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StreetAccount Summary - Asian Market Recap: Nikkei +0.56%, Hang Seng (1.03%), Shanghai Composite (0.07%) as of 04:10 ET

Aug 15 ,2023

• Synopsis:

  • Asian equities ended mixed Tuesday. Greater China markets endured another volatile day and the main benchmarks all ended lower post PBOC action and weak July economic data. Japan, Australia and Taiwan all closed higher, Southeast Asia was mainly lower. South Korea and India closed for a holiday. US futures lower, European markets opened down. US dollar slightly weaker, yen weaker and closing in on 146 per dollar, yuan weakened notably once again. Treasury yields higher across tenors with the 10Y at 4.22%, China sovereign yields fell again. Crude oil a little lower, precious metals down, industrial metals mixed.

  • Developed markets of Japan and Australia outperformed as Wall Street ended higher Monday but elsewhere in the region, stocks lower on deepening concerns over China's economic recovery following poor July activity data showed a slowdown in growth that also missed expectations. The PBOC unexpectedly cut its MLF rate while injecting net CNY1B in medium-term liquidity, sending the yuan and China sovereign 10Y yields to fresh multi-month lows. Soon after, July activity data revealed retail sales growth slowed, industrial production weakened with autos a notable drag. Fixed asset investment growth also decelerated with real estate contracting sharply. Home sales turned negative for first time since early 2023. Beijing also appointed a regulatory task force to assess risks associated with trust funds following Zhongzhi Enterprise's liquidity problems reported Monday.

  • Japan Q2 GDP growth was double consensus forecasts, underpinned by net exports although details were mixed with domestic demand contracting. August RBA minutes noted members debated whether to hike by 25 bp but saw stronger case to hold. Australian wage growth fell short of expectations. Pace of New Zealand home prices declines continued to ease.

  • Japan Post (7182) is to begin a buyback programme worth up to ¥300B through to next March. BYD (1211.HK) has opted out of a deal to use Baidu's (9888.HK) autonomous-driving technology and will look to develop its own instead. China Evergrande EV (3333.HK) is to issue fresh shares to 'certain subscribers' in restructuring plan. National Australia Bank (NAB.AU) says it plans a share buyback of up to $970M.

• Digest:

  • China activity data broadly miss:

    • Industrial production rose 3.7% y/y in July, compared to consensus 4.3% and follows 4.4% in the previous month. Cars and PCs remained notable drags as narrow majority of major product categories logged declines. Retail sales saw the biggest miss -- growth slowed to 2.5% from 3.1% (lowest YTD) against expectations of a pickup to 4.5%. Catering remained up double digits, followed by moderate growth in clothing, and communication equipment. Gains were mitigated by sharp declines in jewelry and building materials. Cars and household appliances also fell. Fixed asset investment decelerated to 3.4% YTD vs consensus and prior month's 3.8%. Infrastructure rose 6.8%, though real estate declines deepened to 8.5% (another YTD low) from 7.9%. Details were broadly weaker as sales by value turned negative for the first time since Jan-Feb, aligning with a deterioration in floor space terms, while new construction starts remained depressed. Unemployment rate also unexpectedly rose to 5.3% vs consensus and prior month's 5.2, though suspension of youth unemployment figures attracted more attention (Reuters). NBS commentary held to a generally upbeat assessment, though noted domestic demand is still insufficient and foundation for economic recovery still needs to be strengthened.

  • PBOC unexpectedly cuts MLF rate:

    • PBOC surprised with a 15 bp cut to the 1y MLF rate to 2.50% as consensus expected no change. Size was CNY401B, marginally above the CNY400B in maturing loans, compared to expectations of a CNY10B net injection. Seven-day reverse repo rate was also lowered 10 bp to 1.8%. The move lays the path for a similar decline in LPR, consistent with consensus expectations for an average 15 bp decrease in the 1y rate some time in Q3. Attention turns to the LPR fixings next week, while discussions continue on the prospects for a 25 bp RRR cut in H2. Recall that analysts have recently strengthened calls for more stimulus to shore up growth momentum. Early takeaways saw this as confirmation of a step-up in policy support and suggested the surprise move suggests heightened concern about the deteriorating economic outlook (Bloomberg). However, onus has been placed more on fiscal policy. Currency weakness has been long cited as a potential barrier to curb easing expectations and yuan fell to its lowest level since November vs dollar as weaker sentiment is outweighing efforts to support the currency via stronger midpoint fixings (Bloomberg). Cited analysts eyeing 7.3 as the next key support level.

  • China considers cutting stamp duty to revive stock market:

    • China's state council and ministry of finance are considering a cut to stamp duty on stock trades in what would translate as a substantial attempt to revive its stock market, according to analysts. Bloomberg reported authorities discussing draft proposal but size and timing have yet to be determined and no guarantee senior leaders will approve move. It would be first such cut to stamp duty since 2008, currently stands at 0.1% but cut could improve liquidity and provide support for brokerages and quantitative hedge funds that use rapid-fire trading strategies. Trading floors said to be speculating over reduction in stamp duty since pledge in July to "invigorate capital markets and boost investor confidence" (Bloomberg). Report Tuesday comes as economic activity data for July revealed further slowdown in growth, and as PBOC unexpectedly cut key 1Y loan rate.

  • Japan Q2 GDP well above expectations:

    • GDP expanded 6.0% q/q annualized in Q2, double the consensus forecast of 2.9%. Follows 3.7% in the previous quarter, revised up from 2.7%. Posing somewhat of a contrast, non-annualized growth of 1.5% was closer to consensus 0.8%, following revised 0.9%. Details were mixed. The main driver was a sharp drop in imports though a rebound in exports was also encouraging. Domestic demand contracted marginally reflecting unexpected declines in private consumption prompting thoughts Covid reopening demand negated by softer growth in areas associated with stay-at-home dynamic such as white goods. Outweighed growth in residential investment. However, employee compensation posted the first sequential increase in seven quarter. Capital spending was flat, while private inventories were a small drag. Public demand edged higher on the back of moderate growth in public investment. GDP deflator accelerated to 3.4% y/y (highest since at least 2012), though domestic demand deflator slowed to 2.3% (lowest since 4Q21). Early takeaways were consistent with cautious previews, leaning toward the mixed details over the headline strength (Bloomberg, Reuters).

  • RBA minutes note upcoming policy decisions will depend on data, risks:

    • August RBA minutes noted members debated whether to hike by 25 bp but saw stronger case to hold cash rate at 4.10%. Members noted recent data signaled economy remains on narrow path to soft landing. While there is potential for services inflation to prove stickier than forecast, members observed there was credible path for inflation to return to target with cash rate staying at its current level. Also highlighted significant slowdown in consumption growth and noted lagged effects of rate hikes yet to fully play out. While labour market is showing considerable resilience, members noted signs market is at a turning point. At the same time, RBA maintained it is possible some further tightening may be required, pointing to risk of high inflation persisting, comparatively lower cash rate than other central banks and rebound in Australian house prices. Policy decisions will depend on upcoming data and evolving assessment of risks.

  • Notable Gainers:

    • +4.9% 6178.JP (Japan Post Holdings): previously announced buyback to run from 15-Aug-23 to 31-Mar-24

    • +4.8% 9435.JP (Hikari Tsushin): reports Q1 revenue ¥140.14B vs FactSet ¥144.75B, operating income ¥23.97B vs FactSet ¥22.86; to launch up-to-¥3.00B buyback, to run between 15-Aug and 30-Sep

    • +1.8% 708.HK (China Evergrande New Energy Vehicle Group): NWTN to acquire 27.5% stake in Evergrande New Energy Auto for $500M

  • Notable Decliners:

    • -8.6% 7762.JP (Citizen Watch Co.): reports Q1 revenue ¥72.70B vs FactSet ¥73.83B, operating income ¥5.54B vs FactSet ¥5.65B

    • -8.1% 3377.HK (Sino-Ocean Group Holdings): guides H1 net income attributable (CNY17.00-20.00B) vs year-ago (CNY1.09B)

    • -7.7% 4324.JP (Dentsu Group): reports Q2 revenue ¥258.80B vs FactSet ¥303.78B, operating income¥22.40B vs FactSet ¥25.27B; lowers FY guidance

    • -4.2% 6185.HK (CanSino Biologics): employee incentive platforms to dispose of not more than 4.9M A-shares in total

    • -2.7% 2317.TT (Hon Hai Precision Industry): reports Q2 revenue NT$1.305T vs FactSet NT$1.335T, EBIT NT$30.93B vs FactSet NT$33.32B

• Data:

  • Economic:

    • China July

      • Industrial production +3.7% y/y vs consensus +4.3% and +4.4% in prior month

        • Retail sales +2.5% y/y vs consensus +4.5% and +3.1% in prior month

        • Fixed asset investment (YTD) +3.4% vs consensus +3.8% y/y vs +3.8% in prior month

        • Unemployment rate 5.3% vs consensus 5.2% and 5.2% in prior month

    • Japan

      • Q2 GDP +6.0% q/q annualized vs consensus +2.9% and revised +3.7% in prior quarter

        • GDP +1.5% q/q vs consensus +0.8% and revised +0.9% in prior quarter

      • June final industrial production +2.4% m/m vs preliminary +2.0% and (2.2%) in prior month

        • Operating ratio +3.8% m/m vs (6.3%) in prior month

        • Production capacity +0.1% y/y vs 0.0% in prior month

    • Australia Q2

      • Wage price index +0.8% q/q vs consensus +0.9% and +0.8% in Q1

        • Wage price index +3.6% y/y vs consensus +3.7% and +3.7% in Q1

  • Markets:

    • Nikkei: 178.98 or +0.56% to 32238.89

    • Hang Seng: (192.44) or (1.03%) to 18581.11

    • Shanghai Composite: (2.25) or (0.07%) to 3176.18

    • Shenzhen Composite: (13.21) or (0.66%) to 1986.43

    • ASX200: 28.00 or +0.38% to 7305.00

    • KOSPI: Closed

    • SENSEX: Closed

  • Currencies:

    • $-¥: +0.23 or +0.16% to 145.7870

    • $-KRW: (0.10) or (0.01%) to 1337.9100

    • A$-$: (0.00) or (0.28%) to 0.6468

    • $-INR: +0.24 or +0.29% to 83.4530

    • $-CNY: +0.02 or +0.32% to 7.2830