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StreetAccount Summary - Asian Market Recap: Nikkei (0.25%), Hang Seng (1.57%), Shanghai Composite (0.69%) as of 04:10 ET

Jul 05 ,2023

• Synopsis:

  • Asia stocks finished lower Wednesday as risk sentiment turned negative once more. Losses led by Hong Kong that reversed Tuesday's positive moves, mainland China stocks also lower. Losses for South Korea and Taiwan, Australia led down by its financials. India extending opening losses, Southeast Asia mainly lower, Indonesia the sole Asia board to show a meaningful gain. US futures lower, Europe gapped lower at the open. US dollar a smidge higher, yuan weaker, AUD weaker again on China economic data. Treasury yields mixed. WTI oil futures higher but Brent sharply down. Industrial metals mostly lower, precious metals mixed.

  • Asia markets back under pressure Wednesday with volumes also picking up amid a disappointing set of economic data points. First, Japan's flash PMI reading was revised lower a tad, then China's services PMI revealed a sharp slowdown in growth, adding to the pressure for stimulus from Beijing. Banks and other financials sold off sharply in Hong Kong while its large-cap growth stocks also underperformed. Singapore's central bank chief later added to the sour sentiment with downbeat comments on the global and domestic economy.

  • Ahead, July FOMC minutes tonight expected to mirror Chair Powell's recent hawkish-leaning comments hinting at two further rate hikes in 2023. Market will be looking for color around any disagreements to slow the pace of hikes or maintain its options on its future rate path. Fed Fund Futures currently pricing in an 89% chance of a hike this month but just a 32% chance of a second hike in September.

  • Yachiyo Industry (7298.JP) is to be taken private by Honda Motors (7267.JP) then sold directly to Samvardhana Motherson (517334.IN). Rakuten Group (4755.JP) has applied for a listing license for its securities business. Alibaba Group (9988.HK) denied reports on Tuesday that it is considering strategic options for its Youku and Tudou units. Sino-Ocean (3377.HK) is said to be working with major shareholders on a debt restructuring plan.

• Digest:

  • Investors lower expectations for Asian equity gains on faltering China growth, tight monetary policy:

    • A Bloomberg survey found most of 17 strategists and fund managers lowered expectations of gains in Asian equities, seeing MSCI Asia Pacific Index rising to 174, or 5% gains from Tuesday close, by end-23, as compared with 178.5 level predicted in April. Most survey participants said they favor semi-related firms, benefiting from digitalization, AI and signs that cycle is bottoming. Added valuation discount of Asian equity gauge to their US peer widens this year, making it more attractive with some seeing opportunity in shifting allocations from West to East. Geographically India and Japan stocks may benefit from economic growth and supportive policies. Meanwhile China seen as key variable where some remain cautious and expect China stocks to remain a drag. Markets also didn't factor in any major monetary policy shift and see further Fed rate hikes, along with US-China tensions, slowing China growth among biggest risk factors to derail Asian equity outlook.

  • China Caixin services PMI expands at slowest pace in five months:

    • Caixin services PMI was 53.9 in June, versus consensus 56.2 and 57.1 in prior month. Data in expansion for sixth straight month, but growth fell to second lowest YTD (only above January). Business activity and new orders both grew at notably slower rates from May on weaker-than-expected demand. Services sector continued to benefit from post-Covid tourism and travel recovery. Meanwhile sentiments towards next 12-month improved, first time in five months, on expectations of stronger economy and increasing new work. Optimism led to rise in employment, which saw strongest pace of job creation in three months. Input costs rose solidly due to rising staff and raw material prices, while prices charged only rose slightly amid stiff competition. Follows a slowdown in growth of Caixin manufacturing PMI at 50.5 in June from 50.9 in May. Composite PMI fell to 52.5 from 55.6 in May.

  • Singapore central bank chief says economic outlook dimmed for the country:

    • Monetary Authority of Singapore (MAS) warned material slowdown for global economy this year is "increasingly likely" once higher interest rates hit consumer demand, and as boost from China reopening fades. Ravi Moon, head of MAS said Singapore's economy meanwhile will operate slightly below underlying capacity while growth prospects have dimmed. On positive side, authority forecast core inflation would end year lower at 2.5-3.5% from current 4.7%, headline at 4.5-5.5% from previous 5.5-6.5% forecast, but warned fight against inflation not over yet as services demand still robust and labor markets remain imbalanced. MAS still not shifting policy to growth mode, said Menon. Added China's economy likely to continue to fade as consumer services unlikely to offset weaker orders from developed nations. MAS held FY 2023 GDP forecast steady at 0.5-2.5% as electronics and finance sector weigh, while current monetary stance remains "appropriate" (BusinessTimes, Bloomberg).

  • China chip material export curbs reverberate:

    • Press discussed the ramifications of China's decision to restrict exports of gallium and germanium products widely used in semiconductors and EVs from 1-Aug (Reuters, FT). Corporate buyers were racing to secure supplies on Tuesday as some industry suppliers worried that curbs on rare earth exports could follow. Officials and experts in China expect additional retaliatory measures in response to US-led controls on tech exports. Escalation of trade tension places more attention on Yellen's scheduled visit to Beijing this week. Reuters sources said commerce ministry will meet with major producers of the metals on Thursday to discuss the export restrictions. Shares in Chinese producers of gallium and germanium rose on Tuesday on headline effects amid expectations of higher prices. But Bernstein analysts suggested any rise in prices for gallium- and germanium-based materials due to a lack of supply may result in semiconductor companies looking at alternative materials. Others noted this would take some to adjust against the broader backdrop of the potential for renewed supply chain disruptions.

  • BOJ output gap gauge remains negative:

    • BOJ measure of the output gap was minus 0.34% in Q1, only marginally better than revised minus 0.37% in the previous quarter, though somewhat disappointing against expectations for an imminent positive figure that would help cement the path toward monetary policy normalization. Positive momentum came as labor input gap returned to positive territory after a brief decline in Q4, though largely offset by deterioration in the capital input gap. Ongoing acute labor market tightness was highlighted by economists after the release of the June Tankan survey. But the relative slack in capital appears to contrast with corporate optimism on capital spending plans, which was the main bright spot. Going forward, the Tankan factor utilization index was flat in Q2 -- consistent with output gap proxies in the June Tankan -- while September projections point to a larger output gap in Q3. Potential growth rate edged up to 0.32% in H2 of FY22 from 0.21% in the prior HY. Most of the improvement came from a smaller drag in hours worked and marginally better capital stock. Lifting potential growth has been widely discussed as a key longer term issue. Former BOJ Governor Kuroda presided over an economy with potential growth lower than 1% in all but one out of his 10 years in office.

  • Notable Gainers:

    • +19.3% 020150.KS (Lotte Energy Materials): aims to reach 30% market share in global high-end copper foil field by 2028

    • +17.2% 7298.JP (Yachiyo Industry Co.): Honda to take Yachiyo Industry Co private for ¥1,390/share, then sell it to Motherson

    • +11.1% 6878.HK (Differ Group Auto): signs MOU with potential investor for provision of restructuring financing

    • +1.8% 068270.KS (Celltrion): to launch KRW50B on-market buyback, to run from 6-Jul through 5-Oct

    • +0.6% 4755.JP (Rakuten Group): Rakuten Securities Holdings applies for listing on Tokyo Stock Exchange

  • Notable Decliners:

    • -25.5% 1167.HK (Jacobio Pharmaceuticals Group): Jacobio, AbbVie terminate license and collaboration agreement for SHP2 inhibitors

    • -2.5% 9983.JP (FAST RETAILING CO.): reports June Japan Uniqlo same stores + online net sales (3.4%) y/y

    • -1.9% 352820.KS (HYBE Co.): South Korean FTC reportedly investigates entertainment companies amid allegations of Subcontracting Act violation

    • -1.9% 9988.HK (Alibaba Group): spokesperson denies report that Alibaba is considering strategic options for Youku, Tudou

    • -0.2% 6594.JP (Nidec): acquires TAR, LLC dba Houma Armature Works; terms undisclosed

    • -0.0% 2202.HK (China Vanke): reports June contract sales CNY36.14B; StreetAccount notes year-ago CNY47.19B

• Data:

  • Economic:

    • China June

      • Caixin services PMI 53.9 vs consensus 56.2 and 57.1 in prior month

        • Composite PMI 52.5 vs 55.6 in prior month

    • Japan June

      • Final services PMI 54.0 vs preliminary 54.2 and 55.9 in prior month

        • Composite PMI 52.1 vs preliminary 52.3 and 54.3 in prior month

    • Australia May

      • Retail sales M/M +0.7% versus +0.7% in prior month

  • Markets:

    • Nikkei: (83.82) or (0.25%) to 33338.70

    • Hang Seng: (305.30) or (1.57%) to 19110.38

    • Shanghai Composite: (22.40) or (0.69%) to 3222.95

    • Shenzhen Composite: (17.30) or (0.84%) to 2051.52

    • ASX200: (25.80) or (0.35%) to 7253.20

    • KOSPI: (14.31) or (0.55%) to 2579.00

    • SENSEX: (155.84) or (0.24%) to 65323.21

  • Currencies:

    • $-¥: (0.38) or (0.26%) to 144.3070

    • $-KRW: (6.12) or (0.47%) to 1298.5400

    • A$-$: +0.00 or +0.11% to 0.6678

    • $-INR: +0.20 or +0.24% to 82.1880

    • $-CNY: +0.00 or +0.01% to 7.2413