Asia Mid-Session Market Update: Stocks rise as softer NFPs in US relieve worries over rapid Fed tightening; Regional Services PMIs are mixed
***Economic Data***
- (CN) CHINA AUG CAIXIN PMI SERVICES: 52.1 V 51.7 PRIOR
- (JP) JAPAN JULY LABOR CASH EARNINGS Y/Y: 1.4% (4-month high) V 0.4%E ; REAL EARNINGS (EX-INFLATION) Y/Y: 2.0% V 0.7%E
- (HK) HONG KONG AUG COMPOSITE PMI: 49.0 V 47.2 PRIOR; 18th consecutive month of contraction
- (AU) AUSTRALIA Q2 COMPANY OPERATING PROFIT Q/Q: 6.9% V 2.0%E; INVENTORIES Q/Q: 0.3% V 0.3%E
- (AU) AUSTRALIA AUG ANZ JOB ADVERTISEMENTS M/M: 1.8% V -0.8% PRIOR
- (AU) AUSTRALIA AUG MELBOURNE INSTITUTE INFLATION M/M: 0.2% V -0.3% PRIOR; Y/Y: 1.2% V 1.0% PRIOR
- (AU) AUSTRALIA AUG AIG PERF OF SERVICES INDEX: 45.0 V 53.9 PRIOR (21-month low; 1st contraction in 4-months)
- (JP) JAPAN AUG SERVICES PMI: 49.6 V 50.4 PRIOR; COMPOSITE PMI: 49.8 V 50.1 PRIOR
- (NZ) New Zealand real estate agency Barfoot & Thompson: Auckland Aug avg house price +4.5% m/m v -4.5% prior; 10.4% y/y v +4.9% prior
- (KR) South Korea Aug Foreign Reserves: $375.5B v $371.4B prior; record high
- (UK) JULY AUG BRC SHOP PRICE INDEX Y/Y: -2.0% V -1.6% PRIOR (40TH MONTH OF DECLINE)
***Index Snapshot (as of 04:00 GMT)***
- Nikkei225 +1.1%, S&P/ASX +1.0%, Kospi +1.0%, Shanghai Composite +0.2%, Hang Seng +1.7%, Sep S&P500 +0.1% at 2,181
***Commodities/Fixed Income***
- Dec gold flat at $1,328/oz, Oct crude oil -0.1% at $44.09/brl, Dec copper +0.4% at $2.09/lb
- (SA) Saudi Arabia lowers contract prices for crude oil in Europe and raises prices in Asia - financial press
- (CN) PBOC to inject CNY20B in 7-day reverse repos and CNY10B in 14-day reverse repos
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.6873 V 6.6727 PRIOR
- (KR) South Korea MoF sells 5-yr bonds at 1.345%
***Market Focal Points/FX***
- Asia equity markets are rising in the wake of a somewhat disappointing non-farm payrolls report out of the US on Friday. While +150K figure was much better than the shockingly low print in the spring, it was still well below 180K consensus and enough to knock down expectations of a rate hike this month by a meaningful amount. According to Fed funds futures, probability of a Sept FOMC rate hike has fallen to 21% while that of 2016-end high at about 50%. Last week, year-end hike likelihood was above 60% and that of Sept above 30%. In FX, USD has remained under pressure virtually across the board - USD/JPY was down as much as 50pips below 103.60, AUD/USD rose over 30pips toward 0.76 level, and NZD/USD was up over 50pips above 0.7330.
- Outside of the delayed impact from US jobs data, Asia economic calendar was dominated by Services and Composite PMI figures. China Caixin Services saw a slight bounce to 52.1 from 51.7, and economists noted business activity driven by new project, stabilization in staffing, rising backlogs, and higher input prices. In Hong Kong, composite PMI came out in contraction for the 18th straight month, but that decline also narrowed. Here, economists noted less pressure on operating capacity and more slack in staffing, as employment declined for 8th straight month. While the worst of Hong Kong slowdown was seen as being over, economist still called for "sustained recovery (needing) to take place, which may be challenging given the relatively weak global economic environment."
- Among notable speakers, BOJ Gov Kuroda acknowledged that negative rates policy has had some side effects such as deterioration of bank profits, but also reiterated central bank's commitment to do utmost to achieve 2% inflation target and willingness to go deeper in the red on rates. Kuroda said the benefits of achieving 2% inflation in a timely basis outweigh the risk, staying committed to all 3 policy options to meet objective. Going into the Kuroda address, a Nikkei report speculated there may be some consideration of side effects of negative rates in BOJ's evaluation of its policy framework going into the Sept 20th meeting.
- In Australia, this week's RBA meeting will be Gov Stevens' last, and according to one survey, economists are unanimous in expectation for rates to remain on hold. Fixed income markets are pricing in just under 50% chance of a rate cut before the end of the year. RBNZ meanwhile has confirmed it is implementing macroprudential measures on the property sector. Beginning Oct 1st, residential property investors will generally need a 40% deposit for a mortgage loan, and owner-occupiers will need a 20% deposit. The measures could potentially pave the way to more RBNZ easing, especially if the diminished case for Fed easing produces unwelcome rise in the NZD.