China rallies on local RRR easing

Asian Mid-session Update: Soft Australia CAPEX tilts RBA probability in favor of another rate cut; China rallies on local RRR easing

Economic Data

- (AU) AUSTRALIA Q4 PRIVATE CAPITAL EXPENDITURE (CAPEX) Q/Q: -2.2% V -1.6%E (2nd consecutive decline)

- (NZ) NEW ZEALAND JAN TRADE BALANCE (NZD): +56M V -158ME (first surplus in 7 months)

- (TW) Taiwan Dec Unemployment Rate: 3.8% v 3.8%e

Index Snapshot (as of 03:30 GMT)

- Nikkei225 +0.7%, S&P/ASX -0.6%, Kospi -0.1%, Shanghai Composite +1.4%, Hang Seng +0.8%, Mar S&P500 +0.1% at 2,112

Commodities/Fixed Income

- Apr gold +0.4% at $1,208, Apr crude oil -1.0% at $50.50/brl, Mar Copper +0.5% at $2.67/lb

- (JP) Japan investors bought net ¥166.3B in foreign bonds v bought ¥476.7B in prior week; Foreign investors bought net ¥289.0B in Japan stocks v bought ¥113.9B in prior week

- JGB: (JP) Japan MoF sells ¥2.51T in 0.1% 2-yr notes, Avg Yield: 0.027% v 0.006% prior; bid to cover: 4.39x v 4.25x prior

- (CN) PBoC to inject CNY38B in 14-day reverse repos

Market Focal Points/FX

- AUD/USD is the biggest mover among the dollar majors, falling about 50pips below $0.7840 following a worse than expected set of Capex data from Australia. Expenditures fell q/q for the 2nd straight quarter, estimates for FY14/15 were revised down to A$152.7B vs A$153.2B, while the initial FY15/16 forecast was set at A$109.8B - down over 12% from initial forecast for FY14/15. Fixed income markets reacted by once again repricing expectations of RBA rate cut, with a marginal probability now tilting in favor of another 25bp move to 2.00% move next week. JPMorgan economist said that beyond the expected weakness in mining, "there's not much sign of a revival in other sectors", and both CBA and ANZ tipped a rate cut next week. Among notable Australia earnings, Qantas is up about 3% as H1 pretax profit topped consensus, and H2 capacity is expected to continue rising.

- NZD/USD initially moved lower on decision by Fonterra to maintain its FY14/15 payout forecast in spite of recent growth in auction prices, but then spiked up to a 1-month high above $0.7570 on better than expected New Zealand trade data. Terms of trade hit a surplus for the first time in 7 months, as imports fell to their lowest level since June 2013 while exports slowed to a 4-month low. Falling demand from China pinched shipments by 51%, but shipments to US were up 69% and the decline in exports to Australia slowed to -6.2%. New Zealand Fin Min English acknowledged there are risks to New Zealand economy stemming from China and Australia.

- Shanghai Composite is up sharply and extending its gains in the afternoon trade after the PBoC approved an additional 0.5% of RRR rate cuts for more city banks, including Bank of Beijing, Bank of Shengjing, Bank of Chongqing, Huishang Bank, and Bank of Nanjing, estimated to release up to CNY100B of liquidity into the system. PBoC also injected another CNY38B through its regular open market operations via 14-day reverse repos. Overnight, Shanghai Daily citing China Urban Finance Society official noting the risk of deflation is even greater than it is being perceived.

- USD/JPY briefly regained the 119 handle, but overall continues to trade in a sideways pattern below 120. PM Abe's advisor Hamada has reiterated the BOJ needs to switch to inflation gauge that strips out energy and possibly extend the timeframe for achieving the 2% target to 3 years. BOJ Gov Kuroda continued to defend his position that inflation will still reach the 2% target in the intended period of FY15/16, though the central bank would be prepared to respond with measures if necessary. BOJ board member Ishida was somewhat critical of that sentiment, noting policy should not be altered only to make sure that inflation hits its mark within a certain time frame.

Equities

US markets:

- ELX: Agrees to be acquired by Avago for $8/shr in cash, valuing it at $606M; +24.5% afterhours

- CRM: Reports Q4 $0.14 v $0.14e, R$1.44B v $1.44Be; +11.5% afterhours

- AVGO: Reports Q1 $2.09 v $1.94e, R$1.66 v $1.64Be; +5.4% afterhours

- WDAY: Reports Q4 -$0.06 v -$0.06e, R$226.3M v $222Me; +1.7% afterhours

- MDVN: Reports Q4 $1.96 v $1.21e, R$274.7M v $228Me; +1.0% afterhours

- MS: Reaches agreement to $2.6B mortgage settlement, reducing 2014 EPS by $1.35 - filing; -0.4% afterhours

- SFM: Reports Q4 $0.12 v $0.09e, R$735M v $721Me; -2.1% afterhours

- LB: Reports Q4 $1.89 v $1.80e, R$4.07B v $4.05Be; -2.2% afterhours

- CLRX: Announces Proposed Public Offering of indeterminate amount of Common Stock; -28.3% afterhours

- GOOGL: Said to mull strategic investment in wearable device maker Jawbone - Re/code

- UIL: Iberdrola USA to combine with UIL; Total transaction at approx $17.9B

Notable movers by sector:

- Consumer Discretionary: SJM Holdings 880.HK -0.9% (FY14 results); Qantas Airways QAN.AU +2.9% (H1 results); Billabong BBG.AU -4.3% (H1 results); Nine Entertainment Co Holdings NEC.AU +10.0% (H1 results); Sydney Airport SYD.AU -4.1% (FY14 results); Fast Retailing 9983.JP +1.7% (FY16/17 sales target)

- Consumer staples: Nine Dragons Paper Holdings 2689.HK -10.7% (H1 results)

- Financials: AIA Group 1299.HK +0.6% (FY14 results); CITIC Securities 600030.CN +4.2%, Huatai Securities 601688.CN +4.2% (China cuts additional RRR for some city banks); IOOF Holdings IFL.AU -3.9% (H1 results)

- Materials: Alumina AWC.AU -2.4% (FY14 results); Sedgman Ltd SDM.AU +27.6% (H1 results); Alkane Resources ALK.AU +4.2% (H1 results)

- Industrials: XCMG Construction Machinery 000425.CN +6.2%, Shantui Construction Machinery Co Ltd 000680.CN +10.0%, Zoomlion Heavy Industry Science and Technology 000157.CN +4.3% (press comments on equipment companies); Austal ASB.AU -4.1% (H1 results)

- Technology: TDK Corp 6762.JP +1.6% (to build first large factories in Japan)

- Healthcare: Acrux ACR.AU -17.9% (H1 results); Ramsay Health Care RHC.AU +4.5% (H1 results)