below 2.20%. Regional emerging market currencies are also sharply lower across the board. How long will it take the US Treasury to calibrate a response, is it more likely to declare China a manipulator, will that make Treasury holders more leery about China's holdings of US debt, and will that have any implications on the timing of Federal Reserve liftoff are all open-ended questions. These are all open ended questions in the new chapter of the currency war with a new and very powerful player.
***Equities***
US equities / ADRs:
- NTLS: Enters agreement to be acquired by Shenandoah Telecommunications at $9.25/shr in cash or $640M; +22.4% afterhours
- TEX: Said to be in advanced talks to merge with Finland's Konecranes; Announcement may come within the week - financial press; +11.7% afterhours
- SHAK: Reports Q2 $0.09 (adj) v $0.03e, R$48.5M v $42.6Me; +7.9% afterhours
- GOOG: Announces plans for new operating structure; creates a new umbrella company named Alphabet Inc., of which Google will be a part; +6.2% afterhours
- RAX: Reports Q2 $0.20 v $0.20e, R$489M v $492Me; Authorizes $1B buyback (22% of market cap); +5.3% afterhours
- KHC: Reports Q2 $0.92 v $0.85e, R$4.52B v $4.69Be; -1.6% afterhours
- HTZ: Reports Q2 $0.19 v $0.22e, R$2.69B v $2.80Be; -3.6% afterhours
- TTWO: Reports Q1 $0.31 v $0.37e, R$366M v $355Me; -4.2% afterhours
Notable movers by sector:
- Consumer discretionary: Active Group Holdings 1096.HK +4.8% (H1 guidance); Suning Appliance Co Ltd 002024.CN +10.0% (Alibaba's investment); China Lilang 1234.HK +1.1% (H1 result); Anhui Jianghuai Automobile Co 600418.CN +3.4% (H1 result); Texhong Textile Group 2678.HK +1.4% (H1 result); Domino's Pizza Enterprises DMP.AU -4.7% (FY15 result); Cochlear COH.AU -10.9% (FY15 result)
- Consumer staples: Bright Dairy & Food 600597.CN +0.7% (private placement approval); Shanghai Maling Aquarius Co 600073.CN +2.5% (H1 result)
- Financials: Poly Property Group Co 119.HK -2.0% (H1 guidance; July result); China State Construction Holdings 3311.HK +0.8% (YTD result); Evergrande Real Estate Group 3333.HK +1.2% (July result); Beijing Capital Development Co 600376.CN -1.7% (YTD result)
China Chengtong Development Group 217.HK +2.7% (H1 guidance); Dalian Wanda Commercial Properties 3699.HK +2.5% (YTD result); Longfor Properties 960.HK +2.7% (July result); Dai-Ichi Mutual Life Insurance 8750.JP +2.7% (Q1 result)
- Industrials: Geely Automobile Holdings 175.HK +3.1% (July result); Shenzhen Inovance Technology Co 300124.CN -1.5% (H1 result); Lee & Man Paper Manufacturing 2314.HK +3.0% (H1 result); Bradken Ltd BKN.AU -0.7% (FY15 result); Worley Parsons WOR.AU -2.1% (goodwill impairment)
- Technology: Bright Oceans Inter-Telecom 600289.CN +2.3% (H1 result); Synnex Technology International 2347.TW -0.7% (July result); Inventec Corp 2356.TW -1.8% (July result); Taiwan Semiconductor Manufacturing 2330.TW +1.9% (July result); Pegatron Corp 4938.TW +1.2% (July result); Compal Electronics 2324.TW -0.3% (July result); Quanta Computer 2382.TW +1.0% (July result); Hon Hai Precision Industries 2317.TW +0.8% (July result); Asustek Computer 2357.TW -1.6% (July result)
- Utilities: Transurban TCL.AU -1.8% (FY15 result); Kyushu Electric Power 9508.JP -4.4% (restart nuclear reactor)
- Materials: Kingfa Science & Technology Co 600143.CN -2.3% (H1 result); Yokohama Rubber Co 5101.JP -1.1% (H1 result)