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StreetAccount Summary - Asian Market Recap: Nikkei (0.97%), Hang Seng (1.22%), Shanghai Composite (0.18%) as of 04:10 ET

Apr 03 ,2024

• Synopsis:

  • Asian equities ended lower almost everywhere Wednesday. Losses greatest in Seoul where battery and chip stocks fell sharply, and in Australia where the ASX fell back below 7.8K. Japan markets also extended their recent soft patch with the Nikkei underperforming the Topix. Mild losses in Taipei despite a significant earthquake first thing. Southeast Asia all lower, India small up. US futures lower, Europe opened mixed. US dollar flat, yen and AUD slightly weaker again. Treasury yields largely unchanged. Crude futures flat, gold and silver both higher once more, industrial metals including iron ore lower. Cryptocurrencies steadying after recent selloff.

  • A firm risk-off sentiment in Asia Wednesday that came after European and US stocks fell Tuesday, and a major earthquake struck Taiwan before most markets had opened. Little impact on Taiwan stocks per se, which outperformed if anything over the day, but regional sentiment jolted nevertheless. The US dollar also a headwind today with many Asia currencies weakening overnight; forex largely rangebound in Asia day trading but currency traders on edge as the DXY index hovers around the 105 mark. The yen slowly creeping back towards 152 per dollar again, widely seen as a red line for Tokyo that could spark an intervention; and the yuan also under pressure again this week despite more solid PMI prints today.

  • Japan final services PMI grew at its strongest rate in seven months, while Singapore's PMI reading showed expansion slowing. Presidents Biden and Xi held a phone call Tuesday though no progress on key points of contention such as tech and trade sanctions. Thailand's constitutional court will hear arguments seeking the dissolution of the election-winning Move Forward Party. Commodity volatility continued as oil futures hit their highest since Oct-2023, gold saw fresh record highs, iron ore and steel remained under pressure amid weaker demand.

  • WuXi AppTec (2359.HK) shared US client's data with Beijing, according to US intelligence officials. Xiaomi (1810.HK) began deliveries of its new SU7 EV and had received 100K orders for the vehicle. TSMC (2330.TT) said it temporarily suspended production lines and evacuated several plants following a powerful earthquake. Singtel (Z74.SP) reiterated there is no pending deal to divest its Australia unit Optus.

• Digest:

  • Biden-Xi talks seek common ground but no progress on key issues:

    • Bloomberg reported Biden and Xi spoke by phone on Tuesday, marking the first communication since last November. Statements by both countries noted discussions included AI, military cooperation, climate change and efforts to fight drug trafficking. According to the White House, Biden raised concerns about China's military support for Russia and also emphasized importance of rule of law and freedom of movement in South China Sea. Also reiterated concerns about China's unfair trade policies and non-market economic practices. Warned US will continue with necessary actions to prevent advanced US technologies from being used to undermine national security, without unduly limiting trade and investment. However, White House spokesman Kirby noted pending tariff review was not specifically raised. TikTok was discussed and Kirby added focus was on divestiture rather than a ban. No mention from China's side as its statement was largely devoted to regional geopolitical stability and its 'red line' on Taiwan (Xinhua). Xi criticized US tech restrictions and vowed China "is not going to sit back and watch" if US insists on suppressing China's tech development.

  • China Caixin Services PMI expansion accelerates:

    • Caixin services PMI was 52.7 in March, in line with consensus and came higher than February's 52.5. Data showed services activity in expansion for 15 consecutive months although rate remained below long-run series average. New business growth, hitting quickest since December, underpinned the expansion in March and supported by improvements in demand and business development efforts. Export business rose to nine-month high amid better external demand and promotional activities. Payroll numbers declined for second successive month in March with rate of job cuts eased from February. Better productivity led to level of backlogged work falling for second consecutive month. Selling prices increase at slower rate alongside fall in cost inflation. Business confidence increased for first time in three months. Caixin Composite PMI improved to 52.7 in March from 52.5, signaling an expansion of overall Chinese business activity for fifth consecutive month and highest since May-2023. Caixin economist noted policies introduced earlier to stabilize economy are having an effect while calling for consistent efforts to be made to achieve this year's growth target.

  • US, Japan to agree on new subsidy rules for strategic goods, eyeing China:

    • Nikkei reported US and Japan will agree on new subsidy rules covering goods such as semiconductors, storage batteries and permanent magnets, setting shared standards for the incentives they use to avoid overreliance on China. Topic is expected to be included in a joint statement when Prime Minister Kishida meets with President Biden in Washington next week. Subsidy rules to form part of broader discussion on transparent, resilient and sustainable supply chains said to be high on the agenda. Both countries plan to coordinate policy with like-minded countries such as in Europe. Effort also aims to prevent participating countries from competing in adopting protectionist policies in the name of reducing China-related risks. Suggested ideas include shared criteria for subsidies and tax breaks, as well as cross-border cooperation in advanced fields requiring large investments. Statement expected to also include demand creation measures that directly support purchasers, which some observers have argued would be more effective.

  • BOJ output gap gauge turns positive for the first time since 2020:

    • BOJ's measure of the output gap was +0.02% in Q4 following -0.37% in Q3 and marks the first positive reading since 1Q20. Positive labor factor edged higher while the bigger swing factor was a narrower drag from capital input. Semi-annual estimate of potential growth edged up to 0.68% in fiscal H2, the highest since 1H16. Going forward, Tankan proxies point to further deepening of resource shortages into 2Q24, posing further upside risk. Overall, this adds another key piece of evidence to validate BOJ's decision to end NIRP last month. Recall the output gap had been cited along with BOJ Tankan and the BOJ regional economic report as reasons why board members would wait until April before changing policy. Yet the decision was instead made in March on the heels of the broad-based strength of initial shunto wage hikes for large firms. Subsequently, BOJ Tankan results were seen as positive enough to justify the move, while the first shunto tallies for small firms showed record wage hikes underpinned by substantial base increases.

  • Yen weakness seen as main swing factor affecting BOJ rate hike expectations:

    • Nikkei discussed market price action since the BOJ's decision to end NIRP, noting JGB yields have held steady despite yen having traded at a 34-year low vs dollar last week. Cited thoughts that underlying dynamics are substantially different compared to 2022-2023, characterized by much sharper yen declines compounded by soaring commodity prices. On net, reduced cost-push pressure from energy prices is expected to largely offset the inflationary effects stemming from the yen's current weakness and seen as insufficient to prompt a follow-up rate hike. Article added some in the BOJ see little reason to update its inflation outlook for now. Cited Nomura Securities analysis suggesting yen would need to reach 170 for break-even inflation rates to match the BOJ's 2% target. However, story noted few market watchers expect such a move, especially with Fed rate cut expectations standing to limit yen's downside alongside a more immediate barrier of potential FX intervention. Recall that economists' forecasts for the next rate hike are clustering around July or October (Nikkei). Implications from the latest BOJ Tankan survey were largely neutral with only some takeaways that the results justify the March MPM decisions and no suggestion the case for another rate hike is building.

  • Notable Gainers:

    • +4.0% 4506.JP (Sumitomo Pharma): Roivant board authorizes up to $1.5B share repurchase program, including repurchase of entire Sumitomo Pharma stake for $648M

    • +2.8% 7453.JP (Ryohin Keikaku): reports March domestic LFL directly managed stores + online store sales +16.1% y/y

    • +1.8% 008930.KS (Hanmi Science Co.): Hanmi heirs reportedly in final talks with KKR to raise combined stake in Hanmi Science to 51% or more

  • Notable Decliners:

    • -3.6% 096770.KS (SK Innovation): SK group reportedly pursues merger between SK On and SK Enmove, IPO of merged entity

    • -3.5% Z74.SP (Singtel): reiterates there is no impending deal to divest Optus

    • -3.3% 9983.JP (FAST RETAILING CO.): reports March Japan Uniqlo same stores + online net sales (1.5%) y/y

• Data:

  • Economic:

    • China

      • March Caixin Services PMI 52.7 vs consensus 52.7 and 52.5 in prior month

        • Caixin Composite PMI 52.7 vs 52.5 in prior month

    • Japan

      • March final services PMI 54.1 vs preliminary 54.9 and 52.9 in prior month

        • Composite PMI 51.7 vs preliminary 52.3 and 50.6 in prior month

  • Markets:

    • Nikkei: (387.06) or (0.97%) to 39451.85

    • Hang Seng: (206.42) or (1.22%) to 16725.10

    • Shanghai Composite: (5.66) or (0.18%) to 3069.30

    • Shenzhen Composite: (11.73) or (0.66%) to 1767.96

    • ASX200: (105.40) or (1.34%) to 7782.50

    • KOSPI: (46.19) or (1.68%) to 2706.97

    • SENSEX: 150.31 or +0.20% to 74054.22

  • Currencies:

    • $-¥: +0.15 or +0.10% to 151.7090

    • $-KRW: (2.73) or (0.20%) to 1349.1000

    • A$-$: (0.00) or (0.14%) to 0.6509

    • $-INR: +0.08 or +0.09% to 83.4423

    • $-CNY: +0.00 or +0.02% to 7.2347