Asia Mid-Session Market Update: AUD hits 5-week high as Australia GDP dodges slowdown; S&P affirms US rating
US Session Highlights
(CN) China reportedly ready to acquire more US Treasuries under the right circumstances as CNY currency (Yuan) stabilizes – financial press
(US) Goldman Economist Chain Store Sales w/e Jun 3rd w/w: -4.8%; Y/Y: +1.2%
(US) APR JOLTS JOB OPENINGS: 6.044M V 5.75ME (record high, first time above 6M)
(US) S&P AFFIRMS US SOVEREIGN RATING AT AA+; OUTLOOK STABLE
Stocks drifted to the downside as the inability of the US administration to push its economic agenda continued to take its toll. While the attention of Congress is mostly on the Russia probe, news of China buying more US debt also entered the scenario, helping fuel investor risk-off bias, sending bonds higher and stocks lower. Two sectors in S&P managed to post gains: Energy rose 1.2%, while Materials was also slightly in the black, gaining 0.1%.
US markets on close: Dow -0.2%, S&P500 -0.3%, Nasdaq -0.3%
Best Sector in S&P500: Energy
Worst Sector in S&P500: Consumer Discretionary
Biggest gainers: SWN +5.6%; NEM +4.8%; FCX +3.8%
Biggest losers: M -8.2%; KSS -5.8%; FAST -5.7%
At the close: VIX 10.5 (+0.4pts); Treasuries: 2-yr 1.30% (flat), 10-yr 2.15% (-3bp), 30-yr 2.81% (-3bps)
US movers afterhours
CVNA Reports Q1 -$0.28 v -$0.28e, Rev $159.1M v $158Me; Guides Q2 R$193-203M v $188Me, EBITDA margin -18.5% to -18.0%; +10.2% afterhours
KEYS Reports Q2 $0.64 v $0.58e, Rev $758M v $748Me; Guides Q3 $0.51-0.65 v $0.58e, Rev $840-880M v $838Me ; +5.8% afterhours
UNFI Reports Q3 $0.77 v $0.76e, Rev $2.37B v $2.42Be; cuts FY17 Rev $9.29-9.34B v $9.35Be; -2.2% afterhours
SIGM Reports Q1 -$0.25 v -$0.18e, Rev $39.6M v $39.3Me- non-GAAP Gross margin 47.6% v 46.6% y/y; -4.1% afterhours
AMBA Reports Q1 $0.39 v $0.36e, Rev $64.1M v $63.4Me; authorizes $50M share buyback (2.5% of market cap); Guides Q2 Rev $69-72M v $72.3Me, gross margin 62-63.5%; -5.7% afterhours
DLTH Reports Q1 $0.01 v $0.06e, Rev $83.7M v $82.9Me; Affirms FY17 GAAP EPS $0.66-0.71 v $0.70e, net sales $455-465M v $463Me ; -10.8% afterhours
Politics
(US) House Freedom Caucus said to call for cancellation of Congressional August recess
(US) Pres Trump said to side with Treasury Sec Mnuchin on Debt Ceiling strategy – Politico
(MX) Mexico’s MORENA party calls for recount of all State of Mexico precincts
Key economic data
(AU) AUSTRALIA Q1 GDP Q/Q: 0.3% V 0.3%E; Y/Y: 1.7% (weakest annual growth since 2009) V 1.6%E
(AU) AUSTRALIA MAY AIG PERFORMANCE OF CONSTRUCTION INDEX: 56.7 V 51.9 PRIOR (4th consecutive expansion; highest level since Sept 2014)
(NZ) NEW ZEALAND Q1 MANUFACTURING ACTIVITY (SA) Q/Q: 2.8 V 1.3% PRIOR; VOLUME Q/Q: -0.3% (2nd straight decline) V -2.0% PRIOR
(NZ) NEW ZEALAND MAY ANZ JOB ADVERTISEMENTS M/M: -0.6% V 0.2% PRIOR
Asia Session Notable Observations
Asian equity markets are mixed and volatility is thinner despite 2nd straight day of losses on Wall St. Investors are bracing for China FX reserves and trade data, ECB decision, UK elections, and Congressional testimony of former FBI director about Pres Trump’s potential involvement in campaign investigation all within the next 48 hours. Shanghai Composite is the outperformer amid strength in China property developer names. Also of note in China, PBoC set Yuan midpoint higher for the 6th straight time, while PBoC returned to conducting open market repos with a full range of reverse repo maturities (7-, 14- and 28-day)
Trading in FX majors was also fairly quiet with exception of AUD. Aussie dollar rose over 40pips after Australia Q1 GDP dodged potential contraction in the wake of yesterday’s wider than expected Current Account deficit. AUD/USD hit 5-week highs above 0.7540, and AUD/NZD cross rose above 1.05 for a 1-week high. Short term rates also rose as markets repriced the possibility of another rate cut in the next 12 months to just 15% from 22% prior. Yield on the 3-yr rose 4bps to 1.70%, though worries over the medium term still persisted, with the 10yr-3yr yield spread at narrowest level since Nov 2016.
In the corporate space, M&A speculation lifted shares of Vocus in Australia and Japan Display, with reported interest from KKR and Sharp respectively.
S&P affirmed US sovereign rating at AA+ with a Stable Outlook, thanks to "resiliency of US economy, policy flexibility, and proactive monetary policy helping keep US GDP growth stable over next several years.
Speakers and Press
China
(CN) ANZ analyst: China spending program will support economic growth; rising US rates will not be a headwind for gold
(CN) China National Institution for Finance and Development Chairman Li Yang: China must rein in rapid build-up in local government debt and should implement reforms at the local level to raise transparency and let market forces play a bigger role
(CN) Kynikos Associates’ Jim Chanos: China added $5T in new credit dollars last year; Less short on China now than in the past – press
Japan
(JP) Japan Chief Cabinet Sec Suga: BOJ Gov will be the one who understands beating deflation
Australia/New Zealand
(AU) Implied probability of another RBA rate cut in the next 12 months fell to about 15% from 22% following GDP data – press
Korea
(KR) South Korea submits KRW11.2T stimulus package to Parliament – press
(KR) South Korea Fin Min Nominee Kim Dong-Yeon: South Korea faces serious external challenges – speaking in parliament
Asian Equity Indices/Futures (23:30ET)
Nikkei -0.3%, Hang Seng +0.1%, Shanghai Composite +0.9%, ASX200 -0.1%, Kospi -0.1%
Equity Futures: S&P500 +0.1%; Nasdaq +0.1%, Dax +0.1%, FTSE100 -0.1%
FX ranges/Commodities/Fixed Income (23:30ET)
EUR 1.1260-1.1280; JPY 109.30-109.60; AUD 0.7500-0.7545; NZD 0.7170-0.7190
Aug Gold -0.2% at 1,295/oz; July Crude Oil -0.1% at $48.14/brl; July Copper +0.2% at $2.55/lb
(US) Weekly API Oil Inventories: Crude: -4.6M v -8.7M prior (3rd straight draw)
SPDR Gold Trust ETF daily holdings rise 4.2 tonnes to at 855.2 tonnes; second straight increase
(CN) PBOC SETS YUAN MID POINT AT 6.7858 V 6.7934 PRIOR; 6th straight firmer Yuan fix; Strongest Yuan fix since Nov 9th
(CN) PBOC injects CNY180B in combined 7-day, 14-day and 28-day reverse repos v skipped prior
(AU) Australia Finance Ministry (AOFM) sells A$600M in 4.5% 2020 bonds; avg yield 1.6419%; bid-to-cover 4.81x
(KR) South Korea sells KRW1.47T in 30-yr Govt bonds; avg yield 2.33%
(KR) Bank of Korea (BOK) sells KRW2.84T v KRW2.8T offered in 2-yr monetary stabilization bonds; avg yield 1.58% v 1.61% prior
Asia equities notable movers
Australia
Vocus Group (VOC) +19.9%; Receives A$3.50 cash offer from KKR (~22% premium)
Newcrest (NCM) +0.9%; Gold price prices; Van Eck builds stake
IOOF Holdings (IFL) -1.1%; Cut at Citigroup
Virgin Australia (VAH) -1.7%; New board members Warwick Negus and David Baxby may be pushing for privatization; while shareholders HNA Group (19.17%) and Nanshan Group (19.98%) prefer to keep the company public – Australian
WesFarmers (WES) -3.5%; Guides FY17 CAPEX A$1.1-1.2B, Curragh metallurgical coal exports estimated at lower end of range – investor day
Japan
Japan Display (6740) +10.8%; Sharp said to have expressed interest in the company – Nikkei
McDonald’s Japan (2702) +1.6%; May SSS +10%
Hong Kong
Aac Technologies Holdings (2018) +16.6%; Gotham City research to publish a new report on company
China Vanke (2202) +7.9%; Halted on speculation of takeover by Shenzhen Metro
China Overseas Grand Oceans Group (81) +6.6%; May contracted sales
Great Wall Motor (2333) -1.8%; May auto Sales
Geely Auto (175) -2.1%; May auto sales
CAR Inc (699) -2.4%; May contracted sales
