EM ASIA CREDIT: Lenovo (LENOVO): 2Q results released
"*LENOVO 2Q REV. $20.45B, EST. $20.12B" - BBG
"*LENOVO 2Q GROSS MARGIN 15.4%, EST. 15.4%" - BBG
Headline results weak, adjusted better, neutral read.
Lenovo has reported 2Q results this morning with adjusted operating profits -1% YoY to USD643m and well below consensus (USD714m). Overall operating margins declined to 3.1% versus 3.6% in the year ago period. Adjusting for fair value changes on warrants gives a clearer picture of the underlying business, with operating profits +9% YoY to USD756m if those and other non-operating impacts excluded.
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AUSSIE BONDS: Jun-54 Auction Goes Well With Very Strong Demand
Today’s auction result extended the recent trend of firm pricing for ACGBs, with the weighted average yield printing 0.92bps through prevailing mids, according to Yieldbroker. Moreover, demand improved dramatically, as reflected by a cover ratio of 4.0533x up from 3.3500x from the previous auction.
- The strong demand came despite the bond’s outright yield being 20-25bps lower than the previous auction and around 30bps below the peak reached in May.
- However, the 10s/30s yield curve was back near its steepest level since 2021 — a potentially supportive technical factor.
- Sentiment toward longer-dated global bonds had improved, which may have assisted demand.
- In the wake of the auction, the ACGB Jun-54 has traded ~1.5bps richer in the secondary market.
AUSSIE BONDS: ACGB Jun-54 Auction Results
The AOFM sells A$300mn of the 4.75% 21 June 2054 Treasury Bond, #TB169:
- Average Yield (%): 4.8213 (prev. 5.0141)
- High Yield (%): 4.8250 (prev. 5.0175)
- Bid/Cover: 4.0533x (prev. 3.3500x)
- Allotted at Highest Accepted Yld as % of Bid at that Yld (%): 64.7 (prev. 91.7)
- Bidders: 43 (prev. 54), successful 10 (prev. 16), allocated in full 5 (prev. 10)
CNH: USD/CNH Downside Bias Intact, Market Odds Of 100% Tariff Rate Remain Low
Spot USD/CNH couldn't test under 7.1200 in Monday trade, keeping recent lows intact, but the bias for the pair remains skewed lower (albeit a slow moving one, rather than a sharp drop). A renewed test under 7.1000 is likely to be the medium term focus point, while moves back towards the 50-day EMA (near 7.1415) should draw selling interest. We track near 7.1230 in early Tuesday dealings, while spot USD/CNY ended Monday's session at 7.1215, leaving little CNH-CNY basis. The CNY CFETS basket tracker edged up to 97.195, its first gain in 3 sessions.
- Focus remains on the Nov 1 tariff deadline. The threat of higher tariffs from the US remains, although US President Trump stated overnight: “I think when we finish our meetings in South Korea, China and I will have a really fair and really great trade deal together,” Trump told reporters at the White House." (via BBG). Per Polymarket, odds off a 100% tariff rate by Nov sit just under 7, so quite low.
- Elsewhere, markets are still digesting yesterday's Q3 GDP report and Sep activity dump. Viewpoints are mixed on whether we see further stimulus before year end. There are clearly softer parts of the economy in terms of housing and consumption, but IP and exports are holding up and first half growth should deliver the 5% growth target. Any policy moves may be targeted and aimed at specific weak points in the economy.
- Our China policy team noted: China’s Loan Prime Rate is likely to be lowered following a possible 10-basis-point policy rate cut later this year, as the economy faces stronger headwinds and further U.S. Federal Reserve easing reduces external constraints, while via BBG: "Citigroup no longer expects policy rate or RRR cuts in 4Q, “given real GDP growth so far.”
- The local data calendar just has Sep FDI figures due by the end of this week. Tomorrow FX settlement figures are out for Sep.
