China markets turn higher after the PBoC rate cut

Economic Data

- (AU) AUSTRALIA Q2 CONSTRUCTION WORK DONE Q/Q: +1.6% V -1.5%E; First increase in 7 quarters

- (NZ) NEW ZEALAND JULY TRADE BALANCE (NZD): -649M V -600ME (2ND STRAIGHT DEFICIT; widest deficit in 9 months)

- (JP) JAPAN JULY PPI SERVICES Y/Y: 0.6% V 0.4%E

- (KR) SOUTH KOREA AUG CONSUMER CONFIDENCE: 102 V 100 PRIOR

Index Snapshot (as of 05:00 GMT)

- Nikkei225 +2.4%, S&P/ASX +0.7%, Kospi +1.0%, Shanghai Composite +3.0%, Hang Seng +0.8%, Sept S&P500 +1.4% at 1,898

Commodities/Fixed Income

- Dec gold -0.1% at $1,137/oz, Oct crude oil -0.4% at $39.17/brl, Sept copper -1.5% at $2.27/lb

- (US) API Petroleum Inventories: Crude -7.3M v -2.3M w/w (5th straight and largest draw in 6 weeks)

- USD/CNY: (CN) PBoC sets yuan mid point at 6.4043 v 6.3987 prior setting; Weakest setting since Aug 2011

- (JP) BOJ offers to buy ¥375B in 1-3yr JGBs, ¥425B in 3-5yr JGBs, ¥240B in 10-25yr JGBs, and ¥140B in JGBs with maturity over 25-yr

- (AU) Australia MoF (AOFM) sells A$900M in 4.75% 2027 Bonds; avg yield: 2.75%; bid-to-cover: 2.88x

Market Focal Points/FX

- After some morning session volatility in the China markets that saw key indices oscillate between gains and losses, the afternoon session is turning more in favor of the buyers. Shanghai Composite is up 3%, S&P futures are up 1.4% or 27points, safe-haven Yen is under pressure with USD/JPY up 120pips above 119.70, and EUR/USD is down 80pips from the lows below 1.1480.

- Overnight, the PBoC finally cut key rates by 25bps and RRR by 50bps, and analysts keyed in on today's session as being critical as to whether investors will find the latest measures as sufficient to curbing the rapid declines. ANZ analysts noted the "traditional monetary policy easing is not sufficient to mitigate the risks associated with Chinas highly leveraged economy" while JPMorgan has profiled variability of response to PBoC policy easing measures in the past. Note that PBoC chief economist Ma has clarified the move was necessary to stabilize market expectations but does not mean a change in monetary policy - in the aftermath of the easing, there was an omission of the "prudent" assessment of central bank's policy stance.

- In additional to monetary policy changes in China, markets responded favorably to more regulatory changes. China Financial Futures Exchange (CFFEX) announced it would raise margin requirement for stock index futures to curb excessive market speculation, lifting raise transaction fee for intraday sale and also restricting trading positions in stock index futures. Regulators also continued an inquiry into mainland trading practices, placing some of the larger securities firms such as Citic and Haitong under investigation by CSRC for suspected violations in relation to failure to review and verify client's identities.

- Down under, RBA Gov Stevens conceded that Australia's growth potential os a bit lower than expected. New Zealand trade data was also worse than expected with a 2nd straight deficit that was also the widest in 9 months. Both AUD/USD and NZD/USD are up on broader sentiment shift, tracking risk-on flows with 60pip and 30pip gains off the lows above $0.7150 and $0.65 respectively.

Equities

US equities/ADRs:

- OSK: Reportedly US Army awards contract for Joint Light Tactical Vehicle, the successor to the Humvee, contract worth up to $30B - press; +11.6% afterhours

- DY: Reports Q4 $0.97 v $0.83e, R$578.5M v $567Me; +8.6% afterhours

- SRPT: FDA files NDA for Eteplirsen, a potential treatment of Duchenne Muscular Dystrophy (DMD) for patients amenable to Exon 51 skipping; +2.5% afterhours

- RIG: Announces Extraordinary General Meeting to propose cancellation of Q3 and Q4 dividend installments and election of CEO to the board; -10.9% afterhours

Notable movers by sector:

- Consumer discretionary: Haier Electronics Group 1169.HK -0.9%(H1 result); Samsonite 1910.HK +1.9% (H1 result); Chow Sang Sang Holdings International 116.HK +1.3% (H1 result)

- Financials: Haitong Securities 600837.CN -1.4%, CITIC Securities 600030.CN -2.0% (CSRC probe); China Merchants Bank 3968.HK +0.1% (H1 result); Cheung Kong Holdings 1.HK -2.4% (H1 result); Bank of Beijing Co 601169.CN +3.9% (H1 result); Charter Hall Group CHC.AU +0.5% (FY15 result)

- Industrials: BAIC Motor Corp 1958.HK +2.8% (H1 result); Kerry Logistics Network 636.HK +5.0% (H1 result); Worley Parsons WOR.AU +3.4% (FY15 result)

- Technology: Taiwan Semiconductor Manufacturing Co 2330.TW -1.6% (cease solar unit)

- Materials: Maanshan Iron & Steel 323.HK -1.8% (H1 result); Jiangxi Copper Company 600362.CN -7.3% (H1 result); BHP Billiton BHP.AU +0.8% (FY15 result); BC Iron BCI.AU +4.4% (FY15 result)

- Energy: China Resources Gas Group 1193.HK +5.2% (H1 result); APA Group APA.AU -2.5% (FY15 result)

- Utilities: Huaneng Power International 902.HK +1.1% (H1 result)

- Healthcare: Shanghai Fosun Pharmaceutical Group 600196.CN +1.9% (H1 result); (H1 result); CSPC Pharmaceutical Group 1093.HK +1.7% (H1 result)