Apr 08 ,2024
Synopsis:
Asian equities ended mostly higher Monday. Japan benchmarks ended off their peaks but still almost 1% better; solid gains for Seoul and Taipei. Mainland China lower following holidays while Hong Kong ended a few points higher. Australia with modest gains,, India's Sensex and Nifty boards both reaching record highs. Kuala Lumpur at 22-month highs amid recovering economy. Jakarta and Bangkok closed. US futures flat, Europe higher at the open. US dollar unchanged, yen edging closer again to 152 per dollar, onshore yuan weaker as it catches up with the offshore, which is flat today. Treasury yields higher across tenors, Asia yields generally higher. Crude prices sharply lower, gold at another record high as supportive catalysts continue, industrial metals mixed.
Asia markets generally well supported Monday as some confidence returned post a solid session on Wall Street on Friday. Stocks also supported by a drop in crude prices as tensions ease in the Middle East slightly after Israel withdrew some troops from Gaza, but other haven assets remain elevated. Another tick higher in bond yields over the day post the strong US payrolls report on Friday, which also spurred a sudden volatility in forex. Currencies quiet today so far however the yen trading at 151.9, just below the 152 per dollar mark considered a red line for Japan officials before a possible intervention. Speculative yen shorts hit highest since Jan-2007 last week, while the yuan remained in focus today after the PBOC fixed its daily midpoint above consensus.
In macro developments, Japan real wages shrank at a quicker pace following recent period of narrowing declines. PBOC announced a new re-lending program up to CNY500B to boost science and technology sector. Malaysia industrial production, retail sales higher; unemployment lower. US Treasury Secretary Yellen continued her visit to China though nothing substantive as yet.
China Construction Bank (601939.CH) filed a liquidation petition against Shimao Group (0813.HK) over an unpaid HK$1.5B ($200M) loan; Shimao said it would oppose the petition but stock sharply lower. Hyundai Motor (005380.KS) and Kia Corp (000270.KS) signed a MoU with India's Exide Energy Solutions (Exide Industries, 5000086.IN) for battery production for their India EV plants. Genting Malaysia (4715.MK) has pledged more than $1B annually in taxes to New York City in its bid for one of three new casino licenses.
Digest:
Yellen announces US-China talks on global growth balance:
Main takeaway from Treasury Secretary Yellen's meeting with China Vice Premier He Lifeng was the announcement of bilateral "intensive exchanges on balanced growth in the domestic and global economies" (Statement). Yellen expressed particular concern about impact of Chinese overcapacity as a result of government support. Treasury's readout noted Yellen raised concerns regarding the breadth and scale of China's non-market policies and practices, noting signs of increasing overcapacity in certain sectors and urged action to address concerns. Warned China must not provide material support for Russia's war against Ukraine, including support to Russia's defense industrial base. Underscored US is not seeking to decouple from China. Reuters noted Yellen's top priority was to tackle excess capacity in EVs, solar panels and other clean energy technology. Cited local state media reactions that described US calls as a "pretext" for protectionist US policies. However, a US Treasury official clarified Yellen did not threaten to raise tariffs or impost other trade barriers if China failed to curb state support.
China Construction Bank files winding-up petition against Shimao:
Shimao (813.HK) filing revealed the company faces a winding-up petition from China Construction Bank (939.HK) via Hong Kong High Court over debts worth HK$1.58B ($202M). Shimao said it would oppose the petition vigorously and continue to work towards offshore restructuring of about $11.7B in offshore debt, aiming for a 60% reduction. Reuters noted this move represents a rare decision by a state-owned bank to take legal action offshore against a mainland developer, recalling that similar cases for China Evergrande (3333.HK) and Country Garden (2007.HK) were instigated by overseas-based creditors. Cited thoughts the move by CCB was a last resort and compelled by a lack of options. Noted a bondholder group opposed Shimao's restructuring plans shortly after its announcement in late March, citing the size of the losses the creditors would face and the lack of upfront payments. Plans require support from more than 75% in creditor value to pass and the ad-hoc bondholder group holds more than 25% of Shimao's $6.8B in outstanding dollar bonds. According to sources, Deutsche was also said to have been considering similar action as CCB in early March after deeming the earlier debt restructuring terms unacceptable.
Japan nominal wage growth edges higher, but focus on pay raises from April:
Nominal average wages grew 1.8% y/y in February, matching expectations. Prior month was revised down to 1.5% from 2.0%. Pickup was driven by scheduled earnings mainly among full-time workers and narrower declines in overtime payments, outweighing negative payback in special payments from the previous month's strength. Real wages were left down 1.3% vs consensus 1.4% after prior month was revised to a 1.1% decline from 0.6%. Key drag stemmed from a rebound in the inflation factor. Total hours worked largely stabilized though remained negative for a fourth straight month, reflecting easing contraction in overtime hours. Consolidated year-end bonuses rose 0.7% in 2023, lower than 3.2% in 2022 and 2.0% in summer bonuses. Attention on monthly data has largely waned after the shunto results showed broadly based historic pay raises for FY24 starting April. Recall first tallies showed a 5.24% increase for large firms, which was a key driver in the BOJ's decision to end negative rates in March. Small firms were awarded a record 4.12% raise, auguring for a clearer pickup in economy-wide aggregates.
PBOC keeping tight leash on yuan amid downside risks:
Offshore yuan range bound as currency continues to stabilize following bout of volatility just over a week ago. PBOC implemented another stronger-than-expected fixing of yuan's daily midpoint on Monday, coming after USDCNY rose towards upper limit of 2% trading band last week. Strengthening bias viewed as sign China's authorities continue to prioritize stability over managed depreciation given lingering capital outflow concerns. While authorities are guiding expectations via stronger-than-expected fixings, there have also been multiple reports of China state banks selling dollars to put a floor under yuan. However, yuan seen remaining under downward pressure with dollar strength by hawkish shift in Fed rate expectations that has increased attention on US-China yield gap. Nomura also pointed to bearish yuan drivers from weak China economic fundamentals (not withstanding green shoots in recent economic data), China policymakers' apparent lack of concern over depreciation pressures, and geopolitical risks stemming from US-China trade/tariff/tech tensions.
China puts brake on trading of gold ETF after surge in premium:
Trading for ChinaAMC CSI SH-SZ-HK Gold Industry Equity ETF (159562.CH) was halted until 1030am Monday, second suspension for product since last Tuesday as investors poured money into fund which pushed premium over underlying assets to more than 30% as of 3-Apr, according to Bloomberg-compiled data. Measure led to 10% drop in fund price Monday after it gained over 40% in past four sessions. Still precious metal stocks were best-performing ones on mainland bourses Monday, outperforming benchmark indexes by large margins. Noted latest frenzy to products tied to gold shows desire by Chinese investors to park money in assets seen as relatively immune to economy, which is still grappling with property woes, volatile stocks and dipping deposit rates. Recall gold hit fresh record above $2,350 an ounce with some gains propelled by bets of Fed getting closer to cutting rates (Bloomberg). Meanwhile global central banks continued to add to their gold reserves with PBOC purchasing bullion for 17th straight month in March (Bloomberg).
Notable Gainers:
+2.3% 532424.IN (Godrej Consumer Products): provides Q4 update; guides high-single digit consolidated level underlying volume growth
+0.7% 5463.JP (Maruichi Steel Tube): issues FY24-26 medium-term management plan
+0.3% 9613.JP (NTT DATA Group): launches ¥1,940/share tender offer for Jastec Co. from 8-Apr to 23-May
+0.2% 4452.JP (Kao): activist Oasis Management reportedly holds over 3% stake in Kao
Notable Decliners:
-18.7% 813.HK (Shimao Group Holdings): China Construction Bank files winding-up petition against Shimao Group Holdings
-7.4% 601808.CH (China Oilfield Services): makes progress announcement on suspension of operations on some drilling platforms, operation suspension of certain drilling rigs is attributable to adjustment to operation plans of customers
-5.7% 541153.IN (Bandhan Bank): CEO Chandra Shekhar Ghosh retires, effective 9-Jul
-0.8% 6506.JP (YASKAWA Electric): reports FY ending Feb-24 earnings; guides FY ending Feb-25 revenue ¥580.00B vs FactSet ¥589.46B, operating profit ¥70.00B vs FactSet ¥71.08B
Data:
Economic:
Japan February
Current account balance ¥2,622.2B vs consensus ¥3,078.7B and revised ¥457.0B in prior month
Real wages (1.3%) y/y vs consensus (1.4%) and revised (1.1%) in prior month
Australia February
Housing finance +1.5% m/m vs (3.9%) in January
Markets:
Nikkei: 354.96 or +0.91% to 39347.04
Hang Seng: 8.93 or +0.05% to 16732.85
Shanghai Composite: (22.24) or (0.72%) to 3047.05
Shenzhen Composite: (31.47) or (1.78%) to 1736.49
ASX200: 15.80 or +0.20% to 7789.10
KOSPI: 3.44 or +0.13% to 2717.65
SENSEX: 484.31 or +0.65% to 74732.53
Currencies:
$-¥: +0.25 or +0.16% to 151.8520
$-KRW: +1.98 or +0.15% to 1353.2500
A$-$: +0.00 or +0.11% to 0.6586
$-INR: (0.03) or (0.03%) to 83.2920
$-CNY: (0.00) or (0.01%) to 7.2324
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