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StreetAccount Summary - Asian Market Recap: Nikkei +0.30%, Hang Seng (2.06%), Shanghai Composite (0.71%) as of 04:10 ET

Sep 05 ,2023

• Synopsis:

  • Asian equities ended mixed Tuesday. Steep losses in Hong Kong as weak Services PMI offset positive news from Country Garden on a dollar bond payment, mainland markets also lower. Japan's Nikkei saw a sharp spike into the close to end higher. Elsewhere directionless with Australia staying in the red, Seoul down a few points, Taipei flat. India modestly higher, Southeast Asia mixed. US futures lower, Europe opened with losses. US dollar gaining, AUD sharply weaker post RBA decision, NZD also down, yen and yuan weaker too. Treasury yields higher across tenors, Australia yields all lower. Crude holding at 10-month highs, precious metals lower, industrial metals also down.

  • Asia markets rather flat outside of movements in Greater China with no guidance from Wall Street overnight and Europe drifting lower over the day yesterday. News at lunchtime Country Garden had made interest payment on two dollar bonds just prior to expiration of a grace period initially taken positively but markets soon sold off and ended deep in the red, reversing much of yesterday's gains. Thus, broader narrative over China remains in situ with slowing economic growth (highlighted again today with a weak Services PMI reading), high regional government debt, property developer debt and high youth unemployment continuing to dominate weakening sentiment.

  • Elsewhere, RBA left cash rate unchanged as expected with little change in its policy statement that repeated potential for further tightening if required. China Caixin services PMI fell by more than expected, reflecting weakness in new work and export orders. Japan household spending shrunk by most in 2.5 years amid sharp fall in housing category. South Korean and Philippine August inflation rose, driven by higher energy costs. India PMI dipped a little but still at expansive 60.9. Singapore's retail sales growth increased slightly from last month's two-year low. Thailand's August inflation print was broadly in line but BoT warned on FY GDP growth outlook.

  • Softbank's (9984.HK) ARM IPO will likely raise $5-7B, down from up to $10B it originally sought with valuation in $50-60B from $60-70B range. Country Garden (2007.HK) said it had paid on two dollar bonds worth $22.5M just hours before the final deadline. L'Occitane's (973.HK) owner Reinhold Geiger said he had ended deliberations on a deal to take the company private but did not disclose reasons; stock sharply lower. Luckin Coffee (LKNCY) said it sold more than 5.42M cups of alcohol-infused coffee developed alongside with Kweichow Moutai (600519.CH) in its launch day Monday. Samsung Electro-Mechanics (009150.KS) has signed a supply contract with a US Auto company, reported to be Tesla. Qantas (QAN.AU) CEO Alan Joyce stepped down earlier than planned following claims the company had sold thousands of tickets for flights it had already canceled during Covid.

• Digest:

  • Country Garden pays dollar bond interest with hours to spare:

    • Indebted Chinese property developer Country Garden (2007.HK) has paid coupons of two dollar bonds totaling $22.5M with just hours to go before grace period ended, avoiding first ever default (Bloomberg). Payment brings significant respite for company and sector post approval late last week to extend deadline on CNY3.9B ($536M) bond, coupon payment on ringgit-denominated MYR2.85M ($613) note. However, Bloomberg noted despite recent uptick in property sector prompted by stimulus plans and Country Garden's debt deal, structural problems remain in sector. Said 34 from 50 private-sector developers suffered delinquencies on offshore debt as of 1-Sep. Remaining 16 face combined $1.48B onshore and offshore bond payments in either principal or interest in September alone, bigger test in Jan-24 looms with around $3B due. Added China junk bonds that developers dominate, pay 67 cents per dollar on average.

  • RBA leaves cash rate unchanged as inflation cools:

    • RBA left cash rate unchanged at 4.10% as expected. No noteworthy changes to policy statement, which repeated that some further tightening may be required, depending on data and evolution of risks. Acknowledged fall in July CPI though inflation is still too high. However, RBA noted recent data is consistent with inflation returning to target over forecast horizon. Medium-term inflation expectations also remain consistent with inflation target. Noted significant uncertainties related to persistent services inflation, lagged policy effects, and outlook for household consumption. Also acknowledged increased uncertainty around outlook for China's economy. Some economists still expect a final rate hike by year-end given upside risks to wages and CPI. November seen as most likely month for a rate increase depending on outcome of Q3 CPI in late October. However, consensus increasingly settling on view RBA is finished with rate hikes for the time being.

  • China Caixin Services PMI expands at slowest pace in the year:

    • Caixin services PMI was 51.8 in August, versus consensus 53.5 and 54.1 in prior month. Data in expansion for eighth straight month but also at the slowest pace YTD as weak demand continued to drag on China's economy and stimulus failed to meaningfully revive consumption (Reuters). Caixin reading broadly in line with last week's official nonmanufacturing PMI, which fell to 51.0 and was at lowest expansion YTD. New business from overseas fell for first time in 2023. Input cost inflation cooled to six-month low while selling prices increased at slowest pace since April. Business confidence for 12-month outlook remained positive but optimism reached a nine-month low. Meanwhile although Caixin manufacturing PMI beat market expectations with expansion in August, marginal slowdown in service sector's supply and demand expansion offsets manufacturing improvement, which shows Caixin Composite PMI fell to 51.7 from 51.9 in July, weakest since January.

  • Several brokerages add to bearish yen calls:

    • Nikkei reported several brokerages revised down their yen outlook amid attention on Goldman Sachs last week cutting their year-end forecast to 150 per dollar from 140. Similar downgrades came from JPMorgan to 152 from 142, and Barclays to 146 from 135. BofA also sees 150 at year-end vs prior 145. MUFJ Morgan Stanley and SMBC Nikko also revised down though adjustments were relatively moderate. Cited ongoing US-Japan real interest rate differential as the main factor with US real yields at ~2% and Japan remaining negative. Cited BofA expectations that Fed will keep rates higher for longer, resulting in stable dollar strength. Added that if Fed doesn't pivot to rate cuts, USD/JPY could go as far as 160. Goldman Sachs FX strategy projects it will take more time to confirm achievement of BOJ's inflation mandate through factor such as wage growth. JPMorgan FX strategy said ongoing trade deficits will compound yen pressures. Debate on FX intervention continues. MUFJ believes authorities are monitoring volatility/levels and sees possible action around 150, However, JPMorgan noted adverse implications from yen weakness are not as acute compared to last year and does not see intervention unless yen approaches 155.

  • Japan consensus earnings forecasts more bullish than corporate guidance:

    • Nikkei aggregated consensus FY24 earnings forecasts and compared them with corporate guidance, finding that market expectations are higher than guidance for 80% out of ~490 firms. By magnitude, analysts project net income of JPY39.85T, 7% higher than guidance levels. Noted standout is Toyota (7203.JP) with consensus JPY850B higher than guidance as Q1 results showed they have already achieved 51% of annual projections. Main common factor is yen weakness, noting that automakers' USD/JPY estimates are in the 120 range, notably higher than prevailing market levels. Furthermore, they generally reaffirmed those forecasts in their latest Q1 reports. FX tailwind extends to other sectors such as Nintendo (7974.JP), which sees net profit falling 21% in FY24 though analysts expect a 2% slide. On the back of success from its latest Zelda title, the company stands to make windfall gains on its substantial dollar holdings. Optimism also surrounds companies linked to inbound tourism. Article noted main driver for the remaining 20% of firms explained by China risk.

  • Notable Gainers:

    • +5.1% 9843.JP (Nitori Holdings): to join Nikkei 225, effective before opening of market 2-Oct

    • +3.0% 009150.KS (Samsung Electro-Mechanics Co.): signs supply contract with US auto company, reportedly Tesla

  • Notable Decliners:

    • -17.4% 973.HK (L'Occitane International): announces controlling shareholder terminates possible takeover transaction

    • -8.1% 9961.HK (Trip.com Group): reports Q2 non-GAAP EPADS CNY5.11 vs StreetAccount CNY3.61

    • -6.1% 5411.JP (JFE Holdings): confirms proposal of ¥200B public offering and convertible bonds at board meeting today

    • -2.2% 9759.JP (NSD Co.): 4.0M-share offering (for holders) is priced at ¥2,459/share through Mitsubishi UFJ Morgan Stanley

    • -0.0% 8316.JP (Sumitomo Mitsui Financial): SMBC Nikko Securities reportedly to raise ¥250B from parent Sumitomo Mitsui Financial Group

• Data:

  • Economic:

    • China August

      • Caixin services PMI 51.8 vs consensus 53.5 and 54.1 in prior month

        • Composite PMI 51.7 vs 51.9 in prior month

    • Japan

      • July household spending (5.0%) y/y vs consensus (2.5%) and (4.2%) in prior month

        • Spending (2.7%) m/m vs +0.9% in prior month

      • August final services PMI 54.3 vs preliminary 54.3 and 53.8 in prior month

        • Composite PMI 52.3 vs preliminary 52.6 and 52.2 in prior month

    • Australia Q2

      • Current account balance A$7.7B vs consensus A$8.0B and A$12.3B in Q1

        • Net exports to add 0.8 ppt to Q2 GDP vs consensus 0.3 ppt addition and 0.2 ppt subtraction from Q1 GDP

    • South Korea

      • August CPI +3.4% y/y vs FactSet consensus +2.8% and +2.3% in prior month

      • Q2 revised GDP +0.6% q/q vs preliminary +0.6% and +0.3% in prior quarter

        • GDP +0.9% y/y vs preliminary +0.9% and revised +0.9% in prior quarter

  • Markets:

    • Nikkei: 97.58 or +0.30% to 33036.76

    • Hang Seng: (387.25) or (2.06%) to 18456.91

    • Shanghai Composite: (22.69) or (0.71%) to 3154.37

    • Shenzhen Composite: (11.54) or (0.58%) to 1970.08

    • ASX200: (4.50) or (0.06%) to 7314.30

    • KOSPI: (2.37) or (0.09%) to 2582.18

    • SENSEX: 20.67 or +0.03% to 65648.81

  • Currencies:

    • $-¥: +0.76 or +0.52% to 146.9420

    • $-KRW: +8.80 or +0.66% to 1332.7400

    • A$-$: (0.01) or (1.32%) to 0.6373

    • $-INR: +0.25 or +0.30% to 82.9740

    • $-CNY: +0.04 or +0.54% to 7.3007