Asian Market Update: Japan trade deficit wider than expected; RBA Gov Stevens jawboning AUD
***Economic Data*** - (JP) JAPAN JULY MERCHANDISE TRADE BALANCE: -¥964.0B V -¥713.9BE (25th consecutive trade deficit); ADJ TRADE BALANCE: -¥1.0T V -¥761.3BE - (AU) AUSTRALIA JUL SKILLED VACANCIES M/M: 0.9% V 1.6% PRIOR (3rd consecutive increase) - (AU) AUSTRALIA JULY WESTPAC LEADING INDEX M/M: -0.1% V +0.1% PRIOR (1st decline in 3 months) - (NZ) NEW ZEALAND JUL ONLINE JOBS VACANCIES M/M: -5.0% v +7.5% y/y - (CN) China Finance Ministry: China July YTD state-owned enterprises (SOEs) Net CNY1.43T, +9.2% y/y, Rev CNY27.2T, +5.8% y/y
***Index Snapshot (as of 02:30 GMT)*** - Nikkei225 flat, S&P/ASX -0.1%, Kospi -0.1%, Shanghai Composite -0.2%, Hang Seng flat, Sept S&P500 -0.1% at 1,975
***Commodities/Fixed Income/Currencies*** - Dec gold flat at $1,297, Oct crude oil flat at $92.84/brl, Sept Copper flat $3.09/lb - GLD: SPDR Gold Trust ETF daily holdings rise 1.5 tonnes to 799.2 tonnes (2nd consecutive increase) - (US) API PETROLEUM INVENTORIES: CRUDE: -1.4M v -1Me, GASOLINE: -2.1M v -1.5Me, DISTILLATE: -0.6M v -1Me - (JP) BOJ offers to buy ¥300B in 1-3yr JGB, ¥200B in 3-5yr JGB, ¥100B in 10-25yr JGB and ¥30B in JGB with maturity over 25-yr - (AU) Australia MoF (AOFM) sells A$700M in 2.75% Bonds due 2024; Avg yield: 3.4164%; Bid-to-cover: 2.57x - (CN) China MoF sells 10-yr bonds at average yield of 4.23% - USD/CNY: (CN) PBoC sets yuan mid point at 6.1580 v 6.1548 prior setting (2nd consecutive weaker Yuan setting, weakest setting since Aug 6th)
***Market Focal Points/Key Themes*** - Japan posted its 25th consecutive month of trade deficit and the shortfall was wider than expected, even though exports rose for the first time in 3 months. Rising imports contributed to continued shortfall -- despite the falling prices, imports of crude oil rose to 16.4M kls from 15.1M kls prior. Exports to Asia, China, and US were all up in low-single digits, while Europe shipments rose 10%. Japanese Yen sold off amid overall USD strength in the afternoon session, with USD/JPY pair hitting fresh 4-month highs above ¥103.15.
- RBA Gov Stevens delivered his semi-annual address to Australia's House Economic Committee with a slightly more upbeat view on fundamentals interspersed with a healthy dose of jawboning of the exchange rate. Stevens said economic forecasts may ultimately prove too conservative, with some evidence that productivity may be improving and recent data suggesting Sept quarter has started off well. On AUD, Stevens said it is not helping the economy, and the risks of further decline are underappreciated. He also said that while a currency intervention is not being considered at this time, it remains a part of the central bank's tool kit and would be considered if the exchange rate was much higher. AUD/USD fell as low as $0.9285 on the comments.
- Australia earnings calendar was particularly concentrated on the resources sector. Woodside Petroleum was up over 0.5% on rising H1 revenue, even though the company affirmed its FY output target. Fortescue Metals was marginally lower as net profit was in line with estimates and production rate for FY15 was forecasted at 155-160MT v 155MT in FY14. Wesfarmers is up over 2%, posting a 19% growth in profit and 4% increase in revenue.
- Ceasefire in Gaza expired without an extension as negotiators in Cairo remain unable to make much progress in talks and after a rocket was fired by Hamas targeting Ben Gurion airport. In Iraq, ISIS posted a video of executing an American journalist and threatening execution of another as recourse for bombings by the US airforce.
***Equities*** US markets: - PETM: Reports Q2 $0.98 v $0.94e, R$1.73B v $1.73Be; Confirms exploring strategic alternatives; to acquire Pet360 for $130M; +5.4% afterhours - QCOM: Samsung Electronics said to have developed a smartphone chips that would replace one made by Qualcomm - Korean press; -0.6% afterhours - LZB: Reports Q1 $0.20 (adj) v $0.21e, R$327M v $321Me; Increases share buyback for up to 5M additional shares (15% of outstanding); -4.1% afterhours - YOKU: Reports Q2 -$0.07 v -$0.07e, R$154.5M v $156Me; -8.2% afterhours - TEDU: Reports Q2 $0.12 v $0.07e, R$31.9M v $31.4Me (only 2 est.), guides Q3 R$38.5-39.5M v $41Me, guides FY14 $134.5-136M v 138Me; -9.2% after - HTZ: Now expects to be well below low end of 2014 guidance, citing weakness in rental markets; could see delay in spin off of equipment rental business - filing; -11.7% afterhours
Notable movers by sector: - Consumer Discretionary: APN News APN.AU -3.6% (H1 results); SEEK Ltd SEK.AU -3.0% (FY14 results); Coca-Cola Amatil CCL.AU -3.3% (H1 results) - Consumer staples: Biostime International Holdings 1112.HK -10.1% (H1 results) - Financials: Challenger Financial Services Group CGF.AU +3.1% (FY14 results); WesFarmers Limited WES.AU +2.1% (FY14 results); Cedar Woods Properties CWP.AU -2.5% (FY14 results); Bank of China 3988.HK -0.3% (H1 results); Ping An Insurance 2318.HK -0.1% (H1 results); Gemdale Corp 600383.CN -0.9% (H1 results) - Industrials: MacMahon Holdings MAH.AU +22.7% (FY14 results); Decmil Group DCG.AU -4.5% (FY14 results); NRW Holdings NWH.AU +3.9% (FY14 results); Shenzhen Expressway 548.HK +3.6% (H1 results) - Technology: NEC Corp 6701.JP -2.3% (to partner with Mexico); Brambles BXB.AU -1.5% (FY14 results) - Telecom: China Unicom 600050.CN -1.5% (July operating data) - Materials: BHP BHP.AU -3.9% (FY14 results); Fortescue Metals FMG.AU -0.2% (FY14 results) - Energy: Woodside Petroleum WPL.AU +0.6% (H1 results)
Companies trading higher in after hours in reaction to earnings: ZPIN +4.9%, PETM +3.3%, KTCC +0.2%
Companies trading higher in after hours in reaction to news: PETM +3.3% (announced acquisition of Pet360; announced exploration of strategic alternatives; co also reported earnings), CVV +3.2% (co receives an order in excess of $2.75 mln from a major aviation component supplier to design and build a CVD system for coating fiber), ACHN +2.3% (co was granted U.S. patent for ACH-3102 and structurally related NS5A inhibitors; patent term to last until 2032), YUME +2.3% (Zhengxu He discloses 5.2% passive stake in 13G filing; director of co also disclosed purchase of 20k shares), FFIC +1.8% (announced 1 mln share stock repurchase program), GNC 1.8% (director disclosed purchase of 30k shares)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings: RGSE -18.0%, HTZ -11.4%, TEDU -7.2%, STV -5.5%, LZB -3.8%, CCIH -2.5%
Companies trading lower in after hours in reaction to news: RGSE -18.0% (filed for 5.015 mln share common stock offering upon exercise of existing warrants originally issued on November 15, 2013; co also reported earnings), HTZ -11.9% (co withdrew its 2014 financial guidance)
The stock market continued its strong start to the week with a broad-based Tuesday rally that sent the S&P 500 higher by 0.5%. Nine of ten sectors registered gains while the benchmark index extended its week-to-date advance to 1.4%.
Equities received an opening boost from a pair of economic data points that crossed the wires this morning. An in-line CPI report suggested inflationary pressures remain contained, while a better than expected Housing Starts report underpinned homebuilders and the discretionary sector.
Fittingly, the consumer discretionary space (+0.8%) surged out of the gate and spent the entire session among the leaders. Homebuilders rallied following the upbeat data and better than expected earnings from Home Depot (HD 88.23, +4.64). The Dow component jumped 5.6%, while the iShares Dow Jones US Home Construction ETF (ITB 23.99, +0.56) advanced 2.4%.
Retail stocks also played a part in the outperformance of the discretionary sector after Dick's Sporting Goods (DKS 44.21, +0.70) and Urban Outfitters (URBN 38.59, +1.67) beat their earnings estimates. The SPDR S&P Retail ETF (XRT 87.05, +1.11) rose 1.3%.
While the influential discretionary sector displayed broad strength, other heavily-weighted groups were a bit more mixed. Technology (+0.7%) outperformed, while financials (+0.2%) and industrials (+0.2%) lagged.
The top-weighted sector—technology—received support from chipmakers. The PHLX Semiconductor Index recaptured its 50-day moving average and added 0.6% with all but five components posting gains. Meanwhile, most large cap tech components were limited to modest gains, but shares of Apple (AAPL 100.53, +1.37) climbed to a fresh all-time high.
Elsewhere, the top-weighted countercyclical sector—health care (+0.7%)—trailed the broader market for the majority of the session, but spiked during afternoon action in reaction to reports from the Wall Street Journal, indicating Salix Pharmaceuticals (SLXP 160.80, +21.63) was approached by Allergan (AGN 161.82, +6.21) about a potential acquisition. Shares of SLXP ended higher by 15.5%, while the iShares Nasdaq Biotechnology ETF (IBB 267.23, +1.02) tacked on 0.4% after showing intraday weakness.
Similar to health care, the utilities sector (+1.2%) outperformed, while the remaining two defensively-oriented groups—consumer staples (+0.2%) and telecom services (-0.3%)—lagged.
Treasuries began the day with solid gains, but spent the session in a steady retreat. The 10-yr note shed one tick with its yield ending at 2.40%.
Participation was well below average with fewer than 550 million shares changing hands at the NYSE.
Economic data was limited to CPI, and Housing Starts/Building Permits:Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET, while the minutes from the latest FOMC policy meeting will cross the wires at 14:00 ET.
- Consumer prices increased 0.1% in July following a 0.3% increase in June, which matched the consensus
- As expected from the July PPI report, energy prices fell 0.3% in July after increasing 1.6% in June
- Food prices accelerated, up 0.4% in July from a 0.1% increase in June
- Food at home prices, typically from grocery stores, increased 0.7%, which was the largest increase since August 2011
- Excluding food and energy, core CPI increased 0.1% for a second consecutive month in July, which is what the consensus expected
- Housing starts increased 15.7% in July to 1.093 million from an upwardly revised 945,000 (from 893,000) in June, while the consensus expected an increase to 964,000
- The big news out of the housing data was an 8.3% increase (to 656,0000) in single-family construction after declines were observed in May and June
- Building permits rose to a seasonally adjusted annualized rate of 1.052 million in July versus a revised 973K for June, while the consensus expected an increase to 1.001 million
- Nasdaq Composite +8.4% YTD
- S&P 500 +7.2% YTD
- Dow Jones Industrial Average +2.1% YTD
- Russell 2000 -0.1% YTD