AUD pressured again by slump in retail sales

Asian Mid-session Update: AUD pressured again by slump in retail sales; IMF issues warning on China spillover risks

Economic Data

- (AU) AUSTRALIA JULY TRADE BALANCE: -A$2.5B V -A$3.2BE; 15TH STRAIGHT DEFICIT

- (AU) AUSTRALIA JULY RETAIL SALES M/M: -0.1% V +0.4%E; First decline in 14 months

- (AU) AUSTRALIA AUG AIG PERF OF SERVICES INDEX: 55.6 V 54.1 PRIOR; 3rd month of expansion

- (BR) BRAZIL CENTRAL BANK (BDB) LEAVES SELIC TARGET RATE UNCHANGED AT 14.25%, AS EXPECTED

- (JP) JAPAN AUG NIKKEI SERVICES PMI: 53.7 V 51.2 PRIOR; COMPOSITE PMI 52.9 V 51.5 PRIOR

- (KR) SOUTH KOREA Q2 FINAL GDP Q/Q: 0.3% V 0.3% PRELIM; Y/Y: 2.2% V 2.2% PRELIM

- (NZ) New Zealand Q2 Value of All Buildings Q/Q: 1.6% v 0.5%e

Index Snapshot (as of 02:30 GMT)

- Nikkei225 +1.2%, S&P/ASX -0.5%, Kospi +0.4%, Shanghai Composite closed, Hang Seng closed, Sept S&P500 +0.1% at 1,948

Commodities/Fixed Income

- Dec gold -0.1% at $1,132/oz, Oct crude oil -1.1% at $45.74/brl, Dec copper -0.2% at $2.32/lb

- (JP) Japan investors bought net ¥900.3B in foreign bonds v sold ¥277.2B in prior week; Foreign investors sold net ¥630.3B in Japan stocks v sold ¥462.8B in prior week

Market Focal Points/FX

- Volatility is compressed by the market holidays in Shanghai and Hong Kong, just as investors worldwide are awaiting updates from the ECB on Thursday morning and US non farm payrolls on Friday. The latter should either solidify the case for September Fed liftoff or bolster expectations of a climb down by the more hawkish members of the FOMC amid global market turmoil. In the Asia afternoon trade, main regional indices and S&P futures are little changed.

- In FX, key USD majors are also trapped in narrow ranges, with EUR/USD in a 20pip band above $1.12 and USD/JPY up only some 30pips to session-best 120.60 in spite of broad rally on Wall St. AUD is most volatile with a 60pip drop from the highs toward overnight 6-year lows around the $0.70 handle. Australia retail sale fell m/m for the first time in 14 months, while trade balance came in negative for the 15th straight month, albeit more narrow than expected. Exports to China, along with shipments of iron ore and coal were down marginally. On the plus side, Australia PM Abbott announced he still intends to put China FTA up for legislation before the end of this year.

- Excerpts leaked from tomorrow's interview with US Treasury Sec Lew revealed a predictably tougher rhetoric on China for its latest devaluation of Yuan, taking Beijing to task on the ramifications of its FX actions. Concurrently, US financial press report citing sources close to the IMF suggested the FX reform by the PBoC could make the IMF more inclined to include it in the SDR basket. Recall on Aug 19th, IMF board announced it would extend SDR rights basket through Sept of 2016, deferring on the decision for including Yuan until the end of this year. Also of note on the IMF, its report to G20 warned that China slowdown could be larger than expected and is among primary risks to global growth outlook. IMF also called for a "mutual" (coordinated) policy action to raise growth and mitigate risks, specifically asking for assistance from surplus economies such as Germany.

- BOJ's high-profile dissenter Kiuchi continued to question the effectiveness of open ended QQE. Consistently expressing a more hawkish view and voting for a taper of asset purchases, Kiuchi said the economy is recovering moderately, exports are picking up, and consumption will remain firm. Kiuchi also said policymakers should be more forward looking on medium and longer-term risks rather than short-term price developments and economy.

Equities

US equities/ADRs:

- LCI: Acquires Kremers Urban Pharmaceuticals for $1.23B; accretive to adjusted EPS in FY16 in the mid- to high-single digits and 20% to 25% in FY17; +19.8% afterhours

- EXPE: Expands partnership with AAL; +0.1% afterhours

- VRNT: Reports Q2 $0.70 v $0.68e, R$297.1M v $290Me; -6.9% afterhours

- FIVE: Reports Q2 $0.13 v $0.13e, R$182.8M v $184Me; -8.5% afterhours

Notable movers by sector:

- Consumer discretionary: Myer Holdings MYR.AU -21.7% (institutional offer); Harvey Norman HVN.AU -2.3% (acquisition)

- Industrials: Nidec Corp 6594.JP +3.0% (acquisitions); Mazda Motor 7261.JP +1.1% (Aug US sales)

- Technology: Toshiba Corporation 6502.JP +3.3% (speculation on earnings, divestment); Hon Hai 2317.TW -3.1% (speculation of investment in India); Acer 2353.TW +3.2% (speculation to raise notebook prices)