Portugal bails out BES

Asian Market Update: Portugal bails out BES; China non-manufacturing PMI slows

Economic Data

- (CN) CHINA JULY NON-MANUFACTURING PMI: 54.2 V 55.0 PRIOR (6-month low; 2nd consecutive decline)

- (AU) AUSTRALIA JUN RETAIL SALES M/M: 0.6% (5-month high) V 0.3%E; Q2 RETAIL SALES EX INFLATION Q/Q: -0.2% V -0.5%E

- (AU) AUSTRALIA JUL TD SECURITIES INFLATION M/M: 0.2% V 0.0% PRIOR; Y/Y: 2.6% V 3.0% PRIOR

- (AU) AUSTRALIA JUL ANZ JOB ADS M/M: 0.3% V 4.4% PRIOR

- (NZ) NEW ZEALAND JUL ANZ COMMODITY PRICE M/M: -2.4% (5th consecutive decline) V -0.9% PRIOR

Index Snapshot (as of 02:30 GMT)

- Nikkei225 flat, S&P/ASX -1.4%, Kospi -0.1%, Shanghai Composite 0.8%, Hang Seng +0.4%, Sept S&P500 +0.4% at 1,925

Commodities/Fixed Income/Currencies

- Dec gold -0.1% at $1,294, Sept crude oil flat at $97.89/brl, Sept Copper flat at $3.22/lb

- (JP) BOJ offers to buy ¥300B in 1-3yr JGB, ¥200B in 3-5yr JGB, ¥100B in 10-25yr JGB and ¥30B in JGB with maturity over 25-yr

- (KR) South Korea sells KRW800B in 30-yr bonds; Avg yield: 3.360%

- (KR) South Korea sells KRW1.745T in 3-yr Bonds; avg yield: 3.525%; bid-to-cover: 4.28x

- USD/CNY: (CN) PBoC sets yuan mid point at 6.1661 v 6.1681 prior setting (first firmer setting 4 sessions)

Market Focal Points/Key Themes

- Sentiment in Asia is mixed, reflecting lukewarm response to a somewhat disappointing employment data in the US on Friday and conflicting developments around the world over the weekend. Currency market volatility also remains limited, as USD pared its recent post-GDP/Fed gains after the miss on the jobs figures. EUR/USD traded just above $1.3440, USD/JPY was up about 10pips above ¥102.60, and AUD/USD hit a high of $0.9330 after retail sales from Australia.

- China non-manufacturing PMI slowed for the 2nd consecutive month, hitting a 6-month low of 54.2. Most notably, employment and new export orders subindices fell into contraction while new orders were essentially flat. Also out of China, State Information Center think tank offered its projections for the 2nd half of the year, forecasting GDP at 7.4% v 7.4% in H1, CPI at 2.5% v 2.3% in H1, exports up 7.5% v 0.9% in H1, and industrial output at 8.9% v 8.8% in H1. The center also noted the property market would continue to decline, echoing the latest from China Index Academy which reported July residential property prices falling for the 3rd consecutive month.

- In other key economic data, Australia put out better than expected retail sales for June but much slower growth in job advertisements for July. RBA policy statement during tomorrow's session is not expected to differ materially from last month, with persistent AUD strength and subpar growth likely remaining on the agenda.

- In Europe, Banco Espirito Santo was granted a EUR4.9B bailout by the Portuguese central bank. Authorities will withdraw BES from trading, setting up a good bank and a bad bank meant to reassure depositors and protect senior bondholders while inflicting the most pain on shareholders and subordinated creditors. The 'good' bank (called Novo Banco) is expected to hold the firm's deposit-taking assets, and its core tier 1 ratio would be above the minimum requirement. In Germany, the IFO warned Q2 GDP would shrink toward zero due to Ukraine crisis and sanctions on Russia, down from 0.8% in Q1 and 0.3% prior Q2 forecast. Vice Chancellor Gabriel acknowledged the new economic sanctions against Russia will hurt Germany's economy, but they are necessary for the sake of peace in Europe.

- Russian economy is also bending under sanctions - the latest data from the Energy Ministry showed some sequential declines in energy production. Russian Foreign Ministry has formally accused EU of withdrawing a ban on supplying Ukraine with military technology and equipment. Pro-Russian separatists also reportedly renewed their calls for Russia to send troops to their aid as Ukraine army surrounds the rebel stronghold of Donetsk. Some reports did indicate there was more Russian military presence on Ukraine border.

- Israel has met with growing condemnation from UK, EU, and even US officials after another bombardment of a UN shelter in Gaza resulting in civilian casualties. PM Netanyahu announced another humanitarian ceasefire (deemed unilateral by Hamas) and also indicated that the military will reduce some of its presence in Gaza, as IDF is already nearing completion of tunnel destruction. Netanyahu was quick to point out the military offensive was not being suspended entirely.

Equities

US markets:

- GSK: Private equity groups said to be considering a $10B plan to purchase older drug brands from GSK and Sanofi and merge them - FT

- JPM: Said to have reached proposed $4.5B MBS settlement deal for most trusts - financial press

- BRK.B: Reports Q2 Net EPS attributable to shareholders (Class A shares) $3,889 v $2,763 y/y; Rev $49.8B v $44.7B - filing

- EVR: To acquire ISI Group and remaining 40% interest in Evercore's institutional equities business

- ANIP: Acquires Vancocin Capsules and Additional Vancomycin Assets from Shire; sees immediate accretion

Notable movers by sector:

- Consumer Discretionary: Kikkoman Corp 2801.JP -1.8% (Q1 results); Treasury Wine Estates TWE.AU +4.4% (confirms revised bid from KKR)

- Financials: China Everbright Bank 601818.CN +4.9%, Everbright Securities 601788.CN +1.7% (Everbright Group to restructure)

- Materials: Atlas Iron AGO.AU +1.9% (production plan update)

- Energy: Roc Oil ROC.AU +7.1% (receives bid from Fosun); Anton Oilfield Services Group 3337.HK -5.2% (H1 guidance)

- Industrials: AVIC Aircraft 000768.CN +4.1%, Xi'An Aero-Engine 600893.CN +1.7%, China Spacesat 600118.CN +0.9% (Japan govt names 158 remote islets); Gem-Year Industrial 601002.CN +9.2% (private placement plan); Fuji Heavy Industries 7270.JP +1.5% (Subaru US sales results); Ibiden 4062.JP +2.5% (Q1 results); Otsuka Corp 7004.JP -2.9% (Q1 results)

- Technology: Beijing VRV Software Corp 300352.CN +1.6% (many android phone attacked by mobile virus in China); Rohm 6963.JP +6.3% (Q1 results); Otsuka Corp 4768.JP -4.2% (H1 results)

- Healthcare: Guilin Layn Natural Ingredients 002166.CN +6.9%, Shandong Lukang Pharma 600789.CN +10.1% (Ebola getting more attention)