Improvement in industrial profits sends Shanghai Composite to 7-month high

Economic Data

- (CN) CHINA JUN INDUSTRIAL PROFITS Y/Y: 17.9% V 8.9% PRIOR; YTD Y/Y: 11.4% (5-month high) V 9.8% PRIOR

Index Snapshot (as of 02:30 GMT)

- Nikkei225 +0.5%, S&P/ASX flat, Kospi +0.5%, Shanghai Composite +1.6%, Hang Seng +0.7%, Sept S&P500 -0.1% at 1,969

Commodities/Fixed Income/Currencies

- Aug gold flat at $1,303/oz, Sept crude oil -0.6% at $101.51/brl, Sept Copper flat at $3.24/lb

- (US) According to Lundberg survey from Jul 25, avg gasoline prices fell by 9 cents in the past two weeks - US financial press

- SLV: iShares Silver Trust ETF daily holdings rise to 10,014 tonnes from 9,989 tonnes prior (first rise since June 2nd)

- (KR) South Korea sells KRW850B in 20-yr bonds; Avg yield: 3.190%; Bid-to-cover: 4.31x

- (JP) BOJ offers to buy ¥300B in 1-3yr JGB, ¥200B in 3-5yr JGB and ¥400B in 5-10yr JGB

- USD/CNY: (CN) PBoC sets yuan mid point at 6.1622 v 6.1597 prior setting (weakest since July 8th; 4th consecutive weaker setting)

- USD/CNY: Luxembourg said to be interested in becoming an offshore trade center for CNY - financial press

- USD majors are largely unchanged despite the overall positive sentiment and a major rally in Shanghai. NZD/USD is the biggest mover with a loss of about 20pips below $0.8540, fresh 6-week lows. Economist's annual release of Big Mac index saw NOK overvalued by over 60%, EUR overvalued by 3%, JPY undervalued by 24% and RUB undervalued by 47%. Latest CFTC data also saw Euro net short positioning rising by over 40% to 20-month highs.

Market Focal Points/Key Themes

- Shanghai Composite is not resting on its laurels after last week's +3% gains, rising another 2% today to 7-month highs above 2,180. After last week's report of 18-month high flash manufacturing PMI, investors are cheering the weekend release of June industrial profits rising at the fastest rate in 5 months. NBS economist noted the increase is due to rising sales and dropping costs of industrial firms in June, as well as the low base in the same period last year. Of the 41 industrial sectors, of 35 sectors reported rising profits. Also of note, China premier Li said the economy performed reasonably well in H1, but some downward pressure remains.

- Geopolitical tensions in east Ukraine and middle east are not de-escalating. In Ukraine, US State Dept announced it has images of attacks on govt forces by artillery fired from Russian territory, even as Kremlin continues to deny military involvement in the internal situation. In Gaza, a brief humanitarian ceasefire quickly broke down as Hamas was reported to continue firing on Israeli military.

- Leighton Holdings kicked off Australian earnings season, reporting a 20% drop in net profits. Shares are down over 2% even as the company forecasted an increase in demand for infrastructure over the longer term.

- In Japan, the latest Nikkei survey showed PM Abe's cabinet approval rating fell below 50% for the first time since he took office. Report noting increasing opposition to his policies on nuclear reactor restart, reinterpretation of Japan's constitution on military involvement, and intentions to continue raising Japans's sales tax. Nissan Motors will reports its Q1 results after market close.

- Ahead of Wednesday's FOMC statement, Fed's Fisher (FOMC voter, hawk) reiterated that there are dangers in leaving policy too loose for too long, pointing to signs of recovery in wage inflation as well as the Fed's PCE index moving closer to its 2% target. Fisher remains concerned the Fed is behind the curve, and that achievement of its employment mandate is closer than perceived in the market.

Equities

US markets:

- AAPL: Admits that personal data including text messages, contact list, photos can be extracted from iPhone to "trusted computers" - financial press

- HSP: Danone said to be in talks to sell medical nutrition unit valued at up to $5B to Hospira - FT

- LECO: Reports Q2 $1.01 v $0.91e, R$728.5M v $710Me

- SKYW: Guides Q2 EPS -$0.28 to -$0.23 v +$0.20e

Notable movers by sector:

- Consumer Discretionary: Guangdong Advertising 002400.CN +2.8% (H1 results); Huiyin Household Appliances 1280.HK +6.3% (H1 guidance); Genting Singapore Plc 678.HK +40.0% (H1 guidance)

- Consumer staples: Daio Paper Corp 3880.JP +2.9% (press speculation on Q1 results)

- Financials: Hong Yuan Securities 000562.CN +10.0%, Shenyin Wanguo Securities (merger deal)

- Industrials: Leighton Holdings LEI.AU -2.2% (H1 results); Zhuzhou CSR Times Electric 3898.HK +1.7% (H1 guidance); Doosan Heavy 034020.KR +1.2% (Q2 results); Mitsubishi Chemical Holdings 4188.JP +3.4% (press speculation on Q1 results); Isuzu Motors 7202.JP +2.7% (press speculation Q1 results)

- Technology: Tencent 700.hk +3.4% (approval to launch private bank)