Asian Mid-session Update: Hong Kong PMI contraction deepens; Markets brace for critical non farm payrolls


Economic Data

- (HK) HONG KONG AUG PMI SERVICES: 44.4 V 48.2 PRIOR (lowest since Apr 2009)

- (JP) JAPAN JULY LABOR CASH EARNINGS Y/Y: 0.6% V 2.0%E; REAL EARNINGS (Ex-inflation) Y/Y: +0.3% V -3.0% PRIOR (first increase in 2-yrs)

- (PH) PHILIPPINES AUG CPI M/M: 0.1% V +0.1%E; Y/Y: 0.6% V 0.7%E; CPI CORE Y/Y: 1.6% V 1.9%E


Index Snapshot (as of 02:30 GMT)

- Nikkei225 -1.1%, S&P/ASX -0.1%, Kospi -0.8%, Shanghai Composite closed, Hang Seng +0.3%, Sept S&P500 -0.4% at 1,938


Commodities/Fixed Income

- Dec gold flat at $1,123/oz, Oct crude oil -0.4% at $46.56/brl, Dec copper -0.7% at $2.36/lb

- (JP) BOJ offers to buy ¥70B in JGBs with maturity less than 1-yr, ¥240B in 10-25yr JGBs and ¥140B in JGBs with maturity over 25-yr as well as ¥600B in T-bills

- (AU) Australia MoF (AOFM) sells A$600M in 4.25% 2026 bonds


Market Focal Points/FX

In spite of the ongoing market holiday for the Shanghai Composite and modest gains on Wall St, sentiment in Asia has turned progressively more cautious going into Friday's potentially pivotal for the Fed non-farm payrolls. Nikkei225 is especially susceptible, falling over 3% upon returning from midday break as it tracks a rally in JPY - USD/JPY fell some 100pips to 1-week lows below 119.20. Other USD majors are more contained, with EUR/USD consolidating post ECB declines in a 20pip range above 1.1115, while AUD/USD registered another 60pip drop to fresh multi-year lows around 0.6960 just as TD Securities cut its 2015-end target for AUD to $0.68 from $0.74.

Hong Kong PMI contraction reached new depths, sliding nearly 4 full points to 6-year low of 44.4. Resident economist said this was the quickest deterioration since the GFC, also spotlighting the sharper rate of job cuts in August, with the latest fall in employment the fastest since April 2003.

G20 Communique draft ahead of this weekends meeting pledged continued commitment toward resisting trade protectionism, implementing fiscal policies flexibly, and maintain prior FX commitments. Japan Econ Min Amari noted G20 would discuss China in context for global economy, adding volatility in the markets does not reflect fundamentals.

Fed's resident non-voting dove Kocherlakota reiterated his opposition to the liftoff this year on the grounds of delaying the return of inflation to target. Kocherlakota also noted labor markets stand to benefit from rates remaining low, particularly in the absence of wage inflation. Recall that Kocherlakota has made similar comments in the recent past at the Jackson Hole summit, while Fed watcher Hilsenrath observed that his views are not attracting much support inside the Fed.


Equities

US equities/ADRs:

- AVOL: Bohai Leasing agrees to acquire Avolon for US$31/shr cash; Transaction valued at US$7.6B (reduced from prelim agreement of $32/shr announced on 8/10); +4.6% afterhours

- GPS: Reports Aug SSS -2% v -0.4%e; -2.3% afterhours

- PAY: Reports Q3 $0.47 v $0.46e, R$510M v $501Me; -3.4% afterhours

- ESL: Reports Q3 $1.33 v $1.47e, R$496M v $531Me, Cuts FY guidance; -6.0% afterhours

- VNCE: Reports Q2 $0.14 v $0.22e, R$80.8M v $86.0Me; announces new interim CEO and CFO; -31.5% afterhours

Notable movers by sector:

- Consumer discretionary: Chow Tai Fook Jewellery Group 1929.HK +2.6% (to close more stores); Belle International Holdings 1880.HK +2.2% (closes stores); Echo Entertainment Group EGP.AU +1.4% (update on Genting's investment)

- Financials: Guangzhou R&F Properties 2777.HK -0.9% (Aug result); Beijing Capital Land 2868.HK +1.0% (Aug result); Magellan Financial Group MFG.AU +2.1% (Aug update)

- Industrials: Sinotrans 598.HK +8.2% (merger speculation); Daewoo Shipbuilding & Marine 042660.KR +2.3% (job cut); Mitsubishi Motors 7211.JP +0.4% (vehicles recall)

- Technology: Mesoblast MSB.AU +7.1% (update on JCR); HTC Corp 2498.TW +1.7% (Aug result); Japan Display 6740.JP -2.9% (Apple increases orders); TPK Holding 3673.TW +6.1% (Aug result)

- Materials: Doray Minerals DRM.AU +1.2% (update on project)

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