BOJ conducts another fixed-rate JGB operation

Asia Mid-Session Market Update: China Caixin manufacturing PMI misses again; BOJ conducts another fixed-rate JGB operation

US Session Highlights

(US) Q4 PRELIMINARY NONFARM PRODUCTIVITY: 1.3% V 1.0%E; LABOR COSTS: 1.7% V 1.9%E; Q3 productivity revised higher

(US) INITIAL JOBLESS CLAIMS: 246K V 250KE; CONTINUING CLAIMS: 2.06M V 2.06ME

President Trump reiterates very serious concerns about NAFTA

(US) House Speaker Ryan (R-WI): Congress must fix health care first, then move to tax reform; Obamacare must be replaced

(US) Jan ISM New York: 57.7 v 63.8 prior

(US) House Energy and Commerce Committee plans next week to take up bill to boost generic drug development - press

US markets on close: Dow flat, S&P500 +0.1%, Nasdaq -0.1%

Best Sector in S&P500: Utilities

Worst Sector in S&P500: Healthcare

Biggest gainers: MJN +21.4%, CTXS +5.2%, M +5.2%, EQT +5.1%, SWN +5.0%

Biggest losers: RL -12.3%, ETFC -8.9%, EW -8.5%, R -7.8%, SNA -7.4%

At the close: VIX 11.9 (+0.1pts); Treasuries: 2-yr 1.22% (+1bps), 10-yr 2.47% (flat), 30-yr 3.08% (flat)

US movers afterhours

DATA: Reports Q4 $0.26 v $0.14e, R$250.7M v $230Me- Non-GAAP op margin 12.3% v 14.9% y/y; Customer account adds +4K; +16.7% afterhours

FTNT: Reports Q4 $0.30 v $0.21e, R$363M v $352Me; total billings $463.4M, +22% y/y; Non-GAAP Op margin 22% v 16% y/y; +11.1% afterhours

V: Reports Q1 $0.86 GAAP v $0.78e, R$4.46B v $4.28Be; +3.4% afterhours

AMGN: Reports Q4 $2.89 v $2.77e, R$5.97B v $5.74Be; +2.5% afterhours

CMG: Reports Q4 $0.55 v $0.55e, R$1.03B v $1.03Be; -0.5% afterhours

AMZN: Reports Q4 $1.54 v $1.40e, R$43.7B v $44.9Be; -4.2% afterhours

ATHN: Reports Q4 $0.62 v $0.51e, R$288M v $303Me; -7.6% afterhours

GPRO: Reports Q4 $0.29 v $0.21e, R$540.6M v $576Me; -12.5% afterhours

FEYE: Reports Q4 -$0.03 v -$0.16e, R$184.7M v $192Me; Guides Q1 -$0.28 to -$0.26 v -$0.23e, R$160-166M v $178Me, operating margin -26% to -24%; -17.7% afterhours

DECK: Reports Q3 $4.11 v $4.24e, R$760M v $787Me; Guides Q4 -$0.10 to $0.00 v $0.43e, Rev -6% to -5% y/y, implies $M v $381Me; Cuts FY17 $3.45-3.55 v $4.15e, Rev -5.0% (prior $4.05-4.25, Rev -3% to -1.5%); -23.0% afterhours

Asia Key economic data:

(CN) CHINA JAN CAIXIN MANUFACTURING PMI: 51.0 V 51.8E (7th consecutive expansion)

(HK) HONG KONG JAN COMPOSITE PMI: 49.9 v 50.3 PRIOR (in conctraction for 22nd out of 23 months)

(JP) JAPAN DEC SERVICES PMI: 51.9 (4th consecutive expansion) V 52.3 PRIOR; COMPOSITE PMI: 52.3 (4th consecutive expansion) V 52.8 PRIOR

(AU) AUSTRALIA JAN AIG PERF OF SERVICES INDEX: 54.5 V 57.7 PRIOR (4th month of expansion)

(SG) SINGAPORE JAN PMI COMPOSITE: 51.6 V 52.0 PRIOR

(KR) SOUTH KOREA DEC CURRENT ACCOUNT BALANCE: $7.9B V $8.9B PRIOR; GOODS BALANCE: $9.4B V $10.4B PRIOR

Asia Session Notable Observations, Speakers and Press

Asia indices are tracking lower after a neutral day on Wall St where investors await a critical non-farm payrolls report on Friday; Shanghai Composite has returned for trade after a week-long holiday with a slight decline. Of note in China, the PBoC reverse repo operations saw rates rise 10bps across the maturities.

USD majors also traded in narrow ranges with the exception of USD/JPY; Initially, the pair dropped abruptly some 40pips to the lows after BOJ's QE operation in 5-10yr merely maintained bond purchase quantity in spite of rising yields; 2 hours later, USD/JPY spiked some 60pips back above 113.20 after BOJ took cue from the bond market and conducted its 2nd fixed-rate unlimited JGB operation since mid-Nov to bring the 10-yr back toward 0.1%. BOJ official confirmed the operation was meant to bring the yield to target. Japan Finance officials also continued to deflect currency criticism from US pres Trump

Fin Min Aso said FX policy is in line with G7 and G20 agreements, adding it is aimed at inflation objectives and not manipulating FX.

In economic data, China Caixin PMI and Hong Kong PMI were both slightly disappointing; Caixin PMI was in expansion for 7th month but missed consensus amid slower increase in output and new order activity as well as reduction in employment. After last month's jump in Hong Kong PMI to expansion, the figure was back below the 50-threshold - also on contraction in output, new orders, and falling business confidence. Employment, however, saw some marginal improvement.

In Australia, Services PMI slowed to 54.4 from multi-year high of 57.7 last month, but remain in expansion for the 4th month; Goldman economist also claims that strong economy evidenced by yesterday's record high trade surplus has put the probability of an RBA rate hike this year somewhere at 40% and rising.

China:

(CN) PBoC said to have raised overnight lending rates on SLF to 3.1% by 35bps - financial press

(HK) Hong Kong China visitors +3.6% y/y during Lunar New Year holiday - Chinese press

(HK) Macau China visitors +9.5% y/y during Lunar New Year holiday

Japan:

(JP) BOJ Gov Kuroda: BOJ still has distance to reach inflation target

(JP) Japan Econ Min Ishihara: No comment on Trump's claims about currencies - press

(JP) BOJ official: JGB operation was conducted to implement yield target

Australia/New Zealand:

(AU) Goldman Sachs economist Toohey: Probability of an RBA rate hike by Nov is "somewhere in the 40s and rising" - AFR

(NZ) Capital Economics: Markets have priced in up to RBNZ 2 rate hikes in 2017, but CA expects it to remain on hold this year and likely next year - press

(NZ) New Zealand real estate agency Barfoot & Thompson: Auckland Jan avg house price m/m: flat v -2.0% prior; y/y: 13% v 5.1% prior

Asian Equity Indices/Futures (00:00ET)

Nikkei flat, Hang Seng -0.4%, Shanghai Composite -0.5%, ASX200 -0.4%, Kospi -0.1%

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

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

EUR 1.0745-1.0770; JPY 112.50-113.25; AUD 0.7635-0.7665; NZD 0.7265-0.7295

Apr Gold -0.4% at $1,215/oz; Mar Crude Oil +0.6% at $53.86/brl; Mar Copper -1.3% at $2.65/lb

GLD SPDR Gold Trust ETF daily holdings rise 1.5 tonnes to 811.2 tonnes; 2nd straight increase, highest since Jan 6th

(CN) PBOC SETS YUAN MID POINT AT 6.8556 V 6.8588 PRIOR

(CN) PBOC to inject combined CNY50B in 7-day, 14-day and 28-day reverse repos v CNY30B on 1/25; raises reverse repos offer yield ; Raises offer yields by 10bps

(JP) BOJ AGAIN CONDUCTS A FIXED-RATE JGB PURCHASE OPERATION OF UNLIMITED AMOUNTS FOR 5-10YR JGBS

(JP) BOJ announces amounts to buy in upcoming QE operation; Raises 5-10-yr maturity JGB purchase; To buy ¥450B (¥410B expected) in 5-10yr JGBs, unch from ¥450B purchased on Jan 27th

(AU) Australia MoF (AOFM) sells A$600M in 5.75% 2022 Bonds; avg yield: 2.2669%; bid-to-cover: 5.18x

Asia equities/Notables/movers by sector

Consumer discretionary: VAH.AU Virgin Australia -2.3%(Q2 result); 1237.HK Merry Garden Holdings +4.1% (guidance); 2432.JP DeNA Co. +3.7% (new smartphone game debuts strongly); MTR.AU Mantra Group +2.1% (Citi raises rating); SWM.AU Seven West Media -2.8% (no allegations of wrongdoing of CEO); 7733.JP Olympus Corp +0.7% (9-month result); 4452.JP Kao Corp +4.1% (FY16 result); 9831.JP Yamada Denki -4.9% (9-month result)

Financials: 001450.KR Hyundai Marine & Fire Insurance Co +5.1%

Industrials: 4183.JP Mitsui Chemical -4.1% (9-month result); JHX.AU James Hardie Industries -4.8% (Q3 result); 7261.JP Mazda Motor Corp -2.3% (9-month result)

Technology: BXB.AU Brambles +2.3% (Morgan Financail raises rating); 7974.JP Nintendo Co. +5.0% (new smartphone game debuts strongly); 5802.JP Sumitomo Electric Industries +7.0% (9-month result);

Materials: 4202.JP Daicel Corp +6.2% (9-month result); 5406.JP Kobe Steel -6.9% (9-month result)

Energy: 568.HK Shandong Molong Petroleum Machinery -13.5% (prelim FY16 result)

Healthcare: IPD.AU ImpediMed Ltd +2.1% (Allan Gray Australia raises rating)

Telecom: 017670.KR SK Telecom +0.9% (Q4 result); 9433.JP KDDI Corp -1.8% (9-month result)

Utilities: 5803.JP Fujikura +12.2% (9-month result)

Daily Pivots: (S1) 1.0667; (P) 1.0684; (R1) 1.0694; More...

EUR/CHF is staying in consolidation above 1.0635 temporary low. Intraday bias stays neutral first. With 1.0749 resistance intact, near term outlook remains bearish. On the downside, break of 1.0635 will target 1.0620 support. Decisive break there will confirm resumption of whole fall from 1.1198. In that case, next downside target will be 1.0485 fibonacci level.

In the bigger picture, the decline from 1.1198 is seen as a corrective move. Such correction is still in progress. Sustained trading below 38.2% retracement of 0.9771 to 1.1198 at 1.0653 will target 50% retracement at 1.0485. On the upside, break of 1.0897 resistance is needed to confirm completion of such fall. Otherwise, outlook will stay bearish.

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Global Markets:

• Asian stock markets: Nikkei up 0.20 %, Shanghai Composite fell 0.60 %, Hang Seng declined 0.45 %, ASX 200 lost 0.35 %
• Commodities: Gold at $1214 (-0.40 %), Silver at $17.33 (-0.60 %), WTI Oil at $53.90 (+0.60 %), Brent Oil at $56.85 (+0.50 %)
• Rates: US 10-year yield at 2.49, UK 10-year yield at 1.39, German 10-year yield at 0.43

News & Data:

• China Caixin Manufacturing PMI Jan: 51.0 (est. 51.8, prev. 51.9)
• Australia AIG Services PMI Jan: 54.5 (prev. 57.7)
• Japan Nikkei Services PMI Jan: 51.9 (prev. 52.3)
• Japan Nikkei Composite PMI Jan: 52.3 (prev. 52.8)
• NZ ANZ Commodity Price Index (MoM) Jan: -0.1% (prev. 0.70%)
• South Korea BoP Current Account Balance (USD) Dec: 7869.2M (prev. 8892.2M)
• PBOC set USD/CNY mid-point at 6.8556 (prev. fix 6.8588)
• South Korea BoP Goods Balance (USD) Dec: 9433M (prev. 10425M)
• Asia stumbles as Chinese markets fall after Beijing tightens policy – RTRS

Markets Update:

The US Dollar is recovering slightly ahead of the release of NFP data today at 13:30 GMT. The market is expecting good numbers following the strong ADP and initial jobless claims data.

EUR/USD fell to 1.0745 in Asia, after trading as high as 1.0820 in yesterday's NY session. Support is now seen at 1.0730, followed by 1.0680.

The British Pound has come under pressure after the Bank of England signalled that it will not hike rates anytime soon. BoE Governor Carney highlighted that many uncertainties remain around Brexit. GBP/USD fell from 1.27 to 1.2550 and extended losses to 1.2510 in Asia.

USD/JPY managed to find support ahead of the 112 level once again and recovered to 113.20 in Asia. Resistance is seen at 113.90-114.00, followed by 115.

The Australian Dollar retraced slightly in Asia, but remains well bid overall. Support now lies at the former resistance level at 0.7610.

Upcoming Events:

• 08:45 GMT – Italian Services PMI
• 08:50 GMT – French Services PMI
• 08:55 GMT – German Services PMI
• 09:00 GMT – Euro Zone Services PMI
• 09:30 GMT – UK Services PMI
• 10:00 GMT – Euro Zone Retail Sales
• 10:00 GMT – Italian CPI
• 13:30 GMT – US NFP
• 13:30 GMT – US Unemployment Rate
• 13:30 GMT – US Average Hourly Earnings
• 14:45 GMT – US Services PMI
• 15:00 GMT – US ISM Non-Manufacturing PMI
• 15:00 GMT – US Factory Orders

Daily Pivots: (S1) 1.2986; (P) 1.3019; (R1) 1.3059; More...

With 1.3168 resistance intact, deeper decline is expected to USD/CAD. As noted before, corrective rise from 1.2460 should have completed at 1.3598 already, after hitting 50% retracement of 1.4689 to 1.3838. Fall from 1.3598 is seen as the third leg of the corrective fall from 1.4689. Further fall would be seen to retest 1.2460 low. On the upside, though, break of 1.3168 minor resistance will mix up the outlook again and turn intraday bias neutral first.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. The second leg could be completed at 1.3598 and fall from there is tentatively seen as the third leg. Break of 1.2460 will target 50% retracement of 0.9460 to 1.4689 at 1.2075 before completing the correction. In case of another rise, we'd look for reversal signal above 61.8% retracement of 1.4689 to 1.2460 at 1.3838.

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Daily Pivots: (S1) 0.7591; (P) 0.7643; (R1) 0.7709; More...

With 0.7510 minor support intact, further rise could be seen in AUD/USD for 0.7777 resistance. At this point, we'd still expect strong resistance from 0.7777/7833 resistance zone to bring near term reversal. On the downside, break of 0.7448 support will indicate that rebound from 0.7510 has completed. That will turn bias to the downside for 0.7144 key support level.

In the bigger picture, AUD/USD is staying inside long term falling channel and it's likely that the down trend from 1.1079 is still in progress. Break of 0.6826 low will confirm this bearish case. We'll be looking for bottoming sign again as it approaches 0.6008 key support level. Meanwhile, sustained break of 0.7833 resistance will be a strong sign of medium term reversal.

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Daily Pivots: (S1) 1.2460; (P) 1.2582; (R1) 1.2648; More...

Intraday bias in GBP/USD remains neutral for the moment. There is no change in the view that rebound form 1.1198 is seen as the third leg of the consolidation pattern from 1.1946. Hence, in case of another rise, we'd expect strong resistance from 1.2774 to limit upside and bring down trend resumption eventually. On the downside, firm break of 1.2411 minor support will argue that it's completed and turn bias to the downside for 1.1946 low.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term bottoming yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

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Daily Pivots: (S1) 0.9884; (P) 0.9911; (R1) 0.9952; More.....

USD/CHF is staying in the consolidation pattern from 0.9860 temporary and intraday bias stays neutral first. Further decline is expected with 1.0043 minor resistance intact. As noted before, decline from 1.0342 is seen as the third leg of the pattern from 1.0327. Below 0.9860 will target 61.8% retracement of 0.9443 to 1.0342 at 0.9786 and below. On the upside, break of 1.0043 will indicate short term bottoming and turn bias back to the upside.

In the bigger picture, rejection from 1.0327 resistance suggests that consolidation pattern from there is still in progress. Fall from 1.0342 is seen as the third leg and retest of 0.9443/9548 support zone could be seen. But we'd expect strong support from there to contain downside. At this point, we're still expecting the larger rally to resume later to 38.2% retracement of 1.8305 to 0.7065 at 1.1359.

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Daily Pivots: (S1) 112.11; (P) 112.73; (R1) 113.42; More...

USD/JPY lost some downside momentum as 4 hours MACD crossed above signal line and intraday bias is turned neutral first. Choppy fall from 118.65 is seen as a corrective move. In case of another decline, we'd expect strong support from 38.2% retracement of 98.97 to 118.65 at 111.13 to contain downside an bring rebound. On the upside, above 115.36 resistance will argue that such correction is finished and turn bias to the upside for 118.65. Break will resume whole rise from 98.97 and target 125.85 key resistance.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Rejection from 125.85 and below will extend the consolidation with another falling leg before up trend resumption.

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Dollar trades mildly higher in Asian session today but remains the second weakest major currency for the week, next to Sterling. Main focus is turning to employment data from US. Markets are expecting non-farm payroll report to show 175k growth in January while unemployment rate would be unchanged at 4.7%. Average hourly earnings are expected to grow 0.3% mom. Looking at other employment related data, ADP report showed 246k growth in January, much stronger than December's 151k. Four week moving average of initial jobless claims dropped 10k to 248k during the period. Employment component of ISM manufacturing surged to 56.1, up from 52.8. Conference board consumer confidence, however, dropped to 111.8, down from 113.3. Overall, other employment data points to a strong NFP report today. But the question is, based on current market sentiment, it's unsure if Dollar will respond positively to a set of good numbers.

Yesterday, BOE voted unanimously (9-0) to leave the Bank rate unchanged at 0.25% and the asset purchases program at 435B pound for UK gilts and 10B pound for non-financial GBP investment-grade corporate bonds. The members revised the growth forecasts significantly higher but left the inflation outlook largely unchanged. The latter was mainly due to the judgment that the labor slack was more than previously expected. Despite stronger growth outlook, Governor Mark Carney warned of the uncertainty over Brexit, cautioning that "there will be twists and turns along the way". While he reiterated that "we can see scenarios in either direction" for policy, we expect BOE to leave the monetary policy and the QE program unchanged at least in the first half of the year. More in BOE Upgrades Growth Outlook; Yet, Unemployment Slack More than Previously Expected.

From China, Caixin PMI manufacturing dropped to 51.0 in January, down from 51.9 and missed expectation of 51.8. Caixin noted in the release that "The rate of improvement slowed since December, as output and new orders increased at weaker rates amid a further reduction in employment. And, "the Chinese economy maintained stable growth in January. But the sub-indices showed that the current growth momentum may be hard to sustain. We must remain wary of downward pressures on the economy this year."

Looking ahead, UK services PMI is the main feature in European session. Eurozone will release services PMI revision and retail sales. US will release non-farm payroll report, ISM non-manufacturing and factory orders.

USD/JPY Daily Outlook

Daily Pivots: (S1) 112.11; (P) 112.73; (R1) 113.42; More...

USD/JPY lost some downside momentum as 4 hours MACD crossed above signal line and intraday bias is turned neutral first. Choppy fall from 118.65 is seen as a corrective move. In case of another decline, we'd expect strong support from 38.2% retracement of 98.97 to 118.65 at 111.13 to contain downside an bring rebound. On the upside, above 115.36 resistance will argue that such correction is finished and turn bias to the upside for 118.65. Break will resume whole rise from 98.97 and target 125.85 key resistance.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Rejection from 125.85 and below will extend the consolidation with another falling leg before up trend resumption.

Economic Indicators Update

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BOE voted unanimously (9-0) to leave the Bank rate unchanged at 0.25% and the asset purchases program at 435B pound for UK gilts and 10B pound for non-financial GBP investment-grade corporate bonds. The members revised the growth forecasts significantly higher but left the inflation outlook largely unchanged. The latter was mainly due to the judgment that the labor slack was more than previously expected. Despite stronger growth outlook, Governor Mark Carney warned of the uncertainty over Brexit, cautioning that "there will be twists and turns along the way". While he reiterated that "we can see scenarios in either direction" for policy, we expect BOE to leave the monetary policy and the QE program unchanged at least in the first half of the year.

The Committee has revised the GDP growth forecasts significantly higher. The members now expect the economy to expand +2% in 2017, up from +1.6% previously, and +1.6% in 2018, up from +1.5% previously. Optimism comes mainly from better consumer spending expectations, as well as fiscal support, improved global growth outlook and financial conditions. The inflation outlook was largely unchanged. Headline CPI might reach +2.7% in 2017 and +2.6% in 2018, down -0.1 percentage point each from previous estimates, before slipping to +2.4% in 2019. The members suggested that the slack in the employment market might be more than previously anticipated. As noted in the statement, despite recent rise, pay growth has "remained persistently subdued by historical standards - strikingly so in light of the decline in the rate of unemployment to below 5%". They judged that "this is likely to have reflected somewhat stronger labour supply than previously assumed and, therefore, the presence of a greater margin of slack in the labour market, restraining wage increases". Other factors affecting the inflation outlook include the "3% appreciation of sterling and a somewhat higher yield curve over the past three months".

Despite the upbeat GDP growth outlook, Governor Carney remains cautious over Brexit. As he noted at the press conference, "the Brexit journey is really just beginning; while the direction of travel is clear, there will be twists and turns along the way". Moreover, "the stronger projection doesn't mean the referendum is without consequence". He reiterated that the monetary policy can more in either direction. As Carney indicated, "if we do see a situation where there is faster growth and wages than we anticipated or spending doesn't decelerate later in the year, one can anticipate there would be an adjustment of interest rates". We expect the BOE to leave the policy rate and the QE program unchanged at least in the first half of the year.