Apr 04 ,2024
Synopsis:
Asian equities ended mixed again Thursday. Gains for Japan's benchmarks as well as in Australia but both finished off their highs. South Korea also reversed much of Tuesday's losses while India's Sensex currently touching record highs again. Southeast Asia mixed. Greater China and Taiwan markets closed for a holiday. US futures higher, Europe opened with solid gains. US dollar edging lower, AUD stronger, yuan unchanged, yen flat against the dollar but weaker again against other currencies with several at record highs. Treasury yields higher across tenors. Australian and JGB yields also higher. Crude dipping in late afternoon trade, gold hovered at record highs before it too fell. Industrial metals mixed as iron ore slumped again but other metals gained.
Developed markets in Asia tracked overnight gains on Wall Street although Australia failed to follow through with early gains, and Japan's was well off its highs. Seoul gained on SK Hynix investment news and ahead of SEC's quarterly results due Friday. US markets buoyed by more stable Treasuries that capped recent gains after Fed Chair Powell said the bank was still on course to ease at some point this year. Soft ISM Service data also helped lower tensions.
Little movement in USDJPY again despite Japan's finance minister saying the government was watching forex moves with a "high sense of urgency" and it moving to record weakness against several other developed market currencies. Yuan quiet today as the PBOC pledged to help boost domestic demand, while the Australia dollar rose to its highest in a fortnight on Fed comments. India's rupee nearing a record low as local importers hedged and crude gained.
Itochu (8001.JP) says it plans a record ¥1T in investments this year to boost expansion, aims for 10% rise in net profit. Konica Minolta (4902.JP) plans to cut almost 2.4K jobs globally in its office equipment unit. CK Asset (1113.HK) has expressed interest in Vietnamese properties worth billions of dollars that have been linked to a financial fraud allegation in the country. Geely Auto (175.HK) has restarted stalled plans to raise $500 in an IPO of its Zeekr brand. SK Hynix (000660.SK) is to invest $3.9B into an advanced fabrication and R&D facility in Indiana.
Digest:
PBOC flags stronger policy implementation:
PBOC's Q1 report contained few deviations in policy trajectory. Noted China's economy continues to recover while reaffirming challenges such as insufficient effective demand and subdued confidence. Added global backdrop becoming more complex and severe with lackluster growth momentum, elevated inflation and interest rates. Repeated pledges to implement prudent policies accurately and effectively while paying more attention to counter-cyclical adjustments. Furthermore, members saw the need to intensify implementation of existing policies, reiterating the goals of maintaining reasonable liquidity, encourage reasonable credit expansion, and keep social financing growth and money supply in line with expected economic growth and price levels. Apparently new attention on long-term yields during the recovery phase. Review of FX developments described yuan as balanced, having observed two-way volatility with stable expectations. Guidance reaffirmed 'risk-neutrality' principle and repeated resolute correction of procyclical behavior. Housing credit policies to remain differentiated according to local conditions with ongoing attention on adequate financing for real estate companies of different ownership types (previously interpreted as a signal that private companies would be supported).
Bank of Korea considers forward guidance overhaul:
Reuters cited sources saying Bank of Korea considering changing how it gives forward guidance on interest rate changes. Proposals include extending timeframe and giving visual estimates to boost transparency, but plans may face opposition from at least one central bank governing board member said to be concerned telegraphing future policy may undermine public confidence particularly if conditions suddenly change. Governor Rhee first flagged ideas two years ago, said to want to map out conditional forward guidance on rates six months or more into future. Would represent major change on how bank produces, communicates policy, article said, be part of wider push to boost public understanding of its actions. 'Visual estimates' would also be groundbreaking for BOK as hitherto been mostly verbal communications. Source hinted changes may even be like Fed's 'dot-plot' although details sill to be worked out and approved by seven-member board.
BOJ regional economic report mixed:
BOJ regional economic report for April showed headline downgrades to seven out of nine regions. Most areas still reported some level of pickup, though with some weakness. Hokuriku region indicated signs of improvement amid impacts from the Noto Peninsula earthquake. More of the attention was on qualitative evidence, particularly pertaining to price-setting behavior and wage growth. Companies generally reported continued progress in cost passthrough efforts with some implementation of premium offerings. Feedback on wage hikes was less encouraging as firms noted struggles with profitability and ability to pass on higher personnel costs. Nonetheless, they were compelled to offer raises to retain skilled workers as the labor market becomes increasingly competitive. Recall that small firm wage dynamics had been widely discussed as a potential obstacle against the BOJ's path to policy normalization. Still, the majority of key data since the March rate hike were sufficiently positive to justify the move -- BOJ Tankan takeaways were upbeat, output gap turned positive for the first time in 15 quarters, while latest shunto tallies indicated wage hikes among small firms and part-time workers posted record-highs.
Markets attentive to inflation signals from data:
Global PMIs and inflation subcomponents have grabbed a lot of attention this week. US ISM manufacturing index's prices paid component rose at quickest pace in 20 months while services PMI prices paid fell to lowest since March 2020. Inflation pressures were more evident across Asia where several PMIs showed pickup in input cost inflation (China being the exception where Caixin PMIs showed fall in input costs and selling prices). Eurozone manufacturing PMI also showed fall in inflation pressures, consistent with its relatively weaker economy. Elevated raw material prices a common driver of the pickup in PMI inflation pressures with crude at highest since Oct-2023. Red Sea disruptions a factor that contributed to higher logistic costs with supply chain normalization having largely played out. Meanwhile wages remain a prominent input cost amid still tight labor markets. Disinflation momentum still considered broadly intact though data nonetheless appeared to support notion expressed by policymakers that the path will be bumpy.
StreetAccount Event Preview: South Korea legislative elections, 10 April:
On 10 April South Korea votes to decide 300 seats in its unicameral National Assembly. Elections come two years after conservative Yoon Suk Yeol won Presidency by 0.7% but he has had difficulty promoting pro-business agenda as opposition democrats hold legislative majority. Yoon trails in personal approval ratings and, although his conservative PP party marginally ahead in polls, it may struggle to win 32 seats required for majority. This year, left-leaning third party may further disrupt traditional two-party division in Assembly. Pollsters do not expect dramatic change in legislature but, if progressive bloc wins 200 seats, it could override Presidential veto, effectively make Yoon lame duck president. Seats allocated via PR system with 254 seats allocated to district representatives, 46 via party-list system. Four issues dominate electioneering: cost of living, especially food prices; doctors' strike; collapse in fertility rate; and corruption. Country's 'Value-up' program could also be at stake as legislation may be required to fulfill pledges, which is not guaranteed if opposition wins large majority.
Notable Gainers:
+6.0% 8273.JP (Izumi Co.): subsidiary agrees to acquire supermarket business of Seiyu; terms undisclosed
+5.9% 4902.JP (Konica Minolta): to implement structural reforms; to cut 2,400 jobs and record ~¥20B expenses in FY24
+5.1% 4452.JP (Kao): Activist Oasis Management urges Kao to focus on cosmetics, health and beauty segment
+4.9% 000660.KS (SK Hynix): to invest ~$3.87B (KRW 5.2T) to build an advanced packaging fabrication and R&D facility for AI products in Indiana, USA
+3.1% 500180.IN (HDFC Bank): reports advances as at 31-Mar INR24.080T, +1.6% q/q vs FactSet INR25.402T
+0.2% 6758.JP (Sony): completes up-to-¥200B buyback
Notable Decliners:
-2.8% 008930.KS (Hanmi Science Co.): Hanmi heir Lim Jong-hoon reportedly expected to be named as co-CEO of Hanmi Science
Data:
Economic:
Australia February
Building approvals (1.9%) m/m vs consensus +3.0% and (1.0%) in January
Markets:
Nikkei: 321.29 or +0.81% to 39773.14
Hang Seng: Closed
Shanghai Composite: Closed
Shenzhen Composite: Closed
ASX200: 34.80 or +0.45% to 7817.30
KOSPI: 35.03 or +1.29% to 2742.00
SENSEX: 497.13 or +0.67% to 74373.95
Currencies:
$-¥: +0.04 or +0.03% to 151.7260
$-KRW: (0.41) or (0.03%) to 1345.0800
A$-$: +0.00 or +0.50% to 0.6595
$-INR: (0.03) or (0.04%) to 83.4495
$-CNY: (0.00) or (0.01%) to 7.2343
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