Asian Mid-session Update: Euro crashes to 9-year lows below $1.19 as Grexit fears resurface
***Economic Data***
- (AU) AUSTRALIA DEC AIG PERFORMANCE OF MANUFACTURING INDEX: 46.9 V 50.1 PRIOR (3-month low)
- (JP) JAPAN DEC FINAL MARKIT/JMMA MANUFACTURING PMI: 52.0 V 52.1 PRELIM (7th consecutive expansion)
- (KR) SOUTH KOREA Q4 FOREIGN DIRECT INVESTMENT (FDI) Y/Y: 10.1% v 37.9% PRIOR
***Index Snapshot (as of 03:30 GMT)***
- Nikkei225 +0.2%, S&P/ASX +0.1%, Kospi -0.7%, Shanghai Composite +2.4%, Hang Seng +0.3%, Mar S&P500 flat at 2,046
***Commodities/Fixed Income***
- Feb gold +0.6% at $1,193, Feb crude oil -1.9% at $51.66/brl, Mar Copper flat at $2.81/lb
- (JP) BOJ to buy ¥70B in JGB with maturity less than 1-yr, ¥240B in 10-25yr JGB and ¥140B in JGB with maturity over 25-yr
- (KR) South Korea sells 3-yr govt bond at avg yield of 2.13%
- USD/CNY: (CN) PBoC sets yuan mid point at 6.1248 v 6.1190 prior setting (weakest setting since Dec 7th)
***Market Focal Points/Key Themes/FX***
- The open of the first full trading week of the new year was met with extreme volatility in the currency markets, particularly in the euro pairs, as EUR/USD crashed over 120pips to $1.1870s - the lowest levels since March of 2006 - before recovering to $1.1930s. USD also made further ground in the other majors, with GBP/USD briefly falling 150pips below 1.52, AUD/USD down 50pips at $0.8050, and NZD/USD down 80pips around $0.7620. A combination of factors is being attributed to fresh euro selling, including further bearish positioning going into the eurozone flash CPI this week, just as ECB's Draghi last week announced that the central bank sees a higher risk of failing on inflation objectives. Geopolitical news over the weekend related to Greece are also weighing on sentiment - Germany's Der Spiegel reported that Chancellor Merkel is less concerned with the possibility of a Greek exit, calling the fallout as "manageable", while opposition Syriza party leader Tsipras reiterated he would move to end the austerity policies if elected in the polls coming up in just 3 weeks. Local press surveys still see Syriza ahead of the ruling ND party by 30.4% vs 27.3%, though that margin has narrowed slightly.
- Shanghai Composite resumed its steady climb, reaching new 5-year highs above 3,300 despite more audible expectations of slowing growth for China in 2015. Standard Chartered said 2015 GDP would slow to 7.1% from 7.3% forecast for 2014, State Information Center (SIC) estimated 2015 GDP at 7%, and a former Stats Bureau economist went as far as to warn that CPI may post an outright decline this year. In the property sector, China Index Academy recorded its 8th consecutive sequential decline during December, with average prices across top cities falling -0.44% v -0.38% prior, although developers are moving higher on signs of a rebound in Beijing.
- In Tokyo, December final manufacturing PMI slowed marginally from the preliminary estimate but remained in expansion for the 7th straight month. Markit economists noted a further rise in new orders from both the domestic and international markets, as well as input price inflation accelerating due to falling yen. Japan Fin Min Aso also said the economy is emerging from a deflation-driven slump, anticipating a rise in capex that would help return GDP to growth. USD/JPY briefly tested below ¥120 early in the day before returning to Friday highs around ¥120.60.
- Among Fed speakers, commentary from Boston Pres Rosengren (alternate on FOMC in 2015) was most notable, as he urged patience on interest rate liftoff until the Fed is confident inflation is returning to 2% target. He added sluggish inflation growth would allow for "more gradual normalization process", and also pointed to global economic risks as a potential challenge to orderly policy measures.
***Equities***
US/ADRs:
- RIO: May announce a buyback of as much as A$5B (4.8% of market cap) as early as next month - AFR citing resource analysts
- AAL: Said to raise pilot pay by as much as 23% as part of a tentative new contract - financial press
Notable movers by sector:
- Consumer Discretionary: Melco Crown Entertainment 6883.HK -3.8% (to delist in Hong Kong); Seven West Media SWM.AU -2.2% (CFO resigns)
- Financials: China Vanke 000002.CN +6.5%, Poly Real Estate 600048.CN +6.9%, China Merchants Property 000024.CN +7.2% (Beijing Dec home sales rise rapidly)
- Energy: Titan Energy TTE.AU +10.0% (provides drilling update); AWE Ltd AWE.AU +4.3% (receives approval for gas project)
- Technology: Toshiba Corp 6502.JP +1.2% (receives order for nuclear reactor in China)