Shanghai slumps as PBoC uses 14-day reverse repo again and urges banks to manage liquidity

Economic Data

- (JP) JAPAN JULY PPI SERVICES Y/Y: 0.4% V 0.1%E; 10-month high

- (KR) South Korea Q2 Household Credit y/y: 11.1% v 11.4% prior

Index Snapshot (as of 03:30 GMT)

- Nikkei225 -0.3%, S&P/ASX -0.1%, Kospi flat, Shanghai Composite -1.1%, Hang Seng +0.1%, Sep S&P500 flat at 2,176

Commodities/Fixed Income

- Dec gold flat at $1,329/oz, Oct crude oil +0.1% at $46.81/brl, Sep copper +0.4% at $2.09/lb

- (CN) PBOC to inject CNY140B in 7-day reverse repos; CNY80B in 14-day reserve repos (2nd day of 14-day reverse repo injection)

- USD/CNY: *(CN) PBOC SETS YUAN MID POINT AT 6.6602 V 6.6420 PRIOR

- (JP) Japan investors net buyers ¥433B in foreign bonds v ¥1.29T in prior week; Foreign investors net sellers ¥229.6B in Japan stocks v buyers ¥94.7B in Japan stocks in prior week

Market Focal Points/FX

- Asian equity markets are mixed to modestly lower, tracking a more pronounced decline in US indices as investors have turned uneasy over the prospects of Fed Chair Yellen communicating that a September hike is still on the table during Friday's Jackson Hole address. Shanghai Composite is particularly soft, with PBoC using 14-day reverse repo liquidity tool for the 2nd straight day in a potential signal that the Chinese central bank is reluctant to conduct more easing in interest rates and RRR. S&P futures, commodities, and USD majors are all little changed - USD/JPY traded in a 20pip range below 100.60, AUD/USD was up about 25pips above 0.7630, and NZD/USD was up only about 30pips above 0.7330 despite a Fonterra payout forecast hike.

- After using 14-day reverse repos for the first time in 6 months yesterday, PBoC followed up with a 2nd similar injection. Analysts have questioned the move being potentially in response to tighter liquidity, rising leverage in the bond market, and resulting reluctance by the PBoC to undertake more direct response such as RRR or an outright interest rate cut. Subsequently, a press report citing sources indicated that PBoC officials have already met with major banks to discuss closer liquidity management, encouraging them to lend in installments and spread out the loan terms. Chinese central bank said it is trying to add long term funds to the market but also intends to maintain its current monetary policy stance relatively unchanged against expectations of continued easing. Also of note, Shanghai was reportedly looking at additional curbs to reduce the surge in property prices, with consideration of higher down-payments and closer scrutiny over mortgage loan practices.

- In economic data, Japan Services PPI hit a 10-month high of 0.4% y/y. Recall the July Services PMI noted a marginal increase in input prices, even as the figure returned to expansion. Separately, a Nikkei report stated Japan govt has allocated a ¥4.52T sum in FY16/17 injection as part of the ¥28.1T economic stimulus plan, with much of the spending going to infrastructure and disaster relief from the 2011 earthquake/tsunami as well as this year's Kumamoto tremor damage.

- Australia's Treasurer Morrison said the govt's worst case scenario is that gross debt would top A$1.0T in 10 years, but he does not expect that to occur. Australia's retail giant Woolworths also reported results with a wider than expected loss of A$1.23B v A$0.98Be and a big cut final dividend to A$0.33 from A$0.72. Company said it will not provide full year profit guidance due to lack of visibility. After some initial volatility, shares rebounded later in the day as WOW also announced it is exiting its home improvement business, booking A$1.5B in proceeds. New Zealand's Fonterra announced a NZ$0.50 increase in FY16/17 milk price forecast to NZ$4.75/kg amid some of the recent supply reductions bringing more balance to the market. ASX economists noted improving trend in the last two GDT auctions, reiterating expectations of prices reaching NZ$6/kg this year, while Westpac said it may be too early for optimism given a similar surge in buying around the same time last year.

Equities

US equities/ADRs:

- GES: Reports Q2 $0.14 adj v $0.06e, R$545M v $555Me; +15.5% afterhours

- WDAY: Reports Q2 -$0.04 v -$0.02e, R$377.7M v $373Me; +12.4% afterhours

- PVH: Reports Q2 $1.47 v $1.28e, R$1.93B v $1.94Be; -0.3% afterhours

- HPQ: Reports Q3 $0.48 v $0.45e, R$11.9B v $11.4Be; -6.3% afterhours

Notable movers by sector:

- Consumer discretionary: BAIC Motor Corp 1958.HK +9.2% (H1 result); Retail Food Group RFG.AU +7.2% (acquisition, FY16 result); Nine Entertainment Co Holdings NEC.AU +1.0% (FY16 result); Flight Centre FLT.AU +1.2% (FY16 result)

- Consumer staples: Mengniu Dairy 2319.HK +8.9% (H1 result); Woolworths WOW.AU +6.2% (FY16 result)

- Financials: CITIC Securities 6030.HK -0.5% (H1 result); Shui On Land 272.HK -1.4% (H1 result)

- Industrials: Sany Heavy Equipment International Holdings Co 631.HK -5.9% (H1 result); RUSAL PLC 486.HK -1.7% (Q2 result); Amcor AMC.AU +4.8% (FY16 result)

- Materials: Iluka Resources ILU.AU -6.9% (H1 result); South32 S32.AU +1.0% (FY16 result)

- Energy: CGN Power Co 1816.HK -1.3% (H1 result); China Coal Energy 1898.HK -3.4% (H1 result); GCL-Poly Energy Holdings 3800.HK -2.6% (H1 result); AWE AWE.AU -8.4% (FY16 result); PetroChina Co 601857.CN -0.8% (H1 result); Kobe Steel 5406.JP +1.1% (JPMoran Chase raised to Neutral)