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StreetAccount Summary - Asian Market Recap: Nikkei (0.66%), Hang Seng (0.62%), Shanghai Composite (0.52%) as of 04:10 ET

Sep 20 ,2023

• Synopsis:

  • Asia equities ended mostly lower Wednesday in a risk-off day's trading: Hong Kong again just about held on to its recent support level although still ended lower alongside mainland China markets. South Korea ended a point higher but other major benchmarks fell with Taiwan weaker, India down sharply as its banks fell, Southeast Asia also showed weakness. Japan dipped sharply into the close to challenge its 33K support level. US point to a higher opening, Europe opened with modest gains. US dollar flat, yen surged to fresh 10-month high. Treasury yields higher at the short end, lower at the long; JGBs and other Asia yields notably higher. Crude took a breather with WTI back below $90/bl. Industrial metals under pressure, precious metals mixed.

  • Investors pulling back ahead of a triumvirate of central bank decisions tonight (US Fed), tomorrow (BOE), and Friday (BOJ), as well as decisions from Indonesia, Philippines and Taiwan tomorrow. A 'hawkish hold' expected by the Fed this evening; Fed fund futures show a 99% chance of no change with a 25 bp hike in November priced at around 30%. The BOE is widely expected to hike one more time this Thursday despite lower-than-expected August CPI, while the BOJ will keep its rate steady on Friday with the messaging on inflation, YCC and negative rates more of a focus.

  • The PBOC today declared it had sufficient policy space to support economic recovery, suggesting another RRR cut before year-end was possible. Several analysts suggested the recent pick-up in economic activity may cause the bank to pause for a period before making its next move. Today, it kept 1Y and 5Y loan prime rates on hold as expected. Japan's exports fell for a second month amid a sharp drop in shipments of chip-making equipment while a top FX official again refused to rule out intervention to combat excessive yen moves while US Treasury Secretary Yellen said intervention was understandable if due to volatility. OECD and ADB lowered China growth forecasts with the former blaming China's property crisis for its downgrade of emerging Asia growth this year.

  • Alibaba Pictures (1060.HK) is to merge with the Alibaba group unit Damai for aggregate consideration of $167M. NIO (9866.HK) raised $1B in a two-tranche convertible bond deal to be used to strengthen its balance sheet and pay down debt. HDFC Bank (500180.IN) said its newly completed merger with HDFC Ltd will hit some key financial metrics such as net interest margins. TotalEnergies (TTE.FP) is close to investing $300M in a new jv with Adani Green (541450.IN) to house renewable energy projects.

• Digest:

  • China LPRs unchanged as expected:

    • China LPRs were unchanged at 3.45% in 1y and 4.20% in 5y, matching Reuters consensus. Follows last week's MLF operation which saw no change in the 1y rate. Stability contrasts with last month's surprise cuts to the MLF and 1y LPR, though 5y remained steady defying expectations of larger cuts to the longer tenor to support the housing market. Article noted ongoing thoughts that yuan weakness remains a barrier for further rate cuts, as China-US 10y bond yield gap remains close to a 16-year high. Going forward, noted some market watchers who said recent property easing measures suggest cuts to 5y LPR and more policy stimulus are likely in coming months. After last week's RRR cut, economists reaffirmed existing forecasts on the rate outlook for the rest of the year with some still predicting further policy rate cuts in Q4. But broader consensus remained that monetary policy support is mild and insufficient to negate economic headwinds, placing onus on central government to provide more relief, particularly for the property sector.

  • Chinese policymakers lash out deflation rhetoric, vow to keep yuan stable:

    • Senior officials from China's NDRC, MIIT, MoF and PBOC held a joint press conference Wednesday on current economic situation and policies. NDRC deputy director Cong Liang acknowledged economy is facing lots of difficulties and challenges, but history and broader trends suggest economy will improve in long-term. Pointed to how China overcame prior crises in 1998 and 2008, displaying resilience. Added China is not experiencing deflation and won't face one in future, highlighting improvements in August CPI and PPI data. Said those who are shorting and bearish in China will be proved wrong. PBOC head of monetary policy Zou Lan said more attention should be paid to yuan exchange rate against basket of currencies, rather than simply focusing on dollar/yuan movements. Noted yuan's appreciation against euro and yen through end-June to mid-Sep while dollar index gained. Reiterated there is solid foundation to keep yuan exchange rate "basically stable" and bank will take comprehensive measures to correct market deviations, stabilize expectations.

  • BOJ speculation switches from YCC tweak to end of negative interest rates:

    • Bloomberg reported swap market indicators indicate stronger expectations for scrapping of negative interest rates by Mar-24 rather than further widening of 10Y yield target band. Said fueling speculation is BOJ's more flexible approach to YCC since end of July, recent comments from Governor Ueda on possibility of raising short-term rate. Article noted BOJ policy cap still 30 bps above yields in secondary market so further increase in YCC ceiling less likely versus chances of raising negative interest rate. Cited analyst forecasting short-term JGB yields to rise by more than longer-dated yields as market prices in exit from negative rates; since July BOJ meeting, this pricing moved forward by six months. Article also noted demand for one-week yen call options near two-month high relative to puts, suggesting option traders hedging against yen strengthening. Second analyst said any BOJ policy tweak to have limited impact on yen as even 20 bp move in yen rates is relatively small against dollar.

  • Japan trade data not as weak as expected:

    • Customs exports fell 0.8% y/y in August, compared to expected 2.1% decline. Follows 0.3% dip in the previous month and still marks the second consecutive decrease. Autos remained the main bright spot, followed by semiconductor tech components. Outweighed by sharp contractions in metallurgical fuel, semiconductor-making equipment and organic compounds. Regional breakdown continued to show Asia as the main drag, largely reflecting nine straight declines in China, while shipments to US and EU extended growth. Similarly, import declines came in at 17.8%, somewhat less than consensus 20.0% and follows revised 13.6% in July. Downtrend remains anchored by fossil fuels. Export volumes fell for the 11th month and downturn in nominal values reflects softer price factor. BOJ real trade indices showed sharp 6.1% m/m drop in exports, outpacing 3.2% fall in imports, though both tracking little change for Q3, implying mostly neutral contribution to growth from GDP external demand.

  • China LGFV bond sales surge again:

    • Bloomberg-compiled data showed LGFV domestic bond issuance was nearly CNY620B ($85B) in August, up almost 50% from July and the third-highest monthly tally on record. Flurry comes amid government efforts to defuse risk, though main takeaway was that investors see LGFVs remaining relatively safe as Beijing embarks on a CNYT1T program to help provincial governments repay hidden local debt. That said, most of the bonds have short-term maturities, underscoring lingering concerns about LGFV long-term health as a housing crisis deepens. Average tenor of onshore LGFV bond issuance fell to 2.51 years in H1 from 2.95 in 2022 and the shortest on records going back to 1999. Article noted LGFVs have so far avoided delinquencies on public debt despite brief payment scares in recent years. But a notable feature of the latest rush is the strong demand for bonds issued by financing vehicles from regions with tighter finances.

  • Notable Gainers:

    • +5.5% 1060.HK (Alibaba Pictures Group): merges with Alibaba Group's Damai for aggregate consideration of $167M (HK$1.31B)

    • +3.4% 4587.JP (Peptidream): Peptidream, Genentech enter into collaboration and license deal for development of novel peptide-radioisotope drug conjugates

    • +0.8% 9007.JP (Odakyu Electric Railway Co.): reports August preliminary railway business commuter and non-commuter revenue ¥9.33B, +17.8% y/y

  • Notable Decliners:

    • -0.4% 8031.JP (Mitsui & Co.): completes tender offer for Metro Pacific Investments

    • -0.3% 139480.KS (E-Mart): former CEO of Josun Hotels & Resorts Han Chae-Yang appointed as CEO of E-Mart

• Data:

  • Economic:

    • Japan

      • August trade balance (¥930.5B) vs consensus ¥678.5B and revised (¥66.3B) in prior month

        • Exports (0.8%) y/y vs consensus (2.1%) and (0.3%) in prior month

        • Imports (17.8%) y/y vs consensus (20.0%) and revised (13.6%) in prior month

    • New Zealand Q2

      • Current account (NZ$4.2B) versus (NZ$4.7B) in prior quarter

  • Markets:

    • Nikkei: (218.81) or (0.66%) to 33023.78

    • Hang Seng: (111.57) or (0.62%) to 17885.60

    • Shanghai Composite: (16.39) or (0.52%) to 3108.57

    • Shenzhen Composite: (11.25) or (0.59%) to 1893.40

    • ASX200: (33.30) or (0.46%) to 7163.30

    • KOSPI: 0.53 or +0.02% to 2559.74

    • SENSEX: (713.62) or (1.06%) to 66883.23

  • Currencies:

    • $-¥: +0.27 or +0.18% to 148.1210

    • $-KRW: (0.45) or (0.03%) to 1328.5500

    • A$-$: +0.00 or +0.05% to 0.6458

    • $-INR: (0.12) or (0.14%) to 83.1700

    • $-CNY: +0.00 or +0.01% to 7.2982