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StreetAccount Summary - Asian Market Recap: Nikkei (0.31%), Hang Seng closed, ASX (0.22%) as of 04:10 ET

Oct 02 ,2023

• Synopsis:

  • Asian equities mostly lower Monday. Nikkei pared early gains to close slightly lower, ASX logged mild declines too. Taiwan higher underpinned by solid gains in semi stocks, southeast Asia mixed, Greater China, South Korea, India all closed for holidays, S&P 500 and Nasdaq futures trading higher after US lawmakers narrowly averted government shutdown. Europe opened higher. Treasury yields higher across tenors, dollar stronger against Aussie and yen, Crude slightly higher as well industrial metals, precious metals lower.

  • Fears of a policy mistake/hard landing remain key overhang on sentiment with many expecting financial conditions to tighten further as Fed and other central banks stick with their higher-for-longer stance. Manufacturing activity remained muted in Asia in September amid lackluster global demand. Japan and Taiwan were both in contraction territories, as well as Vietnam, Thailand, and Malaysia. Meanwhile Indonesia saw expansion slowed and only Philippines saw an improvement, flipping from contraction to expansion. In China, official manufacturing PMI showed factory activity returned to expansion for first time since March, in contract with more export-oriented Caixin PMI, which showed manufacturing slowed (though remained in expansion). Both showed stronger output and a pickup in inflation, but exports were weak. While PMIs add to signs of economic stabilization, activity remains weak amid headwinds from soft external demand and real estate crunch. However, private data indicated mild recovery in home sales and prices last month. World Bank has also cut forecast for China's growth next year and warned developing economies in east Asia are set to expand at lowest rates in five decades.

  • In other economic developments, BOJ Tankan show stronger-than-expected rise in Japan manufacturer and non-manufacturer sentiment. BOJ members discussed conditions and possible timing of stimulus exit in September Summary of Opinions but maintained need for easing with inflation considered highly likely to slow. South Korean exports declined at a slower pace in September as semiconductor shipments shrunk at slowest pace in 12 months. Australian house prices rose at a quicker pace, though quarterly rate of growth slowed amid rebound in supply. Thailand expects $4B in tourism revenue from Chinese visitors after launching visa waivers.

  • Japan Airlines (9201.JP) revamps first class with luxury double-bed suites and equips business class with closing doors for the first time. China Evergrande (3333.HK) Chairman Hui Ka Yan is being investigated on suspicion of transferring assets offshore. Thai Airways (THAI.TB) says flights from China have been over 90% full after visa waiver program launched for Chinese tourists.

• Digest:

  • BOJ Tankan confidence better than expected:

    • Headline business conditions DI for large manufacturers was 9 in September, above consensus 6 and follows 5 in June. Strength was led by materials sectors on the back of major improvements in lumber & wood products and petroleum & coal. Processing sectors logged small improvement overall mainly driven by autos. Large non-manufacturer DI was 27 (post-1991 high) vs consensus 24 and 23 in June. Major 36-pt spike in utilities was the standout while most other sectors were mildly better. Outlook and small firm DIs mixed. Large firms' domestic supply-demand conditions were steady, though contrasted with deterioration in overseas conditions. Large firm FY23 capex projections look for 13.6% growth, matching expectations, edging up from 13.4% in June. All enterprise current profit forecast revised up (mainly in H1), though remains moderately negative, despite slight improvement in profit margins with sales little changed. Assumed USD/JPY revised toward yen weakness, though remains well off current market levels. Output and input price DIs broadly eased and expected to continue in December. Inflation expectations were little changed with 1y outlook edging lower, while 3y and 5y forecasts steady.

  • BOJ Summary of Opinions showed more progress on inflation:

    • Summary of Opinions for the September meeting revealed inflation discussions confirmed that goods prices finally started to decelerate, and broader inflation seems highly likely to slow going forward. Yet, core CPI remains above 2%, still mainly driven by cost-push, though persistence of this factor may keep inflation above the baseline outlook scenario for some time. Other comments noted ongoing encouraging signs on price-setting behavior and prospects for further wage hikes, though generally indicating board members remain unconvinced. Hence, policy implications remained limited for now with ongoing support for easing. One member (likely Tamura) repeated that achievement of stable 2% inflation seems to have clearly come in sight and suggested BOJ may be able to make a declaration around Q1 next year. Further urged to lay the groundwork for easing exit. Other remarks suggested ending NIRP could still be considered as continuation of easing if real rates remain negative, while another proposed reviews of YCC and non-JGB asset purchases. Mixed views on the impact of the July YCC tweak, with one saying long-term yields have been relatively stable, obviating the need for more revisions. But another countered that side-effect risks remain.

  • Bond yield backup continues, but some see inflection point:

    • Bond yields remain upward trajectory as markets adjust to a higher-for-longer rate environment (Bloomberg). Hawkish central bank messaging, surging oil prices and accompanying inflation risk, resilient labor markets, and expanding bond supply remain key planks of the bearish narrative. This is prompting views rates have further to climb, particularly at the long end of the curve, as recession talk ebbs and term premium rises. Expected BOJ policy normalization in early 2024 looms as another upside catalyst. However, others argue yields nearing inflection point. Rising rates play into risk of a harder economic landing as core inflation decelerates, financial conditions tighten and higher borrowing costs ripple through economy (Bloomberg). Markets still pricing in 65% chance of no further Fed rate hikes in 2023 and are predicting larger rate cuts than implied by 2024 dot plot.

  • RBA expected to hold on Tuesday, may retain tightening bias:

    • RBA expected to leave cash rate unchanged at 4.10% at Tuesday's policy meeting that will be Michelle Bullock's first as governor. Statement expected to acknowledge households are under increasing strain from high interest rates and cost of living, evidence by the erosion of savings and flatlining retail sales. RBA may also maintain its view that recent data is consistent with inflation returning to target. Recall inflation rebounded in August with increase driven largely by fuel. However, ongoing rise in rental inflation and broadening wage growth playing into concerns over sticky inflation. RBA seen retaining its mildly hawkish bias by noting some further tightening may be required. Some economists see November as a 'live' meeting, particularly if Q3 CPI (25-Oct) increases risk of inflation remaining above-target for longer than RBA projects. Markets also pricing in 90% chance of another rate hike by Mar-2024.

  • China home sales see mild recovery in September while property remains key risk:

    • Data from China Real Estate Information Corp. (CRIC) shows value of new home sales among top 100 developers fell 29.2% y/y to CNY404B ($55.4B), narrowing from 33.9% drop in August, while sales gained 17.9% m/m. Another survey by China Index Academy shows average new home prices in 100 Chinese cities rose 0.05% m/m in September, ending four-month decline, though still saw 0.10% y/y drop. Second-hand home prices fell 0.44% m/m and 2.59% y/y. 44 cities saw m/m gains in new home prices, compared with 30 cities with falling prices. Bloomberg cited CRIC noted developers turned more active in launching new projects in September and recovery may extend to October. Noted authorities unveiled raft of support measures to revive demand, which analysts said policy effect only started to show in some core cities and "is still accumulating". Home sales during Golden Week will be closely watched. Meanwhile, a Bloomberg survey of China stock investors identified housing woes as biggest risk for equities in Q4.

  • Notable Gainers/Decliners

    • No Notable Gainers/Decliners

• Data:

  • Economic:

    • China

      • September

        • Official manufacturing PMI 50.2 vs consensus 50.0 and 49.7 in prior month (30-Sep)

          • Non-manufacturing PMI 51.7 vs consensus 51.6 and 51.0 in prior month

          • Composite PMI 52.0 vs 51.3 in prior month

        • Caixin manufacturing PMI 50.6 vs consensus 51.2 and 51.0 in prior month (1-Oct)

          • Caixin Services PMI 50.2 vs consensus 52.0 and 51.8 in prior month

          • Caixin Composite PMI 50.9 vs 51.7 in prior month

    • Japan

      • BOJ September Tankan large manufacturers business conditions index 9 vs consensus 6 and 5 in June

        • December large manufacturers business conditions forecast 10

      • September final manufacturing PMI 48.5 vs preliminary 48.6 and 49.6 in prior month

  • Markets:

    • Nikkei: (97.74) or (0.31%) to 31759.88

    • Hang Seng: 0.00 or 0.00% to 17809.66

    • Shanghai Composite: 0.00 or 0.00% to 3110.48

    • Shenzhen Composite: 0.00 or 0.00% to 1910.28

    • ASX200: (15.40) or (0.22%) to 7033.20

    • KOSPI: 0.00 or 0.00% to 2465.07

    • SENSEX: 0.00 or 0.00% to 65828.41

  • Currencies:

    • $-¥: +0.39 or +0.26% to 149.7600

    • $-KRW: (1.03) or (0.08%) to 1351.8900

    • A$-$: (0.00) or (0.34%) to 0.6413

    • $-INR: (0.02) or (0.03%) to 83.1570

    • $-CNY: +0.01 or +0.07% to 7.3005