>>> Asian Update

Asian Mid-session Market Update: Australia unemployment ticks higher as Moody's warns on election risks; BOK on hold in unanimous decision

***Economic Data***
- (KR) BANK OF KOREA (BOK) LEAVES 7-DAY REPO RATE UNCHANGED AT 1.25%; AS EXPECTED
- (AU) AUSTRALIA JUNE EMPLOYMENT CHANGE: +7.9K V +10.0KE; UNEMPLOYMENT RATE: 5.8% (4-month high) V 5.8%E
- (AU) AUSTRALIA JULY CONSUMER INFLATION EXPECTATION: 3.7% V 3.5% PRIOR; 7-month high
- (AU) AUSTRALIA JUNE NEW MOTOR VEHICLE SALES M/M: 3.1% v -1.0% PRIOR; Y/Y: 2.1% v 1.8% PRIOR
- (NZ) NEW ZEALAND JUNE BUSINESS MANUFACTURING PMI: 57.7 V 57.2 PRIOR; 5-month high
- (NZ) NEW ZEALAND JULY ANZ CONSUMER CONFIDENCE INDEX: 118.2 V 118.9 PRIOR; M/M: -0.6% V +2.3% PRIOR
- (NZ) NEW ZEALAND JUNE ANZ JOB ADVERTISEMENTS M/M: 0.5% V 0.5% PRIOR; 5th straight increase
- (SG) SINGAPORE Q2 ADVANCED GDP Q/Q: 0.8% V 0.9%E; Y/Y: 2.2% V 2.2%E
- (UK) JUNE RICS HOUSE PRICE BALANCE: 16% V 10%E

***Index Snapshot (as of 04:00 GMT)***
- Nikkei225 +0.8%, S&P/ASX +0.3%, Kospi -0.1%, Shanghai Composite -0.4%, Hang Seng +0.1%, Sep S&P500 flat at 2,145

***Commodities/Fixed Income***
- Aug gold -0.4% at $1,340/oz, Aug crude oil +1.5% at $45.40/brl, Sep copper +0.2% at $2.24/lb
- SLV: iShares Silver Trust ETF daily holdings rise to 10,842 tonnes from 10,679 tonnes prior; multi-year high
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.6846 V 6.6891 PRIOR; 2nd straight firmer Yuan setting
- (CN) PBOC to inject CNY20B in 7-day reverse repos
- (JP) Japan investors bought net ¥2.5T (record high) in foreign bonds v bought ¥427B in prior week; Foreign investors sold net ¥307B in Japan stocks v bought ¥114B in Japan stocks in prior week
- JGB: (JP) Japan MoF sells ¥2.20T in 0.1% (0.1% prior) 5-year JGBs; Avg yield: -0.365% v -0.232% prior; Bid-to-cover: 3.45x (9-month low) v 4.66x prior

***Market Focal Points/FX***
- Asian equity markets have turned more mixed, even though cash indices made new record highs and treasuries retreated further in US trading. Shanghai Composite is under modest pressure, weighed down by soft components of June China trade data that showed import decline in both USD and CNY terms falling by a wider than expected margin. S&P futures are flat, WTI crude oil is off the lows after Wednesday's plunge, while gold prices are little changed. In FX majors, AUD/USD was especially volatile with a 30pip spike above $0.7630 on mixed-positive jobs data, USD/JPY remains range-bound in 104-105 band for the 3rd straight day, and NZD/USD fell about 80pips late in the day after reports that RBNZ will release an economic assessment next week that may potentially pave the way to August easing.

- Australia unemployment rate ticked up to a 4-month high of 5.8% - in line with estimates. Employment change was just shy of consensus at +7.9K, but markets reacted positively given that the full-time component increase was a robust 38.4K, as part-time fell 30.6K. Participation rate also reached a 3-month high of 64.9%. Elsewhere, credit agencies continue to weigh in on Australia political gridlock, even though the ruling Coalition has already claimed victory. Today, Moody's noted the election result is a credit negative as it puts into question the govt's promises to cut the budget deficit.

- In China, after yesterday's trade data that showed disappointing declines in Imports, China Customs official added that exports may also face big downward pressure in Q3 due to soft global demand. The official also pointed to the risks from Brexit, tighter Fed policy, geopolitical risks, and terrorism activity impacting consumer sentiment and weighing on trade. Investors are awaiting tomorrow's critical Q2 GDP and June industrial/retail/investment data. Meanwhile, state planner NDRC remarked that the economy is basically stable, with regulators on track to meet 2016 target for coal and steel capacity reduction.

- Japan PM Abe advisor Hamada cast a shadow over expectations of BOJ announcing further policy stimulus at the end of the month. Expectations for more easing have been building after a strong showing of ruling LDP in upper house of Parliament elections, but Hamada hinted that corporate Japan should not rely too much on the central bank for help. Overnight, Abe's advisor Honda was more willing to call for more easing, noting deflation cannot be addressed with Yan at 100 levels while also recommending expanded bond buying over a deeper cut in already negative interest rates.

- After last month's surprise rate cut, Bank of Korea left its 7-day repo rate on hold at 1.25%. Analysts were unanimous in expectation of a hold, and the policy board also did not produce any dissent. BOK did revise its 2016 targets for GDP and CPI to the downside by 0.1pt to 2.7% and 1.1% respectively. The policy statement noted high uncertainties to Korea's growth and sluggish sentiment, but also pointed to improvement in consumption and expectation of a gradual rise in inflation.

***Equities***
US equities / ADRs:
- CY: Working with Goldman Sachs on strategic options after receiving interest from private equity firms; Said to be holding out for a $15/shr deal - Betaville blog; +6.5% afterhours
- NVCR: Receives FDA Approval for second generation Optune System; +5.7% afterhours
- YUM: Reports Q2 $0.75 (adj) v $0.74e, R$3.01B v $3.10Be; Raises FY16 core operating profit to +14% from +12%; +4.6% afterhours
- HSY: Mondelez may raise its offer if it sees an opening; Has not dropped its pursuit of the company - financial press; +0.7% afterhours

- AMZN: ChannelAdvisor final estimates for US 'Prime Day' SSS -3% y/y

Notable movers by sector:
- Consumer discretionary: Treasury Wine Estates TWE.AU +5.0% (JPMorgan raises to overweight); Sapporo Holdings Ltd 2501.JP +1.9% (H1 result speculation)
- Consumer staples: China Modern Dairy 1117.HK -1.8% (profit warning); Luk Fook Holdings 590.HK -1.7% (Q1 result)
- Financials: Poly Real Estate Group Co 600048.CN +2.3% (in talks with AVIC for property business)
- Industrials: Incitec Pivot IPL.AU -7.8% (UBS cuts to neutral); Hyundai Motor Co 005380.KR -2.6% (union workers vote in favor of strike)
- Technology: Nintendo Co. 7974.JP +16.6% (Gaming Pokeman momentum; partnership with McDonald's); LG Innotek 011070.KR +7.7% (JPMorgan raises to overweight)
- Materials: Iluka Resources ILU.AU +2.1% (Q2 result); Maanshan Iron & Steel 323.HK % (H1 guidance); Alumina AWC.AU +0.7% (Goldman raises to Buy); Fortescue Metals Group FMG.AU -4.0% (FY16 iron ore shipment)
- Energy: Woodside Petroleum WPL.AU -1.3 (to acquire ConocoPhillips' Senegal interests)
- Healthcare: Daiichi Sankyo Co 4568.JP -0.9% (to commercialize biosimilars)
- Utilities: Transurban TCL.AU -0.8% (Q4 result)

>>> US After Hours Summary: YUM +4.6% on earnings/guidance, MON +

After Hours Summary: YUM +4.6% on earnings/guidance, MON +1.6% amid renewed BASF talks speculation

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: YUM +4.6%, LEI +2.3% (reports 2016 results and files previously delayed 10-K)

Companies trading higher in after hours in reaction to news: TGD +13.1% (reports preliminary Q2 production results, achieved production of 25,863 gold ounces for the quarter), NVCR +5.7% (receives FDA approval for the premarket approval supplement application for its second generation Optune system), CY +4.5% (Betaville report suggesting the company is attracting multiple potential buyers and previously rejected Summitview $14 / share bid), YOD +1.9% (discloses entry into common stock purchase agreement, will issue and sell 2,272,727 shares of its common stock for $1.76/share to Seven Stars Works), RARE +1.8% (announces that data from the Phase 3 study of recombinant human beta-glucuronidase will be presented at the 14th International Symposium on MPS and Related Diseases, taking place July 14-17 in Bonn, Germany), MON +1.6% (Bloomberg report that Monsanto reconsidering BASF agrochemicals unit acquisition), COP +0.2% (to sell its 35% interest in three exploration blocks offshore Senegal to Woodside Petroleum for $350 mln plus net customary adjustments of ~$80 mln)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: CSX -0.7% (light volume after late surge higher when earnings were released early)



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>>> US Close Dow +0.13% S&P +0.01% Nasdaq -0.34% Russell -0.39%

Closing Market Summary: Rally Pauses with Oil and Earnings in Sight

The stock market ended the Wednesday affair on a flat note as the broader market spent most of the session consolidating after its recent rally. The S&P 500 (UNCH) ended its day narrowly above its flat line, extending its winning streak to a fourth session. Additional factors impacting today's trade included a downturn in oil, softening in the dollar, a rebound in safe havens, and the underperformance of the heavily-weighted consumer discretionary (-0.5%) and technology (-0.1%) sectors. The Dow Jones Industrial Average (+0.1%) ended ahead of the benchmark index (UNCH) and the Nasdaq Composite (-0.3%).

U.S. equities began the day on a choppy note, responding to a weakening rally overseas. European markets ended their session on a flat note as investors looked ahead to a Thursday policy meeting at the Bank of England. Governor Mark Carney previously stated that policy meetings over the next two months should be viewed as one meeting, raising concerns that the central bank will not offer further easing measures until August. Additionally, crude oil added to the cautious tone after the American Petroleum Institute reported a surprise crude oil build in its weekly inventory report (+2.2 million barrels; last: -6.73 million barrels).

The major averages ebbed lower throughout the morning as investors ruminated over the Department of Energy's latest stockpile data. The Energy Information Administration reported that crude oil inventories declined by 2.54 million barrels, compared to the estimated 2.95 million barrel draw. Furthermore, the report also showed that gasoline inventories rose by 1.21 million barrels, compared to the estimated 0.43 million barrel draw. In response, WTI crude extended its decline, ending the day lower by 4.0% ($44.87/bbl; -$1.87).

Equity indices ticked higher in the afternoon, essentially ignoring the release of the Fed's Beige Book for July. The Beige Book reported that economic activity continued to expand at a modest pace, but that inflationary pressures remained subdued. The major indices finished off their best levels of the day with seven sectors in the green. The defensively-oriented telecom services (+0.8%), utilities (+0.8%), and consumer staples (+0.5%) ended in the front of the pack while energy (-0.7%), consumer discretionary (-0.5%), and technology (-0.1%) rounded out the board.

In the consumer discretionary space (-0.5%), Michaels Stores (MIK 27.13, -1.75) underperformed after announcing that it would conduct a secondary stock offering of 11 million shares. The company also lowered its second-quarter guidance below analysts' estimates. Elsewhere, heavyweight Amazon (AMZN 742.63, -5.58) declined by 0.8% after yesterday's "Prime Day" sale. However, the company reported that worldwide orders increased by 60.0% year-over-year.

The economically-sensitive financial sector (UNCH) ended its day near its flat line as investors looked ahead to key earnings reports later in the week. On that note, JPMorgan Chase (JPM 63.16, -0.04) will report tomorrow morning while Citigroup (C 43.33, -0.11) and Wells Fargo (WFC 48.27, -0.08) will both release their earnings ahead of Friday's opening bell.

The Dow Jones Transportation Average (+0.7%) displayed relative strength as rail names outperformed. In the group, CSX (CSX 28.21, +1.19) jumped 4.4% after the company reported a bottom-line beat on in-line revenue. The company released its report early, looking to clarify incorrect information that was released via Twitter. On the flipside, airlines underperformed as the group pulled back from their yesterday's rally. Delta Air Lines (DAL 39.56, -0.65) slipped 1.6% ahead of tomorrow morning's earnings call.

The U.S. Dollar Index (96.32, -0.12) ended near its high as the buck gained ground against commodity currencies and the pound. The dollar/Canadian dollar pair finished higher by 0.5% (1.2977) while sterling lost 0.8% against the greenback (1.3138).

Treasuries enjoyed a bid throughout today's session as yields fell throughout the complex. The yield on the 10-yr note settled at 1.47%, sliding four basis points.

Today's trading volume was below the recent average as fewer than 815 million shares changed hands on the NYSE floor.

Today's economic data included the weekly MBA Mortgage Index, Import/Export Prices for June, and the Treasury Budget for June: 

  • The weekly MBA Mortgage Index showed a seasonally adjusted increase of 7.2% in mortgage applications.
  • Import prices increased 0.2% in June while export prices increased 0.8%.
    • Notwithstanding the headline increases, this report hasn't kicked up any noticeable inflation dust for the Federal Reserve.
    • The uptick in import prices was driven by a 6.2% increase in fuel prices.
    • Excluding fuel, import prices actually declined 0.3%, which was the largest monthly drop since the index declined 0.3% for six consecutive months from July to December 2015.
    • On a year-over-year basis, nonfuel import prices are down 1.8%.
    • Higher export prices in June were led by a 2.4% jump in agricultural export prices.
    • Excluding agriculture, export prices increased 0.5%.
    • That is the fourth straight monthly increase in nonagricultural export prices, yet they are still down 3.8% year-over-year.
  • The Treasury Budget for June showed a surplus of $6.3 billion versus a surplus of $50.5 billion in June 2015.
    • The Treasury Budget data is not seasonally adjusted, so the June surplus cannot be compared to the $52.5 billion deficit registered in May.
    • Total receipts in June were $329.6 billion while total outlays were $323.3 billion.
    • Receipts were $13.4 billion less than receipts in June 2015. Total outlays, meanwhile, were $48.7 billion more than the same period a year ago.
    • The 12-month deficit widened to $523.6 billion from $479.3 billion in May.

Tomorrow's economic data will include weekly initial claims (consensus 265k) and Core PPI for June (consensus 0.1%), which will each be released at 8:30 ET. 

  • Russell 2000 +5.8% YTD
  • Dow Jones +5.4% YTD
  • S&P 500 +5.3% YTD
  • Nasdaq Composite UNCH YTD