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StreetAccount Summary - Asian Market Recap: Nikkei (2.28%), Hang Seng (0.78%), ASX 200 (0.77%) as of 04:10 ET

Oct 04 ,2023

• Synopsis:

  • Asian equities sharply lower Wednesday. Nikkei extended selloff, down to its lowest since mid-May. Hong Kong nears 11-month low dragged by slumps in tech stocks, while mainland China remains offline. ASX also down to 11-month low. South Korea sharply lower after holiday break. Taiwan weighed by falling semi stocks. Southeast Asia mixed. India trading down. US futures lower, Europe opened lower too. Bond yield backup continues with 30Y Treasury yields touching 5% for first time in 16 years, 10Y and 20Y JGB yields also hit highest in nearly a decade. Dollar strongest against kiwi after RBNZ stayed on hold as expected, weaker against Aussie, yen stronger in the afternoon HK time, Crude, copper and precious metals all pulling back.

  • Markets unnerved by selloff in US Treasuries which pushed bond yields to multi-year highs, souring appetite for risk assets such as equities. Fed officials continue to strike hawkish tone while high oil prices and tight labor market are fanning concerns disinflation momentum is waning. Velocity of backup in yields is also driving more discussion about negative spillover effects from tighter financial conditions and higher borrowing costs. Corresponding dollar rally is exerting downward pressure on lower-yielding currencies, which has pushed many Asian currencies to multi-month lows. Asian central banks seen to tap their $5.5B forex reserves to defend against currency swings and limit imported inflationary pressure. Lots of attention on dollar/yen, which briefly breached 150-handle Tuesday, suspected to trigger FX intervention though MOF officials declined to confirm. US-Japan rate differentials as the main driver of yen's depreciation, and that a turnaround hinges in large part on a narrowing of Fed-BOJ policy gap.

  • Elsewhere, RBNZ left OCR unchanged as predicted. Also maintained its inflation forecasts, contrasting somewhat with views that resilient New Zealand economy and upside risks to CPI would prompt a hawkish hold. South Korean industrial production grew at fastest pace since Jun-2020 led by chip production while manufacturing shrank at the mildest pace in 15 months in September as decline in output and orders softened, adding to signs of economic stabilization after trade data signaled semiconductor market is bottoming. Thailand rushes to damage control, vowing safety for visitors after fatal mall shooting shatters tourists' confidence. Singapore considers tougher rules for family offices as it widens investigation on $2B money laundering case.

  • Softbank (9984.JP) CEO Masayoshi Son told Japanese audience to embrace AI or get left behind again. China SCE Group (1966.HK) misses $61M payment on 2021 loan, defaults on four dollar bonds. Logan Group (3380.HK) said it delivered 34k housing units nationwide in first three quarters of 2023. Tourism-related stocks in Thailand took a hit after fatal shooting incident in a Bangkok mall likely to hurt country's tourism recovery. Central Plaza Hotel (CENTEL.TB), Asia Aviation (AAV.TB), Airports of Thailand (AOT.TB) and Bangkok Airways (BA.TB) all down.

• Digest:

  • Yen rallies on the breach of 150 per dollar, prompting talk of intervention:

    • USD/JPY tumbled overnight from a session high 150.18 to as low as 147.41 with Bloomberg noting speculation of MOF FX intervention. Vice finance minister for international affairs Kanda declined to confirm any action, only reiterating their current stance against excessive volatility and one-sided moves (Nikkei) though timing of the sudden price action was consistent with longstanding expectations MOF would respond on the break of 150. Some thoughts traders may have pre-empted intervention with standing orders to sell dollars at that level. Another suggestion the trigger may have been a MOF rate check, though this was also unconfirmed. Reuters also cited some analysts commenting the magnitude of the move was unconvincing with a 2% yen rally compared to about 4% when authorities intervened last year. Subsequent fallback in yen to 149 was thought to leave MOF disappointed at the lack of impact. Press also discussed the backdrop of recent dollar strength and US long bonds sold off overnight following an unexpected rise in job openings. Primary basis for weak yen remains US-Japan rate differentials and commentators reaffirmed this would remain an overhang until the monetary policy gap narrows. Attention turns to Friday's US employment report which could reinforce Fed's hawkish stance and dollar strength.

  • Japan FX chief Kanda's comments leave open questions about what constitutes excess volatility:

    • Kanda's latest remarks offered slightly more clarity on MOF's definition of excessive volatility. Indicated that cumulative unilateral movements and large swings over a certain period of time could meet the criteria (Nikkei). Elaborated on the timeframe though noted volatility could be measured overnight or up to span of a month, while also noting USD/JPY has ranged by more than JPY20. In a Reuters interview preceding the rapid FX move overnight, former FX chief Hiroshi Watanabe saw slim chances of intervention given the small change on the year and also noted scope for further downside beyond 150 appears limited as Fed's rate hike cycle is nearing its end. Recalled last year's intervention was a warning to markets as authorities were concerned about follow-through momentum taking USD/JPY to 155 or 160. Added doubts about the effectiveness of intervention when yen moves are gradual as they are now. Furthermore, suggested BOJ should end negative rates and YCC simultaneously as it was already behind-the-curve in responding to rising inflation. If central banks in US and Europe defer rate cuts next year, that would offer BOJ a more stable environment to proceed with policy normalization.

  • RBNZ on hold, sees risk that inflation doesn't slow as expected:

    • RBNZ left OCR unchanged at 5.50% as expected and reiterated rates need to stay restrictive so that a prolonged period of subdued activity reduces inflation. Noted near-term risk that activity and inflation do not slow as expected. Noted risk of greater resilience in domestic demand from surging migration, sustaining growth momentum for longer, and slowing pace of expected pace of disinflation and fall in wage growth. Higher oil prices also posed upside risk to headline inflation. However, RBNZ still expects inflation to decline to within 1-3% target band by H2 2024. Committee discussed risks around lagged effects of past rate hikes, noting pockets of financial stress are emerging. Increased wholesale and retail lending rates working to tighten financial conditions. Acknowledged rebound in Q2 GDP, but noted demand growth continues to ease as expected. Also agreed downside risks to global growth remain.

  • South Korea industrial production well above expectations:

    • Industrial production rose 5.5% m/m in August, marking fastest growth since June 2020, notably beating consensus 0.2% and rebounding from a 2.0% decline in the previous month. Strength was mainly attributed to recovering overseas semiconductor demand after encouraging signs from September exports (Reuters, Yonhap). Chip production reportedly grew 13.4%. However, relatively moderate bounce in shipments led to acceleration in inventory build. Year-ago shipments remain negative, though breakdown showed exports narrowed more sharply than domestic deliveries. Other activity metrics were mostly on the firmer side with construction expanding 4.4% m/m and services continuing to edge steadily higher. Equipment investment rebounded 3.6% after dropping 8.9% in July, driven mainly by transport equipment in a positive sign for capex. However, retail sales fell 0.3%, extending a 3.3% decline in July, reflecting weakness in consumer durables. Separately, latest manufacturing PMI improved to a 15-month high 49.9 in September from 48.9 in the prior month as contractions in new orders and output moderated.

  • Negative spillover effects from bond yield backup:

    • Relentless backup in yields prompting rethink about high rates will go and the velocity of the move is driving more discussion about spillover effects. Selloff reverberating around the world with correlation between Treasuries and global bonds highest since Mar-2020 (Bloomberg). Selling extending to corporate notes with high yield debt ETFs at 11-month low. Rate volatility contributing to a tightening of financial conditions as consumers and businesses contend with higher borrowing costs. Corresponding dollar rally exerting downward pressure on lower yielding currencies with yen depreciation inviting Japan intervention speculation. Weakening emerging market currencies fanning risk of import cost inflation while heightening capital outflow risks (Bloomberg), prompting central banks to tap into FX reserves to defend their currencies (Bloomberg). Indebted EM nations with a higher proportion of USD-denominated debt considered most at risk (Reuters).

  • Notable Gainers:

    • +6% 3549.JP (Kusuri No Aoki Holdings Co.): reports Q1 revenue ¥107.44B vs year-ago ¥91.77B, operating profit ¥6.66B vs year-ago ¥4.48B; reports September existing store sales +11.4% y/y

    • +1.6% 4684.JP (OBIC Co.): reportedly guides H1 EBIT ~¥35.0B +15% y/y; revenue ~¥55.0B, +10% y/y

  • Notable Decliners:

    • -10.7% 001040.KS (CJ Corp): subsidiary CJ Olive Young reportedly may face KRW580B fine by FTC for abuse of power with suppliers

    • -3.8% 7453.JP (Ryohin Keikaku): reports September domestic LFL directly managed stores + online store sales (0.7%) y/y

    • -2.1% 539437.IN (IDFC First Bank): launches private placement with floor price set at INR94.95/share

    • -2.1% 051910.KS (LG Chem): Ningbo Shanshan units to buy LG Chem's mainland China, South Korea, Vietnam OLED and automotive LCD polarizer businesses for initial price of CNY1.41B (KRW260.40B)

    • -1.9% 9983.JP (FAST RETAILING CO.): reports September Japan Uniqlo same stores + online net sales (4.6%)

    • -1.9% 9843.JP (Nitori Holdings): reports September same-stores sales (2.1%) y/y

• Data:

  • Economic:

    • Japan

      • September final services PMI 53.8 vs preliminary 53.3 and 54.3 in prior month

        • Composite PMI 52.1 vs preliminary 51.8 and 52.6 in prior month

    • South Korea

      • August industrial production +5.5% m/m vs consensus +0.2% and (2.0%) in prior month

        • Industrial production (0.5%) y/y vs consensus (5.8%) and revised (8.1%) in prior month

  • Markets:

    • Nikkei: (711.06) or (2.28%) to 30526.88

    • Hang Seng: (135.38) or (0.78%) to 17195.84

    • Shanghai Composite: 0.00 or 0.00% to 3110.48

    • Shenzhen Composite: 0.00 or 0.00% to 1910.28

    • ASX200: (53.20) or (0.77%) to 6890.20

    • KOSPI: (59.38) or (2.41%) to 2405.69

    • SENSEX: (611.58) or (0.93%) to 64900.52

  • Currencies:

    • $-¥: (0.14) or (0.10%) to 148.8970

    • $-KRW: (4.81) or (0.35%) to 1357.2500

    • A$-$: +0.00 or +0.35% to 0.6324

    • $-INR: (0.06) or (0.07%) to 83.2250

    • $-CNY: +0.00 or +0.00% to 7.1972