>>> Asian Update

Asia Mid-Session Market Update: China recovers as banks' NPL ratios stop deteriorating; Japan CPI stumbles again despite higher energy prices


***Economic Data***
- (JP) JAPAN JULY NATIONAL CPI Y/Y: -0.4% V -0.4%E; CPI EX FRESH FOOD (CORE) Y/Y: -0.5% V -0.4%E; CPI Ex Food and Energy (core-core) Y/Y: 0.3% v 0.4%e; lowest since Oct 2013
- (JP) JAPAN AUG TOKYO CPI Y/Y: -0.5% V -0.4%E; CPI EX-FRESH FOOD Y/Y: -0.4% V -0.4%E; CPI Ex Food/Energy Y/Y: 0.1% v 0.3%e; 1-year low
- (KR) South Korea Aug Consumer Confidence: 102 v 101 prior; 8-month high

***Index Snapshot (as of 03:30 GMT)***
- Nikkei225 -0.7%, S&P/ASX -0.2%, Kospi -0.3%, Shanghai Composite +0.6%, Hang Seng +0.6%, Sep S&P500 +0.1% at 2,175

***Commodities/Fixed Income***
- Dec gold +0.2% at $1,327/oz, Oct crude oil -0.2% at $47.26/brl, Sep copper +0.6% at $2.09/lb
- GLD: IMF: Russia raises Gold holdings by 7.3 tonnes to 1,506; China raises holdings by 5.3 tonnes to 1,828
- GLD: SPDR Gold Trust ETF daily holdings fall to 956.6 tonnes from 958.4
- SLV: iShares Silver Trust ETF daily holdings cut to 11,100 tonnes from 11,159 tonnes prior
- (CN) PBOC to inject CNY95B in 7-day reverse repos; inject CNY50B (3rd straight 14-day injection) in 14-day reverse repos; injects CNY310B for the week (11-week high) v injects CNY15.5B last week
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.6488 V 6.6602 PRIOR
- (JP) BOJ offers to buy ¥70B in JGBs with maturity under 1 year, ¥430B in 5-10 yr JGBs, ¥250B in inflation-linked JGBs, and ¥1.0T in T-bills
- (AU) Australia MoF (AOFM) sells A$900M in 1.75% 2020 Bonds; avg yield: 1.488%; bid-to-cover: 2.53x

***Market Focal Points/FX***
- Asian equity markets are trading mixed going into the key risk event of the week - Fed Chair Yellen's testimony at the Jackson Hole symposium scheduled for 10amET on Friday. Her comments will follow a revised reading of US Q2 GDP expected to show a slightly softer rate of growth and should continue to walk the tightrope of keeping more tightening on the table before the end of the year with an eye on recovery in employment, persisting soft inflation, and global uncertainty risks. Ahead of Yellen comments, Fed vice chair Fischer said the policy board is considering the risks of overheating in the economy - presumably with rates staying too low for too long - while San Francisco Fed's Williams noted there was no threat of high inflation and the central bank will keep the economy "running hot". Dollar majors are in predictably narrow ranges going into tomorrow's events, with USD/JPY in a 20pip range below 100.60, NZD/USD rising 20pips to 0.7315, and AUD/USD up 20pips above 0.7630.

- After yesterday's relative underperformance in China on perceived expectations of a central bank policy hold, mainland markets have rebounded thanks to better news out of the financial sector. Two of China's top 5 banks - China Construction and BoCom - reported their results, and both saw a notable drop-off in the rate of growth of non-performing loans. Recall overnight PBoC had also reportedly advised bank execs to lend in installments and spread out the loan terms as part of closer liquidity management. Today, PBoC deputy Gov Yi Gang said that interbank market liquidity plentiful, and the recent use of 14-day reverse repos in daily OMO's gives the market more options. China state planner NDRC also panned the interpretation of reduced likelihood of looser policy from the latest PBoC actions, stating China still has ample room to guide interest rates lower. Also of note overnight, a Xinhua report called China's registered urban unemployment rate "authentic", with expectations of the jobless rate remaining stable.

***Equities***
US equities / ADRs:
- EPAY: Reports Q4 $0.37 v $0.30e, R$88.1M v $87.4Me; +4.5% afterhours
- ADSK: Reports Q2 $0.05 v -$0.13e, R$551M v $513Me; Guides Q3 -$0.27 to -$0.22 v -$0.27e, R$470-485M v $472Me; +3.3% afterhours
- BRCD: Reports Q3 $0.21 v $0.17e, R$591M v $576Me; Guides Q4 $0.21-0.23 v $0.23e; R$630-650M v $636Me; -1.0% afterhours
- ULTA: Reports Q2 $1.43 v $1.39e, R$1.07B v $1.06Be; Guides Q3 $1.25-1.30 v $1.29e, R$1.07-1.09B v $1.08Be, SSS +11-13%; -1.3% afterhours
- SPLK: Reports Q2 $0.05 v $0.04e, R$212.8M v $201Me; -6.6% afterhours
- GME: Reports Q2 $0.27 v $0.26e, R$1.63B v $1.72Be; Guides Q3 $0.53-0.58 v $0.55e, SSS -2.0% to +1.0%; -7.8% afterhours
- TLND: Reports Q2 -$1.84 v -$0.32e, R$25.4M v $25.1Me; -18.2% afterhours

Notable movers by sector:
- Consumer discretionary: Coca-Cola Amatil CCL.AU -4.5% (H1 results); Dongfeng Motor 489.hk +0.6% (H1 results); Hisense Kelon Electrical Holdings 921.HK +3.3% (H1 results); Nitori Holdings Co 9843.JP -5.1% (H1 press speculation); Li & Fung Ltd 494.HK -4.3% (H1 results)
- Consumer staples: Lianhua Supermarket Holdings 980.HK +2.4% (H1 results)
- Financials: BoCom 3328.HK +0.4% (H1 results), Citic Bank 998.HK -0.4% (H1 results), China Construction Bank 939.HK -0.3% (H1 results); China Life Insurance 2628.HK +2.6% (H1 results)
- Industrials: Decmil DCG.AU -3.8% (FY16 results); CITIC Limited 267.HK +0.5% (H1 results); Tianjin Port Development 3382.HK -2.4% (H1 results); Beijing Capital International Airport 694.HK -2.9%
(H1 results);
- Materials: Chalco 2600.HK +0.4% (H1 results)
- Technology: Brambles BXB.AU -1.5% (CEO to retire)
- Telecom: ZTE Corp 763.HK -4.2% (H1 results)

>>> US After Hours Summary: PSTG +13%, EPAY +8.5%, ADSK +2% following

After Hours Summary: PSTG +13%, EPAY +8.5%, ADSK +2% following earnings/guidance, JMU +15% on P2P update/stake news... GME -8%, SPLK -7%, ULTA -2% following earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: PSTG +13.3%, EPAY +8.5% (also announces $60 mln stock repurchase program), QURE +3.2%, ADSK +2%,

Companies trading higher in after hours in reaction to news: DVD +18.1% (very thinly traded, Dover Motorsports to sell its Nashville Superspeedway facility to an entity owned by Panattoni Development), JMU +15.1% (Wowo states that its business scale does not include P2P financing and P2P internet lending service and announces Xiao Nan Guo Restaurants will acquire 9.82% stake at $6.00/share), LEI +10.6% (Lucas Energy enters into agreement with its senior lender, plans to use the funds to participate in the drilling and completion of certain Eagle Ford wells under a joint operating agreement with Lonestar Resources), WCIC +6.1% (light volume, to join S&P SmallCap 600), NLS +5.3% (to join S&P SmallCap 600), KGC +4.6% (ticking higher, announces operational updates at Bald Mountain, Tasiast and Maricunga), WNR +2.3% (light volume - CEO disclosed purchase of 100K shares), MPWR +0.9% (ticking higher - to join S&P MidCap 400), FRGI +0.8% (Fiesta Restaurant CEO Tim Taft to retire at year-end; Board to reevaluate strategic plan and appoints committee to seek successor and provide transition oversight), IP +0.8% (ticking higher, confirms it has communicated with its customers a price increase of $50 per short ton on all containerboard products, effective with shipments on October 1)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: TLND -17.5%, GME -8%, ULTR -7.9%, SPLK -6.6%, ULTA -2%, UEPS -1.7%, ZAYO -0.8%, BRCD -0.4%

Companies trading lower in after hours in reaction to news: SYNA -4.5% (light volume - files to delay Form 10-K citing matters arising late in the year end reporting process), VNDA -1.2% (modestly pulling back after 20% intraday move higher on patent news)

>>> US Close Dow -0.18% S&P -0.14% Nasdaq -0.11% Russell +0.22%

Closing Market Summary: Stocks Tick Lower Ahead of Jackson Hole Symposium

The stock market ended a choppy session on a modestly lower note as investors maintained a cautious posture ahead of tomorrow's speech from Federal Reserve Chair Janet Yellen. The Dow Jones Industrial Average (-0.2%) finished behind the S&P 500 (-0.1%) and the Nasdaq Composite (-0.1%).

The benchmark index traversed a narrow ten-point trading range as equity indices continued to languish below recently-established record highs. The Thursday affair was hallmarked by thin trading conditions, a hodgepodge of earning results, and deviating sector leadership from the heavily-weighted technology (+0.1%), financial (+0.3%), consumer discretionary (-0.4%), and health care (-0.8%) sectors.

Equities began the session on a lower note as global markets tilted to the downside. European bourses underperformed following a weaker-than-expected reading of Germany's IFO Business Climate survey for August. However, relatively light volume and the potential market-moving nature of Chair Yellen's Friday remarks also likely contributed to increased volatility in overseas markets.

The major U.S. indices stumbled at the start of the session as disappointing quarterly results and/or guidance from the likes of Dollar Tree (DLTR 85.50, -9.43), Dollar General (DG 75.61, -16.18), and Signet Jewelers (SIG 83.44, -12.06) weighed on investor sentiment. Early morning Fed speak may have also dampened risk appetite after a few officials talked up the potential of a rate hike in the near term. 

The S&P 500 (-0.1%) briefly fell to the 2170/2171 price level before reversing back towards its flat line. However, the broader market was unable to maintain its footing near those levels and slipped back towards its low in the final hour. The benchmark index finished in the bottom of today's trading range, but five sectors still ended in the green. The telecom services (+0.4%) and materials (+0.5%) sectors settled in front of the pack while consumer staples (-0.4%), consumer discretionary (-0.4%) and health care (-0.8%) underperformed.

The countercyclical health care sector (-0.8%) ended its day at the bottom of the leaderboard as biotechnology underperformed. In the group, Mylan Labs (MYL 42.85, -0.30) finished lower by 0.7% as participants weighed fresh criticisms of the drug maker. Mylan surrendered a 4.5% gain as recently-announced initiatives to lower the cost of its EpiPen device were deemed insufficient. Separately, St. Jude Medical (STJ 77.82, -4.06) declined 5.0% after Muddy Waters Capital issued bearish commentary on the name and disclosed a short position in the stock. The firm cited potential cyber security vulnerabilities for its negative view on St. Jude.

Retail names underperformed in the consumer discretionary space (-0.3%) as disappointing results and guidance from Dollar Tree (DLTR 85.50, -9.43), Dollar General (DG 75.61, -16.18), and Signet Jewelers (SIG 83.44, -12.06) overshadowed positive reports from Tiffany & Co (TIF 73.28, +4.41) and Guess? (GES 18.20, +3.30). The broader SPDR S&P Retail ETF (XRT 45.36, -0.26) ended lower by 0.6%, extending its week-to-date loss to 1.3%.

In the technology space (+0.1%), the high-beta chipmakers outperformed, evidenced by the 0.4% gain in the PHLX Semiconductor Index. In the group, Micron (MU 16.20, +0.69) jumped 4.5% after Nomura increased its price target on the stock to $20 from $16. In the broader sector, Salesforce.com (CRM 80.16, +2.34) gained 3.0% amid takeover rumors. The broader sector gained 0.1%, extending is month-to-date advance to 1.8%. 

Treasuries ended on a lower note as yields rose through the curve. The yield on the benchmark 10-yr note finished higher by one basis point (1.58%) while the yield on the 2-yr note finished at 0.79% (+2 bps).

Today's participation was below the recent average as fewer than 697 million shares changed hands at the NYSE floor.

Today's economic data included weekly initial claims and Durable Goods Orders for July: 

  • Initial jobless claims for the week ending August 20 slipped to 261,000 (consensus 265,000) from the prior week's unrevised reading of 262,000.
    • Continuing claims for the week ending August 13 were 2.145 million, down 30,000 from the prior week's unrevised reading.
  • Durable goods orders increased 4.4% in July (consensus +3.5%) on the back of a 10.5% increase in transportation equipment orders, which was fueled by an 89.9% increase in nondefense aircraft and parts orders.
    • Orders for the manufacturing sector have picked up again after declining in both May and June.
    • Excluding transportation, orders were up 1.5% (consensus +0.4%), paced by gains in nearly all categories.

Tomorrow's economic data will include the second estimate of Q2 GDP (consensus 1.1%) and July International Trade in Goods, which will each cross the wires at 8:30 ET. Separately, the final reading of the University of Michigan Consumer Sentiment Survey for August (consensus 90.6) will be released at 9:45 ET. 

  • Russell 2000 +9.0% YTD
  • S&P 500 +6.3% YTD
  • Dow Jones +5.9% YTD
  • Nasdaq Composite +4.1% YTD

>>> Bosch Deeply Involved in VW Emissions Scandal


Auto parts supplier Bosch allegedly worked for more than a decade with technicians at Volkswagen to develop software to cheat emissions tests, according to information obtained by German prosecutors, insider sources told WirtschaftsWoche, a sister publication of Handelsblatt.

The state prosecutor’s office in the city of Stuttgart has obtained a large data cache that apparently details how a department at Bosch cooperated with Volkswagen as early as 2005 to develop the cheat software.

“The department which the data comes from knew since 2005 that it was cheat software,” an insider told WirtschaftsWoche. “The data details which tricks were programmed when and by whom since 2005 and who knew.”

According to WirtschaftsWoche sources, the data also reveals that the emissions scandal goes far beyond the well-known attempts by Volkswagen to cheat nitrogen oxide tests of diesel cars.

“It’s about other pollutants such as soot particulate and it’s also about gas engines,” an insider said.

Prosecutors obtained the data cache in 2011 from a former Bosch employee who was under investigation. The former employee had copied 1.3 terabytes of data, equivalent to 1,800 CDs, from Bosch between 2009 and 2011 and had tried to sell the information to automobile enthusiasts.

The data is now being looked at in a new light by prosecutors who launched an investigation into Bosch at the end of 2015, months after Volkswagen admitted it had manipulated software in 11 million cars worldwide to cheat emissions tests.

“We are reviewing to what extent the evidence secured at that time is relevant for our ongoing investigation against Bosch,” confirmed a spokesperson for the state prosecutor’s office.

The data apparently contains information on strictly confidential engine control programs, emissions measurements and the email communications of entire departments.

The data includes information about many Volkswagen models such as the Passat, Golf and Tiguan as well as models from Seat, Skoda and Bentley. A large portion of the data concerns Audi and is marked “confidential.”

FT : US shale hotspot defies doldrums with near record output


The foremost shale gas region in the US is bucking the energy market doldrums, with production this month approaching a new record.
Natural gas output from the Marcellus and Utica shales of the US north-east is averaging 22.63bn cubic feet per day in August, according to Platts Analytics. That is up 2 per cent from July and the most since February’s all-time high of 22.78bn cu ft/d.

The reversal is defying expectations of a steady production decline as the commodities slump forces energy companies to curtail drilling. The north-east in the past several years emerged as what Credit Suisse called “the key growth engine” of US gas production, helping put the country on the global energy map as agas exporter.
“Right now we’re actually seeing higher production than in the past few months,” said Eric Brooks, energy analyst at Platts Analytics, a unit of S&P Global Platts. “It was the exact opposite of what everyone was anticipating.”
The US government forecast that combined gas output from the two shale areas lying beneath Ohio, Pennsylvania and West Virginia would decline until at least September.
But producers have managed to maintain volumes by tapping inventories of drilled but uncompleted wells and burrowing deeper, longer wells that yield more gas. Even though the number of drilling rigs has declined, new production per rig now averages about 11.4m cubic feet of gas in the Marcellus, an 18 per cent improvement from a year ago, according to Energy Information Administration figures.
Chesapeake Energy, a leading gas producer, raised production guidance “driven primarily by gas volume increases” in the Marcellus and another shale region, it recently told investors. Cabot Oil & Gas, a big Marcellus producer, said its output would remain roughly flat between the second and third quarter of 2016, while competitor Range Resources eyed a slight rise in production.
Production has been robust despite regional prices that are exceptionally soft. Intercontinental Exchange indices show gas at the Dominion South trading hub in Pennsylvania sold for $1.2757 per million British thermal units this month, less than half the price for benchmark gas in Louisiana, as producers, merchants and utilities jockey over a limited pipeline system.
Gas marketers typically inject excess supply into reservoirs in summertime for withdrawal during the winter heating season.
Mr Brooks said the recent surge of supply may reflect a push to sell gas before storage operators begin to ration space in their reservoirs.
Even though the region’s gas prices have been low, producers also remember last winter — typically the period of peak demand — when the Dominion South market sank to as little as $0.50 per mBtu.
“Time and again, the producers have proven how nimble they are and how willing they are to produce in a low-price environment,” Mr Brooks said.