Asian Mid-session Update: Equities rally after another PBoC rate cuts as markets look ahead to China Plenum growth
***Economic Data***
- (TH) Thailand Sept Custom Trade Balance: $2.8B v $1.1Be
***Index Snapshot (as of 02:30 GMT)***
- Nikkei225 +1.2%, S&P/ASX +0.1%, Kospi +0.1%, Shanghai Composite +0.7%, Hang Seng +0.3%, Dec S&P500 -0.1% at 2,063
***Commodities/Fixed Income***
- Dec gold +0.1% at $1,164/oz, Dec crude oil +0.4% at $44.79/brl, Dec copper +0.1% at $2.35/lb
- (KR) South Korea Finance Ministry sells 20-yr bonds at 2.215%
- (CN) As of Oct 23rd, China total margin debt CNY1.01T v CNY973B w/w (highest since Sept 1st)
- (AU) Australia MoF (AOFM) sells A$900M in 4.75% 2027 Bonds; avg yield: 2.81%; bid-to-cover: 2.79x
***Market Focal Points/FX***
- Asian equity markets got their first opportunity to respond to another heavy dose of monetary easing by the PBoC, and the reaction has been fairly positive though perhaps somewhat more muted than anticipated. Nikkei is leading the rally by over 1% despite the firmer JPY, followed closely by the mainland indices. Dec e-mini futures however are down marginally. In FX, USD/JPY is down about 40pips from the highs below 121.10, while AUD/USD and NZD/USD are up some 50pips from session lows respectively above 0.7260 and 0.6790.
- On Friday, the PBoC cuts both the 1-year rate and system-wide RRR by 25bps and 50bps, while also deciding to remove the ceiling on bank deposit rates. The decision to cut comes on the eve of China's Communist Plenum where it will formally announce its growth targets going forward. Over the weekend, Chinese leaders worked to manage market expectations of a potential downgrade from the 7% target. Premier Li said 7% is not a hard target that should be "defended to the death", and that 6.9% growth reported in Q3 still represents reasonable range. PBoC Dep Gov Yi Gang then added that China can sustain growth of 6-7% for the next 3-5 years. Later in the day, PBoC research bureau chief Lu Lei also remarked that the GDP of 6.9% reflects China economic fundamentals.
- Ahead of this week's crucial BOJ meeting that features semiannual review of GDP and CPI objectives, Goldman Sachs forecast that Japan central bank will announce more easing. Business Federation (Keidanren) chairman Sakakibara was less convinced, stating the economy was still in virtuous cycle though it has slowed a little. PM Abe's cabinet and Abenomics reviews remain lukewarm - only some 25% said in a survey they were confident Abenomics would result in improved economy.
- Overseas in Europe, officials with SNB and BOE reacted to the easier tone adopted by the ECB Pres Draghi in the last decision. BOE's Carney said that while UK interest rate hike is a possibility, it is not a certainty. Likewise, SNB VP Zurbruegg said the central bank will monitor and evaluate the impact of any easing measures taken by the ECB the next time when it meets.
***Equities***
Notable movers by sector:
- Consumer discretionary: Li Ning Co 2331.HK +1.1% (asset sale); Kao Corp 4452.JP +1.0% (9M result); Stockland SGP.AU +0.8% (Q1 result); Panasonic Corporation 6752.JP +8.0% (H1 result speculation)
- Financials: China Vanke 2202.HK +2.5%, Evergrande Real Estate Group 3333.HK +1.7% (PBoC cuts rates); China Reinsurance (Group) Corporation 1508.HK +0.4% (IPO debut); Agricultural Bank of China 1288.HK -0.9% (Q3 result); Shanghai Pudong Development Bank 600000.CN +2.6% (approval for asset purchase and share sale)
- Industrials: Dalian Port PDA Co 601880.CN +4.6% (Q3 result); Great Wall Motor 601633.CN +2.7% (Q3 result); Orient Overseas International 316.HK -5.8% (Q3 result); Nippon Yusen 9101.JP -3.9% (likely to miss H1 guidance); Hitachi Ltd 6501.JP +7.2% (raises guidance)
- Technology: Beijing Baofeng Technology Co 300431.CN -7.8% (job cut speculation); Anhui USTC iFlytek Co 002230.CN +4.3% (9-month result); Toshiba Corporation 6502.JP +4.3%, Sony 6758.JP +4.0% (speculation for Toshiba to sell business to Sony)
- Materials: Bluescope Steel BSL.AU +11.6% (acquisition, raises guiance)
- Energy: China Shenhua Energy Co 601088.CN +2.5% (Q3 result); Xinjiang Goldwind Science & Technology Co 2208.HK +3.0% (Q3 result)