Asia Mid-Session Market Update: Nikkei, USD/JPY sink after soft US ISM Services and rumors of uncertainty at the BOJ
***Economic Data***
- (AU) AUSTRALIA Q2 GDP Q/Q: 0.5% (1-year low) V 0.6%E; Y/Y: 3.3% (2-year high) V 3.3%E
- (AU) AUSTRALIA AUG AIG PERFORMANCE OF CONSTRUCTION INDEX: 46.6 V 51.6 PRIOR (1st contraction in 3 months)
- (NZ) NEW ZEALAND Q2 MANUFACTURING ACTIVITY Q/Q: +2.2% V -2.0% PRIOR; VOLUME Q/Q: +2.8% V -1.2% PRIOR
- (JP) JAPAN AUG OFFICIAL RESERVE ASSETS: $1.26T v $1.26T PRIOR
***Index Snapshot (as of 03:30 GMT)***
- Nikkei225 -0.7%, S&P/ASX +0.2%, Kospi +0.3%, Shanghai Composite +0.4%, Hang Seng -0.1%, Sep S&P500 +0.1% at 2,185
***Commodities/Fixed Income***
- Dec gold +0.2% at $1,356/oz, Oct crude oil +0.7% at $45.12/brl, Dec copper +0.8% at $2.11/lb
- GLD: SPDR Gold Trust ETF daily holdings rise to 952.1 tonnes from 937.9; first rise since Aug 22nd
- SLV: iShares Silver Trust ETF daily holdings rise to 11,246 tonnes from 11,184 tonnes prior; multi-year high
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.6555 V 6.6676 PRIOR; strongest Yuan setting since Aug 26th
- (CN) PBOC to inject CNY20B in 7-day reverse repos and CNY10B in 14-day reverse repos
- (JP) BOJ offers to buy ¥430B in 5-10yr JGBs, ¥200B in 10-25yr JGBs and ¥120B in JGBs with maturity over 25-yr
- JGB: Japan Finance Ministry (MoF) said to issue ¥400B more in 40-yr JGBs in FY16/17 than planned - Nikkei
- (AU) Australia MoF (AOFM) sells A$1.0B in 4.75% 2027 Bonds; avg yield 1.892%; bid-to-cover 1.59x
***Market Focal Points/FX***
- Asian equity markets are mixed, with modest gains in Korea and Shanghai overshadowed by a larger decline in Nikkei225. Friday's soft non-farm payrolls report had rattled the case for a September FOMC hike, but today's 6-year low print in US Services ISM may have delivered a decisive blow, with Fed funds futures now pricing in less than a 20% chance of a move this month. Probability of a hike before the end of the year is still seen around 50%. US rate expectations are particularly visible in the USD/JPY pair, which fell more than 100pips to ¥102 after ISM and has since extended its drop to a low of ¥101.20 in Asia. In other FX majors, AUD/USD saw its low around 0.7650 after a mixed Australia GDP report, while NZD/USD pushed out to a 15-month high of 0.7435 on USD weakness and another price increase in Fonterra dairy auction. Gold was up over 2% in US hours on broad USD weakness, helping related mining shares in Australia.
- Uncertainty pertaining to the upcoming Bank of Japan meeting and its planned review of policy parameters continued to play out in press speculation. Early in the session, a Sankei report stated that the BOJ policy board has 3 camps going into the decision - those who support more asset purchases, those who favor deeper negative rates, and those who oppose any further easing - with Gov Kuroda on the side of negative rates. Separately, former BOJ official Momma forecast that the central bank will not expand policy stimulus in September given the steady economic fundamentals.
- Notable economic data points were limited to Australia, where Q2 GDP hit a 1-year low on sequential basis but a 2-year high y/y. Final Consumption component edged up to +0.8% v +0.7% prior, income rose to +0.6% v +0.2% prior, and trade terms component spiked up to +2.3% v -1.9% prior. Treasurer Morrison reflected that household consumption growth mirrored that of global economy, while still warning the country has a problem with low earnings growth. Earlier, Aug Construction PMI fell into contraction for the first time in 3 months, while a local press report forecast property prices in top cities falling as much as 15-20% in the next 2 years.
- Fed's Williams spoke in Reno, reiterating his support for a rate hike sooner and more gradually rather than later and potentially more rapidly. Williams warned that waiting too long could allow imbalances to grow, adding that economy is on track to achieve Fed's inflation and employment objectives.
***Equities***
US equities / ADRs:
- CMG: Pershing Square discloses new 9.9% stake; intends to engage in discussions with management - 13D filing; +6.3% afterhours
- AMGN: Loses ruling in Neulasta patent case; judge says Apotex's biosimilar does not infringe Amgen patent on the chemotherapy drug - press; -1.4% afterhours
- PLAY: Reports Q2 $0.50 v $0.44e, R$244.3M v $244Me; -6.6% afterhours
- CASY: Reports Q1 $1.70 v $1.79e, R$1.97B v $2.0Be; -7.4% afterhours
Notable movers by sector:
- Consumer discretionary: Recruit Holdings Co 6098.JP +3.0% (to be added to Nikkei 300)
- Industrials: Asahi Kasei Corp 3407.JP -3.2% (Aug result); Qube Logistics QUB.AU +1.2% (UBS raised to Buy); Hanjin Shipping Co 117930.KR +9.0% (wins order protection); Sumitomo Chemical Co 4005.JP -1.3% (may increase battery production)
- Technology: Rakuten Inc 4755.JP +6.0% (to be added to Nikkei 225); Otsuka Corp 4768.JP +0.8% (Mitsubishi raised to Overweight)
- Materials: Saracen Mineral Holdings SAR.AU +13.3% (drilling result); Resolute Mining RSG.AU +6.4% (affirms guidance); Other gold miners also rise on higher gold prices: NCM.AU +3.7%, EVN.AU +7.6%
- Telecom: NTT DoCoMo Inc 9437.JP -0.6% (to cut costs)
- Utilities: China Longyuan Power Group 916.HK +3.5% (Aug result)