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
