China inflation remains subdued

Asian Market Update: China inflation remains subdued; Russia de-escalation offers relief

Economic Data

- (CN) CHINA JULY CPI Y/Y: 2.3 % V 2.3%E (3-month low)

- (CN) CHINA JULY PPI Y/Y: -0.9% V -0.9%E (29th consecutive y/y decline; Smallest decline in 27 months)

- (CN) China Ministry of Finance (MoF): China July Fiscal Rev CNY1.27T, +6.9% y/y; Fiscal spending CNY1.03T, +9.6% y/y

- (JP) JAPAN JUN TERTIARY INDEX M/M: -0.1% V 0.0%E

- (JP) JAPAN JULY MONEY STOCK M2 Y/Y: 3.0% V 3.0%E; M3 Y/Y: 2.4% V 2.4%E

- (NZ) NEW ZEALAND JULY RETAIL CARD SPENDING M/M: 0.0% V 0.5%E; TOTAL CARD SPENDING M/M: -0.1% V +0.5% PRIOR

Index Snapshot (as of 02:30 GMT)

- Nikkei225 +2.2%, S&P/ASX +0.6%, Kospi +0.7%, Shanghai Composite +0.8%, Hang Seng +1.0%, Sept S&P500 +0.2% at 1,927

Commodities/Fixed Income/Currencies

- Dec gold -0.2% at $1,308, Sept crude oil +0.4% at $98.01/brl, Sept Copper +0.7% at $3.19/lb

- (KR) South Korea sells KRW1.6T in 5-yr bonds; Avg yield: 2.735%; Bid-to-cover: 4.30x

- (JP) BOJ offers to buy ¥300B in 1-3yr JGBs, ¥200B in 3-5yr JGB, ¥400B in 5-10yr JGB, ¥2.5T in T-Bills, and ¥100B in Corporate Bonds - financial press

- USD/CNY: (CN) PBoC sets yuan mid point at 6.1522 v 6.1562 prior setting (3rd consecutive firmer setting; Strongest setting since July 14th)

Market Focal Points/Key Themes

- Japan is leading regional indices back to the upside following an outsized decline late last week as investors cheer better news from the Russia/Ukraine border. Safe-haven Yen bids that followed US Pres Obama's Friday declaration of air strikes on militants in Iraq are being unwound, with USD/JPY rising back above the ¥102 handle. Also of notable help, a Nikkei report noted Japan's Government Pension Investment Fund (GPIF) has temporarily scrapped its cap on the proportion of domestic shareholdings from Aug 5th until Sept to allow an increase in purchases of domestic stock. GPIF currently targets 12% domestic shareholding, but allows a variation of between 6-18%. Report further noting that after Sept, new guidelines will target 20% domestic shareholding.

- China inflation data released over the weekend was right in line with estimates, and the CPI print of 2.3% remains well below the govt's 3.5% target/ceiling. Food CPI remains elevated at 3.6% while non-food component slowed by a tenth to 1.6%. Economists with ANZ said inflation outlook remains mild and the risks of deflation "may even rise in the foreseeable future if the growth momentum weakens again", calling for PBoC to maintain an accommodative bias.

- Russia was reported to have ended its military exercises by the border late on Friday and announced it was redeploying troops back to bases. Moreover, sources within Russia Security Council were reportedly looking to "de-escalate the Ukraine situation." Subsequent reports over the weekend from Kiev indicated that a column of Russian soldiers and army equipment was stopped before crossing into Ukrainian territory, though Moscow denied those rumors. Kiev has also remained resolute on rebels formally surrendering before a ceasefire is granted, as Ukraine military continued to tighten the noose on the separatist stronghold of Donetsk.

- Airstrikes on ISIS militants in northern Iraq continued over the weekend even though many of the trapped Yazidis were rescued from the mountain ranges where they were pinned late last week. Pres Obama also said the airstrike campaign will be a "long-term project", even though his initial pledge last week was that "airstrikes would be taken only if needed." Separately in Iraq, security forces loyal to the outgoing PM al-Maliki poured out into the "green zone" around Baghdad after he accused the new Pres of violating the constitution by extending the deadline for nominating a candidate for prime minister - a post for which he is also bidding. Also in the Middle East, another tentative ceasefire between Hamas and IDF in Gaza appears to be holding going into another round of Cairo talks on Monday.

Equities

US markets:

- KMI: Kinder Morgan, Inc. to Purchase KMP, KMR and EPB for about $70B in transaction value; 2015 KMI Dividend to Increase 16% to $2/shr (implied yield 5.5%)

- GSK: World Health Organization (WHO): drug trials for Ebola vaccine should begin soon and realistically could have a vaccine ready for widespread use by early 2015; Glaxo to start trials in Sept

Notable movers by sector:

- Consumer Discretionary: Citizen Holdings 7762.JP -5.5% (Q1 results); Mixi Inc 2121.JP -5.0% (Q1 results); Treasury Wine Estates TWE.AU +2.3% (receives addition bid offer); G8 Education Ltd GEM.AU +5.2% (H1 results); JB Hi-Fi JBH.AU -8.1% (FY14 results)

- Financials: T&D Holdings 8795.JP +5.5% (Q1 results); MS&AD Insurance Group Holdings 8725.JP +5.7% (Q1 results); NKSJ Holdings 8630.JP +6.0% (Q1 results)

- Materials: Mitsui Mining & Smelting 5706.JP +7.4% (Q1 results); Yokohama Rubber 5101.JP -4.3% (H1 results); China Shanshui Cement 691.HK -3.5% (profit warning); Iron Ore IOH.AU +42.1% (BC Iron offers to fully acquire IOH)

- Industrials: SMC Corp 6273.JP +5.5% (Q1 results); Aida Engineering 6118.JP +6.2% (Q1 results); McAleese MCS.AU +20.2% (to sell Liquip International, FY14 EBITDA guidance)

- Technology: Tencent Holdings 700.HK +1.8% (to set up public fund)

- Healthcare: Towa Pharmaceuticals 4553.JP +7.3% (Q1 results); Shandong Lukang Pharma 600789.CN +2.5% (Ebola continues to get attention)