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StreetAccount Summary - Asian Market Recap: Nikkei (0.64%), Hang Seng (0.97%), Shanghai Composite (0.40%) as of 03:10 ET

Dec 18 ,2023

• Synopsis:

  • Asian equities ended largely lower Monday in a cautious day's trading. Greater China stocks dipped in a broad-based decline, Australia and Taiwan also saw small falls. India lower, Southeast Asia down. Seoul was slightly higher. Japan's indices were lower ahead of BOJ announcement on rates tomorrow. US futures higher, Europe down in early trades. US dollar a smidge lower, AUD and NZD notably stronger while the yen is weaker. Treasury yields mixed. Industrial metals, crude blends and precious metals a little higher. Cryptocurrencies under pressure.

  • Asia markets brushed off another strong week for Wall Street and started this one with losses almost everywhere. US indicators point to the rally continuing today with US futures up and 10Y yields down in Asia trading Monday despite some modest push back on the dovish Fed narrative from New York Fed President Williams on Friday. However, Asia equities more subdued ahead of the main catalyst of the week - the BOJ meeting Tuesday - with almost all major exchanges struggling for direction amid an absence of catalysts.

  • Ahead of the BOJ, the Nikkei fell while the yen weakened today despite most economists agreeing the bank is unlikely to change policy tomorrow amid broadly declining JGB yields and a recent strengthening in the yen. Greater China markets also lower again, drawing scrutiny from analysts questioning their underperformance this year amid a sustained growth slowdown and real estate crisis. Some strategists remain positive on China equities, however, pinning hopes on low valuations and earnings recovery as the economy stabilizes and the real estate sector stabilizes. Little macro economic news today although Singapore non-oil exports returned to growth after 13 months of contraction, despite missing estimates.

  • Mitsubishi UFJ Trust & Banking (8306.JP) is set to buy Link Administration Holdings (LNK.AU) for around A$1.11B ($744M); Link shares sharply higher. A unit of Tokyo Gas (9531.JP) is to buy Rockcliff Energy for $2.7B from Quantum Energy Partners for $2.7B. China South City Holdings (1668.HK) warned in a stock exchange filing that it will not be able to pay interest due on Wednesday as it attempts to win support from dollar bond holders to extend a payment deadline.

• Digest:

  • BOJ meeting commences today:

    • With BOJ meeting to start today, Nikkei preview did not make front page with no leaks of the outcome. Article suggested discussions will focus on whether board members can confirm a long sought-after virtuous wage/inflation cycle, as well as language describing the normalization path particularly related to short-term rates. Noted only few market expectations of a rate hike before peak shunto activity. Cited a BOJ source as saying they are confident employers will raise wages though seeking confirmation. Although market believes BOJ has begun preparations for ending negative rates, there have been no clear signals from board members. Governor Ueda's press conference will also attract attention for any clarity. Recall that earlier reports suggested BOJ wants to telegraph the first rate hike in 17 years, contrasting with their earlier preference to surprise markets (largely related to YCC revisions). BOJ Tankan survey results were solid, though economists doubt this alone will prompt immediate action. Timing of Fed rate cuts poised to complicate BOJ exit strategy, which would compound market volatility. Latest consensus forecasts solidifying in April next year, though a few that were looking for a later move shift their predictions to January.

  • Japan PM Kishida approval ratings fall into danger territory:

    • Cabinet approval ratings continued to slide after Prime Minister Kishida replaced four ministers in connection with the fundraising scandal allegations. Nikkei-Tokyo TV opinion poll showed a fresh low 26%, down 4 pts from last month. Kyodo's measure fell 6 pts to 22.3%. Two-thirds of respondents blamed Kishida for the scandal. Cabinet dissatisfaction led to a 4-pt decline in LDP support to 30%, narrowing the gap with the opposition Japan Innovation Party at 12%. Nikkei declared that levels now in 'danger' territory below 30% that has historically led to a change in leadership, as some see further declines ahead. Top preferred candidates to replace Kishida little changed with former LDP secretary-general Ishiba still on top, followed by former environment minister Koizumi and digital transformation minister Kono (Nikkei). Overwhelming majority 83% support new rules to increase transparency around fundraising activities (Nikkei). Minister replacements underwhelmed with 44% in favor, marginally higher than 41% who opposed (Nikkei).

  • China widens iPhone ban:

    • Bloomberg cited people familiar with the matter who said more state firms and government departments across China have in recent months issued orders to staff to stop bringing Apple (AAPL) iPhone and other foreign devices to work and to carry local brands instead. Directive expands on one issued in September that applied to only handful of agencies in Beijing and Tianjin. Broadening iPhone work ban viewed as escalation of Beijing's attempt to reduce its reliance on US technology. At the same time, it presents further headwind to Apple after company reported worse-than-expected China revenue decline in Q4 amid weak sales of iPad and iMac. In addition to increased government scrutiny, Apple believed to be facing competition pressures from new Huawei Mate 60 Pro that analysts say has eroded its market share in China. Some have wound back their iPhone 15 revenue projections amid independent data indicating device sales trailing prior model.

  • Japan FSA to lower mandatory tender offer threshold to 30%:

    • Nikkei reported FSA planning to lower threshold triggering a mandatory tender offer to 30% from current 33%, set to be the first overhaul of rules in 17 years. Cited current environment where shareholders with less than a third stake have effective veto power given average 60% of voting rights are actually exercised among TSE constituents. Also noted this aligns with 30% set in major European bourses. Regulator aims to enact amendments in the 2024 Diet session. Scope of the rules also to be expanded to include on-market transactions via exchanges as currently only applied to off-market trades. Article noted this is to prevent a large number of shares being acquired in the market without the buyer revealing their intent to the detriment of minority shareholders who would lose the opportunity to sell shares at a premium price. Recalled one case in 2021 when Asia Development Capital attempted to acquire a controlling interest in Tokyo Kikai Seisakusho by purchasing an approximately 40% stake in the market which led to a drawn-out battle that included a poison pill defense.

  • Rate cuts the dominant narrative as markets move on from 'higher for longer':

    • Bond market narrative has gone undergone a profound shift in recent weeks with 'higher-for-longer' replaced by heightened expectations of several rate cuts. Treasury 10Y yield down 99 bp since end of October to its lowest since August, corresponding with 63 bp fall in 2Y yield to its lowest since May. Treasury curve has become significantly more inverted with 2/10Y spread widening to 52 bp from 16 bp over that time. Similar patterns observed on other yield curves, which have downshifted and become more inverted. While policymakers outside Fed have either maintained mildly hawkish bias (RBA, RBNZ) or actively pushed back against notion of rate cuts (BOE, ECB, BOC), market remain skeptical central banks can hold that stance once Fed begins easing. Recent macro trends appear to have fueled soft landing and disinflation hopes, which markets anticipate will prompt policymakers to loosen their restrictive stance as focus switches from fighting inflation to supporting growth.

  • Notable Gainers:

    • +4.2% 068270.KS (Celltrion): receives Japan PDMA's IND approval for phase 1 clinical trial of CT-P55

  • Notable Decliners:

    • -11.1% 20.HK (SenseTime Group): controlling shareholder Tang Xiao'ou passes away

    • -6.7% 9868.HK (XPeng, Inc.): Taobao China proposes to sell 25M shares in XPeng through JPMorgan

    • -5.7% 010140.KS (Samsung Heavy Industries Co.): to pay $290M in damages to SK Shipping following arbitration tribunal ruling

• Data:

  • Economic:

    • Singapore November

      • Non-oil export y/y +1.0% versus (3.5%) in prior month

  • Markets:

    • Nikkei: (211.57) or (0.64%) to 32758.98

    • Hang Seng: (162.96) or (0.97%) to 16629.23

    • Shanghai Composite: (11.75) or (0.40%) to 2930.80

    • Shenzhen Composite: (22.77) or (1.25%) to 1805.44

    • ASX200: (16.30) or (0.22%) to 7426.40

    • KOSPI: 3.30 or +0.13% to 2566.86

    • SENSEX: (138.41) or (0.19%) to 71345.34

  • Currencies:

    • $-¥: +0.32 or +0.23% to 142.4810

    • $-KRW: +0.41 or +0.03% to 1300.7100

    • A$-$: +0.00 or +0.45% to 0.6719

    • $-INR: (0.00) or (0.00%) to 83.0390

    • $-CNY: +0.01 or +0.21% to 7.1322