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China lowers 2017 GDP, M2, Retail Sales targets

Asia Mid-Session Market Update: China lowers 2017 GDP, M2, Retail Sales targets; North Korea fires more missiles ahead of US-South Korea drills

Friday US markets on close: Dow flat, S&P500 +0.1%, Nasdaq +0.2%

Best Sector in S&P500: Financials

Worst Sector in S&P500: Real Estate

Biggest gainers: MU +3.5%; UAL +3.2%; GPN +3.0%

Biggest losers: M -4.4%; COST -4.3%; PRGO -3.7%

At the close: VIX 11.0 (-0.9pts); Treasuries: 2-yr 1.30% (-1bp), 10-yr 2.49% (flat), 30-yr 3.08% (flat)

Weekend US/EU Corporate Headlines

DB: Confirms plans to raise €8B (31.9% of market cap) through rights issue on Mar 21st priced at a discount of about 39% to Friday's €19.14/shr close price - press

MGM: Reportedly MGM has made offer to acquire Las Vegas Sands' casino in Bethlehem, Pennsylvania for as much as $1B - press

STAN.UK: Confirms in talks about an all share merger with Aberdeen Asset Management

Politics

(US) President Trump claims President Obama ordered wire taps on his phones in October; Obama spokesperson denies the allegation

(US) FBI Director Comey calls on DOJ to publicly reject Pres Trump's assertion that his phones were tapped under Pres Obama in 2016 - NY Times

(JP) Japan PM Abe said to consider potential snap election in 2018; LDP may also revise rules to allow him to serve 3 consecutive terms (until 2021) - Japan press

Key economic data:

(AU) AUSTRALIA JAN RETAIL SALES M/M: 0.4% V 0.4%E

(AU) AUSTRALIA FEB ANZ JOB ADVERTISEMENTS M/M: -0.7% V 3.9% PRIOR

(AU) AUSTRALIA FEB MELBOURNE INSTITUTE INFLATION M/M: -0.3% (first decline in 7 months) V 0.6% PRIOR; Y/Y: 2.1% V 2.1% PRIOR

(NZ) NEW ZEALAND JAN BUILDING PERMITS M/M: +0.8% V -7.9% PRIOR (1st increase since Sept)

Asia Session Notable Observations, Speakers and Press

Asia indices are mixed to positive, all in spite of Fed Chair Yellen virtually confirming intentions to raise rates this month in her speech on Friday and US/European futures coming under pressure on more political polarization in Washington and geopolitical concerns on Korean peninsula. Nikkei225 is underperforming as JPY reversed 4 consecutive declines on Friday with a modest rally, while Australia is among the gainers as miners rally after recent slump. In FX, USD/JPY and NZD/USD are among the bigger movers, falling 40pips and 30pips to 113.70 and 0.7005 session lows.

China kicked off its National People’s Congress (NPC) with 2017 GDP target of "around 6.5% or higher if possible" vs 6.5-7.0% in 2016, also lowering 2017 M2 money supply to 12% from 13% and Retail sales to 10% from 11. China kept its CPI target and Fiscal Budget deficit to GDP ratios unchanged at 3% and 3%. PBoC pledged to pursue prudent, neutral monetary policy in 2017, while Fin Min expressed concerns over imbalances between revenue and spending as well as local govt debt risks. In other notable developments, Defense Ministry's 2017 growth was set at 7%, down from 7.6% last year and the lowest in a decade. Expressing continued commitment to reducing pollution, regulators also announced cuts in steel capacity by another 50M tons and coal output by over 150M tons.

Reeling from the unexpected recusal by AG Sessions from campaign investigations last week due to misleading testimony on his contact with Russian ambassador, President Trump and his team went on offense this weekend, claiming that President Obama ordered wire taps on his phones in October. FBI Director Comey is denying those claims and calling for the DOJ to also publicly reject that assertion.

Geopolitical tensions on Korean peninsula flared up again ahead of the seasonal joint US-South Korea exercises. North Korea was reported to have fired 4 missiles that traveled about 1,000KM in continued show of force. South Korea said it is monitoring market impact, while Japan is lodging a formal complaint and also holding a national security council meeting.

Ahead of tomorrow's RBA decision, key economic data for the session came out of Australia where Jan retail sales came in line with consensus. Annualized increase was 3.2%, as personal accessory/clothing category was said to print the biggest increase in spending from prior month. Expectations are widely in favor of an RBA hold, though fixed income markets are starting to price in a 50/50 chance of a hike by Q1 of next year.

China

(CN) China National People’s Congress (NPC) sets 2017 GDP target of "around 6.5% or higher if possible" vs 6.5-7.0% in 2016

(CN) PBOC Deputy Gov Pan Gongsheng: China has very adequate forex reserves in accordance with international standards or by latest indicators proposed by scholars - Chinese press

(CN) China PBoC Dep Gov Yi Gang: China does not need to raise interest rates or cut RRR for the time being; Yuan to remain relatively strong - press

(CN) NDRC: China to cut steel capacity by another 50M tons and coal output by over 150M tons in 2017 - press

(CN) China Parliament Spokeswoman: No plans to implement nationwide property tax this year - press

(CN) China sets 2017 Defense Spending increase at about 7%, down from 7.6% in 2016 and lowest in over a decade - press

Japan

(JP) Japan PM Abe: Will lodge firm protest against North Korea missile launch; launch is unacceptable

(JP) Ruling LDP party endorses changes to party rules that will allow PM Abe to remain until 2021 - Nikkei

Australia

(AU) Fixed income markets are pricing in about a 20% chance of an RBA rate hike before the end of 2017; Sees about 50% chance of a hike by the end of Q1 of 2018 - AFR

(NZ) New Zealand Treasury Monthly Economic Indicators: Q4 private consumption may be slightly lower than 1% forecast in HYEFU - press

(NZ) New Zealand PM English: planning to raise pension age to 67 from 65 within 20-yrs - NZ media

Asian Equity Indices/Futures (00:00ET)

Nikkei -0.5%, Hang Seng +0.3%, Shanghai Composite +0.4%, ASX200 +0.3%, Kospi flat

Equity Futures: S&P500 -0.3%; Nasdaq -0.3%, Dax -0.3%, FTSE100 -0.1%

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

EUR 1.0600-1.0620; JPY 113.70-114.15; AUD 0.7570-0.7595; NZD 0.7005-0.7035; GBP 1.2280-1.2300

Apr Gold +0.6% at 1,234/oz; Apr Crude Oil -0.4% at $53.11/brl; May Copper -0.7% at $2.69/lb

GLD: SPDR Gold Trust ETF daily holdings fall 4.7 tonnes to 840.6 tonnes; lowest since Feb 12th

SLV: iShares Silver Trust ETF daily holdings fall to 10,350 tonnes from 10,424 tonnes prior; 11-month low

(CN) PBOC SETS YUAN MID POINT AT 6.8790 V 6.8896 PRIOR; Strongest Yuan setting since Feb 25th; first stronger fix in 4 sessions

(CN) PBOC to inject combined CNY40B v CNY30B prior in 7-day, 14-day and 28-day reverse repos

(KR) South Korea Finance Ministry sells KRW700B in 3-yr treasury bonds; avg yield 1.75% v 1.655% prior

(AU) Australia sells A$600M in 3.75% 2037 bonds; avg yield 3.4984%; bid-to-cover 2.52x

Asia equities / Notables / movers

Australia

YOW.AU Yowie Group +3.8%; Exec: In US market we continued to gain share in Jan; Affirms FY17 Rev +85-90% y/y

WSA.AU Western Areas -2.3%; Morgan Stanley cut

NVT.AU Navitas Ltd -14.7%; Named preferred AMEP program tenderer for reduced number of contract regions

Hong Kong

771.HK Automated Systems Holdings +3.8%; Acquires Grid Dynamics

229.HK Raymond Industrial Ltd +3.7%; profit alert

3333.HK China Evergrande Group +0.7%; Feb sales

Daily Pivots: (S1) 120.35; (P) 120.75; (R1) 121.50; More...

EUR/JPY dips notably today, ahead of 121.32 resistance. But with 120.01 minor support intact, intraday bias stays on the upside first. Current development suggests that corrective fall from 124.08 has completed at 118.23 already, after defending 118.45 cluster support (38.2% retracement of 109.20 to 124.08 at 118.39). Decisive break of 121.32 should confirm this year and target 124.08 high next. On the downside, though, below 120.01 minor support will dampen this bullish case and turn focus back to 118.23 low.

In the bigger picture, price actions from 109.20 medium term bottom are seen as part of a medium term corrective pattern from 149.76. Strong rebound from 118.45 resistance turned support suggests that it's still in progress. Break of 124.08 will target 126.09 key resistance level. We'd be cautious on strong resistance there to limit upside. However, sustained break there will be a strong sign of medium term momentum and could target 141.04 resistance next.

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USD/JPY - 113.68

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 113.90

Kijun-Sen level                  : 114.21

Ichimoku cloud top             : 114.27

Ichimoku cloud bottom      : 113.68

Original strategy  :

Buy at 113.50, Target: 114.60, Stop: 113.15

Position :  -

Target :  -

Stop : -

New strategy  :

Sell at 114.35, Target: 113.35, Stop: 114.70

Position :  -

Target :  -

Stop : -

Although the greenback rose briefly to 114.75, the subsequent sharp retreat suggests top is possibly formed there on Friday, hence consolidation with mild downside bias is seen for retracement of last week’s rise to 111.69, hence weakness to 113.47 support is likely, below there would bring further fall to 113.20-25 (50% Fibonacci retracement of 111.69-114.75), however, downside would be limited to 113.00 and 112.84-86 (previous resistance and 61.8% Fibonacci retracement), bring rebound later.

In view of this, we are looking to sell dollar on recovery for such move as 114.40-50 should limit upside, bring another decline. Only above said resistance at 114.75 would abort and signal the rise from 111.69 has resumed and extend gain to 114.96 (previous resistance) but price should falter well below resistance at 115.38.

Daily Pivots: (S1) 0.8583; (P) 0.8611; (R1) 0.8665; More...

Intraday bias in EUR/GBP remains on the upside for the moment. Current development argues that pull back from 0.8851 is finished at 0.8402 already. Rise from there is possibly the third leg of the corrective price actions from 0.8303. Further rise would now be seen to 0.8851 and possibly above. Nonetheless, whole price actions fro 0.8303 are viewed as the second leg of the correction from 0.9304. Hence, we'd expect strong resistance from 100% projection of 0.8303 to 0.8851 from 0.8402 at 0.8950 to limit upside. On the downside, below 0.8546 minor support will turn bias back to the downside for 0.8402 support.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. Deeper fall cannot be ruled out yet. But we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside. Overall, the corrective pattern would take some time to complete before long term up trend resumes at a later stage. Break of 0.9304 will pave the way to 0.9799 (2008 high).

Market movers today

Today is a very quiet day in terms of data releases. The most important release today is the Sentix investor confidence for March, which we estimate rose from 17.9 from 17.4 in February, as stock markets have been resilient to political uncertainty so far.

On Friday, the US jobs report for February is due. We estimate non-farm payrolls rose 190,000, that the unemployment rate was unchanged at 4.8% and growth in average hourly earnings rebounded to 2.8% y/y from 2.5%, which should be sufficient for the Fed to hike.

In the euro area, we expect the ECB to stick to its dovish communication at its meeting on Thursday. Although the ECB has hit its 2% inflation target, there are still no signs of an upward trend in underlying prices.

No market movers in the Scandis today but in Norway, keep an eye on the regional network survey tomorrow and inflation data for February on Friday.

Selected market news

On Friday, Fed Chair Janet Yellen confirmed that the Fed is set to hike at the upcoming meeting ending on 15 March, unless the jobs report for February due on Friday is extremely weak. As we estimate the jobs report for February to be good, we expect the Fed to deliver. Markets have priced in an 85% probability of a Fed hike at the upcoming meeting. We raise our forecast and now think the Fed will hike three times this year (March, July and December), as the Fed seems less worried about inflation and has increased its weight on labour market and growth data. We still expect three-four hikes next year and think the Fed will begin the reduction of its balance sheet in Q1 18. See also Flash Comment US: Yellen supports hike in March – we now expect a total of three hikes this year, 5 March.

The Chinese government has set its 2017 growth target of 'around 6.5% or higher if possible' (previously target was in the range 6.5-7.0%). We think growth will slow this year, as leading indicators point to moderation ahead in construction and infrastructure (the old growth engines).

Yesterday, French presidential candidate Francois Fillon said he will stay in the race, as 'no one has the power to force him to step down', see Bloomberg. Markets think the probability of a Fillon win is below 10%. The Republican party is to meet to discuss Fillon's candidacy today. For economic and financial implications of a Marine Le Pen win.

On Saturday, US President Donald Trump tweeted that former President Obama wiretapped him during the election campaign, although without giving any evidence yet, see CNN. A source says that Trump's claim is based on a story in Breibart News, a right-wing nationalist and conservative (also called 'alt-right') media. An Obama spokesman has said the claim is 'simply false' although wiretapping could have been initiated without his knowledge. The House and Senate intelligence committees are now looking into the accusation.

UK government lawyers have concluded that the UK is not obliged to either contribute to the EU bill or to pay a 'divorce bill' after Brexit, which is likely to complicate the Brexit negotiations, as the EU wants the UK to pay EUR60bn when it leaves.

Daily Pivots: (S1) 1.3901; (P) 1.3943; (R1) 1.4021; More...

Intraday bias in EUR/AUD remains on the upside for the moment. Current development suggests short term bottoming at 1.3624, on bullish convergence condition in 4 hour MACD. The cross could have defended 1.3671 key support level successfully and is staging trend reversal. Further rise should be seen to 1.4289 resistance first. Break will affirm this case and target 1.4721 resistance for confirmation. On the downside, below 1.3835 minor support will dampen this bullish view and turn bias back to the downside for 1.3624 low.

In the bigger picture, price actions from 1.6587 medium term top are viewed as a corrective pattern. We'd expect strong support from 1.3671 key level to contain downside and bring rebound. Up trend from 1.1602 should not be finished and will resume later. Break of 1.4721 resistance will indicate completion of such correction and turn outlook bullish for retesting 1.6587 high. However, sustained break of 1.3671 will invalidate our bullish view and would turn focus back to 1.1602 long term bottom.

Daily Pivots: (S1) 1.0658; (P) 1.0686; (R1) 1.0729; More...

As noted before, the breach of 1.0706 minor resistance indicates short term bottoming on bullish convergence condition in 4 hour MACD. This is also taken as an early sign of trend reversal after defending 1.0620 key support level. Intraday bias in EUR/CHF is cautiously on the upside for 1.0749 resistance first. Break will affirm this bullish case and target 1.0897 resistance next.

In the bigger picture, the decline from 1.1198 is seen as a corrective move. There is no confirmation of completion yet. Sustained trading below 38.2% retracement of 0.9771 to 1.1198 at 1.0653 will target 50% retracement at 1.0485. However, strong rebound from 1.0620 and break of 1.0897 resistance will indicate trend reversal and turn outlook bullish.

European equity markets are expected to start the week a little flat on Monday as investors look ahead to another busy week of economic data and central bank activity, including monetary policy decisions from the ECB and the RBA.

For the last week or two, it's very much the Fed that's been front and centre, as policy makers queued up to warn that a rate hike is coming. We heard from four more policy makers on Friday including Chair Yellen and vice Chair Fischer, both of whom stayed on message with Yellen being unusually explicit in claiming that a rate hike will likely be appropriate at the next meeting if the central bank determines the data is moving in line with expectations before stating that the employment goal is essential met and inflation moving closer to target.

Fischer was also keen to stress that a conscious effort was being made by officials to move market expectations on a possible rate hike which, while being quite obvious, would be a bizarre acknowledgement if the central bank was to then opt against it. Investors are clearly of the same opinion as the probability of a hike next week ticked higher once more to almost 80%, well above the level needed for the Fed to be comfortable with hiking. With the blackout period now upon us, no further commentary on the matter is likely leaving only the data – including Friday's jobs report – to throw a possible spanner in the works, although I'd be very surprised if expectations dramatically change now given the effort to steer them this was from the Fed.

Instead the attention will likely shift to another central bank, the ECB, this week with it announcing its latest monetary policy decision on Thursday. With economic conditions improving in the eurozone – albeit as political risks increases – and headline inflation heading higher, the central bank could come under pressure soon to consider removing a little more accommodation and ease the pressure on its large balance sheet.

Policy makers have been keen to stress that a lot of the inflationary pressures that have driven headline CPI back towards target have been temporary, due to higher commodity prices and a weaker currency, in an attempt to ease any concern about near-term tightening. That said, while a near-term taper is unlikely, the central bank has already announced a reduction in its asset purchases and another at the end of the year now seems likely.

As far as today is concerned, we've got some low and medium tier data due out throughout the session and we'll also hear from the newest member of the Bank of England Monetary Policy Committee, Charlotte Hogg.

Daily Pivots: (S1) 1.0537; (P) 1.0580 (R1) 1.0663; More.....

Intraday bias in EUR/USD stays neutral for the moment as it's bounded in range of 1.0493/0494. On the upside, break of 1.0630 resistance will argue that pull back from 1.0828 is completed. Also, rise from 1.0339 could possibly be resuming. In that case, intraday bias will be turned back to the upside for 1.0828 resistance and above. On the downside, below 1.0493 support will affirm the case that fall from 1.0828 is resuming the larger down trend. In that case, intraday bias will be back to the downside for resting 1.0339 low.

In the bigger picture, whole down trend from 1.6039 (2008 high) is in progress. Such down trend is expected to extend to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

Currency pair GBP/USD

The GBP/USD bearish channel is neatly indicated by the trend lines (red). Price bounced at the bottom of the channel and is now approaching the top of the channel which typically acts as resistance. A bearish bounce could see price fall towards the Fibonacci levels of waves 3 (green) whereas a bullish breakout could see price challenge the Fibonacci of wave 4 vs 3. A break above the 61.8% Fib invalidates the wave 4 (blue).

The GBP/USD retracement is in a wave 4 (blue) which typically retraces back to the 23.6% - 38.2% - 50% Fibonacci zone. A break above the 61.8% Fibonacci level invalidates this wave 4 (blue). A break below the support trend line (green) could see price continue with wave 5 (blue) within wave 3 (green) of the 4 hour chart.

Currency pair EUR/USD

The EUR/USD indeed bounced at the support trend line (green) and is now retesting resistance (red) within wave 2 (purple). A break above resistance could see price move higher to test the Fibonacci levels of wave 2 (purple) but a push above the 100% level invalidates the wave structure. A bearish bounce and break below support (green) could see the downtrend continue within potential waves (brown/green).

The EUR/USD indeed bounced at the support trend line (green) and is now retesting resistance (red) within wave 2 (purple). A break above resistance could see price move higher to test the Fibonacci levels of wave 2 (purple) but a push above the 100% level invalidates the wave structure. A bearish bounce and break below support (green) could see the downtrend continue within potential waves (brown/green).

Currency pair USD/JPY

The USD/JPY is testing the resistance level (red line) and a break above it could see the USD/JPY continue with a wave 3 (blue) towards the Fibonacci targets.

The USD/JPY could use the strong resistance (red) to bounce and build an ABC (orange) within wave 2 (brown) and retrace back to the Fibonacci levels of wave 2 vs 1 (brown).