Asian Market Update: China Q1 GDP slows to 7-year lows, industrial output recovers to 9-month high
***Economic Data***
- (CN) CHINA Q1 GDP Y/Y: 6.7% V 6.7%E (7-year low)
- (CN) CHINA MAR INDUSTRIAL PRODUCTION Y/Y: 6.8% (9-month high) V 5.9%E; YTD: 5.8% V 5.5%E
- (CN) CHINA MAR FIXED URBAN ASSETS Y/Y: 10.7% V 10.4%E; 7-month high
- (CN) CHINA MAR RETAIL SALES Y/Y: 10.5% V 10.4%E; YTD: 10.3% V 10.2%E
- (CN) CHINA MAR NEW YUAN LOANS (CNY): 1.37T V 1.10TE
- (CN) CHINA MAR MONEY SUPPLY M2 Y/Y: 13.4% V 13.5%E
- (CN) CHINA MAR AGGREGATE FINANCING (CNY): 2.34T V 1.400TE
- (KR) SOUTH KOREA MAR UNEMPLOYMENT RATE: 3.8% V 3.9%E
- (PE) PERU CENTRAL BANK (BCRP) LEAVES REFERENCE RATE UNCHANGED AT 4.25%; AS EXPECTED
- NPD: Mar video game sales flat y/y at $964.1M
***Index Snapshot (as of 03:30 GMT)***
- Nikkei225 -0.3%, S&P/ASX +0.3%, Kospi -0.2%, Shanghai Composite -0.3%, Hang Seng -0.2%, Jun S&P500 flat at 2,076
***Commodities/Fixed Income***
- Jun gold +0.3% at $1,230/oz, May crude oil +0.3% at $41.62/brl, May copper -0.3% at $2.16/lb
- (CN) China said to add 8B tons of identified iron ore reserves in the next 5 years - financial press
- GLD: SPDR Gold Trust ETF daily holdings fall 3.3 tonnes to 806.8 tonnes; 4th straight decline; lowest since Mar 16th
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.4908 V 6.4891 PRIOR; weakest Yuan setting since Mar 29th; 2nd straight weaker setting
- (CN) PBOC to inject CNY35B in 7-day reverse repos; Injects net CNY70B this week v drained CNY275B prior
- (JP) BOJ offers to buy ¥350B in 1-3yr JGBs, ¥440B in 3-5yr JGBs, ¥220B in 10-25yr JGBs and ¥180B in JGBs with maturity over 25-yr
- (AU) Australia MoF (AOFM) sells A$800M in 4.5% 2020 Bonds; avg yield: 4.50%; bid-to-cover: 3.17x
***Market Focal Points/FX***
- Asian equity markets are trading mixed, as the tidal wave of China economic data did not alter the perception of a managed slowdown in the world's 2nd biggest economy. Q1 GDP came in at a 7-year low of 6.7% - in line with expectations - while industrial production, retail sales, fixed asset investment, and new Yuan loans beat estimates. Today's figures match the narrative of marked improvement in Chinese economy in the month of March from the rocky start of the year, particularly as it pertains to the property sector where YTD investment growth accelerated to +6.2% v +3.0% prior, sales value rose 54% y/y, and construction remained hot with a 19% increase. The impact of China figures on macro asset classes was fairly muted - FX majors saw a slight uptick in AUD/USD of about 20pips to 0.7720 and USD/JPY rose above 109.70, as both marked their session highs immediately after China data. Crude Oil was down slightly, and copper was little changed.
- Speaking after the release of the figures, China Stats Bureau spokesperson reiterated that the economy operation is better than expected but downward pressure on cannot be underestimated, warning that L-shape in economy likely to persist. NBS acknowledged a bounce in industrial space and forecast a rise in profits, adding that the property sector was responsible for the biggest contribution in GDP growth. Trade conditions outlook was more cautious, as NBS forecast a slowdown from the impressive pace of export growth this month.
- Outside of China's economic data, commentary from govt officials and press sources was also noteworthy. PBOC Dep Gov Yi Gang reiterated that China GDP will be 6.5-7.0% this year. On FX, Yi said that Yuan overshooting is not good for China or the rest of the world, and that it is currently in equilibrium range. Note that after 4 straight sessions of firmer Yuan fixes, PBoC set Yuan at its weakest level since late March for the 2nd straight day. In terms of investment implications, a survey of high-net worth Chinese individuals by Legg Mason saw nearly 80% viewing domestic stocks as the best investment opportunity for the next 12 months, even though there are growing worries over China ballooning high-risk debt. In fact, a report from IMF estimated as much as $1.3T of China's loans to be risky - a staggering 15.5% of total lending. Nevertheless, PBoC Gov Zhou spoke earlier and voiced concerns over small and medium-sized companies struggling to secure financing.
- Outside of China, RBA released its Semi-Annual Financial Stability Review that deemed financial system to be in good condition albeit with some risk to banks from New Zealand dairy and housing exposure. The report acknowledged some signs of stress in resources sector and warned that some banks are vulnerable even though the overall exposure to resource-related lending was small. That assessment runs counter to a high-profile research report from UBS this week warning that Australia banks are on the hook for a "substantial" increase in provision costs and "material rise" in charges for bad debts to mining firms that will be exposed during upcoming earnings.
- In Japan, Fin Min Aso said that despite the G20 pledge to avoid competitive devaluation, the govt will not hesitate to intervene in FX markets if conditions become disorderly. A Citigroup survey saw nearly half of institutional FX participants suggest that ¥100 will be Japan's line in the sand. BOJ's high profile meeting at the end of the month could also be an opportunity to make a policy adjustment, and today a local press report hinted that the central bank could consider boosting its purchases of ETFs. This is also in line with speculation that the BOJ might return to QQE for easing rather than push rates deeper into negative territory.
***Equities***
US equities / ADRs:
- VRX: Said to work with investment banks to review its options amid interest from buyout firms and other companies - financial press; +1.4% afterhours
- COST: Raises quarterly dividend by 12.5% to $0.45/shr from $0.40/shr (implied yield 1.2%); +0.2% afterhours
- ESV: Offers 50M shares of Class A common stock; Reports prelim Q1 R$812-817M v $785Me; quarter benefitted from better than expected utilization; cuts CAPEX guidance - filing; -5.6% afterhours
- SMCI: Reports prelim Q3 $0.33-0.35 v $0.50e, Rev $530-533M v $595Me (prior $0.43-0.53, R$530-580M); -5.9% afterhours
- RLYP: Said to have dropped M&A advisor Centerview Partners - press; -14.4% afterhours
- XXIA: Cuts Q1 $0.05-0.08 v $0.12e, R$108-111M v $123Me (prior $0.10-0.14, $121-126M); -17.5% afterhours
Notable movers by sector:
- Consumer discretionary: Toho Co 9602.JP -1.5% (FY15/16 result)
- Financials: China South City Holdings 1668.HK -1.8% (FY result); Poly Real Estate Group Co 600048.CN +0.1% (FY15 result)
- Technology: Taiwan Semiconductor Manufacturing Co 2330.TW -1.2% (Q1 result, cuts 2016 target); Toshiba Corporation 6502.JP flat (speculation on PC operations)
- Materials: Yunnan Aluminum Co 000807.CN -1.2% (FY15 result); Angang Steel 347.HK -0.7% (guidance); Regis Resources RRL.AU +1.0% (Q3 result); OJI Holdings Corp 3861.JP +0.7% (result speculation)