Asia Mid-Session Market Update: North Korea conducts another missile test; China industrial profits slow further
Friday US Session Highlights
(US) Q1 PRELIMINARY GDP ANNUALIZED Q/Q: 1.2% V 0.9%E; PERSONAL CONSUMPTION: 0.6% V 0.4%E
(US) APR PRELIMINARY DURABLE GOODS ORDERS: -0.7% V -1.5%E; DURABLES EX TRANSPORTATION: -0.4% V 0.4%E
(US) Q1 PRELIMINARY GDP PRICE INDEX: 2.2% V 2.3%E; CORE PCE Q/Q: 2.1% V 2.0%E
(US) MAY FINAL UNIVERSITY OF MICHIGAN CONFIDENCE: 97.1 V 97.5E; 5-10 year inflation expectations tick higher
(US) Atlanta Fed lowers Q2 GDP to 3.7% from 4.1% on 5/16
Politics
(US) Pres Trump: I suggest that we add more dollars to Healthcare and make it the best anywhere. ObamaCare is dead – the Republicans will do much better! – tweet
(JP) Japan PM Abe’s Cabinet approval rating falls 4pts to 56% – Japan press
(ZA) South Africa President Zuma said to survive a proposal by the ANC NEC to have him removed – financial press
(CN) Since the start of 2016, China Pres Xi replaced 20 of Communist Party’s 31 provincial secretaries and 27 governors – The Economist
Key economic data:
(CN) CHINA APR INDUSTRIAL PROFITS Y/Y: 14.0% V 23.8% PRIOR; YTD 24.4% V +28.3% PRIOR
(CN) China Ministry of Commerce (MOFCOM) reports Apr non-financial outbound direct investment $5.83B, -70.8% y/y
Asia Session Notable Observations, Speakers and Press
Asian equity markets are mixed and volatility is low with mainland China on holiday for Dragonboat Festival. US market holiday on Monday is adding to tepid price action across all assets. Friday’s trading session was highlighted by improvement in US Q1 GDP thanks to better than initially reported consumption, though US Treasuries did not budge much and outlook for Fed rate hike next month remained just above 80%. On the flip side, Atlanta Fed lowered its Q2 GDP target to 3.7% from 4.1%.
G7 concluded its meeting in Italy with merely a vague commitment to existing exchange rate arrangements, pledge to "fight protectionism" and reduce global imbalances to support growth. Climate change friction amid speculated intentions by US Pres Trump to pull out of Paris Accord was among the more noteworthy developments, as leaders failed to bridge differences on the issue. The focus now turns to China-EU investment agreement taking place next weekend, as Europe appears to pivot toward greater cooperation with the East
Australia index is a notable decliner amid weakness in Energy and Mining sectors, while Korea’s Kospi continues to outperform with its 8th consecutive gaining session to reach record high above 2,360. Geopolitical concerns have not deterred the rally in the index, as North Korea fired another projective deemed to be a scud missile from the east coast. The launch sparked another stern rebuke from regional leaders – Japan PM Abe went as far as to state that concrete measures will be taken by US/Japan in response to ongoing provocations.
Economic docket was also extremely light with only data releases coming out of China over the weekend. Industrial profit growth slowed to 14.0% from 23.8% in Apr, though Stats Bureau said the slowing is "reasonable considering the fast growth experienced earlier this year." In further evidence of deceleration in activity/sentiment however, MOFCOM announced Apr non-financial outbound direct investment over the weekend plunging by over 70% to $5.83B.
China
(CN) China is "strongly dissatisfied" with the G7 statement on the East and South China Seas, and has requested they "stop making irresponsible remarks"
(CN) Assistant China Commerce Minister Li Chenggang: China is committed to open its markets and promoting China-EU investment agreement – press
(CN) China’s Securities regulator (CSRC) to make it more difficult for major shareholders to sell their stakes – US financial press
Japan
(JP) According to analysts, Asian investors appear to be neutral or underweight on J-REITs, amid concern a large influx of new properties from 2018 will create an oversupply in the market
Australia/New Zealand
(AU) The last time the Australia – US 10-year yield spread was so low (16bps as of Fri) in Mar 2001, AUD/USD traded below $0.50 – AFR
(AU) Swaps markets now pricing in about 5bps in interest rate reduction by RBA by November, nearly double from last month – press
(NZ) Westpac: Latest GDP projections in New Zealand budget may be overly optimistic – press
Korea
(KR) North Korea said to fire unidentified projectile from east coast – South Korean Press
(KR) Japan PM Abe: Japan and US to take concrete steps on North Korea following latest missile launch; Will consider specific response options – press
(KR) South Korea to sternly respond to North Korea missile launch – Korean press
(KR) South Korea may announce measures to stabilize the property market – South Korean Press
Asian Equity Indices/Futures (00:00ET)
Nikkei +0.2%, Hang Seng +0.2%, Shanghai closed, ASX200 -0.5%, Kospi +0.5%
Equity Futures: S&P500 +0.1%; Nasdaq +0.1%, Dax flat, FTSE100 closed
FX ranges/Commodities/Fixed Income (00:00ET)
EUR 1.1160-1.1185; JPY 111.15-111.45; AUD 0.7430-0.7450; NZD 0.7040-0.7065; GBP 1.2795-1.2825
June Gold -0.1% at 1,266/oz; July Crude Oil -0.3% at $49.64/brl; July Copper -0.3% at $2.56/lb
(US) Weekly Baker Hughes US Rig Count: 908 v 901 w/w (+0.8%) (19th straight weekly rise)
iShares Silver Trust ETF daily holdings fall to 10,605 tonnes from 10,635 tonnes prior; 2nd straight decline
(AU) Australia MoF (AOFM) sells A$500M in 3.75% 2037 bonds; avg yield 3.0701%; bid-to-cover 2.37x
(KR) South Korea MOF sells 20-yr bonds;avg yield 2.385%
Asia equities/Notables/movers
Australia
Pepper Group (PEP) +4.4%; KKR said to be interested in Pepper to expand its Australian lending, unclear if an approach has been made – AFR
BHP -0.5%, RIO -1.8%; Western Australia Govt expected to ask BHP and Rio to buyout iron ore lease rental fee, which may amount to billions of dollars – AFR
Domino’s Pizza Enterprises (DMP) -5.2%; Cut at Morgans
Hong Kong
China Evergrande (3333) +23.6%; Investing CNY85B into 13 hospitals under strategy to increase profits
Shui On Land (272) +7.9%; To sell majority stake in Chongqing Shui On Tiandi Real Estate to Vanke for CNY4.13B
Qinhuangdao (3369) +0.8%; Guides H1
Japan
Toshiba (6502) +3.2%; Western Digital said to be open to taking a smaller stake in Toshiba chip unit – Japan press
Nintendo (7974) +2.1%; Strength attributed to announcement of additional games for Switch device due out Aug 25th
Sharp (6753) +0.8%; Guides FY17/18 Net ¥59.0B, Op Profit ¥90.0B, Rev ¥2
Sony (6758) +0.8%; Affirms FY17/18 Op ¥500B; Targets ROE +10% – investor slides
ANA (9202) +0.5%; Will introduce in-flight Wi-Fi on all flights between Japan and the US by 2020 – Nikkei
