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StreetAccount Summary - Asian Market Recap: Nikkei (2.30%), Hang Seng (2.47%), Shanghai Composite (0.89%) as of 04:10 ET

Aug 02 ,2023

• Synopsis:

  • Asian equities lower Wednesday. Major benchmarks all in negative territory with Hang Seng registering the biggest losses. Mainland stocks also down. Nikkei (biggest one-day percentage drop in 2023), Kospi, Taiex and ASX all sharply lower. Southeast Asia mostly lower except for Thailand whose shares erased earlier losses after BOT policy decision. S&P 500 and Nasdaq futures both in red. Europe opened down. Treasury yields were lower across tenors. Dollar stronger against AUD but weaker against yen. Crude oil extending gains following much larger-than-expected API inventory draw. Industrial metals and precious metals stronger.

  • Asian markets weighed down by a lower Wall Street handover and turned cautious on news that Fitch unexpectedly downgraded US credit rating to AA+ from AAA, first by a major rating agency in more than a decade. Treasury yields declined as investors fled to safer sovereign debt from riskier equity markets. Greater China markets lower for second day as some investors booked profits. PBOC pledged to boost credit to private firms and provide financial support to smaller firms. It will guide commercial lenders to adjust rates on existing mortgages. Reuters also reported some Chinese banks asked to reduce or delay dollar purchases in a bid to slow pace of yuan's depreciation.

  • In Japan, BOJ Deputy Governor Uchida said YCC tweak aimed at mitigating policy side-effects and backed continued monetary easing. Bank's June meeting minutes more rigorous discussions about YCC revisions ahead of last week's change. South Korea consumer price inflation slowed for the sixth straight month in July, marking the weakest advance since June 2021. Bank of Thailand increased 1D repurchase rate by 25 bp to 2.25% as expected. New Zealand unemployment rose by more than expected while wage inflation stabilized; its house prices registered smallest decline since January, adding to signs housing market is bottoming.

  • Softbank Group (9984.JP)'s Arm is targeting an IPO at a valuation of between $60-70B as soon as September. China optical components makers Mloptic (688502.CH), Kingsemi (688037.CH) and Castech Inc (002222.CH) rallied on reports that Shanghai Micro Electronics Equipment Group is working to deliver its first lithography gear based on 28-nm technology later this year amid US tech restrictions. Claims about breakthrough in superconductor technology sparked rallies in Ducksung (004830.KS), Sunam (294630.KS) and Shinsung Delta Tech (065350.KS) for a second straight day.

• Digest:

  • BOJ Deputy Governor Uchida says YCC tweak meant to sustain easing:

    • In the first individual speech since Friday's YCC tweak, Deputy Governor Uchida explained the move was aimed at mitigating potential side effects of capping 10y yield at 0.5%, which would be too large, in the face of higher than anticipated inflation and wage growth. Added they sought to be prepared for any eventuality so BOJ can continue with monetary easing without causing confusion. Still, noted the upward revision to their FY23 CPI forecast was significant. With inflation elevated, suggested two hypotheses -- cost push factors lasting longer than expected, and corporate wage/price setting behavior changing somewhat faster than expected. While Uchida is yet to settle on either one, he acknowledged signs of change in firms' behavior. Still, upside is relatively limited as he does not see wages/inflation moving as high as in the US/Europe. Hence, he supports patiently maintaining easing to encourage steady wage growth next year. Also stressed that a short-term rate hike remains a long way off and BOJ does not have an exit from monetary easing in mind.

  • Focus on BOJ operations as 10y JGB yield renews nine-year high:

    • Ongoing attention on JGB yields following the YCC tweaks as 10y hit 0.625%, its highest since April 2014 (Nikkei). Article said selling pressure increased after some in the market had anticipated larger BOJ JGB purchases, though today's operation of JPY675B in 5~10y zone remained consistent with preceding size. Recall the 50 bp tolerance range around the 0% target was reclassified as a 'reference' rather than a hard limit, while fixed-rate purchase operation yield price of 1% marks the new effective upper bound. Fluctuations within this range to be managed by BOJ market operations. Economists noted the Q3 JGB purchase schedule (also published 28-Jul) did not signal a clear increase -- 5~10y buying range widened to JPY450B~900B, compared to JPY475B~875B in Q2. However, BOJ bought JPY300B in an unscheduled operation 31-Jul. Economists doubt 10y yield will actually reach 1% unless there is a specific catalyst, such as a significant ramp up in global yields. Estimates of fair value were placed around 0.70%.

  • June BOJ minutes expanded on YCC tweak discussions:

    • Minutes for the June MPM showed more rigorous discussions about YCC revisions, expanding on remarks recorded in the preceding Summary of Opinions. While they agreed there was no need for tweaks then, one member pushed for discussion "at an early stage," citing high costs, and should encompass prevention of rate volatility during an exit strategy, improvement in market functioning, and smoother market dialogue. Some were wary of misinterpretation that YCC revisions would be construed as monetary tightening. One member stressed that even after revisions, yield curve would continue to be influenced by JGB purchases and stock effects. Preparatory discussions on the policy review remained on the broad strokes -- one member proposed they should set up a section on its website dedicated to communicating updates and findings to the public. Thoughts on inflation were relatively positive, though consensus still looked for a deceleration toward mid-FY23.

  • PBOC pledges support for property sector in H2:

    • PBOC pledged that it would support a "stable and healthy development" of China's real estate market in its H2 work conference chaired by newly appointed governor Pan Gongsheng. Bank said it would continue to guide reduction of residential housing loan interest rates and downpayment ratios. Also would guide commercial lenders to adjust rates on existing mortgages "in an orderly manner and in accordance with law". Caixin cited market sources that interest rates on existing housing mortgages are set to drop after PBOC's reiteration. Added banks would most likely adopt differential policies based on cities. Noted various lenders adopted wait-and-see earlier citing no formal policy guidance. PBOC also emphasized implementation of 16-point plan unveiled last November, extension of a lending scheme to support home deliveries, and greater financial support for home rental and urban village redevelopment.

  • China asks some banks to reduce or delay dollar buying:

    • Reuters, citing two people with direct knowledge of the matter, reported China FX regulators issued window guidance to some commercial banks to reduce or postpone their purchases of US dollars in order to slow the yuan's depreciation. One source said regulators were emphatic banks should hold off dollar purchases under their proprietary trading accounts due to the "recent yuan depreciation". In response, SAFE told Reuters that exchange rate expectations were stable and it will push for a 'risk-neutral' mentality' at companies and financial institutions. Also reiterated it will keep the yuan basically stable at reasonable and balanced levels. Article noted yuan hit an eight-month low in July and has depreciated 3.6% vs dollar YTD to rank as one of Asia's worst performing currencies. Discussing China's balance of payments, story noted prospects for capital inflows were encouraged initially by optimism following the Politburo meeting, though soon faded as investors await more substantive action. Equity market inflows have stalled after the economy lost its post-pandemic bounce, while bond outflows have been sizable. China's services deficit more than doubled to $102.1B in H1.

  • Notable Gainers:

    • +17.9% 6098.HK (Country Garden Services Holdings): guides H1 revenue CNY20.65-20.85B vs year-ago CNY20.06B; launches on-market buyback of up to 337.3M shares

    • +0.4% 9021.JP (West Japan Railway): reports Q1 operating income ¥52.21B vs FactSet ¥35.87B, revenue ¥369.27B vs FactSet ¥347.21B

  • Notable Decliners:

    • -8.5% 8604.JP (Nomura): reports Q1 EPS ¥7.71 vs FactSet ¥14.50

    • -8.3% 4902.JP (Konica Minolta): reports Q1 operating income (¥4.41B) vs FactSet (¥1.63B); reiterates FY guidance

    • -5.8% 144.HK (China Merchants Port Holdings): guides H1 net income attributable to decline by not less than 30% y/y

    • -4.8% 8725.JP (MS&AD Insurance): Japanese casualty insurers reportedly suspected of price-fixing in premiums for corporate customers

    • -4% 000270.KS (Kia): reports July domestic sales 47,424 units vs year-ago 51,120 units

    • -3.4% 4503.JP (Astellas Pharma): reports Q1 operating income ¥45.8B vs FactSet ¥67.98B

    • -1.6% 207940.KS (SAMSUNG BIOLOGICS): Samsung Bioepis reportedly considering acquiring Biogen's biosimilar unit for KRW600-900B

    • -0.4% 8306.JP (Mitsubishi UFJ Financial): reports Q1 EPS ¥46.29 vs FactSet ¥31.22, ordinary profits ¥725.59B, +176% vs year-ago ¥262.96B

• Data:

  • Economic:

    • S. Korea

      • July CPI y/y +2.3% versus consensus +2.5% and +2.7% in prior month

    • New Zealand

      • Q2 Employment Change q/q +1% versus +1.08% in prior quarter

      • Q2 Unemployment Rate 3.6% versus consensus 3.5% and 3.4% in prior quarter

  • Markets:

    • Nikkei: (768.89) or (2.30%) to 32707.69

    • Hang Seng: (493.74) or (2.47%) to 19517.38

    • Shanghai Composite: (29.26) or (0.89%) to 3261.69

    • Shenzhen Composite: (5.70) or (0.28%) to 2056.06

    • ASX200: (96.10) or (1.29%) to 7354.60

    • KOSPI: (50.60) or (1.90%) to 2616.47

    • SENSEX: (825.61) or (1.24%) to 65633.70

  • Currencies:

    • $-¥: (0.75) or (0.52%) to 142.5900

    • $-KRW: +7.61 or +0.59% to 1296.6600

    • A$-$: (0.00) or (0.62%) to 0.6573

    • $-INR: +0.26 or +0.32% to 82.5860

    • $-CNY: +0.00 or +0.07% to 7.1826