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Asian Market Update: BOJ Maintains Policy Stance With More Upbeat View Of Longer-Run Inflation

BOJ maintains policy stance with more upbeat view of longer-run inflation

Asia Mid-Session Market Update: BOJ maintains policy stance with more upbeat view of longer-run inflation; Australia employment, New Zealand GDP miss expectations

US Session Highlights

(US) MAR EMPIRE MANUFACTURING: 16.4 V 15.0E; new orders 21.3 v 13.5 prior

(US) FEB ADVANCE RETAIL SALES M/M: 0.1% V 0.1%E; RETAIL SALES EX AUTO M/M: 0.2% V 0.1%E; Control Group revised higher from 0.4% to 0.8%

(US) FEB CPI M/M: 0.1% V 0.0%E; CPI EX FOOD AND ENERGY M/M: 0.2% V 0.2%E; CPI INDEX NSA: 243.603 V 243.416E

(US) MAR NAHB HOUSING MARKET INDEX: 71 V 65E (highest since June 2005)

(US) JAN BUSINESS INVENTORIES: 0.3% V 0.3%E

(US) FOMC RAISES FED FUNDS TARGET RANGE 25BPS TO 0.75-1.00% (AS EXPECTED); ECONOMIC CONDITIONS WILL EVOLVE IN WAY THAT WARRANTS GRADUAL INCREASES

US markets on close: Dow +0.5%, S&P500 +0.8%, Nasdaq +0.7%

Best Sector in S&P500: Energy

Worst Sector in S&P500: Financials

Biggest gainers: SWN +5.8%, NEM +5.3%, FCX +5.1%, HOG +4.7%, RIG +4.6%

Biggest losers: M -2.0%, COF -2.0%, AZO -1.7%, ORLY -1.7%, DFS -1.6%

At the close: VIX 11.6 (-0.7 pts); Treasuries: 2-yr 1.31% (-7bps), 10-yr 2.51% (-9bps), 30-yr 3.11% (-7bps)

US movers afterhours

ALRM: Reports Q4 $0.19 adj v $0.13e, R$69.8M v $64.0Me; +9.0% afterhours

GPRO: Affirms Q1 revs at upper end of $190-210M v $199Me; +8.8% afterhours

FRSH: Reports Q4 $0.09 (*incl benefit) v $0.01e, R$35.5M v $39.2Me; Guides initial FY17 SSS flat to +2%; +8.7% afterhours

ORCL: Reports Q3 $0.69 v $0.62e, R$9.21B v $9.24Be; Raises dividend 27% to $0.19/shr (implied yield 1.8%); +5.9% afterhours

KCG: Confirmed that it has received an unsolicited proposal from Virtu Financial for $18.50-20.00/shr in cash; +4.7% afterhours

WSM: Reports Q4 $1.55 v $1.50e, R$1.58B v $1.61Be; Increases dividend 5% to $0.39/shr (implied yield 3.2%); +3.4% afterhours

TSLA: Announces offerings of $250M Common Stock (0.6% of market cap) and $750M Convertible Senior Notes (1.8% of market cap); CEO Musk to purchase $25M of common stock; +2.1% afterhours

JBL: Reports Q2 $0.48 v $0.45e, R$4.45B v $4.36Be; -1.8% afterhours

GES: Reports Q4 $0.41 v $0.45e, R$679M v $689Me; Guides Q1 -$0.33 to -$0.30 v +$0.16e; -12.5% afterhours

Politics

(US) Hawaii judge blocks President Trump’s second travel ban saying likely a violation of First Amendment protections

(US) House Speaker Ryan: Working on improving and refining the Republican healthcare bill – press

(US) Pres Trump’s proposed budget plan said to cut EPA funds by 31% and State Dept by 28% – NY Times

(US) Trump Administration say it plans to rescind the Bureau of Land Management (BLM) Fracking rule on public lands with US Circuit Court of Appeals in 10th district – press

(NL) Netherlands election results (1st exit poll): PM Rutte’s VVD party wins the most seats with 31 out of 150 in the lower house; Wilders’ PVV wins 19 seats – Ipsos

Asia Key economic data:

(JP) BOJ LEAVES INTEREST RATE ON EXCESS RESERVES (IOER) UNCHANGED AT -0.10%; AS EXPECTED; Maintains 10-yr JGB yield target around 0%

(AU) AUSTRALIA FEB EMPLOYMENT CHANGE: -6.4K (first decline in 5 months) V +16.0KE; UNEMPLOYMENT RATE: 5.9% (13-month high) V 5.7%E

(AU) AUSTRALIA MAR CONSUMER INFLATION EXPECTATION: 4.0% V 4.1% PRIOR (3-month low)

(NZ) NEW ZEALAND Q4 GDP Q/Q: 0.4% V 0.7%E; Y/Y: 2.7% V 3.2%E

Asia Session Notable Observations, Speakers and Press

FOMC raised Fed Funds target range by 25bps as had been widely expected, but the outlook of the accompanying statement and Fed Chair Yellen press conference were perceived to be less hawkish. Median forecast for this year remained at 1.375%, implying 2 more hikes and reversing hints of markets anticipating a potential 4th hike. 2018 median forecast was also left unchanged with 3 more hikes, as the Fed judgednear-term outlook as "roughly balanced" and market-based inflation compensation remaining low. In the Q/A, Fed Chair Yellen said current policy setting is still below the current ‘neutral’ rate, but it’s not that far below it.

Bonds rallied on the statement, with benchmark 10-year falling to 1-week low around 2.5%. USD was also weaker across the board, particularly in USD/JPY as it fell as much as 140pips below 113.20. EUR/USD rose about 50pips above 1.0740, also helped by weaker showing for euroskeptic party in the Dutch elections, where PM Rutte’s party took 31 seats vs populist Wilders’ 19 seats.

New Zealand Q4 GDP missed expectations, as consumption and capital formation growth slowed markedly from Q3 levels to 0.4% v 1.6% prior and 0.7% v 2.5% prior respectively. Analysts noted the undershoot in growth has pushed back OIS probability of the first RBNZ hike to early 2018 from late 2017. NZD/USD also fell some 40pips to $0.70 on the release.

Australia’s employment figures fared poorly, with the first negative print in 5-months. Unemployment also rose to reach 13-month highs as participation rate remained unchanged. Aussie 3-year bond yield was down a whopping 10bps in the wake of US bond rally and soft employment data, while AUD/USD pared its post-FOMC spike to 0.7720 to fall back to 0.7680.

PBOC also eased off the monetary accommodation in the wake of the Fed decision, raising rates on its reverse repo operations by 10bps while also conducting 6-mo and 1-yr MLF operation at yields 10bps above prior. China central bank said the steps do not represent a shift in policy, but rather reflect changes in markets, firmer domestic economy, and strong credit expansion. PBoC also strengthened Yuan in its daily fix by the biggest margin since mid-January.

Last risk event of the session – the BOJ decision – was perhaps the least volatile. Bank of Japan held its IOER rate at -0.1%, maintained the slope in the Yield Curve Control with 10-yr target of 0%, kepts its JGB buying target unchanged at about ¥80T per year, and maintained its overall assessment of economy continuing moderate recovery trend. The most notable changes was a downgrade to Housing investment component of its assessment (flat vs picking up) and a more hawkish view of medium-term inflation rising toward 2% as "output gap improves and inflation expectations rise." USD/JPY saw a brief ripple with a 15pip rise to 113.50 on the release but quickly erased those gains.

China

(CN) China CBRC Chairman Guo Shuqing: China needs to crack down on debt evasion

Japan

(JP) Japan Automobile Manufacturers Association (JAMA) sees FY17 Japan auto demand at 5M units, -0.8% y/y

(JP) Japan Chief Cabinet Sec Suga: To monitor interest rates in US after today’s Fed decision; Rate hike is not bad for Japan and global economy

(JP) Japan Fin Min Aso: have to have free trade; will explain Abenomics 3 arrows at G20

Australia

(AU) UBS: Australia bonds are attractive even if AAA rating is cut – press

(NZ) Swaps markets have pushed back odd-on timeframe for RBNZ rate hike to Jan 2018 from Dec 2017 following lower than expected Q4 GDP – press

Korea

(KR) South Korea Defense Ministry Official: THAAD system is for self defense only against threat from North Korea – press

(KR) Bank of Korea (BOK) Will stabilize markets on excessive movements; closely monitoring financial market movement after the Fed

(KR) South Korea vice Fin Min Choi: To continue to monitor markets; Prepared to take action to stabilize markets if needed – press

Asian Equity Indices/Futures (00:15ET)

Nikkei -0.2%, Hang Seng +1.3%, Shanghai Composite +0.7%, ASX200 +0.2%, Kospi +0.5%

Equity Futures: S&P500 +0.2%; Nasdaq +0.2%; Dax +0.6%; FTSE100 +0.2%

FX ranges/Commodities/Fixed Income (00:15ET)

EUR 1.0720-1.0745 JPY 113.15-113.55; AUD 0.7680-0.7715; NZD 0.6990-0.7045

Apr Gold +2.0% at $1,225/oz; Apr Crude Oil +0.6% at $49.14/brl; May Copper +0.3% at $2.68/lb

SPDR Gold Trust ETF daily holdings rise 4.4 tonnes to 839.4 tonnes; 3rd straight increase; highest since Mar 3rd

(CN) PBoC conducts CNY303B 1-yr Medium-term Lending Facility (MLF) at 3.2% (prior 3.1%)

(CN) PBOC to inject combined CNY80B v CNY60B prior in 7,14, and 28-day reverse repos; raises all offer yields by 10bps

(CN) PBOC SETS YUAN MID POINT AT 6.8862 V 6.9115 PRIOR; Biggest CNY increase since Jan 18th; Strongest Yuan setting since Mar 6th

(AU) Australia 3-yr govt bond yield extending decline to 2.00% following employment data; 1-week low

(NZ) New Zealand sells NZ$200M 2025 bond, bid-to-cover ratio: 7.12x

Asia equities/Notables/movers by sector

Consumer discretionary: 1910.HK Samsonite +4.7% (FY16 result); 670.HK China Eastern Airlines +2.0% (Feb result); MYR.AU Myer -4.7% (H2 sales )

Consumer staples: 2218.HK Yantai North Andre Juice Co +0.7% (FY16 result)

Financials: 993.HK Huarong International Financial Holdings -1.4%

Industrials: 3369.HK Qinhuangdao Port -0.5% (FY16 result); 1812.JP Kajima Corp +1.5% (raises guidance)

Technology: 268.HK Kingdee International Software Group -2.2% (FY16 result); 005930.KR Samsung Electronics +1.5% (iPhone 8 OLED screen made by Samsung speculation); 066570.KR LG Electronics -0.6% (BNP Paribas raises rating); 6502.JP Toshiba Corporation -2.5% (offers chip unit share as loan collateral); 6773.JP Pioneer Corp -2.0% (Deutsche Bank cuts rating)

Materials: Newcrest Mining NCM.AU +0.9%, St Barbara SBM.AU +6.5%, Evolution Mining EVN.AU +4.9% (gold price rises); 338.HK Sinopec Shanghai Petrochemical Co 3.0% (FY16 result); TAW.AU Tawana Resources +5.9% (Metallurgical Test Work results)

Energy: 991.HK Datang International Power Generation -0.9% (FY16 result), STO.AU Santos +4.8% (Credit Suisse raises rating)

Telecom: 762.HK China Unicom +4.3% (FY16 result)

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