Asian Market Update: China industrial profits recover to start 2016; Japan cabinet again denies press rumors of delay to sales tax hike
***Economic Data***
- (CN) CHINA JAN-FEB INDUSTRIAL PROFITS Y/Y: +4.8% (first rise after 7 straight declines) V -4.7% IN DEC AND -2.3% IN 2015
***Index Snapshot (as of 03:30 GMT)***
- Nikkei225 +0.8%, S&P/ASX closed, Kospi +0.1%, Shanghai Composite +0.5%, Hang Seng closed, Jun S&P500 +0.3% at 2,035
***Commodities/Fixed Income***
- Apr gold -0.9% at $1,213/oz, May crude oil +0.8% at $39.79/brl, May copper +0.1% at $2.24/lb
- (CN) PBOC to inject CNY35B in 7-day reverse repos
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.5232 V 6.5223 PRIOR; weakest setting since Mar 4th
- (JP) BOJ offers to buy ¥450B in 5-10yr JGBs and ¥40B in JGBs outright
***Market Focal Points/FX***
- Asian equity markets sprung right back into rally mode with steady gains, even though participation was still limited by the Easter holiday that kept Australia and Hong Kong traders away. Nikkei225 led the rally with nearly a 1% rise as USD/JPY rose over 60pips to 113.60 on the heels of more bullish comments from Fed's Bullard calling April and June meetings as "live" events for potentially more tightening. Shanghai Composite benefited from improving industrial profits data and more upbeat China Beige Book. In other FX majors, EUR/USD traded in a 15pip range above 1.1150, AUD/USD rose about 20pips from the lows toward 0.7520, and NZD/USD was also up about 20pips above 0.6680.
- China Industrial Profits for Jan-Feb - spread out due to the seasonality around Lunar New Year - showed their first rise after 7 straight months of decline. China Stats Bureau noted "increased sales and a milder decline in factory product prices", while a NBS researcher remarked that revenues of industrial companies expanded 1% in the first two months thanks to improved demand. China Beige Book, released over the weekend, also pointed to improving profits in Q1, but also noted declining staffing, as quarterly Capex hit a 5-year low and 33% of companies reduced their investments. Beige Book report further noted payrolls growth by private companies was at a 4-year low. Helping sentiment was a report in Chinese press that the state pension fund will begin to invest in A-share market this year with estimated flows of about CNY600B. The timing outline for the announcement follows recent State Council decision to allow up to 30% of Pension Fund assets to be invested in equities. Also of note, China lockup shares expected to be released into the market this week was down to just over CNY25B from over CNY100B last week.
- In Japan, there was more speculation that PM Abe will announce a delay to the 2nd round of sales tax increase from 8% to 10% slated for Apr '17 to respond to weaker economic climate. Cabinet spokesperson Suga has once again denied those rumors, even though last week he conceded this was something the govt could consider if corporate revenues contract. There is also political pressure in this decision, with a separate survey estimating 61% of respondents opposed to 2nd round of consumption tax hike, up from 58% opposed in Feb.
***Equities***
Notable movers by sector:
- Consumer discretionary: Wuliangye Yibin Co 000858.CN +4.0% (FY15 result)
- Technology: NTT Data Corp. 9613.JP +0.9% (transaction with Dell); Sharp Corp 6753.JP +4.0% (speculation on deal with Hon Hai)
- Healthcare: Zhejiang Hangzhou Xinfu Pharmaceutical Co 002019.CN +1.9% (guidance)
- Utilities: Tokyo Electric Power Co 9501.JP +1.7% (plans to close all oil-fired power plants)