China financials surge after PBoC injects more liquidity

Asian Mid-session Update: China financials surge after PBoC injects more liquidity with loan-to-deposit rule revision

Economic Data

- (CN) China Nov Industrial Profits Y/Y: -4.2% v -2.1% prior; Largest decline in 27 months

- (KR) South Korea Jan Business Manufacturing Survey: 77 v 75 prior; Non-Manufacturing Survey: 68 v 70 prior

- (KR) South Korea Nov final Department Store Sales y/y: -6.5% (largest decline since Jan 2013) vs -5.6% prelim; Discount store sales y/y: -4.7% (3rd consecutive decline) v -3.9% prelim

- (VN) Vietnam 2014 YTD GDP Y/Y: 6.0% v 5.7%e; Above official govt target of 5.8%

- (VN) Vietnam Dec Industrial Production Y/Y: 9.6% v 11.1% prior

Index Snapshot (as of 03:30 GMT)

- Nikkei225 flat, S&P/ASX +1.4%, Kospi -0.6%, Shanghai Composite +0.9%, Hang Seng +2.0%, Mar S&P500 +0.1% at 2,086

Commodities/Fixed Income

- Feb gold -0.1% at $1,194, Feb crude oil +0.8% at $55.17/brl, Mar Copper +0.6% at $2.84/lb

- GLD: SPDR Gold Trust ETF daily holdings fall 0.6 tonnes to 712.3 tonnes; Lowest level since Sept 2008

- SLV: iShares Silver Trust ETF daily holdings fall to 10,268 tonnes from 10,333 tonnes priors (lowest since Aug 20th)

Market Focal Points/Key Themes/FX

- China financials are trading sharply higher after a PBoC report over the weekend confirmed the govt would be changing the rules on loan-to-deposit ratio calculations effective 2015 to inject further liquidity into the system. The new rules allow the inclusion of savings held by banks for non-deposit-taking financial institutions in banks' deposits, expanding the ratios and boosting lending capacity. In the energy sector, PetroChina was up 5% and other related names were bid higher after China Finance Ministry announced it would raise petroleum windfall tax threshold to $65/brl from Jan 1st.

- China industrial profits for November marked the most notable economic data point, falling by 4.2% - the largest y/y decline in 27 months. YTD, profit growth slowed to 5.3% from 6.7%, as coal mining sector profitability shrank 44% and Oil/Gas industry by 13%. Separately, comments attributed to China Commerce Minister Gao indicated 2015 foreign trade growth would slow to 6.0% from 7.5% official target in 2014. Ministry of Commerce also briefly published and then pulled a website report that 2014 trade growth would be just 3.5%, ensuring a miss on the official 7.5% GDP target.

- Japan govt confirmed it would offer a fiscal stimulus package in the amount of $29B (¥3.5T) - right in line with the magnitude speculated in local press last week. Subsidies and merchandise vouchers for households to help stimulate consumption are among the package components along with more relief and prevention measures targeted at the great earthquake-hit regions, with the govt estimating the impact of stimulus at 0.7% of added GDP growth. Also in Japan, local press speculated the govt will lower corporate tax rates by 3.3% over the next two years, while another report noted PM Abe will draw up legislation in early 2015 that permits controversial deployment of Japanese troops abroad for peacekeeping operations.

- In the euro zone, traders are bracing for Monday's 3rd round of Presidential polls in Greece after two failed votes this month. PM Samaras, who had previously offered early elections if his candidate is elected, reiterated he is doing everything in his power to prevent a political crisis after his party received 168 Parliament votes, shy of the 180 it will need in the 3rd round on Monday. German Fin Min Schaeuble said that any new Greek govt would have to abide by prior commitments to ensure continued external support. Separately out of Germany, Bundesbank head Weidmann said low oil prices would take inflation lower than expected but also boost economic growth by as much as 0.2-0.3% in 2015, as estimated by the Economy Ministry. Weidmann also reiterated his opposition to sovereign bond purchases - sentiment shared by commentary from the Head of German Govt advisors (wisemen) Schmidt.

- In USD majors, EUR/USD traded in a 30-pip range just below $1.22 handle, USD/JPY was in a 30-pip range above ¥120.30, and AUD/USD entered afternoon hours up 20pips around $0.8130. Chinese yuan was also on the back foot for the second session as USD/CNH rose 1.5c above CNY6.225.

Equities

US markets:

- APP: Lion Capital said to ask Board to form a committee to evaluate strategic alternatives - financial press

Notable movers by sector:

- Consumer Discretionary: Qantas Airways QAN.AU +2.6% (China top airline may become cornerstone shareholder)

- Financials: Gemdale Properties 535.HK +4.7% (OUE to acquire stake); CITIC Securities 6030.HK +6.7% (to issue shares in Hong Kong); Sunac China 1918.HK +6.3% (Greentown to repay for termination); Industrial Bank of China 601166.CN +5.0%, Bank of China 601988.CN +1.1% (PBoC to change rules on loan-to-deposit ratio calculations); Ping An Insurance 601318.CN +6.0%, New China Life 601336.CN +5.8% (pension insurance reforms); Investa Office Fund IOF.AU +3.7% (Macquarie initiates stake); Programmed Maintenance Services PRG.AU +2.5% (proposes merger)

- Energy: PetroChina 601857.CN +3.9% (China to raise petroleum windfall tax threshold from Jan 1st)

- Technology: Noritsu Koki 7744.JP -5.7% (to acquire Teibow)