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StreetAccount Summary - Asian Market Recap: Nikkei (0.05%), Hang Seng 2.51%, ASX 0.34% as of 04:10 ET

Sep 29 ,2023

• Synopsis:

  • Asian equities mostly higher Friday. Hang Seng outperformed amid a rally in tech stocks. Nikkei closed flat while ASX logged modest gains. Mainland China, Taiwan and South Korea closed for holidays. southeast Asia mixed, India trading higher, S&P 500 and Nasdaq futures higher, Europe opened higher. Treasury yields lower across the tenor, while dollar extending drop against majors, weakest vs AUD and NZD. Crude is slightly lower while industrial and precious metals both higher.

  • MSCI Asia Pacific ex-Japan had best day in weeks on Friday to end September and Q3 while logging worst quarterly performance in a year as markets adjusted to higher-for-longer Fed. Futures continue to price in near 50-50 chance of another Fed rate hike by year-end. Surging oil, accompanying inflation risk, resilient labor markets and expanding supply also part of the bearish narrative. In Japan, JGBs are on track for their worst quarterly result since 1998. BOJ's YCC tweak in July kicked initial surge in yields and rates have continued to push higher as markets eye possible NIRP exit in early 2024. Tokyo core inflation slowed in September for the third straight month while ex-energy inflation also softened further, adding to signs cost pressures began to ease. Industrial production was unchanged though survey projections point to stronger gains in coming months. Retail sales growth slowed but y/y pace beat expectations.

  • Mainland China offline for Golden Week holiday. Focus turns to level of economic activity over the holiday with expectations high for domestic travel and spending. Property market will also be scrutinized with developers counting on a meaningful lift in home sales though saga over China Evergrande continues. Satellite data suggests China's economy improved further this month, adding to signs of stabilization with September PMIs forecast to show another pickup in manufacturing and non-manufacturing activity.

  • Sony (6758.JP) doubles down on virtual production business to ride on company's strength in hardware. NIO (9866.HK) held exploratory talks with Mercedes-Benz (MBG.GR) for a tie-up that would see the German carmaker investment in the company. China Evergrande (3333.HK) faces payment on a combined CNY45B ($6.2B) of principal (seven bonds) that were pushed out to 2024 while company confirmed billionaire founder Hui Ka Yan is suspected of committing crimes.

• Digest:

  • Troubled week for China Evergrande:

    • More press coverage on China Evergrande (3333.HK) saga. Bloomberg reported it was developer's failure to pay Chinese households who invested in its wealth management products that may prompted authorities to take action on founder Hui Ka Yan, whom the company confirmed is being investigated over suspected crimes. Hui's son who once ran wealth unit also taken into custody. Noted detentions are consistent with Beijing's priority with own citizens rather than foreign creditors. Also served as warning signal to other developers to focus on finishing apartments and paying consumers who are owed money. FT discussed uncertainty over Hui seems to make fate of Evergrande more difficult to determine. While another Bloomberg piece noted Evergrande's Hengda unit is facing combined CNY45B ($6.2B) of principal payments which were pushed to 2024, while this week's missed payment on a separate CNY4B note heightened liquidation risk as company also scrapped creditor meetings for votes on offshore-debt restricting plan and trading of its stocks halted from Thursday.

  • China official manufacturing PMI seen stabilizing:

    • Ahead of the release slated for Saturday, Reuters consensus poll found the official manufacturing PMI expected at 50.0 in September following 49.7 in the previous month and would mark the first reading out of contraction since March. Forecasts ranged between 50.6 and 49.8. Further recovery from the May trough would offer more evidence of easing growth headwinds. Recall that other recent data releases have been mostly better than expected -- credit, exports activity -- allaying some of the bearish narrative. However, latest GDP consensus forecast continued to edge lower -- now right on the government target of 5% -- with property sector weakness widely cited as the key risk factor for the outlook. Economists have continued to note that policy support announcements to date are still insufficient to trigger a meaningful upturn in growth momentum. Onus mostly placed on fiscal policy given limited prospects for monetary easing. IMF suggested China can still achieve the growth target this year, though urged for more reforms to rebalance the economy from investment to private consumption to lift longer term trend growth (Reuters).

  • Japan BOJ Tankan expected to show slightly better confidence:

    • BOJ Tankan due Monday is set to be the key Asia data release next week. Reuters consensus looks for headline large manufacturer business conditions DI to edge up to 6 in September from 5 in June, which would mark the second consecutive improvement. Large non-manufacturer index also expected to rise to 24 from 23. Large firms' FY capex projections seen at +13.6% vs 13.4% in June, though upward revisions usually limited at this time of year. Recall the June report drew mostly positive takeaways as economists mainly cited improvement in profit margins as cost pressures eased, stoking some optimism about a possible peak in cost-push dynamic, even as domestic supply-demand conditions softened. Somewhat mixed corporate sector inflation expectations prompted some debate as BOJ remains unconvinced of a sustainable uptrend. Output gap proxies also to attract attention with BOJ's measure remaining marginally negative and seen due for a positive turn in fiscal H2 that would lay the foundation for board members to declare the conditions necessary to achieve the inflation target has been reached.

  • Fresh US-China engagement bolsters prospect of Biden-Xi meeting in November:

    • Senior US and China diplomats held "candid, in-depth" talks in Washington, adding to a flurry of high-level engagement between two countries which bolsters expectations that President Xi will attend APEC summit and meet Biden in California in November. Top State Department official for Asia Daniel Kritenbrink and China's vice foreign minister Sun Weidong discussed issues including North Korea, Taiwan. South China sea and Washington's Indo-Pacific strategy. Meeting follows recent engagements between Secretary Antony Blinken and China's Vice President Han Zheng in New York, National Security Advisor Jake Sullivan and China's Foreign Minister Wang Yi in Malta. There are media reports that Vice Premier He Lifeng and FM Wang both now considering possible trips to Washington to prepare for potential meeting between Xi and Biden. China's recent assistance in returning US solider who crossed into North Korea also viewed as goodwill gesture. Last week two sides also said they were establishing working groups to discuss economic and financial issues (Bloomberg).

  • Tokyo core inflation eases further, labor market little changed:

    • Tokyo core CPI rose 2.5% y/y in September, slightly below consensus 2.6% and follows 2.5% in the previous month. Ex-fresh food & energy inflation also softened to 3.8% from 4.0%. Energy drags continued to deepen on faster declines in electricity and gas. Combined with slower increases in non-fresh food and accommodation. BOJ has already acknowledged recent slowing in inflation and attention has shifted to the pace of deceleration as board members noted readings haven't come down as much as they had expected. Kyodo cited Teikoku Databank data flagging prices of over 4,500 food items set to increase in October though half the number from a year earlier. Labor market data little changed with unemployment rate holding steady at 2.7% vs consensus 2.6%. Moderate sequential growth in total employment was negated by higher participation, though former masked larger gains in regular jobs. Similarly, job offers to applicants ratio unchanged at 1.29 as notable dip in offers were offset by lower applications. Wages continued to garner most of the attention. Nikkei cited Nikko SMBC estimates that labor share has fallen to the lowest since 1974, suggesting companies have ample room to lift wages further.

  • Notable Gainers:

    • +10.2% NIO.SP (NIO Inc): Report on potential investment from Mercedes-Benz

    • +8.7% 4552.JP (JCR Pharmaceuticals): Concludes two agreements on Mucopolysaccharidosis Type IIIB treatment with Medipal

    • +5.4% 2678.JP (ASKUL Corp): Provides September operating results

  • Notable Decliners:

    • -3.5% 7261.JP (Mazda Motor): Reports August production and sales

    • -2.1% 1336.HK (New China Life Insurance): Morgan Stanley note

• Data:

  • Economic:

    • Japan

      • August Unemployment Rate 2.7% versus consensus 2.6% and 2.7% in prior month

      • August Industrial Production m/m (preliminary) 0% versus consensus (0.8%) and (1.8%) in prior month

      • August Retail Sales y/y +7.008% versus consensus +6.9% and +7% in prior month

      • August Retail Sales m/m +0.09% versus +2.2% in prior month

      • August Housing Starts y/y unknown versus consensus (8.7%) and (6.7%) in prior month

    • Australia

      • August Private Sector Credit m/m +0.4% versus consensus +0.3% and +0.3% in prior month

  • Markets:

    • Nikkei: (14.90) or (0.05%) to 31857.62

    • Hang Seng: 0.00 or 0.00% to 17373.03

    • Shanghai Composite: 0.00 or 0.00% to 3110.48

    • Shenzhen Composite: 0.00 or 0.00% to 1910.28

    • ASX200: 23.80 or +0.34% to 7048.60

    • KOSPI: 0.00 or 0.00% to 2465.07

    • SENSEX: 469.57 or +0.72% to 65977.89

  • Currencies:

    • $-¥: (0.36) or (0.24%) to 148.9520

    • $-KRW: (7.43) or (0.55%) to 1344.5000

    • A$-$: +0.00 or +0.75% to 0.6477

    • $-INR: (0.07) or (0.08%) to 83.0910

    • $-CNY: (0.00) or (0.03%) to 7.2983