Asian Market Update: Australia GDP surprises to the upside; Dai-ichi Life announces $5.7B purchase of Protective Life
***Economic Data*** - (AU) AUSTRALIA Q1 GDP Q/Q: 1.1% (2-year high) V 0.9%E; Y/Y: 3.5% V 3.2%E - (AU) AUSTRALIA MAY AIG PERFORMANCE OF SERVICES INDEX: 49.9 V 48.6 PRIOR (3rd month contraction, 3-month high) - (NZ) NEW ZEALAND MAY ANZ COMMODITY PRICE M/M: -2.2% V -3.7% PRIOR (3rd consecutive decline) - (NZ) NEW ZEALAND Q1 VALUE OF ALL BUILDINGS Q/Q: 16.0% V 5.5%E - (JP) JAPAN MAY MARKIT SERVICES PMI: 49.3 (2nd straight month of contraction) V 46.4 PRIOR; MARKIT/JMMA COMPOSITE PMI: 49.2 (2nd straight month of contraction) V 46.3 PRIOR - (UK) UK MAY BRC SHOP PRICE INDEX Y/Y: -1.4% V -1.3%E (13th month of decline)
Market Snapshot (as of 03:30 GMT): - Nikkei225 flat, S&P/ASX -0.5%, Kospi +0.3%, Shanghai Composite -1.0%, Hang Seng -0.6%, Jun S&P500 -0.1% at 1,920, Aug gold +0.1% at $1,245, Jul crude oil +0.1% at $102.73/brl
***Highlights/Observations/Insights*** - Higher than expected Q1 GDP out of Australia seemingly justified a less-dovish than expected RBA policy statement overnight. 1.1% sequential jump was a 2-year high, sending AUD/USD up over 30pips above $0.9290. Among GDP components, Capital Formation (0.0% v -1.2% prior) had a notable positive contribution, while terms of trade slumped even though exports contributed +1.4%. Commentary regarding the mining space was also a positive surprise - Australian Bureau of Statistics said the mining industry accounted for around 80% of growth in GDP in the March quarter, with a "stronger than usual growth in the period reflected in a high seasonally adjusted figure of 8.6%. - In other economic data from Australia, AiG Services index remained in contraction but hit a 3-month high. AIG economist noted "employment sub-index declined further in May, to 45.8 points, indicating a worsening decline in employment in the services sectors, as employers remain cautious about the near-term outlook."
- NZD/USD remains under pressure in the Asia session, hitting a fresh 3-month low below $0.8420. The initial catalyst for Kiwi weakness was another disappointing Fonterra Global Dairy Trade auction earlier in the US session as prices fell -4.2% - its 8th consecutive decline and also the biggest decline in 4 auctions. BNZ economist said the big decline in dairy prices since Feb "virtually guarantees a fall in the terms of trade measure" in Q2.
- Japan's Dai-ichi Life reached a deal to acquire US-based Protective Life in a $5.7B merger, creating a new top-20 global life insurance entity. The announcement comes in the wake of the press speculation of a deal over the weekend which PL had actually denied. Under agreed terms, Dai-ichi Life will acquire all outstanding shares of PL for $70/shr, which represents a 34% premium over Protective's unaffected closing stock price of $52.30 on May 30 and over 10% from closing levels on Tuesday. Transaction, which has been approved by both companies' boards of directors, is expected to close by the end of 2014 or early 2015, subject to regulatory approvals in Japan and the US.
***Speakers/Political/In the Papers*** - (CN) China State Researcher: Sees fall in marginal contribution to economic growth from China's urbanization - Chinese press - (CN) US Commerce Dept imposes duties on China solar imports following finding that China has subsidized certain solar products - press - (CN) China Commerce Ministry: China dissatisfied with US ruling over China solar products; US action to worsen solar trade dispute - press - (CN) China Pres Xi Jinping: To put in efforts to solve smog and air pollution problem; encourages innovation in engineering to achieve sustainable development - Xinhua - (AU) Australia Treasurer Hockey: Transition away from mining is underway; non-mining sectors starting to lift - financial press - (US) Fed's Fisher (FOMC voter, hawk): Odds are slim of interest rate hike this year - press
***Fixed Income/Commodities/Currencies*** - (JP) BOJ offers to buy ¥300B in 1-3 yr JGB, ¥200B in 3-5yr JGB and ¥400B in 5-10yr JGB - (AU) Australia MoF (AOFM) sells A$700M in 4.5% 2033 Bonds; avg yield: 4.3157%; bid-to-cover: 3.53x - (US) API PETROLEUM INVENTORIES: CRUDE: -1.4M v 0e, GASOLINE: +0.8M v +0.5Me, DISTILLATE: -0.3M v +1Me - (AU) Port Hedland May Iron Ore Exports: 36M tons (record) v 34.8M tons prior - GLD: SPDR Gold Trust ETF daily holdings rise 1.8 tonnes to 787.1 tonnes (highest level since Apr 30th) - (NZ) Fonterra Global Dairy Trade auction: Dairy Trade price index: -4.2% from prior auction (8th consecutive decline, biggest decline in 4 auctions) - USD/CNY: (CN) PBoC sets yuan mid point at 6.1693 v 6.1710 prior setting (strongest Yuan setting since May 27th)
***Equities*** US markets: - NSTG: Enters into Biomarker Companion Diagnostic Collaboration with Celgene Corporation; to receive $45M in upfront and other payments; +15.4% afterhours - MFRM: Reports Q1 $0.31 v $0.36e, R$333.5M v $335Me; Raises FY14 revenue guidance; +1.1% afterhours - PL: To be acquired by Dai-Ichi Mutual Life Insurance; +7.7% afterhours - TIBX: Reports prelim Q2 $0.12-0.13 v $0.21e, R$250-252M v $268Me ($0.20-0.22, R$263-271M prior guidance); -12.2% afterhours
Notable movers by sector: - Consumer Discretionary: Noni B Ltd NBL.AU +33.3% (approached for acquisition) - Financials: Australand ALZ.AU +5.9% (receives cash offer); China Vanke 000002.CN -1.9% (May sales results); Dai-Ichi Mutual Life Insurance 8750.JP +0.4% (to acquire Protective Life) - Industrials: Avic Heavy Machinery 600765.CN -4.4% (exec investigated); Fujian Longking 600388.CN +5.3%, Beijing SPC Environmental Protection 002573.CN +2.9% (Pres Xi encourages smog treatment); Mazda Motor 7261.JP +2.0% (May US, China sales results); Fuji Heavy Industries 7270.JP +1.1% (Subaru May US sales results)