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StreetAccount Summary - Asian Market Recap: Nikkei +1.20%, Hang Seng +0.75%, Shanghai Composite +0.32% as of 04:10 ET

Oct 17 ,2023

• Synopsis:

  • Asia equities ended mostly higher Tuesday. Japan led gainers to reverse around half of what was lost Monday. Hang Seng and Kospi the other notable gainers. Mainland China benchmarks mixed, Taipei flat, Southeast Asia mostly higher and India hovered just below month-long highs. Australia closed higher. US futures a few points lower, European bourses opened slightly higher. Little movement in the US dollar, AUD higher, NZD lower on inflation print, yen steady. Treasury yields higher across tenors with the curve steepening, Australia yields notably higher. Crude slightly lower, precious metals lower, industrial metals also weaker. Cryptocurrencies lower.

  • Asia markets taking their lead from overnight gains on Wall Street in tentative trading ahead of large-cap corporate earnings later this week, as well as the overhanging geopolitical risk from the Middle East. Some risk assets responding positively to reports Biden is to visit Israel Wednesday in signal Washington still seeking to de-escalate tensions however ground invasion of Gaza still seen as a matter of time. Direct Iranian participation seen as less likely although it did threaten pro-active involvement in Gaza today.

  • More selling in US bonds in Asia trading as haven bids fell away amid diplomatic efforts as well as investors becoming increasingly cognizant of another potential rate hike before year end. Australia yields also higher alongside the AUD after hawkish RBA minutes. Currency markets steady with the yen still close to 150 per dollar and the yuan hovering at 7.31 per dollar, with little substantive movement in either for several weeks.

  • Japan FX chief Kanda acknowledged complexity of the current yen environment though reiterated appropriate action would be taken based on fundamentals. China's Beige Book highlighted weakness in corporate borrowing. RBA minutes showed members warning of low tolerance for sticky inflation, November's meeting now considered "live". New Zealand Q3 CPI was slightly softer than expected. Singapore's volatile exports slid again y/y as pharma shipments plunged but overall figure at least showed deceleration in the slowdown.

  • Baidu (9988.HK) founder Robin Li said his company's advanced GPT-4 language model, Ernie 4.0, has caught up with OpenAI advanced GPT-4. Country Garden (2007.HK) faces a $15.4M dollar bond payment deadline Tuesday, which if not met could mean automatic default is triggered in string of other bonds. San Miguel (SMC.PH) is in talks with at least ten banks for a $2B loan to refinance a similar-sized facility maturing in 14 months. Rio Tinto (RIO.AU) reported growth in ore output and mostly reiterated guidance for full year.

• Digest:

  • China Q3 GDP growth seen softening with activity data mixed:

    • Ahead of tomorrow's release, Bloomberg consensus forecast looks for Q3 GDP growth of 4.5% y/y, following 6.3% in the previous quarter and returning to its Q1 pace. General sentiment remains cautious despite some annual forecast upgrades in light of recent improvements. Nomura noted that if Q3 comes in line, Q4 would need to remain steady for 2023 aggregate to meet the government's 5% target. Stimulus remains the key X-factor, though prospects for more meaningful policy support remains uncertain. Projections for activity data are mixed. September Industrial production expected to rise 4.4% y/y, following 4.5% in August, though sequential gains may offer some encouragement. Retail sales seen picking up to 4.9% from 4.6%. Fixed asset investment projected to remain steady at 3.2% YTD. Real estate declines anticipated to deepen to 8.9%, underlining limited impact from policy support.

  • Country Garden offshore debt faces default if $15M payment not made Tuesday:

    • Country Garden's (2007.HK) entire offshore debt pile may face default Tuesday unless $15.4M coupon payment is made. Payment deadline at end of 30-day grace period triggered last month, non-payment will likely trigger cross defaults in other bonds which would lead to one of China's biggest corporate debt restructurings (Reuters). Company has $11B in offshore bonds, $6B in offshore loans outstanding, last week said it cannot meet all offshore debt payments as financing faces 'significant challenges' (Reuters). Company's dollar bonds trade at deeply distressed levels of 4-6 cents on dollar so default will not be surprise (Bloomberg). Another payment for $40M coupon on another dollar bond due 27-Oct. Second Bloomberg article noted China Evergrande (3333.HK) due in court late October to face winding up order. Said this would be difficult to implement but could map out how liquidation of major property developer could work.

  • China Beige Book highlights weak corporate borrowing, stimulus limitations:

    • Bloomberg cited the China Beige Book survey reporting a slump in Q3 corporate borrowing to the second-lowest levels on record going back to 2012. CBB remarked on the weakness at least compared to pre-pandemic, noting limited impact from PBOC easing. Further highlighted borrowing activity softer in every sector tracked. Argued policymakers would have done more by now if they wished, concluding support from monetary policy may have peaked. Sector contrast between better manufacturing, services vs "disfavored" property and commodities suggests sluggishness may be an intended result of policy. Noted bright spots in manufacturing and retail operational activity though optimism was measured. Article noted survey findings were consistent with relatively soft corporate demand in the official credit data. Recall economists expect modest PBOC easing in Q4 and have long-doubted prospects for major stimulus, though recently strengthened calls for more support to shore up growth momentum. Attention turns to tomorrow's Q3 GDP and activity data.

  • RBA minutes showed further debate over rate hike:

    • Minutes for the October RBA meeting showed board members again debated whether to hike or stay on hold. Saw inflation dynamics as the basis for tightening. Also discussed the housing market where rising prices alone would not warrant tighter policy though could indicate policy is not as restrictive as first assumed. Prevailing case to remain on hold centered on monitoring the full effects of past rate hikes, while inflation has eased from its peak and household real disposable incomes were still falling. Also noted labour market had reach a turning point alongside growth risks stemming from China. On balance, concluded there was insufficient new information to warrant further tightening as they looked to incoming data and revised staff forecasts that would be available by the November meeting. Conclusions repeated those in Governor Bullock's policy statement flagging the possibility of more tightening with decisions data-dependent, though added the Board has a low tolerance for slower than expected normalization in inflation. Press noted the last sentence cemented expectations for another rate hike with the November meeting considered 'live.'

  • New Zealand inflation eases to two-year low:

    • Headline CPI rose 5.6% y/y in Q3 (lowest in two years), below consensus 5.9% and 6.0% in previous quarter. Sequential series rose 1.8% vs consensus 1.9% and prior 1.1%. Main y/y drivers were food, housing and household utilities. Non-tradeables also eased to 6.3% from 6.6%, though higher than RBNZ projection of 6.2%. Bloomberg noted dovish takeaways citing Kiwibank suggesting the result significantly lowers the probability of further RBNZ rate hikes, now seen as closer to zero. Recall RBNZ left OCR unchanged earlier this month, though retained a hawkish stance reflecting caution against near-term inflation risks while maintaining their projection for inflation to decline within 1-3% target band by H2 2024. Headline effects took NZ$ lower while swap market took implied probability of a November rate hike down to 26% from almost 50% ahead of the report, while also lowering a May move to 44% from 85%. ANZ pushed back their 25 bp OCR hike call to February. Westpac concurred a November hike is less likely as they review their official forecast.

  • Notable Gainers:

    • +18.5% 1725.HK (Hong Kong Aerospace Technology Group): wins design and manufacturing contract with Alya worth $675M ($5.28B)

    • +2.2% 4666.JP (Park24 Co.): reports September Japan Times PARKING net sales ¥13.28B, +6.5% y/y

    • +1.2% 3099.JP (Isetan Mitsukoshi Holdings): reports September domestic department store sales +16.8% y/y

    • +0.3% 068270.KS (Celltrion): reports post-hoc analysis of phase 3 study of Remsima SC; confirms safety, effectiveness; receives EMA approval for part 2 of phase 3 clinical trial of CT-P53 Ocrevus biosimilar

  • Notable Decliners:

    • -5.5% AJBU.SP (Keppel DC REIT): reports Q3 distributable income to unitholders SG$43.9M, (6%) vs year-ago SG$46.9M

    • -2.8% 9863.HK (Zhejiang Leapmotor Technology): reports Q3 revenue CNY5.66B, +32% vs year-ago CNY4.29B, operating income (CNY1.03B) vs year-ago (CNY1.36B)

    • -1.8% 271560.KS (ORION Corp (Korea)): reports September net revenue KRW269.5B

• Data:

  • Economic:

    • New Zealand Q3

      • CPI +1.8% q/q vs consensus +1.9% and +1.1% in prior quarter

        • CPI +5.6% y/y vs consensus +5.9% and +6.0% in prior quarter

    • Singapore September

      • Non-oil domestic export y/y (13.2%) versus (22.5%) in prior month

  • Markets:

    • Nikkei: 381.26 or +1.20% to 32040.29

    • Hang Seng: 132.98 or +0.75% to 17773.34

    • Shanghai Composite: 9.68 or +0.32% to 3083.50

    • Shenzhen Composite: (0.12) or (0.01%) to 1884.20

    • ASX200: 29.60 or +0.42% to 7056.10

    • KOSPI: 23.93 or +0.98% to 2460.17

    • SENSEX: 356.87 or +0.54% to 66523.80

  • Currencies:

    • $-¥: +0.11 or +0.07% to 149.6180

    • $-KRW: +2.46 or +0.18% to 1350.6700

    • A$-$: +0.00 or +0.36% to 0.6355

    • $-INR: (0.01) or (0.01%) to 83.2350

    • $-CNY: +0.00 or +0.04% to 7.3138