RBA cuts rates in response to low inflation

Asian Market Update: China Caixin manufacturing PMI remains in contraction; RBA cuts rates in response to low inflation

 

Economic Data

- (CN) CHINA APR CAIXIN PMI MANUFACTURING: 49.4 V 49.8E; 14th month of contraction

- (AU) RESERVE BANK OF AUSTRALIA (RBA) CUTS CASH RATE TARGET BY 25BPS TO 1.75% (RECORD LOW), NOT EXPECTED

- (AU) AUSTRALIA MAR BUILDING APPROVALS M/M: +3.7% (3-month high; 2nd straight increase) V -2.0%E; Y/Y: -6.5% V -14.0%E

- (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 113.9 v 111.7 prior

- (KR) SOUTH KOREA APR CPI M/M: 0.1% V 0.1%E; Y/Y: 1.0% V 1.0%E; CPI CORE Y/Y: 1.8% V 1.6%E

 

Index Snapshot (as of 03:30 GMT)

- Nikkei225 closed, S&P/ASX 200 +0.7%, Kospi +0.4%, Shanghai Composite +1.5%, Hang Seng -1.2%, Jun S&P500 flat at 2,074

 

Commodities/Fixed Income

- June gold flat at $1,295/oz, June crude oil +0.7% at $45.09/brl, Jul copper -1.0% at $2.25/lb

- GLD: SPDR Gold Trust ETF daily holdings rise 20.8 tonnes to 824.9 tonnes; highest since Dec 2013

- SLV: iShares Silver Trust ETF daily holdings rise to 10,537 tonnes from 10,482 tonnes prior; Highest since Dec 2014

- (CN) PBOC SETS YUAN MID POINT AT 6.4565 V 6.4589 PRIOR; Strongest Yuan setting since Dec 15th

- (CN) PBOC to inject CNY100B in 7-day reverse repos

 

Market Focal Points/FX

- Asian equity markets are generally higher, tracking gains on Wall St that were largely attributed to the softening of the greenback. Despite the start of the 3-day break in Tokyo, trading in USD/JPY remained volatile as the pair hit fresh 18-month lows on the cusp of ¥106. China Caixin manufacturing PMI remained in contraction for the 14th straight month, missing expectations. AUD was also volatile going into the close call at the RBA - AUD/USD rose over 40pips above 0.77 ahead of the announcement and then collapsed some 120pips to 0.7580's after the surprise rate cut. Aussie dollar trading should remain active as Australia govt unveils its FY16 budget with updated projections for growth and inflation at 05:30ET.

- China April Caixin deteriorated, matching a slight retreat in the official figures released over the weekend. Markit noted that new orders stagnated and export work was down for 5th straight month, as inventories remained slim. The release did reflect abating deflationary pressure as input costs rose at the quickest pace since January 2013. Resident economist also noted the economy lacks a solid foundation for recovery, recommending that the govt continues to closely monitor for risks of a further economic downturn.

- Reserve Bank of Australia sided with fixed income markets tipping in favor of more easing, even though nearly 80% of analysts expected a rate hold. RBA noted that reduced risks in housing inflation allowed it to focus on making economic recovery more sustainable in deciding to cut rates by 25bps to new record low of 1.75%. Moreover, RBA said labor indicators have turned more mixed (after a spate of stronger prints earlier this year), and economic growth has become more moderate. Latest multi-year lows in CPI figures were also deemed as decisive in RBA decision as the central bank noted price data were unexpectedly low, and coupled with cost pressures overseas, would risk a lower outlook for inflation than previously forecast.

- After yesterday's disappointing H1 result from Westpac, Australia's ANZ cash profit also missed estimates with A$2.78B v A$3.58Be, which included over A$700M in charges. NIMs were little changed just over 2%, customer deposit growth slowed to +2.5% v +12% prior, ROE declined to 12.2% v 14.5% y/y, and interim dividend was cut by 7% to A$0.80. After initially falling nearly 5%, ANZ shares were bid higher by over 4% as investors noted the cost controls would be constructive for the bank in the longer term.

- Fed's Williams spoke after US market close, stating the new normal of US interest rates may now be as low as 3%, adding that Treasuries are priced very low. Williams also urged gradual approach to policy normalization, noting it would be appropriate for the rates move up to take a couple of years. In reference to the FOMC's previous concern with global financial turbulence, Williams said the Fed cannot ignore other global economies.

 

Equities

US equities/ADRs:

- THC: Reports Q1 $0.45 adj v $0.33e, R$5.04B v $4.78Be; +6.2% afterhours

- YELP: Greenlight Capital (Einhorn) discloses new stake in Yelp - investor letter; +4.4% afterhours

- APC: Reports Q1 -$1.12 (ex items) v -$1.19e, R$1.67B v $1.81Be; -1.4% afterhours

- KMT: Reports Q2 $0.37 adj v $0.23e, R$498M v $483Me; -1.4% afterhours

- AIG: Reports Q1 $0.65 v $0.99e; -3.3% afterhours

- CYH: Reports Q1 $0.27 v $0.75e (unclear if comp), R$5.0B v $5.02Be; -12.6% afterhours

Notable movers by sector:

- Consumer staples: Woolworths WOW.AU -1.3% (Q3 result)

- Financials: Mirvac Group MGR.AU +2.7% (reaffirms guidance); ANZ Bank ANZ.AU +4.4% (H1 result)

- Materials: Zijin Mining 2899.HK +2.0% (Q1 result)

- Energy: China Shenhua Energy Co 1088.HK -0.9% (Q1 result)

- Utilities: Beijing Jingneng Clean Energy Co 579.HK +1.6% (Q1 result)