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StreetAccount Summary - Asian Market Recap: Nikkei (1.17%), Hang Seng (0.90%), Shanghai Composite (0.28%) as of 04:10 ET

Jul 07 ,2023

• Synopsis:

  • Asian equities ended lower Friday following a weak handover from the US overnight. Losses greatest in Australia as bond yields also jumped on rate expectations. Greater China also lower, again led by Hong Kong. South Korea weighed by Samsung Electronics results and outlook, Taiwan also lower. Losses for India and most of Southeast Asia. Japan lower for a fourth day in five. US futures a few points lower, Europe opened slightly lower. US dollar a little lower, yen stronger. Treasury yields down at the long end, higher at the short including the 2Y yield extending gains to highest in 16 years. Crude higher, along with precious metals and industrials.

  • More losses for Asia equities to complete a difficult week for assets in the region in which most major boards recorded declines. Cues taken from US benchmarks that fell overnight post strong US ADP payroll data that sent fed fund futures for year-end 2024 to 4.25% from 3.9% last week, and somewhat shrugging off an optimistic interpretation of the data that supported a soft-landing scenario. Treasuries and European bonds sold off sharply and with them came equities in a broad-based selloff. The read across to Asia was a gap down in many markets especially the tech-heavy Japan, Taiwan and South Korea ones, the latter also weighed by weak Q2 numbers and guidance from Samsung Electronics.

  • In regional developments, Chinese Premier Li reiterated a pledge to speed up policy measures to boost the economy but details were again lacking. Hang Seng briefly rallied on reports Beijing is to close its Ant Group investigation with a $1.1B fine. BOJ Deputy Governor Uchida argued once again in favor of keeping YCC for time being.

  • Beijing's probe into Ant Group (9988.HK) is set to end with a fine of more than CNY8B ($1.1B) allowing the company to seek a financial holding company license; Alibaba shares higher. China Resources is mulling the purchase of a minority stake in Shanghai RAAS Blood Products (002252.CH) from Grifols (GRF.SM). Samsung Electronics (005930.KS) reported its worst decline in quarterly revenue since at least 2009 amid continuous chip slump. Amman Mineral International (AMMN.IJ) jumped in its stock market debut after the company's IPO raised around $709M in Indonesia's largest IPO in more than a year.

• Digest:

  • Bond yields spike, stocks fall, as hot US data fuels rate hike expectations:

    • Risk-off move on Asian markets Friday attributed in large part to prospect of a drawn out central bank tightening cycle. Hotter-than-expected US ADP payrolls data and ISM services beat may have bolstered expectations of a soft landing, though has also driven market's rate expectations in a hawkish direction. Bloomberg aggregate gauge of borrowing costs shows peak rate forecast rising to 6.25% from 6.00% a quarter ago. According to CME's FedWatch, markets attaching greater probability of two more Fed rate hikes by end-2023. UK, markets pricing in peak rate of 6.5%, reflecting expectations BOE will need to step up efforts to bring down inflation. ECB officials also backing more rate hikes in coming months. Rate hike expectations contributing to a global bond market sell-off that has pushed yields to highs not seen since 2007. Inverted yield curves also tying into the longstanding debate about recession signaling.

  • China Premier Li vows speedy policy support measures:

    • Bloomberg, citing CCTV, reported China Premier Li Qiang pledged to "spare no time" in implementing a batch of targeted policies to strengthen the economy's recovery from the pandemic. Li was quoted as saying that China is at a critical stage of economic recovery and industrial upgrading and a slew of targeted, comprehensive and well-coordinated measures must be implemented quickly to stabilize growth and employment while preventing risks. However, there were no details. Bloomberg noted the remarks match economists' expectations that China will stop short of all-out stimulus measures to address a slowdown in the economy. Amid debt constraints, predictions included lowering borrowing costs and targeted tax credits. Recall that Finance Minister Liu Kun recently indicated the finance ministry would supervise and accelerate the issuance of local government special bonds (LGSB) to support infrastructure investment.

  • Japan nominal wages beat, but real earnings remain negative:

    • Nominal average wages rose 2.5% y/y in May, above consensus 1.2% and follows revised 0.8% in the previous month. While Rengo's final tally of shunto talks confirmed pay raises above 3% for both large and small firms, improvements were mostly driven by a rebound in working hours, lifting growth in both scheduled and overtime earnings. Another spurious spike in special payments (unrelated to semiannual bonuses) also helped. Real wages remained negative for the 14th straight month, though improved to a 1.2% y/y decline from a revised 3.2% drop in April. Inflation factor was 3.8%, remaining below the peak of 5.1% in January and consensus looks for further easing over the coming year. Household spending remained depressed, falling 4.0% y/y in May vs expected 2.5% decline and 4.4% drop in April. Translated to the fourth consecutive slide in sequential terms. Weakness was led by an outsized drop in transportation & communication, followed by furniture & household goods, medical care and apparel.

  • China and South Korea maintain current bans on food imports from Japan due to safety concerns:

    • Reuters reported China will maintain bans on food imports from ten Japanese prefectures, including Fukushima, for safety reasons. Noted ban on food imports first placed 12 years ago (SCMP). China Customs added it would strictly review documents for food, especially seafood products, from other parts of Japan, and would strengthen monitoring of radioactive substances to ensure food safety. Noted China had public voiced strong opposition to Japan's move to discharge treated radioactive water from wrecked Fukushima Dai-Ichi nuclear power plant. Bloomberg reported IAEA said after completing a two-year review that Japan's plan is in line with global safety standards, which China said agency's report did not fully reflect views of all experts involved in assessment process. Yonhap noted a South Korean government panel said Japan's plans would meet international standards, meanwhile Seoul will also keep import ban on seafood from eight Japanese prefectures near Fukushima.

  • BOJ Deputy Governor Uchida says YCC to continue for the time being:

    • In a Nikkei interview, Deputy Governor Uchida said BOJ will continue YCC for the time being, endorsing a balanced approach on policy tweaks taking into account market functioning and how well they can maintain easing. Uchida denied the BOJ was looking to exit QQE at this time, arguing there is more risk to a hasty exit and failing to achieve the 2% inflation target than there is to tighten too slowly and seeing inflation remain above 2%. Added that ending NIRP effectively equates to a 10 bp rate hike, and such a move would reflect an assessment of the need to curb inflation by squeezing real demand -- clarifying "there's still a long way to go" before that decision can be made. Still, Uchida acknowledged Japan's shift away from a deflationary mindset, which he attributed in part to rising wages. Inflation and survey data suggestive of ongoing cost passthrough, though reiterated the board's view that inflation will moderate. Also some discussion of yen weakness. Uchida remarked BOJ will continue to work with the government to monitor shifts in the FX market and potential economic impact.

  • Notable Gainers:

    • +6.7% 1167.HK (Jacobio Pharmaceuticals Group): Beijing E-town to acquire 3% stake in Jacobio Pharmaceuticals Group's subsidiary in Beijing

    • +5.9% 042660.KS (Hanwha Ocean): reportedly considering large-scale facility investments in mid to high KRW100B range

    • +3.4% 9988.HK (Alibaba Group): China reportedly likely to fine Ant Group at least CNY8B

  • Notable Decliners:

    • -5.3% 006360.KS (GS Engineering & Construction): expects (KRW550B) loss in H1 from Incheon complex reconstruction

    • -4.7% 4523.JP (Eisai): FDA approves Leqembi sBLA for 'traditional approval'; side effect warnings reportedly could limit drug's use

    • -2.4% 005930.KS (Samsung Electronics): guides Q2 revenue KRW60.00T vs FactSet KRW61.857T

    • -1.0% 3382.JP (Seven & i): Ampol reportedly brings in UBS to prepare offer for 7-Eleven

    • -0.6% 2882.TT (Cathay Financial Holdings): Generali to acquire Conning and its affiliates; Cathay will enter into partnership with Generali by contributing its ownership of Conning and its affiliates in exchange for 16.75% ownership of GIH

• Data:

  • Economic:

    • Japan May

      • Household spending (4.0%) y/y vs consensus (2.5%) and (4.4%) in prior month

        • Spending (1.1%) m/m vs (1.3%) in prior month

      • Nominal average wages +2.5% y/y vs consensus +1.2% and revised +0.8% in prior month

        • Real wages (1.2%) y/y vs consensus (2.7%) and revised (3.2%) in prior month

  • Markets:

    • Nikkei: (384.60) or (1.17%) to 32388.42

    • Hang Seng: (167.35) or (0.90%) to 18365.70

    • Shanghai Composite: (8.97) or (0.28%) to 3196.61

    • Shenzhen Composite: (13.63) or (0.67%) to 2030.40

    • ASX200: (121.10) or (1.69%) to 7042.30

    • KOSPI: (29.58) or (1.16%) to 2526.71

    • SENSEX: (389.53) or (0.59%) to 65396.11

  • Currencies:

    • $-¥: (0.89) or (0.62%) to 143.1710

    • $-KRW: (4.20) or (0.32%) to 1305.3000

    • A$-$: +0.00 or +0.09% to 0.6628

    • $-INR: (0.03) or (0.04%) to 82.7340

    • $-CNY: (0.01) or (0.11%) to 7.2422