Asian Market Update: Japan officials attempt to talk down the Yen; Yellen charts the course for gradual policy normalization
***Economic Data***
- (JP) JAPAN FEB CURRENT ACCOUNT BALANCE: ¥2.43T V ¥2.03TE; ADJUSTED CURRENT ACCOUNT: ¥1.73T V ¥1.57TE; TRADE BALANCE: ¥425B V ¥430BE
- (NZ) New Zealand Treasury: Jul-Feb budget balance is NZ$730M larger than forecast
***Index Snapshot (as of 04:00 GMT)***
- Nikkei225 -0.6%, S&P/ASX -0.7%, Kospi -0.6%, Shanghai Composite -0.9%, Hang Seng -0.8%, Jun S&P500 +0.1% at 2,036
***Commodities/Fixed Income***
- Jun gold +0.2% at $1,238/oz, May crude oil +2.0% at $37.99/brl, May copper +0.3% at $2.08/lb'
- (AU) Australia Department of Industry and Science cuts 2016 outlook for iron ore shipments to 846Mt
- (CN) PBOC to inject CNY20B in 7-day reverse repos; Drains net CNY275B this week v injected CNY15B prior
- (JP) BOJ offers to buy ¥70B in JGBs with maturity less than 1-yr, ¥220B in 10-25yr JGBs, ¥180B in JGBs with maturity over 25-yr, and ¥1.75T in T-bills
- (AU) Australia MoF (AOFM) sells A$800M in 2.75% 2019 Bonds; avg yield: 1.852%; bid-to-cover: 2.91x
***Market Focal Points/FX***
- Asian equity markets are generally softer in the final trading session of the week, tracking the selling on Wall St that erased overnight gains. Australia's base metals were particularly weak as copper prices fell sharply in US hours, just as safe-haven gold and gold-mining names outperformed. Closely watched USD/JPY remained volatile, briefly dipping below 109 before testing 110 on growing alarm from Japan govt officials. In other FX majors, AUD/USD rallied about 40pips to 0.7540, NZD/USD edged higher by 20pips to 0.6790, and EUR/USD was little changed around 1.1370. PBoC Yuan fix was little changed for the 2nd straight day.
- Cabinet officials in Tokyo continued to dial up the growing uneasiness over rising Yen. Fin Min Aso remarks produced the most direct response of weaker Yen as he stated that rapid FX moves are most undesirable and could result in govt action. Separately, cabinet sec Suga reiterated that recent FX trading in JPY has been one-sided, which could have a negative impact on economy and deserve appropriate response when necessary. Econ Min Ishihara explained the Yen rise as a function of many factors, including external risk aversion.
- Trading in China has hardly had a chance to bask in the bounce of FX reserves released overnight as they rose for the first time in 5 months. A local analyst note indicated the rise in reserves suggests the depreciation pressure for the yuan has ebbed in the near term. Investors appear to be cautious however, particularly in light of lower metal prices, as Shanghai Composite appears to be headed for a sub-3000 close for the first time in a week. Markets are also looking ahead to the release of China March inflation data early next week.
- State-side, Fed chair Yellen joined her predecessors Bernanke, Greenspan, and Volcker at a panel hosted by CNN's Zakaria in New York. Her comments largely retained the mixed-dovish policy stance, cheering the progress made on employment and also acknowledging the challenge of reaching 2% inflation target. She again referred to the headwinds from global economy in justifying a gradual trend of rate increases, though she also refuted her critics who called December rate hike a mistake. On inflation, Yellen noted the 2% is not a ceiling, implying that the FOMC could tolerate some overshooting with extended timing of accommodation. Yellen's predecessor Bernanke most notably stated that a recession in 2016 is not any more probable than in the prior years, and that the risk of slowing economy is fairly constant. He once again defended the Fed policies during his term, suggesting that all the risks his critics listed never came to pass. Looking forward, Bernanke said the way out of the Fed's balance sheet build-up is to stop reinvesting interest and allow assets to roll off. Later in the session, the FOMC's solo dissenter George, who voted for a 25bp hike last month, again stated that fundamentals and labor markets are relatively strong, urging the Fed not to delay rate hikes. Note that earlier in the day, a survey put the odds of the next move on rates in June at around 75%.
***Equities***
US equities / ADRs:
- ABMD: Receives FDA approval for cardiogenic shock after heart attack or heart surgery; +4.6% afterhours
- ULTA: Added to S&P500 index, replacing THC after close on Apr 15th ;+3.7% afterhours
- CMP: Cuts FY16 EPS $3.25-3.65 v $3.87e (prior $3.80-4.20), cites mild weather; +1.9% afterhours
- PSMT: Reports Q2 $0.85 v $0.87e, R$777.9M v $778Me (2 est); Mar SSS -4.2% afterhours
- GPS: Reports Mar SSS -6.0% v -4.3%e; -8.7% afterhours
Notable movers by sector:
- Consumer discretionary: Skyworth Digital 751.HK -0.8% (March result); Fast Retailing Co 9983.JP -12.2% (H1 result); FamilyMart Co. 8028.JP +1.1% (FY15/16 result); Bic Camera Inc 3048.JP +7.3% (raises guidance); J.Front Retailing 3086.JP +2.4% (FY15/16 result)
- Financials: Seven & I Holdings Inc +4.7% (FY15 result)
- Industrials: Geely Automobile Holdings 175.HK +1.1% (March result)
- Materials: Sinoref Holdings 1020.HK -24.1% (clarification)
- Healthcare: Astellas Pharma Inc 4503.JP +1.6% (acquisition speculation)