PBoC cuts rates and RRR but Shanghai still plummets

Asian Mid-session Update: Surprise "Greferendum" wreaks havoc on sentiment; PBoC cuts rates and RRR but Shanghai still plummets

Economic Data

- (CN) CHINA PBOC CUTS KEY RATES BY 25BPS; ALSO CUTS RRR FOR COMMERCIAL BANKS LENDING TO FARMS AND SMALL BUSINESSES BY 50BPS; CUTS EFFECTIVE JUNE 28TH

- (CN) CHINA MAY INDUSTRIAL PROFITS Y/Y: 0.6% (2nd straight increase) V 2.6% PRIOR; YTD y/y: -0.8%

- (JP) JAPAN MAY PRELIMINARY INDUSTRIAL PRODUCTION M/M: -2.2% (biggest decline in 3 months) V -0.8%E; Y/Y: -4.0% V -2.3%E

- (JP) JAPAN MAY RETAIL SALES M/M: 1.7% V +1.0%E; RETAIL TRADE Y/Y: 3% V 2.2%E

- (NZ) NEW ZEALAND Q1 WESTPAC EMPLOYMENT CONFIDENCE INDEX: 102.8 V 108.5 PRIOR

Index Snapshot (as of 02:30 GMT)

- Nikkei225 -1.8%, S&P/ASX -2.0%, Kospi -1.5%, Shanghai Composite -1.8%, Hang Seng -1.9%, Sept S&P500 -1.4% at 2,066

Commodities/Fixed Income

- Aug gold +0.7% at $1,181/oz, Aug crude oil -1.5% at $58.77/brl, Sept copper -0.2% at $2.63/lb

- (JP) BOJ offers to buy ¥400B in 5-10yr JGBs and ¥140B in JGBs outright

- USD/CNY: PBoC sets yuan mid point at 6.1168 v 6.1137 prior setting; weakest yuan setting since June 15th

- IEF: (US) Yield on US 10-year Treasury Note down 15bps at 2.32%

Market Focal Points/FX

- Greek PM Tsipras blindsided European creditors and global investors by effectively staging a walkout from negotiations and declaring a Yes or No referendum for the Greek people on whether to support bailout conditions demanded by creditors. Eurogroup said that even though they were taken by surprise by the announcement, they would have still considered extending the bailout before Syriza went on to endorse a NO vote. As it is, EMU ministers declared the EFSF financial arrangement with Greece would end on June 30th, leaving Greek govt responsible for safeguarding the country's financial system. Later on Sunday, ECB also decided not to increase the cap on ELA funding for Greek banks, pulling the safety net from the system, sending Greeks to empty out the nation's ATMs, and leading to the introduction of capital controls which Athens had previously claimed it could avoid. Banks will remain closed until July 6th, bank payments and transfers abroad would be banned, ATMs will be formally closed on Monday and then operate with a €60 daily limit from Tuesday. Of note, a local press survey suggested some 57% of Greeks support a deal with European creditors and only 29% would endorse a break from creditors, though there is little clarity on whether a YES vote would require another political transition.

- Extreme flight to safety was reflected across the asset classes but most notably in the currency markets. EUR/USD fell as much as 200pips below 1.0960, EUR/JPY was down as much as 450pips below 134, and USD/JPY fell as much as 170pips to 122.10. AUD and NZD were down about 60pips at their worst levels against USD - the latter hitting a 5-year high below 0.68 - before paring much of those losses. S&P futures are down 30pts or 1.4% and front-month gold was up about 1% at its highs above 1,185.

- China markets remained active after another sharp selloff on Friday which had sent Shanghai Composite down nearly 20% from its peak. Over the weekend, PBoC announced a 25bp cut in interest rates and a 50bp cut in RRR to select lenders (those involved in agriculture and small business loans) - the first time both were cut since the height of GFC in late 2008. However, after opening up 2.3%, Shanghai Composite entered its midday break down 3.8%. Economist with PBoC made reassuring remarks, noting liquidity was ample. Premier Li also said economic fundamentals remain strong, but CASS offered a Q2 GDP forecast of 6.9% - down from 7% in Q1.

- Nikkei225, which had seen its multi-year highs as recently as last week, is also down nearly 2% on strong JPY and overall risk aversion. Retail Sales were better than expected but Industrial Output decline was much worse than anticipated, prompting the govt to downgrade its assessment on the sector to state it is stagnating. Fin Min Aso was optimistic, noting renewed JPY rapid rise is unlikely, and BOJ's Kuroda affirmed commitment to 2% inflation target, but some of the analysts indicated the contracting manufacturing sector could plunge Japan GDP back into contraction in Q2.

- Lost in the Greece and China headlines was some fairly telling commentary from Fed's Dudley - one of the FOMC's biggest doves - stating that September rate hike was still "very much in play". Dudley acknowledged that Greece uncertainty is a "wild card", but added there were signs of recovery in Europe and Japan, along with accelerating wage gains and growing household spending alleviating worries about sustainability of economic momentum in the US. Dudley concluded he would not be surprised "if we decided to lift off in September, or it wouldn't shock me if the data were a little softer and it caused us to wait."

Equities

Notable movers by sector:

- Consumer discretionary: Slater & Gordon Ltd SGH.AU -24.2% (ASIC intends to raise some queries)

- Financials: Legend Holdings 3396.HK +0.7? (IPO debut); Shanghai Chengtou Holding 600649.CN +10.0% (restructure plan); Evergrand Real Estate Group 3333.HK +0.9%, China Vanke 000002.CN +1.1%, Poly Real Estate Group 600048.CN +0.7%; ICBC 601398.CN -0.2%, BOC 601988.CN +0.4%, CCB 601939.CN +0.5% (PBoC cuts interest rates and RRR)

- Energy: Origin Energy ORG.AU -3.8% (response to speculation with Sinopec)

- Industrials: GWA Group GWA.AU -4.7% (Reaffirms FY15 guidance); Suzuki Motor Corp 7269.JP -2.6% (May Japan auto output, higher JPY); Mazda Motor Corp 7261.JP -3.4% (May Japan auto output, higher JPY)

- Technology: Coolpad Group 2369.HK +1.3% (controlling shareholder to sell shares); Samsung Electronics 005930.KR -1.3% (Q2 result speculation)

- Materials: China Coal Energy 1898.HK -1.7% (H1 profit warning); China Polymetallic Mining 2133.HK +14.1% (acquisition)