Asian Market Update: Japan downgrades assessment of industrial production after a miss in data; CPIs hit new multi-year highs
***Economic Data*** - (JP) JAPAN APR PRELIMINARY INDUSTRIAL PRODUCTION M/M: -2.5% V -2.0%E; Y/Y: 4.1% V 4.5%E; Japan DOWNGRADES assessment on industrial production to "output flattening as a trend" - (JP) JAPAN MAY TOKYO CPI Y/Y: 3.1% V 3.0%E; CPI CORE Y/Y: 2.8% V 2.9%E (fastest annual gain since Apr 1992) - (JP) JAPAN APR NATIONAL CPI Y/Y: 3.4% (highest since Feb 1991) V 3.4%E; CPI CORE Y/Y: 3.2% (multi-year high) V 3.1%E - (JP) JAPAN APR JOBLESS RATE: 3.6% V 3.6%E; JOB-TO-APPLICANT RATIO: 1.08 V 1.07E - (JP) JAPAN APR OVERALL HOUSEHOLD SPENDING Y/Y: -4.6% V -3.4%E (1st decline in two months) - (JP) JAPAN APR LOANS & DISCOUNT CORP: 2.3% V 1.9% PRIOR - (AU) AUSTRALIA APR PRIVATE SECTOR CREDIT M/M: 0.5% (4-month high) V 0.4%E; Y/Y: 4.6% V 4.5%E - (NZ) NEW ZEALAND APR BUILDING PERMITS M/M: +1.5% V -3.5%E (2nd consecutive monthly gain) - (NZ) NEW ZEALAND APR MONEY SUPPLY M3 Y/Y: 5.3% V 5.0% PRIOR - (SG) SINGAPORE APR CREDIT CARD BAD DEBTS: 21.6M V 21.8M PRIOR; CREDIT CARD BILLINGS: 3.5B V 3.7B PRIOR - (SG) SINGAPORE APR MONEY SUPPLY M1 Y/Y: 4.8% V 6.9% PRIOR; M2 Y/Y: 1.4% V 2.0% PRIOR - (SG) SINGAPORE APR BANK LOANS AND ADVANCES: 13.2% V 13.5% PRIOR - (KR) SOUTH KOREA APR INDUSTRIAL PRODUCTION M/M: 0.1% V 0.5%E; Y/Y: 2.4% V 3.1%E - (KR) SOUTH KOREA JUN MANUFACTURING BUSINESS SURVEY: 81 V 86 PRIOR; NON-MANUFACTURING SURVEY: 72 V 74 PRIOR - (KR) SOUTH KOREA APR CYCLICAL LEADING INDEX CHANGE Y/Y: +0.1% V -0.2% PRIOR - (UK) UK MAY GFK CONSUMER CONFIDENCE: 0 V -2E (first non-negative reading since Mar 2005)
Market Snapshot (as of 03:30 GMT): - Nikkei225 -0.5%, S&P/ASX -0.2%, Kospi-0.3%, Shanghai Composite -0.1%, Hang Seng +0.3%, Jun S&P500 -0.2% at 1,915, Aug gold +0.1% at $1,258, Jul crude oil -0.2% at $103.38/brl
***Highlights/Observations/Insights*** - A raft of economic data out of Japan was largely mixed, with bigger than expected drop in industrial production balanced by multi-year high CPI figures. The miss in industrial output prompted the govt to lower its economic assessment on the sector to "flattening as a trend." Recall the last time BOJ announced its policy statement, it reiterated industrial production is on a moderate increasing trend. Japan CPIs remained elevated, with Core prints hitting multi-year highs on both nationwide and Tokyo-region basis. Note however that the CPIs account for the impact of consumption tax increase being passed on to consumers, and analysts are divided to what extent the stripped-out for VAT version meets the BOJ's 2% target. Govt spokesperson Suga said prices are moving in line with govt expectations. Nikkei225 is underperforming while USD/JPY traded softer for much of the session, falling about 25pips from opening highs to around ¥101.50.
- Korean Won continued to strengthen, with USD/KRW opening onshore trade below KRW1,020 - its firmest level since late 2008. Unconfirmed speculation of an intervention from the BOK sent the pair back to KRW1,021. Also of note in the currency market, NZD outperformed after a better than expected Building Approvals data, rising back above the $0.85 handle after a sharp decline earlier this week.
- In China, the Banking Regulator surmised that the risks in the property sector were controllable, while the PBoC eased up on a trend of softer settings for the currency midpoint rate going into the weekend. On Sunday, China will release its official Manufacturing PMI expected to rise for the 3rd consecutive month.
***Speakers/Political/In the Papers*** - (CN) China Banking Regulatory Commission (CBRC): Overall property loan risk controllable - financial press - (CN) Nomura economist Zhang: Economy still faces downward pressure; Difficulties cannot be underestimated - Shanghai Daily - (CN) Barclays: estimates China shadow banking reached CNY38.8T; Sees higher chance to have more significant monetary easing - financial press - (JP) Japan Econ Min Amari: Japan economy on firm track to recover despite the sales tax hike - financial press - (JP) Japan Chief Cabinet Sec Suga: Prices are moving in line with govt expectations - financial press - (JP) Japan Fin Min Aso: Q2 economic slowdown likely to be smaller than expectations; sees Q3 pick up to be fast - financial press - (US) Fed's George (non voter, hawk): Fed should raise rates shortly after the end of bond buying; open to possibility of keeping balance sheet large - policy conf (Stanford CA) - (GR) Greece opposition Syriza party leader Tsipras: May not adhere to the agreement on Greek debt relief - financial press
***Fixed Income/Commodities/Currencies*** - (JP) BOJ offers to buy ¥250B in 1-3yr JGB, ¥250B in 3-5yr JGB and ¥400B in 5-10yr JGB as well as ¥2.0T in T-bills - (AU) Australia MoF (AOFM) sells A$700M in 2018 Bonds; avg yield: 3.0600%; bid-to-cover: 5.93x - (US) Weekly Fed Balance Sheet Total Assets Week ending May 28th: $4.32T v $4.33T prior; Reserve Bank Credit: $4.28T v $4.28T prior; M1: -$11.0B (2nd consecutive decline) v -$23.3B prior; M2: +$5.0B (4th consecutive increase) v +$4.6B prior; M1 y/y change: 10.6% (9-month high) v 10.5% w/w; M2 y/y change: 6.2% v 6.3% w/w - USD/CNY: (CN) PBoC sets yuan mid point at 6.1695 v 6.1705 prior setting (1st firmer Yuan setting in three sessions)
***Equities*** US extended session notables: - RTRX: Enters into US License Agreement for Thiola (Tiopronin); raises FY14 Rev guidance to $30-35M v $20Me (1est; $20-22M prior); +27.7% afterhours - OVTI: Reports Q4 $0.40 v $0.27e, R$331M v $289Me; +17.4% afterhours - CRM: Microsoft and salesforce.com confirm global, strategic partnership; Terms of the deal were not disclosed; +1.9% afterhours - GES: Reports Q1 -$0.03 v -$0.06e, R$522.5M v $522Me; -3.3% afterhours - SPLK: Reports Q1 -$0.04 v -$0.06e, R$85.9M v $80.4Me; -9.5% afterhours - PSUN: Reports Q1 -$0.11 v -$0.13e, R$171.1M v $171Me; -9.9% afterhours - EXPR: Reports Q1 $0.06 v $0.14e, R$460.7M v $481Me; Approves $100M share repurchase (8.8% of market cap); -11.5% afterhours - BNNY: Reports Q4 $0.29 v $0.35e, R$60.1M v $61.1Me; -17.4% afterhours - BLOX: Reports Q3 $0.07 v $0.03e, R$61M v $62.5Me; -29.8% afterhours
Asia movers by sector: - Technology: Yonyou Software 600588.CN +3.9% (China govt support of software industry); Toshiba 6502.JP +1.5% (S&P outlook) - Materials: Aquila Resources AQA.AU +0.4% (Australia approves Baosteel's takeover bid); Yancoal Australia YAL.AU -7.4% (Chairman comments of market conditions) - Financials: Australand ALZ.AU +2.1% (Raises guidance; to cooperate with Stockland on due dilligence); Cheung Kong Holdings 1.HK +1.8%, Power Assets Holdings 6.HK +0.8% (JV announcement) - Telecom: KDDI 9433.JP +0.2% (voice plan)
After Hours Summary: RTRX +28.9%, OVTI +17.8%, VEEV +6.2%, BLOX -28.6%, ENVI -21.8%, BNNY -16.9%, EXPR -10.3% following earnings/guidance
After Hours Gainers: Companies trading higher in after hours in reaction to earnings: RTRX +28.9%, OVTI +17.8%, VEEV +6.2%, NMBL +3.8%, VMEM +1.7%, AVGO +1.5%
Companies trading higher in after hours in reaction to news: RTRX +28.9% (announced entry into a U.S. license agreement for Thola (tiopronin); co also increased its FY14 and FY15 guidance and announced a new $80 mln term loan and convertible note issuance), NBY +17.0% (continued strength on reports that co's NeutraPhase product was used to treat necrotizing fasciitis), AVA +5.0% (announced its non-regulated subsidiary, Avista Capital, signed an agreement to sell Ecova, Inc. to Cofely USA Inc. for $335 mln in cash), GTE +2.2% (announced entry into an agreement to sell its Argentina business for ~$69 mln), LCI +2.1% (to replace ZLC in the S&P SmallCap 600), CRM +1.5% (announced global strategic partnership with Microsoft (MSFT)), VMEM +1.7% (announced agreement to sell its PCIe product line for ~ $23 mln in cash and the assumption of certain liabilities totaling $0.5 mln; co also reported earnings)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings: BLOX -28.6%, ENVI -21.8%, BNNY -16.9%, EXPR -10.3%, PSUN -9.9%, SPLK -9.5%, UQM -8.5%, LGF -6%, FWM -3.6%, GES -3.1%
Companies trading lower in after hours in reaction to news: BLOX -28.6% (Co's CEO Robert Thomas to step down; co also reported earnings), GLUU -8.1% (announced proposed public offering of common stock), CRDS -5.6% (filed for $25 mln mixed securities shelf offering; also files for ~2.98 mln share common stock offering by selling shareholders), MDW -5.0% (announced $25 mln bought deal offering of 30.121 mln common shares at $0.83 per share)
Closing Market Summary: Stocks Climb Despite Dismal Q1 GDP Report
The stock market ended the Thursday session on an upbeat note despite receiving some disappointing data ahead of the open. The S&P 500 settled higher by 0.5% with nine sectors registering gains, while the Dow Jones Industrial Average (+0.4%) underperformed throughout the trading day.
Shortly before the open, the second revision to Q1 GDP revealed a 1.0% contraction, while the Briefing.com consensus expected a smaller decline of 0.5%. Interestingly, the subpar report led to just a brief stumble in the futures market, which recovered swiftly. That recovery may have been aided by today's initial claims report, which suggested the labor market remains on solid ground.
Even though almost all sectors finished in the green, there was no concerted leadership among the top-weighted sectors. Of the four largest groups, health care (+0.8%) and technology (+0.7%) displayed strength throughout the session, while consumer discretionary (+0.4%) and financials (+0.2%) joined the party in the late afternoon.
Most notably, the technology sector drew significant strength from the shares of Apple (AAPL 635.38, +11.37), which gained 1.8%. The largest tech stock extended its May advance to 7.7%, while also giving a major boost to the Nasdaq Composite. Interestingly, Apple's strength had little impact on the performance of other large cap tech names as Cisco Systems (CSCO 24.68, -0.14), Google (GOOG 560.08, -1.60), and Qualcomm (QCOM 80.19, -0.03) posted slim losses.
Elsewhere, the health care sector ended among the leaders even as biotechnology had a tough time keeping up with the sector. The iShares Nasdaq Biotechnology ETF (IBB 240.96, +1.37) added 0.6% versus a 0.8% gain for the countercyclical sector.
Staying on the countercyclical side, the consumer staples sector (+0.8%) benefitted from a broad rally, while ignoring below-consensus quarterly results from Costco (COST 114.14, -0.10). Shares of the wholesale retailer finished the session with a slim loss of just 0.1%.
Meanwhile, the other two defensive sectors—utilities (+0.1%) and telecom services (unch)—spent the entire session near their flat lines.
Like the two countercyclical sectors, Treasuries also settled in the neighborhood of their flat lines, but not before seeing intraday strength. Treasuries rallied through the first two hours of action, but spent the remainder of the day in a steady retreat. As a result, the 10-yr note slipped four ticks, sending the benchmark yield higher by one basis point to 2.46%.
Participation remained light as only 532 million shares changed hands at the floor of the New York Stock Exchange. In fact, the final tally represented the lowest volume of the year with the count coming in just below the previous 2014 low of 533.3 million that was registered on January 3.
Reviewing today's data:Tomorrow, Personal Income (consensus 0.3%), Personal Spending (consensus 0.2%), and Core PCE Prices (expected 0.2%) will all be released at 8:30 ET, while the Chicago PMI report for May (consensus 60.3) will cross the wires at 9:45 ET. The day's data will be topped off with the final reading of the May Michigan Consumer Sentiment Survey (expected 81.4), which will be released at 9:55 ET.
- First quarter GDP was revised down to -1.0% in the second estimate from a 0.1% gain in the advance estimate. GDP increased 2.6% in Q4 2013. The consensus expected GDP to be revised down to -0.5%. The revisions brought GDP down into negative territory for the first time since falling 1.3% in Q1 2011. Almost the entire revision was due to weaker inventory data. Inventory growth, which was down $24.30 billion from fourth quarter levels in the advance estimate, was revised to -$62.70 billion. That reduced GDP growth by an additional 1.1 percentage points (1.62 percentage points in total). Excluding inventories, real final sales were virtually unchanged in the second estimate, up 0.6% vs. a 0.7% gain in the advance estimate. Real final sales are still well below 2013 levels.
- The initial claims level fell to 300,000 for the week ending May 24 from a slightly upwardly revised 327,000 (from 326,000) for the week ending May 17. The consensus expected the initial claims level to fall to 318,000. Layoff levels are showing no signs of stability. After weeks of biases from likely seasonal adjustment problems, it looked like claims were stabilizing in the 320,000 to 330,000 range. However, over the past few weeks, claims have flirted with 300,000 a couple of times before retreating back toward 325,000.
- Pending home sales for April rose 0.4%, which was worse than the 1.0% increase forecast by the consensus. Today's reading followed last month's unrevised increase of 3.4%.
- S&P 500 +3.9% YTD
- Dow Jones Industrial Average +0.7% YTD
- Nasdaq Composite +1.7% YTD
- Russell 2000 -1.7% YTD