Mar 21 ,2024
Synopsis:
Asian equities mostly higher on Thursday following gains on Wall Street as Federal Reserve signaled it remains on track for three rate cuts in 2024. Nikkei hit fresh record high after Japan's exports grew for a third straight month. Kospi and Taiex outperformed regional peers driven by tech strength. Greater China mixed with Hong Kong higher while mainland logged mild losses. India trading higher. US futures edging up. Both 2Y and 10Y Treasury yields inching lower. Dollar weaker against AUD, KRW and NZD. Yen pared earlier gains in the afternoon. Crude edging up, gold hitting new record high, bitcoin halted earlier rebound.
Debate continues over BOJ rate outlook with Nikkei discussing risk of follow-up hike in July or October amid yen weakness and potential inflation acceleration. BOJ Governor Ueda quoted earlier reiterating financial conditions to remain accommodative. Added medium-term inflation expectations moving toward 2%, but also said cannot wait until inflation sustainably at 2% before exiting stimulus. Recall Ueda this week also did not rule out possibility of additional action. Separately, Japan export growth better than expected, driven by autos. Flash PMI rose amid smaller declines in output and new orders. Reuters Tankan showed Japan manufacturer sentiment rebounded to three-month high.
PBOC deputy governor said China has ample policy room and sees space for lower reserve requirement ratio. Australian employment surged with jobless rate falling by much more than forecast. Australia unveiled plans for minimum 15% tax on multinationals that government hopes to pass by July. New Zealand Q4 GDP unexpectedly shrank, confirming technical recession. South Korean export growth continued in first 20 days of March with semiconductor shipments rising sharply. Vietnam legislature appointed vice president as acting head of state.
Tokio Marine (~8766.JP~) senior executive indicated company could potentially spend about $10B on overseas acquisitions and is patiently tracking public companies around the world. Alibaba Group (~9988.HK~) raised $317M from sale of around 33M of Xpeng (~9868.HK~)'s ADRs; separately its former CEO Daniel Zhang has made a surprise move to join a little-known Chinese investment fund, Firstred Capital, which Alibaba will become an anchor investor in the fund. Radiance Holding (~9993.HK~) defaulted on a $300M bond after it missed payment due 20-March, citing extreme pressure in China's property sector and lack of improvement in sales.
Digest:
BOJ Governor Ueda reaffirms gradual messaging:
Nikkei cited comments from Governor Ueda in the upper house that he doesn't see mortgage rates rising sharply following this week's rate hike. Added that based on the current economic and inflation outlook, financial conditions would remain accommodative for the time being -- reiterating the guidance in the policy statement. Sees limited impact given the move would only lead short-term rates about 10 bp higher. On long rates, also reaffirmed JGB purchases would remain at about the current pace. And, in the event of a spike in yields, the Bank would "flexibly increase purchases" via market operations. Looking back at the ultra-easing era, noted he was mindful of a sharp elevation in inflation risks if they waited until stable 2% inflation had been achieved. This would in turn warrant commensurate rate hikes in response, and a decision was made after weighing these risks. Projected the outstanding balance of JGB holdings will broadly track sideways while acknowledging the intention to gradually reduce the balance sheet size. Signaled JGB purchase amounts will be reduced at some point in the future, which will combine with redemptions to lead to a contraction. Also said he is not considering an immediate reduction in ETF holdings and would take time to consider options. Any plan would seek to avoid losses for BOJ.
PBOC deputy governor says China has room for further RRR cut:
At a press conference, PBOC Deputy Governor Xuan Changneng said China has ample policy room and still sees space for lower reserve requirement ratio (RRR). Cited downward trend in deposit rates and policy pivot in major economies benefiting operational autonomy of interest rate policy. Reaffirmed prudent monetary policy will be "flexible, targeted and effective" while maintaining reasonable abundance of liquidity and pushing for lower cost of credit. Recall Governor Pan Gongsheng touted similar points at NPC presser two weeks ago. Xuan highlighted creation of refinancing loans for science and technology innovation, technological transformation. PBOC would also guide financial institutions to provide credit steadily to avoid frontloading too much at beginning of year and pace of credit expansion in 2024 will be more sustainable. Vice finance minister Liao Min said fiscal policy will provide necessary support to achieve growth target and China's government debt is at an appropriate level, adding its sovereign notes among best in Asia with net inflows from global investors in past months.
Japan March activity gauges rebound:
Flash manufacturing PMI was 48.2 in March, up from 47.2 in the previous month. Support came from narrower declines in output and new orders, though exports fell at a stronger pace. Inflation metrics somewhat mixed with faster increases in output prices with slower gains in input prices. Report noted sustained decreases in orders and upswing in employment led to spare capacity, translating to the biggest contraction in backlogs since August 2020. Finished goods inventories also fell at a softer pace. Services PMI was 54.9 vs prior 52.9, marking the strongest reading since May last year underpinned by stronger growth in new business. Output prices mirrored manufacturing strengthening while also seeing faster increases in input prices. Employment logged slower growth. Composite PMI improved to 52.3 from 50.6, finishing Q1 on a solid footing at the highest since August with expansions recorded in each month this quarter. Report was upbeat on the aggregate result while noting renewed price pressures. Similarly, Reuters Tankan large manufacturing sentiment index rebounded to +10 in March from -1 in February with the survey period falling before the BOJ rate hike. Services index also rose to +32 from +26. Rate hike reactions from the major business lobby groups were broadly receptive (Reuters).
Japan exports firmer than expected:
Customs exports rose 7.8% y/y in February, above consensus 5.3% and follows 11.9% in the previous month. Main drivers were autos & parts (mostly to US, Europe) and plastics. Recall that temporary halts to auto shipments and output stemming from certification scandals were cited as a key factor leading to expectations of a contraction in Q1 GDP. Growth in western markets remained in double digits for the third straight month. Asia/China shipments remained positive though pace slowed sharply to 2.5% from 29.2% due to Lunar New Year effects. Headline imports rose 0.5%, below consensus 2.2%, though followed a 9.8% drop in the prior month and marked the first increase since March last year. Notably, apparel and computers were the biggest contributors, eclipsing fossil fuels. Crude oil continued to grow while coal and LNG fell sharply along with semiconductors. Regional profile was broadly positive as Asia imports swung to growth for the first time since April, boosted by China. Yen declined 13.7% y/y vs dollar on customs-cleared basis. In volume terms, exports fell for the first time since November while imports notably turned positive after extended declines. BOJ real trade indices showed exports down 4.0% m/m and imports up 4.0% though latter still tracking sharper decline in Q1, implying a positive contribution to GDP from external demand.
Australian employment data much hotter-than-expected:
Australian employment surged by 116.5K in February vs expectations of a 40.0K increase and January's upwardly revised 15.3K increase (from +500). Unemployment rate dropped to 3.7% vs consensus 4.0% and January's 4.1%. Accompanied by sharp increase in monthly hours worked. Composition similarly strong with 78.2K full-time jobs added vs 38.3K part-time positions. Measures of slack tightened with underemployment rate falling to 6.6% from 6.7% and underutilization rate dropping to 10.3% from 10.8%. ABS attributed unusually large employment gain to larger-than-usual number of people who already had a job returning to employment (following January holiday period). Data indicative of a labor market hotter than first thought with unemployment rate now well below RBA's projected 4.2% for H1 2024. Recall Governor Bullock this week elevated employment data's importance as a policy consideration and sell-side takeaways from RBA's hold decision argued rate cuts hinge on material loosening of labor market. According to Bloomberg, markets reduced odds of August cut to 60% from 80% before data.
Notable Gainers:
+7.1% 683.HK (Kerry Properties): reports FY revenue HK$13.09B vs FactSet HK$11.10B, operating income HK$6.10B vs FactSet HK$4.79B
+0.8% 700.HK (Tencent Holdings): reports Q4 non-IFRS net income attributable CNY42.68B vs FactSet CNY41.32B; intends to at least double its share repurchases to more than HK$100B in 2024 from HK$49B in 2023
+0.7% 9201.JP (Japan Airlines Co.): reportedly near decision to purchase about 24 wide-body jets
+0.5% 3896.HK (Kingsoft Cloud Holdings): reports FY adjusted net income (CNY1.29B) vs FactSet (CNY1.39B)
+0.5% 010130.KS (Korea Zinc Co.): co-CEO Choi Yun-Beom steps down, effective immediately
Notable Decliners:
-6.8% 000120.KS (CJ Logistics): AliExpress reportedly decides not to renew contract with CJ Logistics
-6.5% 9868.HK (XPeng, Inc.): Taobao China proposes to sell 33M ADSs in XPeng through Citi; offering reportedly priced at $9.60/share
-4.8% 1898.HK (China Coal Energy): reports FY net income attributable CNY20.18B vs StreetAccount CNY20.22B, revenue CNY192.97B vs StreetAccount CNY209.52B
-1.9% 1024.HK (Kuaishou Technology): reports Q4 revenue CNY32.56B vs FactSet CNY32.57B
Data:
Economic
Japan
February trade balance (¥379.4B) vs consensus (¥810.2B) and revised (¥1,760.3B) in prior month
Exports +7.8% y/y vs consensus +5.3% and +11.9% in prior month
Imports +0.5% y/y vs consensus +2.2% and revised (9.8%) in prior month
March Reuters Tankan manufacturers' sentiment index +10 vs (1) in prior month
Service sector index +32 vs +26 in prior month
March flash manufacturing PMI 48.2 vs 47.2 in prior month
Services PMI 54.9 vs 52.9 in prior month
Composite PMI 52.3 vs 50.6 in prior month
Australia
February employment +116.5K m/m vs consensus +40.0K and revised +15.3K in January
Unemployment rate 3.7% vs consensus 4.0% and 4.1% in January
Participation rate 66.7% vs consensus 66.8% and 66.8% in January
New Zealand
Q4 GDP (0.1%) q/q vs consensus +0.1% and (0.3%) in Q3
GDP (0.3%) y/y vs consensus 0.0% and (0.6%) in Q3
India
March Flash Manufacturing PMI 59.2 vs February Final 56.9
March Flash Services PMI 60.3 vs February Final 60.6
March Flash Composite PMI 61.3 vs February Final 60.6
Markets:
Nikkei: 812.06 or +2.03% to 40815.66
Hang Seng: 320.03 or +1.93% to 16863.10
Shanghai Composite: (2.57) or (0.08%) to 3077.11
Shenzhen Composite: (2.30) or (0.13%) to 1804.31
ASX200: 86.20 or +1.12% to 7782.00
KOSPI: 64.72 or +2.41% to 2754.86
SENSEX: 542.34 or +0.75% to 72644.03
Currencies:
$-¥: (0.00) or (0.00%) to 151.2550
$-KRW: (5.50) or (0.41%) to 1325.1900
A$-$: +0.00 or +0.48% to 0.6619
$-INR: +0.03 or +0.03% to 83.1182
$-CNY: (0.00) or (0.01%) to 7.1983
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