sian Market Update: Nikkei shrugs deflationary slump, rising unemployment, as earnings in tech and financials drive risk appetite; China appetite for US debt, hard commodities questioned
- Asian equity markets are higher across the board, spurred by risk appetite in the US on signs of a bottom in continuing claims. With about 90 minutes to go, Nikkei225 is leading the region with a 1.8% gain, fuelled by tech and financials sectors benefiting from a slew of positive earnings. S&P/ASX and Kospi are both up 1.3%, while Hong Kong and Shenzhen bounced back from a selloff early in the week with 1.7% gains. Friday's US session should be driven by the advanced GDP release expected at 8:30amET, with Sept S&P's at session highs of $986 - up 0.4%.
- Tokyo economic data saw a mixed set of results with persisting deflationary forces and rising unemployment countered by ongoing recovery in manufacturing. June National Headline and Core CPI were both in line at -1.8% and -1.7% respectively, down from -1.1% on both seen in the prior month. Unemployment also ticked up higher to 6-year high 5.4% from 5.2% - worse than 5.3% expected - while job to applicant ratio remained at record low 0.43%. Nomura Manufacturing PMI recovered however, posting its first expansion since February 2008 at 50.4. Over in Australia, TD Securities inflation data was the polar opposite from Japan rising 0.9% m/m - its best increase in about 7 years. Aussie private sector credit was also in line on m/m and y/y basis at 0.1% and 3.4%. Despite more strong economic data from Australia that prompted an upgrade from the RBA earlier this week, government officials are somewhat more cautious, as finance minister Tanner suggested that external conditions remain difficult and could impact domestic economy.
- Underlying commodity demand conditions in China were potentially undermined by China Iron & Steel Association at a critical juncture in negotiation with Australian miners and overall uncertainty whether the recent surge in exports was driven by a restocking agenda. CISA suggested that iron ore imports exceeded consumption this year, resulting in large stockpiles seen at ports. Furthermore, CISA pledged to monitor foreign iron ore dumping in order to protect its steel mills. In other market-moving news from the region, a WSJ piece once again opened the door to uncertainty about China appetite for US debt, citing shaky Treasury auctions this week that were missing critical East Asia participation. Concerns around trading desks are said to have arisen late in the week following the 1-yr sale, when China was MIA from the $81B offer.
- In equities, Nikkei names Sony, Fujitsu, and Nomura Real Estate rose respective 10%, 5% and 6% after posting stronger than expected Q1 earnings afterhours yesterday. Biggest post-earnings losers were Nintendo and Mazda, with shares of both firms dropping by over 5% in early trading. Two of Tokyo's biggest pharma names reported mixed results in market hours: Takeda posted Q1 Net ¥112.6B v ¥82.5Be, Op Profit ¥126B v ¥116Be, Rev ¥379B v ¥382Be, and Daiichi Sankyo reported Q1 Net loss ¥6.4B v profit ¥7.5Be, Op profit ¥26.8B v ¥27.5Be, Rev ¥227B v ¥230Be. Earnings from financials Mizuho and Sumitomo Mitsui also offset, as Mizuho saw a weaker y/y result for Q1 at Net loss ¥4.5B v profit ¥133B y/y, while Sumitomo's net income of ¥72.8B was better than ¥58.1B y/y. Outside the Nikkei, LG Electronics beat estimates on the top line at Rev KRW1.33T v KRW1.26Te, and operating profit was roughly in line at KRW58B.
- In currencies, the dollar sold off across the board amid evidence of deepening concern about China financing of US debt. EUR/USD advanced above 1.4130, GBP/USD rose to 1.6550, and USD/CHF briefly fell below 1.0850. In commodity majors, AUD/USD is once again targeting 0.83, while USD/CAD briefly tested the downside of 1.0780 - the lowest level since Oct 2008. Japanese Yen firmed up against the dollar despite the broad-based risk appetite in evidence of renewed pressure on the greenback. USD/JPY fell below 95.40 even as EUR/JPY, GBP/JPY, and AUD/JPY were all higher.
- Crude oil prices opened the Asian session lower, but prices have since rebounded on the weaker dollar. Additionally, crude prices may have received support from an unconfirmed report which noted that Kuwait shut its Min al-Ahmadi refinery due to a water cooling system malfunction. The report added that the incident was not expected to impact Kuwait's supplies to local and international markets and that the refinery could resume full production in 3 days. The refinery is Kuwait's largest and it has capacity equal to 460K bpd. Spot gold is higher by more than 0.10%, and is tracking the gains being seen in the commodity and European major currencies against the dollar. In terms of physical demand for gold, today's WSJ had an article which focused on the recent decline in the holdings of gold ETFs. The article revealed that the holdings of the SPDR Gold Trust ETF were down about 48 metric tons from the end of June. Demand for gold ETFs has eased from the levels seen earlier in the year, as global credit concerns have eased and as investors look to take profits. According to the article, some market players see the trend as a temporary phenomenon, while other believe that it is a bearish development for gold.
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