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StreetAccount Summary - Asian Market Recap: Nikkei +0.27%, Hang Seng (0.66%), Shanghai Composite (0.85%) as of 03:10 ET

Jan 05 ,2024

• Synopsis:

  • Asian equities ended Friday mixed as investors waited for guidance from US NFPs later. More losses for the Hang Seng as it re-approached the key 16K support level, mainland China markets sharply lower again. South Korea and Taiwan down again, Southeast Asia mixed, India flat. Small gains in Japan. US futures down, European markets opened lower. US dollar higher again in afternoon trade to pressure AUD and yen. Treasury yields higher across tenors, JBG yields mixed. Crude oil, precious and industrial metals all slightly higher. Cryptocurrencies taking a breather post early headlines on ETF approvals.

  • Asia markets tilting lower in afternoon trading Friday to end a dire week for equities to start the year. Investors still reacting negatively to Fed meeting minutes that indicated rate cuts were further out than the market was pricing in. Together with more robust economic data, Treasury yields have risen all week, taking the dollar up with them. Asia currencies weaker across the board, piling pressure on equities. Non-farm payrolls this evening with expectations for the US to add 160K new jobs and for the unemployment rate to nudge higher to 3.8% from 3.7%

  • Despite the global bond selloff, China's bond rally continued with 10Y yield down to its lowest since Apr-20 on bets the PBOC will soon ease following poor home sales and manufacturing activity data. Yen to see its worst weekly drop against dollar since 2022, as US rate cuts are pushed out and the Noto earthquake prompted debate that an exit from NIRP would also be delayed.

  • Japan final services PMI confirmed pickup in activity last month amid stronger new business, consumer morale at its highest in two years. Philippines inflation fell to lowest in almost two years and back inside central bank's target. India's government expected to raise its FY fiscal year GDP growth estimate to 7.0%.

  • Komatsu (6301.JP) said it found no damage at production bases from the Noto earthquake but Nissan Chemical (4021.JP) shut down an ammonia plant due to equipment damage. Country Garden (2007.HK) said sales contracted to less than a third of last year's levels in December. Central Retail (CRC.TB) said it is open to investing in the UK's Selfridges department store if the opportunity meets the right conditions.

• Digest:

  • Speculation fading on January BOJ rate hike:

    • Nikkei backpage article discussed latest market rhetoric following the earthquake on Monday. Noted hopes remain high for an end to negative rates as early as H1, though BOJ expected to proceed cautiously on the first rate hike in 17 years. Noted investors see lower probability of a policy move this month given the need to assess earthquake effects. Still, expected odds of an April move remain elevated at 40% despite coming off earlier highs. Timing of Fed rate cuts remain a key talking point, where a later pivot would provide more time for BOJ to assess the situation. A BOJ insider said they would have a clean read on wages and inflation in the absence of a sharp upswing in yen. Article suggested that waiting until April would provide more time to compile supplementary evidence around the shunto results starting in March. Cited Daiwa Institute of Research forecasts joining the chorus of expectations this year's wage hikes will exceed those of last year, while cost passthrough will continue so long as there are no major shocks. Story also remarked on the lack of expectations of a meaningful rate hike cycle beyond the first move as markets do not expect the policy rate to exceed 0.1% by year-end.

  • China's LGFVs repay bonds at fastest pace since 2018 while some investors voice opposition:

    • Reuters reported China's LGFVs made early redemptions worth CNY37.8B ($5.3B) in December, biggest monthly amount in five years. Pace of redemptions has jumped since October when Beijing greenlighted local governments to issue special refinancing bonds as much as CNY1T, which would swap higher-yielding LGFV debt to lower ones. Such moves have helped ease nerves of traders temporarily with spread on riskier LGFV bonds narrowed to smallest in November. However some investors are opposing such redemptions for fear of forgoing higher gains from older LGFV bonds amid lack of other investment vehicles with similar returns. Caitong Securities noted only 59% of early repayment proposals were backed by investors at creditor meetings last year. Noted objections added to fiscal struggles of local governments, which Bloomberg-compiled data showed China's LGFVs have a record of CNY4.65T worth of bonds due in 2024. UBS estimated another CNY2-3T of local government bonds will be issued to swap existing LGFV debt while central government may continue to step in for emergency liquidity support to heavily-indebted regions.

  • China's high-dividend stocks being chased:

    • High-dividend stocks have been the few bright spots in China's equity markets as benchmark indexes suffered a dismal start of 2024. Energy and utilities are the best-performing sectors in CSI 300 this week with slew of coal companies reaching 52-week highs while Shanghai Composite down 1.5% and CSI 300 down 3% YTD. In the mainland market, China Shenhua Energy (1088.HK) rose to highest since 2008, bringing market capitalization higher than CATL (300750.CH). Sell-side analysts said a dividend-yielding strategy would outperform broader market in China, pointing to PBOC easing pivot and relatively low valuation of high-dividend paying companies. On Friday, banking sector rose against a weaker wider market with Agricultural Bank of China (1288.HK) once touched record high before paring gains. Recall dividend yield of banking sector stood at 5.97% as of Dec-23, with the premium over risk-free rate at historical high (SecuritiesTimes).

  • Yen market sees notable absence in haven demand after earthquake:

    • Nikkei discussed yen weakness in the wake of Monday's earthquake, breaking from the usual pattern of appreciation that followed previous disasters and geopolitical crises. Recalled the January 1995 Kobe quake sparked a rally of about 18 yen over about three months and hit a then-all-time high in April. The 2011 earthquake and tsunami took USD/JPY to the 76 range, prompting G7 coordinated FX intervention to curb momentum. But USD/JPY still renewed a record-low 75 in October 2011. In both cases, FX market reflected prospects for asset repatriation among Japanese companies and casualty insurers anticipated to convert foreign currency assets to pay claims. Current yen declines arose against the backdrop of BOJ rate hike speculation and receding expectations of an early move. Story also recalled Russia's invasion of Ukraine in February 2022 showed yen's waning appeal as a haven asset with markets focused on impact of surging resource prices on Japan's trade balance. Yen remains under pressure from US-Japan rate differentials. Bloomberg promoted this as the primary driver.

  • Bond market selloff to begin 2024:

    • First week of 2024 characterized by sharp and widespread losses in bond markets. Sovereign yields have backed up with 10Y Treasury rate up ~20 bp over past week and nudging above 4% for first time since mid-December. UK and German yields also up at least 20 bp in past week. Selling has spread to corporate bonds with investment- and junk-grade debt shedding ~$240B of combined value according to Bloomberg. Spread between investment-grade debt and Treasuries also widened on Wednesday by equal-most since banking crisis in March. Selling attributed to a few factors, including overbought conditions, traders paring aggressive rate cut expectations (Bloomberg), and wave of new corporate issuance. However, bond market losses mild relative to outsized gains over November and December. While rate cut odds have wound back slightly, markets still pricing in 5-6 of Fed easing this year.

  • Notable Gainers:

    • +3.6% 8308.JP (Resona): completes acquisitions of 100% stake in DFL Lease, 91% stake in Shutoken Leasing

    • +3.4% 3099.JP (Isetan Mitsukoshi Holdings): reports preliminary December domestic department store sales +10.3% y/y

    • +2.2% 2099.HK (China Gold International Resources Corp.): reports operations at CSH Gold Mine have returned to full production, effective 3-Jan

    • +1.3% 8233.JP (Takashimaya Co.): reports December Takashimaya store sales flash +8.4% y/y

    • +0.2% 3993.HK (CMOC Group): reports FY copper production 419.5Kt vs year-ago 277.0Kt

  • Notable Decliners:

    • -1.7% 002812.CH (Yunnan Energy New Material): reduces investment amount for Ohio lithium battery separator project to $276M from $916M

    • -0.9% 600362.CH (Jiangxi Copper): First Quantum Minerals reportedly in talks to sell stake in Zambian copper mines to Jiangxi Copper

    • -0.6% 2020.HK (ANTA Sports Products): reports Q4 ANTA retail sales of high-teens positive growth y/y

• Data:

  • Economic:

    • Japan December

      • Final services PMI 51.5 vs preliminary 52.0 and 50.8 in prior month

        • Composite PMI 50.0 vs preliminary 50.4 and 49.6 in prior month

    • Singapore November

      • Retail sales nominal y/y +2.5% versus (0.1%) in prior month

  • Markets:

    • Nikkei: 89.13 or +0.27% to 33377.42

    • Hang Seng: (110.65) or (0.66%) to 16535.33

    • Shanghai Composite: (25.17) or (0.85%) to 2929.18

    • Shenzhen Composite: (24.08) or (1.34%) to 1773.42

    • ASX200: (5.00) or (0.07%) to 7489.10

    • KOSPI: (8.94) or (0.35%) to 2578.08

    • SENSEX: 64.67 or +0.09% to 71912.24

  • Currencies:

    • $-¥: +0.38 or +0.26% to 145.0030

    • $-KRW: (0.12) or (0.01%) to 1314.3900

    • A$-$: (0.00) or (0.24%) to 0.6696

    • $-INR: (0.11) or (0.13%) to 83.1457

    • $-CNY: (0.00) or (0.01%) to 7.1529