Shanghai rebounds further on PBoC liquidity

Asian Mid-session Update: Shanghai rebounds further on PBoC liquidity; Japan CPI, industrial output tread lower

Economic Data

- (JP) JAPAN NOV JOBLESS RATE: 3.5% V 3.5%E (matches 6-year year low); Labor Force Participation Rate m/m: 59.4% v 59.7% prior

- (JP) JAPAN NOV NATIONAL CPI Y/Y: 2.4% V 2.5%E; CPI EX FRESH FOOD Y/Y: 2.7% (8-month low) V 2.7%E; Excluding the direct impact of the April consumption tax hike, the Nov core CPI 0.7% vs. 0.9% in October

- (JP) JAPAN DEC TOKYO CPI Y/Y: 2.1% V 2.1%E; CPI EX FRESH FOOD Y/Y: 2.3% (9-month low) V 2.3%E

- (JP) JAPAN NOV OVERALL HOUSEHOLD SPENDING Y/Y: -2.5% V -3.6%E; 8th consecutive YoY decline but the smallest drop in 4 months

- (JP) JAPAN NOV PRELIMINARY INDUSTRIAL PRODUCTION M/M: -0.6% (3rd month of decline) V +0.8%E; Y/Y: -3.8% V -2.4%E

- (JP) JAPAN NOV RETAIL SALES M/M: -0.3% V +0.2%E; RETAIL TRADE Y/Y: 0.4% V 1.1%E

- (JP) JAPAN NOV LABOR CASH EARNINGS Y/Y: -1.5% V 0.4%E (1st decline in 9 months)

Index Snapshot (as of 03:30 GMT)

- Nikkei225 -0.1%, S&P/ASX closed, Kospi +0.3%, Shanghai Composite +1.2%, Hang Seng closed, Mar S&P500 flat

Commodities/Fixed Income

- Feb gold +1.0% at $1,185, Feb crude oil +0.5% at $56.09/brl, Copper -0.6% at $2.85/lb

Market Focal Points/Key Themes/FX

- Shanghai Composite has nearly erased the losses of two straight sessions with the 2nd consecutive day of outsized gains. After a 3% rally overnight, the mainland index has entered the final hour of trade with an over 2.5% advance above 3,150. Bullish sentiment remains supported by expectations of further easing out of the PBoC, while local dealers are also attributing the strength to reports the centra bank plans to waive a reserve requirement for lenders, unfreezing additional liquidity in the banking sector. Also of note, Xinhua report citing a govt official forecasting 2014 China jobs growth to be at over 13M - well above 10M initial target.

- A wide set of economic data out of Japan saw industrial output and inflation undershooting the ambitious Abenomics agenda. METI reported Nov industrial production as a 3rd consecutive sequential decline of -0.6% despite expectations of a rise, even as December and January were forecast to rise 3.2% and 5.7% respectively. Econ Min Amari also noted the decline is likely temporary as manufacturers expect strong rise in the following months. Japan CPI also remains weighed down by lower oil prices, hitting fresh multi-month lows despite recent reiteration from BOJ that inflation trends are on track to reach the intended 2% levels.
Separately, a survey in the Nikkei saw PM Abe's approval rating rise about 9pts to 51%, although over 50% still believe Abenomics policies will not necessarily help Japan's economy to a sustainable recovery.

- USD majors are little changed in thin holiday trading. USD/JPY is in a 30pip range above 120.10, EUR/USD is in a 20pip range above 1.2200, and AUD/USD is up about 20pips from the lows above 0.8120. Spot gold prices are off the recent lows, rising $15 to $1,188.

Equities

Notable movers by sector:

- Consumer Discretionary: China Eastern Airlines 600115.CN +3.1% (civil aviation industry grew in 2014); Honda Motor 7267.JP -1.4% (to delay Legend sales)

- Financials: Avic Investment 600705.CN +10.0% (appointed for first local govt to issue bond overseas); Guoyuan Securities 000728.CN +9.7%, CITIC Securities 600030.CN +6.9%, Haitong Securities 600837.CN +4.9% (speculation for reserves requirement for non-deposit-banking financial institutions))

- Industrials: China Railway Group 601390.CN +8.0%, China Railway Construction 601186.CN +9.9% (regulators approved railway projects)

- Technology: LG Electronics 066570.KR (Prosecutors raided offices)

- Utilities: Taiyo Nippon Sanso 4091.JP +4.5% (develops mobile hydrogen fueling station)