Shanghai Composite still volatile in active early trade

Mid-session Update: Japan CPI falls to near 2-year lows as the sales tax hike impact rolls off; Shanghai Composite still volatile in active early trade

Economic Data

- (JP) JAPAN MAY TOKYO CPI Y/Y: 0.5% V 0.5%E; CPI EX FRESH FOOD Y/Y: 0.2% V 0.2%E; 21-month lows

- (JP) JAPAN APR NATIONAL CPI Y/Y: 0.6% V 0.6%E; CPI EX FRESH FOOD Y/Y: 0.3% V 0.2%E; 23-month lows

- (JP) JAPAN APR JOBLESS RATE: 3.3% V 3.4%E; 18 year low

- (JP) JAPAN APR OVERALL HOUSEHOLD SPENDING Y/Y: -1.3% V +3.0%E; 13th consecutive month of decline

- (JP) JAPAN APR INDUSTRIAL PRODUCTION M/M: 1.0% (5-month high) V 1.0%E; Y/Y: -0.1% (smallest decline in 7 months) V -0.1%E

- (AU) AUSTRALIA APR HIA NEW HOME SALES M/M: 0.6% V 4.4% PRIOR; 4-month low

- (AU) AUSTRALIA APR PRIVATE SECTOR CREDIT M/M: 0.3% (17-month low) V 0.5%E; Y/Y: 6.1% (4-month low) V 6.3%E

- (NZ) NEW ZEALAND MAY ANZ ACTIVITY OUTLOOK: 32.6 V 41.3 PRIOR; BUSINESS CONFIDENCE: 15.7 (7-month low) V 30.2 PRIOR

- (NZ) NEW ZEALAND APR BUILDING PERMITS M/M: -1.7% V +10.3% PRIOR

- (KR) SOUTH KOREA APR INDUSTRIAL PRODUCTION M/M: -1.2% V 0.2%E (2nd straight decline); Y/Y: -2.7% V -0.5%E

- (KR) South Korea Jun Business Manufacturing Survey: 77 v 82 prior; Non-Manufacturing Survey: 76 v 78 prior

- (UK) MAY GFK CONSUMER CONFIDENCE: 1 V 4E; 3-month low

Index Snapshot (as of 02:30 GMT)

- Nikkei225 +0.3%, S&P/ASX +1.5%, Kospi +0.4%, Shanghai Composite -0.4%, Hang Seng flat, Jun S&P500 -0.1% at 2,120

Commodities/Fixed Income

- Aug gold flat at $1,189/oz, Jul crude oil +1.1% at $58.32/brl, Jul copper +0.3% at $2.78/lb

- (JP) BOJ offers to buy ¥375B in 1-3yr JGBs, ¥375B in 3-5 yr JGBs, ¥400B in 5-10yr JGBs, and ¥400B in T-bills

- (AU) Australia MoF (AOFM) sells A$700M in 2.75% 2019 Bonds; avg yield: 2.0487%; bid-to-cover: 4.31x

- (US) Weekly Fed Balance Sheet Total Assets for week ending May 27th: $4.46T v $4.48T prior; Reserve Bank Credit: $4.43T v $4.44T prior; M1 y/y change: 8.4% v 8.7% prior; M2 y/y change: 6.1% v 6.1% w/w

Market Focal Points/FX

- Asian indices are mixed following a flattish day on Wall St, where the modest declines in the morning-afternoon hours were pared in near entirety late in the day. Traders are waiting out Friday's release of GDP for any potential surprises, even though there appears to be a general consensus that Q1 prelim figure will show a contraction somewhere in the neighborhood of 1%.

- After an overnight collapse in Shanghai Composite, where the the 2nd biggest of the year drop of 6.5% erased all of the gains of this week, trading remained volatile in the opening hours. The index rose 0.7% at the open, then renewed its freefall to trade down some 4%, and finally settled into its midday break up 0.1%. Commentary in the press after the precipitous decline yesterday was fairly wide in scope. The official People's Daily issued a warning to be sensitive to "overdevelopment" of financial sector - a veiled reference to the high-leveraged equity trading that fanned the latest run up. Report noted that overdevelopment would bring in risks including accumulated asset bubbles leading to financial and economic crisis, adding that regulations were lagging behind. Separately, a Xinhua feature praised the two-way nature of the correction as healthy, and State Council announced plans to east China investors' ability to invest abroad to help redirect some of the speculative flows of easy money.

- Australian index hit 3-week highs and bond market rallied on chatter that soft CAPEX data from overnight could tip the scales for RBA to announce easing as soon as its next decision. Today's economic datapoints did little to dissuade the doves, as new home sales and private sector credit slowed to multi-month lows. AUD/USD still traded in about a 25pip range arond $0.7670. NZD also remained on the back foot after a technical breach to 2015 lows following yesterday's cut in Fonterra payout along with today's lower ANZ Business Confidence, though Asian hours also kept the kiwi volatility to a minimum.

- The raft of economic data released out of Japan appeared to be impacted by the timing of last April's consumption tax increase. Release of National CPI in particular marked the first time where annual adjustment was not required, and as suspected, low oil price and slow pace of wage increases took inflation to a near 2-yearlow. Household spending contraction was also surprising in light of the most recent BOJ upward revision of the segment, as it marked the 13th consecutive drop against expectation of a rebound. Jobless rate and rising job-to-applicant ratio does provide an opportunity for wage pressure to finally materialize - sentiment that was also expressed by Cabinet Sec Suga. Japan cabinet also noted household spending disappointment does not warrant expectations for a slowdown, while Econ Min Amari reiterated JPY has not reached an excessively weak level. JPY did strengthen late in the day, as USD/JPY retreated some 40pips from the high to 123.60.

Equities

US equities/ADRs:

- HRTX: Announces Positive Results from Phase 3 MAGIC Study of SUSTOL; +43.1% afterhours

- GME: Reports Q1 $0.68 v $0.58e, R$2.06B v $2.04Be; +5.7% afterhours

- DECK: Reports Q4 $0.04 v -$0.01e, R$340.6M v $320Me; -1.0% afterhours

- PSUN: Reports Q1 -$0.12 (adj) v -$0.11e, R$166.5M v $171Me; -12.2% afterhours

- ALTR: Intel said to be close to a deal to acquire Altera for $15B or as high as $54/shr (15% premium to Thur close) - NY Post

Notable movers by sector:

- Consumer discretionary: Huiyin Household Appliances 1280.HK +9.2%?(to issue new shares); Dynam Japan Holdings 6889.HK -4.7% (FY15 results); Suning Appliance Co 002024.CN -2.9% (to open finance company)

- Financials: Industrial and Commercial Bank of China 1398.HK -0.3%, CCB 939.HK -0.1% (Huijin to cut holdings); Evergrande Real Estate Group 3333.HK -20.3% (to sell shares)

- Technology: ZTE 763.HK +2.0% (jv with Kandi); Lenovo Group 992.HK +1.5% (to issue RMB notes); Alibaba Health Information Technology 241.HK -2.9% (profit warning); Chinasoft International 354.HK +6.8% (cooperation with Huawei); Yahoo! Japan Corp 4689.JP +8.6% (to partner with Alibaba)

- Materials: Chongqing Iron & Steel Co. 601005.CN +1.2%, Maanshan Iron & Steel 600808.CN +3.0% (china to cut iron ore resource tax); Mitsubishi Corp 8058.JP +0.3% (to raise base pay)

- Healthcare: Lee's Pharmaceutical Holdings 950.HK -10.3% (Q1 results)