Asia Mid-Session Market Update: Shanghai Composite, AUD fall as China Caixin Manufacturing PMI falls into Contraction
***US Session Highlights***
- (US) President Trump said to have decided to withdraw the US from Paris Climate accord - financial press
- (US) Fed's Kaplan (moderate, voter): Inflation is slow and uneven but trend not deteriorating
- (LY) Libya National Oil Corp Chairman: oil production rises to 827Kbpd after technical problem fixed - financial press
- (US) APR PENDING HOME SALES M/M: -1.3% V 0.5%E; Y/Y: -5.4% V 0.5% PRIOR
- (US) Conference Board May Total online job ads 4.81M v 4.61M m/m v 5.31M y/y; New ads 2.35M v 2.0M m/m v 2.02M y/y
- (US) May Chicago Purchasing Manager corrected to 59.4 from erroneously reported 55.2 (v 57.0e)
- Stocks closed the month on a subdued note, with major indices printing small numbers in the red. The month brought a new all-time monthly high for the S&P, which gained close to 1%. Best performing sectors in the S&P for May were Technology and Utilities, up 4.1% and 3.6% respectively. The worst performing sector was Energy, down 3.1%. Continued evidence the reflation trade is on hold for now as 10-year Treasury note yields continued to fall today, closing down 1bps, its lowest close since April 18th.
***US markets on close: Dow -0.1%, S&P500 -0.1%, Nasdaq -0.1%***
- Best Sector in S&P500: Utilities
- Worst Sector in S&P500: Financials
- Biggest gainers: PRGO +7.3%; VRTX +2.7%; REGN +2.3%
- Biggest losers: KORS -8.5%; SWN -4.6%; CF -3.6%
- At the close: VIX 10.4 (flat); Treasuries: 2-yr 1.29% (-1bp), 10-yr 2.20% (-2bps), 30-yr 2.86% (-3bps)
***US movers afterhours***
-PANW Reports Q3 $0.61 v $0.55e, R$431.8M v $413Me; Guides Q4 $0.78-0.80 v $0.74e, R$481-491M v $485Me; +12.5% afterhours
-BOX Reports Q1 -$0.13 v -$0.14e, R$117.2M v $115Me; Guides Q2 -$0.13 to -$0.12 v -$0.12e, R$121-122M v $121Me; +2.9% afterhours
-HPE Reports Q2 $0.35 v $0.35e, R$9.9B v $9.87Be; Guides Q3 $0.24-0.28 v $0.31e; Affirms FY17 $1.46-1.56 v $1.48e ; -1.1% afterhours
-SMTC Reports Q1 $0.44 v $0.41e, R$149.1M v $146Me; Guides Q2 $0.43-0.49 v $0.45e, R$150-160M v $154Me, gross margin 60.5-61.5%; -3.8% afterhours
***Politics***
- (UK) Times/YouGov general election weekly poll: Conservatives 42% (-1pts), Labour 39% (+3pts)
- (US) Pres Trump: I will be announcing my decision on Paris Accord, Thursday at 3:00 P.M
- (US) House of Reps said to investigate another meeting between AG Sessions and Russian ambassador Kislyak - US press
- (US) Commerce Sec Ross: wants to have full discussions with Congress over NAFTA renegotiations by July before heading into talks in Aug - press
***Key economic data***
- (CN) CHINA MAY CAIXIN PMI MANUFACTURING: 49.6 V 50.1E (1st contraction in 11 months)
- (JP) JAPAN MAY FINAL PMI MANUFACTURING: 53.1 V 52.0 PRELIM (3-month high)
- (JP) JAPAN Q1 CAPITAL SPENDING Y/Y: 4.5% (2nd straight quarter of growth) V %4.0E; EX-SOFTWARE Y/Y: 5.2% V 4.1%E
- (AU) AUSTRALIA MAY AIG MANUFACTURING INDEX: 54.8 V 59.2 PRIOR (8TH CONSECUTIVE MONTH OF EXPANSION; 4-month low)
- (AU) AUSTRALIA MAY CORELOGIC HOUSE PRICES M/M: -1.1% V 0.1% PRIOR
- (AU) AUSTRALIA APR RETAIL SALES M/M: +1.0% V +0.3%E (31-month high)
- (AU) AUSTRALIA Q1 PRIVATE CAPITAL EXPENDITURE (CAPEX) Q/Q: 0.3% V 0.5%E
- (KR) SOUTH KOREA MAY PMI MANUFACTURING: 49.2 V 49.4 PRIOR (10th consecutive contraction)
- (KR) SOUTH KOREA MAY TRADE BALANCE: $6.0B V $6.8BE
- (KR) SOUTH KOREA MAY CPI M/M: 0.1% V +0.2%E; Y/Y: 2.0% V 2.0%E; CPI CORE Y/Y: 1.4% V 1.4%E
***Asia Session Notable Observations, Speakers and Press***
- Asian indices are mixed again, tracking a lackluster US session where investors are biding their time before Friday's non-farm payrolls. Oil was in focus with a steep decline in US hours on reports of expanded Libya production, though some of the selloff was reversed on a large API inventory draw. US 2-10 Treasury yield curve continues to narrow, while PIMCO estimates a 70% chance of a US recession over the next 5 years. Fed's Williams speaking in Asia also voiced possibility of a total of 4 rate hikes this year if US economic growth strengthens, though he still sees 3 as the baseline scenario.
- China is leading regional indices to the downside after a much weaker than expected Caixin Manuf PMI sank into contraction for the first time in 11 months. Some of the key components saw first fall in input costs since last June, growth in new orders the slowest seen since the current upturn began in July 2016, and employment decline at the quickest pace seen since last September. Input costs also fell for the first time in nearly a year in evidence of disinflationary pressure. The Caixin PMI is focused more on smaller firms as opposed to the official PMI which earlier this week showed some support from last month's 6-month lows.
- Nikkei225 is faring better with a modest lift despite the lower US yields and stable USD/JPY rate ranging around ¥111, as Japan's Corporate Spending rose for the 2nd straight quarter and corporate profits grew double-digits despite stronger JPY in Q1. In other FX majors, AUD/USD initially rallied on the release of better than expected Retail Sales and an upgrade in Australia CAPEX projections for the current and next FY's, but then reversed all of those gains to fall 60pips from the highs below 0.7390 on soft China PMI. GBP came under pressure again with another UK election poll portending a hung Parliament in next week's vote.
- Volatility around China currency continued as PBoC fix was the strongest since Nov 10th. Traders attribute the preference for stronger Yuan as a preemptive move ahead of the anticipated Fed hike that is expected to strengthen the greenback, as Chinese central bank worries about accelerated outflows amid the increasingly apparent economic slowdown.
China
- (CN) ANZ: Sees China Q2 GDP at 6.6%; Latest expansion in Services sector may not be sustained amid regulatory tightening in financial sector - Chinese press
Japan
- (JP) BoJ Harada: BoJ's measures have produced excellent results; no chance BOJ will incur losses in long term perspective
- (JP) Japan to add Debt-to-GDP ratio as a fiscal target – Japanese Press
Korea
- (KR) BOK Gov Lee: Not sure if global recovery can by sustained
***Asian Equity Indices/Futures (00:00ET)***
- Nikkei +1.1%, Hang Seng +0.4%, Shanghai Composite -0.5%, ASX200 +0.1%, Kospi -0.1%
- Equity Futures: S&P500 flat; Nasdaq +0.2%, Dax -0.1%, FTSE100 +0.1%
***FX ranges/Commodities/Fixed Income (00:00ET)***
- EUR 1.1230-1.1255; JPY 110.70-111.10; AUD 0.7385-0.7455; NZD 0.7060-0.7090
- June Gold -0.3% at 1,268/oz; July Crude Oil +0.9% at $48.75/brl; July Copper -0.5% at $2.57/lb
- (US) Weekly API Oil Inventories: Crude: -8.7M v -1.5M prior (biggest draw since Sept 2016)
- (CN) PBOC SETS YUAN MID POINT AT 6.8090 V 6.8633 PRIOR; Biggest margin of increase since Jan 6th; Strongest Yuan fix since Nov 10th
- (CN) PBOC to inject combined CNY100B v CNY210B prior
- (JP) Japan MoF sells ¥2.08T v ¥2.3T offered in 10-year 0.1% JGBs; Avg yield: 0.051% v 0.030% prior; bid to cover: 3.64x v 3.76x prior
***Asia equities notable movers***
Australia
- ANZ -0.5%; New mortgage capital model approved by APRA; adoption to impact Level 2 CET1 ratio negatively by 26bps
- Boral (BLD) -1.0%; Cut at JPMorgan
- WesFarmers (WES) -3.9%; Cut at Morgan Stanley
Japan
- Canon (7751) +3.2%; stock buyback
- JGC (1963) +2.3%; awarded LNG contract
- Sumitomo Mitsui (8316) +1.0%; CEO: Guides FY20
- Toshiba (6502) -1.6%; transferring its stake in its chip joint venture back into the core company - Nikkei
Hong Kong
- Top SPring (3688) +1.5%; Reports Q1
- Lee's Pharma (950) -1.0%; Reports Q1
Uber Posts $708 Million Loss as Finance Head Leaves
Uber Technologies Inc. said its head of finance is leaving as the ride-hailing company reported continued big losses despite growing revenue, adding to an exodus of top officials and setting the stage for a second major executive search.
The company told The Wall Street Journal that first-quarter revenue was $3.4 billion, up 18% from the fourth quarter. Its loss, excluding employee stock compensation and other items, was $708 million, narrower than the $991 million reported three months earlier.
After Hours Summary: PANW +11.% following earnings/guidance (boosting cybersecurity names), PF +7% and CAG +1.3% on M&A speculation... SMTC -3%, HPE -2% following earnings/guidanceAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: PANW +11.3%, BOX +3%
Companies trading higher in after hours in reaction to news: NERV +16.4% (to amend its co-development and license agreement with Janssen related to MIN-202), NADL +7.6% (ticking higher; North Atlantic Drilling and Seadrill entered into a Framework Agreement with Rosneft Oil), PF +7.1% and CAG +1.3% (Reuters sources suggest Conagra interested in Pinnacle Foods takeover), TNK +10.1% (Teekay Tankers to acquire remaining shares of Tanker Investments in share-for-share merger resulting in combined total assets of $2.4 bln; expected to be immediately accretive), NIHD +5.6% (modestly rebounding after seeing notable decline in late trade; Aurelius Capital confirmed active stake lowered), MPC +1.8% (announces incremental $3 bln share repurchase authorization), KODK +1.6% (higher on light volume after the CFO disclosed the purchase of 2000 shares), BABY +0.6% (Pres/CEO disclosed purchase of 6000 shares worth more than $200K)
Cybersecurity names are higher following PANW earnings/guidance (etf HACK +1.4%): PFPT +2%, FEYE +1.6%, FTNT +1.6%, VMW +0.5%, CHKP +0.4%, CYBR +0.3%After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: SMTC -3.1%, HPE -2.3%, DSGX -1.4%
Companies trading lower in after hours in reaction to news: GMS -2% (light volume; commences 5 mln common stock offering by existing stockholders, including certain affiliates of AEA Investors)
Closing Market Summary: Financials Tumble On WednesdayThe S&P 500 (-0.1%) registered its second-consecutive decline on Wednesday as the financial sector (-0.8%) weighed on the broader market. However, a late-afternoon rally left the major averages at the upper end of the day's trading range. The Nasdaq (-0.1%) and the Dow (-0.1%) finished in line with the benchmark index.
Financials were under pressure from the jump after several industry leaders offered cautious commentary on market trends and conditions at the Deutsche Bank Financial Services Conference. Some of the most notable concerns surrounding the industry include slowing loan growth, rising delinquencies for sub-prime auto loans, and a flattening of the yield curve. However, the financial sector doesn't deserve all of the blame for today's downtick as the top-weighted technology sector (-0.3%) played an important supporting role.
The tech group suffered as mega-cap names like Apple (AAPL 152.76, -0.91) Microsoft (MSFT 69.84, -0.57), Facebook (FB 151.46, -0.92), and Alphabet (GOOGL 987.09, -9.08) settled with losses between 0.6% and 0.9%. Chipmakers outperformed the broader market after Analog Devices (ADI 85.76, +0.96) reported better than expected earnings and upbeat guidance. However, the PHLX Semiconductor Index (unch) still failed to reach its flat line.
While the energy sector (-0.4%) doesn't have as much influence as the aforementioned groups, it did contribute to today's slip as crude oil weighed on investor sentiment. The commodity dropped 2.9% to $48.23/bbl amid concerns over heightened production in Libya. Reports indicate that Libya's oil production has risen to 827,000 barrels per day (bpd), which is significantly more than country's 2017 and 2016 averages of 500,000 bpd and 300,000 bpd, respectively. The lightly-weighted real estate group (-0.1%) also finished in negative territory.
The seven remaining sectors settled in the green with gains between 0.2% and 0.5%. Countercyclical spaces like utilities (+0.5%), telecom services (+0.4%), and health care (+0.4%) led the charge. Large-cap names like Pfizer (PFE 32.65, +0.52) and Johnson & Johnson (JNJ 128.25, +1.14) underpinned the health care sector, adding 1.6% and 0.9%, respectively. Biotech names also contributed to the sector's positive performance, evidenced by the 0.5% increase in the iShares Nasdaq Biotechnology ETF (IBB 285.75, +1.45).
In earnings news, retailers produced a mixed batch of earnings reports. Michael Kors (KORS 33.18, -3.09) tumbled 8.5% to a fresh, five-year low after disappointing guidance overshadowed better than expected earnings and revenues. Conversely, Vera Bradley (VRA 9.41, +0.91) spiked 10.7% after better than expected earnings outweighed disappointing earnings guidance. The SPDR S&P Retail ETF (XRT 40.74, -0.01) finished flat.
On the data front, investors received several economic reports on Wednesday, including May Chicago PMI, April Pending Home Sales, the Fed's Beige Book for May, and the weekly MBA Mortgage Applications Index:
- Chicago PMI for May increased to 59.4 from 58.3 in April while the Briefing.com consensus expected a reading of 57.3.
- Pending Home Sales for April declined 1.3%. Today's reading follows a revised 0.9% decrease in March (from -0.8%).
- The Fed's Beige Book indicated modest to moderate economic growth from early April through late May for most of the 12 Federal Reserve Districts.
- The weekly MBA Mortgage Applications Index decreased 3.4% to follow last week's 4.4% increase.
Tomorrow, investors will receive a slew of economic reports, including ADP Employment Change for May consensus 180,000) at 8:15 ET, Initial Claims (consensus 239,000) at 8:30 ET, first quarter Productivity consensus -0.6%) at 8:30 ET, April Construction Spending (consensus 0.5%), and the May ISM Index ( consensus 54.7) at 10:00 ET.
May auto and truck sales will also be released throughout the day.
- Nasdaq Composite +15.2% YTD
- S&P 500 +7.7% YTD
- Dow Jones Industrial Average +6.3% YTD
- Russell 2000 +1.0% YTD
