China rally intact as SOE in default secures relief

Economic Data

- (CN) CHINA MAR INDUSTRIAL PROFITS YTD Y/Y: -2.7% V -4.2% PRIOR; Y/Y: -0.4%

Index Snapshot (as of 02:30 GMT)

- Nikkei225 flat, S&P/ASX +0.8%, Kospi -0.2%, Shanghai Composite +2.1%, Hang Seng +1.5%, Jun S&P500 flat at 2,112

Commodities/Fixed Income

- Jun gold +0.6% at $1,181/oz, Jun crude oil -0.1% at $57.09/brl, May copper +0.6% at $2.7635/lb

- USD/CNY: PBoC sets yuan mid point at 6.1220 v 6.1241 prior setting (strongest Yuan setting since Jan 16th)

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

Market Focal Points/FX

Upside momentum in C March industrial profits continued to fall but the YTD decline was less than in the first two months of the year. hina markets is being helped by more benign economic data.Comments from PBoC chief economist Ma were also more reassuring, suggesting China may eschew strong stimulus, as employment situation remains strong and economic restructuring has made positive progress. Late last week, China labor ministry put urban jobless rate in Q1 unchanged from Q4 around 4.1%. Also helping sentiment was the assistance offered by China Construction Bank to state owned the power-equipment maker Baoding Tianwei, which was unable to a make an interest payment of CNY85.5M after posting a large loss for 2014, marking the first onshore default by a China state firm in history. In the property sector, largest developer Vanke reported underwhelming Q1 results, as net profit slid to CNY629M v CNY1.53B y/y on sales of CNY8.89B v CNY9.50B y/y.

USD majors were largely contained to narrow ranges despite the resounding risk-on sentiment on the mainland. AUD/USD is consolidating last weeks gains, with the focus tomorrow falling on first RBA Gov Stevens comments since the release of Q1 CPI last week. AMP economist noted the testimony is particularly critical, since the fixed income market is nearly split on probability of another rate cut next month. Meanwhile, research from Moodys saw housing affordability in Australia remaining steady, though the top-tier locations of Sydney and Melbourne saw declines.

As Greek negotiators continue their work with European lenders, there is renewed chatter concerning the the possibility of Grexit when the current program expires at the end of June. Slovenia Fin Min Mramor raised the Plan B discussion, though his German counterpart hinted it would be extremely unexpected. The latest from Athens meanwhile saw over 70% of population leaning in favor of a debt agreement with EU and only 23% indicating they were prepared to leave the Eurozone. Greek PM Tsipras reportedly held more talks with Germanys Merkel over the weekend, and conversations will continue on Monday.

Overseas financials were also in the spotlight, as Deutsche Bank released its Q1 results over the weekend. Net profit fell to Net €1.9B v €2.3B y/y, but Revenue rose 24%. Decline in profitability was widely attributed to some allocated to litigation expense in Q1. CET1 ratio remained at 11.7% and provisions for loan loss fell to €218M v €246M y/y. Also in the banking sector, UK press reported HSBC is considering a large-scale £20B spinoff of its UK retail bank.

Equities

US equities/ADRs:

- HSBC: Said to be considering a £20B spinoff of its UK retail bank - UK press

- EBAY: CEO: Supports Google's antitrust defense in a probe by European Commission - FT

- PWRD: Enters into Definitive Agreement for Going Private Transaction at $20.20/shr (Friday closing price $18.52)

- MRVL: Guides Q1 lower R$710-740M v $825Me ($810-830M prior); cites weak PC and storage markets and lower emerging market demand

- INAP: Said to be urged to seek a buyer by holder RDG Capital - financial press

- DB: Reports Q1 Net €1.9B v €2.3B; Pretax profit €1.5B, -12% y/y; Rev €10.4B, +24% y/y; Announces next phase of strategy, including deconsolidating Postbank; to announce Q1 results on Sunday and hold call on Monday

Notable movers by sector:

- Financials: Bank of Chongqing 1963.HK +2.6% (Q1 results); China Vanke 2202.HK +0.3% (Q1 results); China CITIC Bank 998.HK -0.6% (Q1 results)

- Materials: Norton Gold Fields NGF.AU +18.0% (receives raised offer); PanAust PNA.AU +0.7% (board recommends reject of takeover offer; E&Y's assessment of fair value); BHP Billiton BHP.AU +0.9%, Rio Tinto RIO.AU +2.8% (iron ore futures moved higher)

- Energy: Xinjiang Goldwind Science & Technology 2208.HK +6.9% (Q1 results); China Shenhua Energy 1088.HK -0.9% (Q1 results)

- Industrials: BAIC Motor 1958.HK +2.0% (Q1 results); Mitsubishi Chemical Holdings 4188.JP +3.4% (speculation on FY14/15 results); Mitsubishi Motors 7211.JP -4.8% (FY14/15 results)