CAPIS Capital Institutional Services : Australia Day International Summary Jan. 26th, 2016

Asian Headlines

Core markets once again experienced heavy selling pressure as the Bear continues to reign supreme in 2016. The two dominant themes that contributed to the selling were continued weakness in crude prices and Chinese capital outflows. Malaysia held steady following easing of political worries. Don't be fooled by green on the screen for Aussie and Indian indices. Both nations were closed for respective local holidays.

The Chinese capital concerns were sparked by a ramp up in December outflows that brought the 2015 total to an estimated $1t. Ahead of the Lunar New Year break, the PBoC continues to flood the financial system with cash. Today's reverse repos worth CNY 440b brings this months's total to 1.6t yuan and is the most in three years. Sentiment was also not helped by PBoC member Zhang stating there were no plans to cut the RRR at the present time. (TTN) All major sectors slid with the 'best' in the Shanghai Composite (energy) off by more than 5%. A number of respected market prognosticators are calling for the index to slide another 9 to 15%. Air China -1.7% expects 2015 profit to rise 60% - 80% citing strong market demand, increased capacity and improvements in operational management. The CSRC approved a private share sell plan for Cosco Shipping -10.0%. After the close, Hong Kong's exports and imports fell less than expected in December. (See macro data below)

South Korea's Q4 GDP expanded 0.6% q/q matching estimates. There were a number of key earnings released. Hyundai Motors' -1.0% Q4 profits lagged estimates and were the lowest in 5 years. It missed its annual sales target for the first time since '08. SK Hynix -0.5% reported Q4 profit that missed estimates but sees improved DRAM demand in Q2. Electronic component maker Samsung SDI's -14.7% Q4 operating loss 80.8b won vs. the 1.33b won profit estimate.

Japan saw all sectors lower with industrials off 3% and most others lower by more than 2%. The market continues to speculate ahead of Friday's BoJ meeting. Softbank -3.4% reacted to the news Sprint is to cut c. 7% or 2,500 jobs and close several call centers. Computer equipment manufacturer Melco Holdings +2.8% outperformed after 9 month OP rose 29% to ¥3.48b. The Nikkei reported Kansai Elec. -5.0% may cut residential rates by c. 5%. After the close, SMFG posted an unexpected increase in Q3 profit helped by shareholding gains and lower NPLs.

Malaysian investigators have closed an investigation over corruption allegations against PM Najib clearing him of the charges.

European Headlines

In the wake of the sell off in Asia, Europe opened markedly lower. Early on there were only 13 stocks trading to the upside in the Eurostoxx600, However, crude which had been lower by over 3% has rallied sharply and both Brent and WTI have been up over 1% at times this morning. That turnaround has helped equities pare their losses and the major indices are now mixed. Basic resources and energy are both up by more than 1% have led the rally. Industrials and banks have also seen a significant move from their lows and are helping. Telecoms are 1% lower with media, financials and chems weighing. Volumes are about 15% lower than the 5 damvg.

Following results, there are two standout performers on the day.

As most of you know already, Siemens +7.9% raised its '16 guidance helped in part by a better than expected tax rate. It now sees EPS between €6 to €6.40 vs. its prior outlook of €5.90 to €6.20.

Philips +6.9% is the day's 2nd earnings 'star'. The company's Q4 profits rose more than forecast thanks to strong demand from China and North America for medical imaging equipment.

EasyJet -2.2% sees its FY earnings inline with consensus but Q1 revenues missed estimates following the impact of the Paris terrorist attack. It will step up cost cutting efforts in response.

Core EU yields are seeing improvements this morning but pared the advances. Early doors some of the shorter term paper saw record low negative rates.

Yesterday, the Chairman of Aramco stated the company will maintain its planned investment in energy projects and can tolerate the current low oil prices for 'a long, long time.' OPEC's Secretary-General called upon all producers, whether they be cartel member or not, to work together to deal with the current over supply in the market.

On our side of the pond, Huntington Bancshares and FirstMerit have agreed to deal. Earnings are out from a host companies including JNJ and P&G.

Market Prices and Macro Data

Event Survey Actual Prior Revised
HK Exports YoY Dec -2.90% -1.10% -3.50% -
HK Imports YoY Dec -7.50% -4.60% -8.10% -
HK Trade Balance Dec -40.7b -45.7b -33.1b -