Apr 11 ,2024
Synopsis:
Asian equities ended mixed Thursday. Modest gains for mainland China boards and Japan's Topix, but the Nikkei was lower alongside the Hang Seng, Australia's main ASX board, and most of Southeast Asia. Taipei was flat, Seoul erased its early losses post yesterday's elections to finish flat. India closed for a holiday. US futures tilting negative, Europe flat at the open. US dollar consolidating overnight gains, yen weakened further to stay above 153 per dollar, yuan flat amid signs of PBOC intervention. Treasury yields mixed, CGBs unchanged, JGB yields higher across tenors. Commodities higher, gold at fresh records.
A negative session on Wall Street overnight post higher-than-expected CPI laid the groundwork for a poor start to Thursday's trade but several benchmarks recovered losses to either finish unchanged or slightly lower. Asia bond yields higher throughout the region with significant gains in South Korea, Singapore, and in Japan where the 10Y JGB traded at five-month highs and the 2Y spiked to 15-year highs. This placed further pressure on the yen that is now above the 153 per dollar mark, increasing the risk of intervention.
The PBOC also fixed its yuan midpoint with its strongest bias on record after the offshore yuan fell to a one-week low; both on and offshore renminbi steady over the day while CGBs remain near record lows. China CPI inflation readings also weighed on bonds and forex, as consumer prices rose by less than expected and PPI deflation widened further. Equities responded positively to developments however as slowing prices increases the likelihood of stimulus.
Elsewhere, The Kospi sold off sharply first thing, partly on catch up post yesterday's holiday, partly on a heavy defeat for the conservatives in parliamentary elections. However, the losses were reversed by the close as some calm returned. Ahead Friday, Singapore and South Korea central bank decisions as well as China trade data.
Nippon Steel's (5401.JP) proposed takeover of US Steel will be examined in an in-depth anti-trust investigation. A Ping An Insurance(6158.HK) trust subsidiary failed to repay a $107M product on time, and added it is suing Zhenro Properties (6158.HK) with which it had invested the sum. Hon Hai Precision's (2317.TT) Foxconn is said to be considering a rotating CEO program I response to investors' call for enhance corporate governance, separation of CEO and chair roles.
Digest:
China CPI softer than expected, PPI declines steady:
CPI rose 0.1% y/y in March, below consensus 0.4%, and follows 0.7% in the previous month that marked the first increase since August 2023. Main drag came from the broad food, tobacco and alcohol category with a contribution of -0.4 ppt led by notable declines in fresh fruit and meat. Yet core inflation slowed to 0.6% from 1.2%, leaving Q1 average at 0.7%. NBS attributed softer headline mainly to food and travel. Overall goods prices fell 0.4%, continuing the contrast with services rising 0.8%, though latter was notably lower than 1.9% in February reflecting normalization in travel fares after Lunar New Year. PPI fell 2.8%, matching expectations and little changed from the 2.7% decline in the prior month. Upstream and downstream prices tracking broadly steady declines. NBS said price dynamics stabilizing as industrial activities resumed after LNY. Overall, negative base effects contributed the bulk of the negative headline at -2.3 ppt. Press takeaways cited usual drivers -- weak demand, insufficient stimulus -- while adding some comments about overcapacity, which was the key issue pushed by US Treasury Secretary Yellen during her China visit this week (Reuters, Bloomberg).
Yen breaks through 152 per dollar, stimulating more FX intervention talk:
USD/JPY traded as high as 153.24 overnight in reaction to firmer than expected US CPI, further raising the perceived threat of FX intervention (Nikkei). Data reinforced wide US-Japan yield gap as Fed rate cut expectations continued to erode. Discussions of potential trigger points gained further traction with predictions starting from the 152 level to around 155. Some thoughts this range is fluid as a break of the 152 resistance may open the path for extended declines. Analysts noted Japan has ample FX reserves to follow through, but intervention impacts are widely expected to be limited if authorities attempt to fight against underlying macro fundamentals. MOF officials continued to repeat verbal warnings; Reuters cited Finance Minister Suzuki's comments in parliament Thursday that authorities would not rule out any steps to deal with excessive FX swings. Added that excessive currency moves are not desirable and that it was important for currencies to move in a stable manner reflecting fundamentals. Echoed earlier remarks from FX policy chief Masato Kanda that recent yen moves were rapid and that he would not rule out any steps.
China intensifies yuan support with strongest upward bias in fixing on record:
PBOC set midpoint rate for yuan at 7.0968 per dollar Thursday, 1,654 pips firmer than Reuters estimate and logged biggest discrepancy since record began in 2018. Move came after offshore yuan weakened by most in three weeks overnight after hotter-than-expected US inflation which bolstered dollar. ING economist said latest yuan weakness more due to stronger greenback rather than domestic developments. Meanwhile risk of enduring interest-rate gap between US and China could add more downward pressure on yuan, more so as deflationary pressures remain threat to China's recovery(Bloomberg). FX strategists said strong fix showed policymakers' desire to pursue FX stability while onshore yuan has been trading a strike away from edge of the 2% trading range (Bloomberg). Added reverberations likely to be strongest in Asia if yuan depreciates further amid strong correlation between yuan and Southeast Asian currencies. Spike in yuan volatility would also likely disrupt carry trades in which yuan was often used as funding currency (Bloomberg).
South Korea President Yoon's party suffers heavy defeat in parliamentary elections, PM offers to resign:
South Korea's main opposition Democratic Party (DP) comfortably retained majority in country's National Assembly, striking blow to President Yoon's reform agenda including his "Value up" stock valuation program. Prime Minister Han Duck-soo offered to resign shortly after president conceded defeat. DP and a splinter party won 161 directly elected seats plus 15 proportional list seats; Yoon's PPP won 90 seats directly plus 16 list seats, fewer than previous election. Yoon said to have lost popularity over cost-of-living, series of political scandals (Reuters). DP's winning tally represents modest improvement in parliamentary majority but falls short of 'super' two-thirds majority (Yonhap). Analysts said DP's winning margin may slow Value up program as it may need legislation for certain tax, statutory elements. Japan-style program to enhance stock valuation partly responsible for Kospi's outperformance since end of January (Bloomberg).
JGB market contends with BOJ ambiguity on FX implications:
JGBs declined Thursday with curve steepening. Immediate trigger was the overnight weakness in US Treasuries following the upside surprise in CPI. But resulting yen weakness is also prompting speculation this may bring forward the timing of the next BOJ rate hike (Nikkei). Market rationale seemingly countering BOJ Governor Ueda's comments to parliament Wednesday ruling out a change in monetary policy in direct response to FX moves (Reuters). Ueda added that weak yen may push up import prices but that alone won't trigger a rate hike either and stressed the key was whether such upward price pressure would affect broader inflation and wage growth. Still, Ueda reiterated BOJ may consider a policy change on the risk that wages and inflation could rise more than expected, pushing up trend inflation above 2%. Recall that Ueda in a recent media interview signaled yen depreciation could be a reason to raise rates if it pushes up inflation via higher import costs, cited as a catalyst for yen strength last Friday. Elaborated on brief remarks at the post-MPM press conference in March.
Notable Gainers:
+11.5% 3064.JP (MonotaRO): reports March sales ¥24.04B, +6.6% vs year-ago ¥22.56B
+0.6% 2330.TT (Taiwan Semiconductor): reports March revenue NT$195.21B, +34.3% y/y
+0.4% 2454.TT (MediaTek): reports March revenue NT$50.48B, +17.5% y/y
Notable Decliners:
-4.8% 3382.JP (Seven & i): reports FY revenue ¥11.472T vs FactSet ¥11.433; reports March 7-Eleven Japan same-store sales (0.2%) y/y; confirms media reports indicating board members are considering an IPO for its superstore business
-2.9% 2317.TT (Hon Hai Precision Industry): Foxconn reportedly considering rotating CEO program
-2.4% 3908.HK (China International Capital): president, CFO Wu Bo steps down, effective today
-1.5% 9433.JP (KDDI Corp): guides FY operating income ¥950.00B vs prior guidance ¥1.080T and FactSet ¥1.096T, to record ¥105B provision from subsidiary KDDI Summit Global Myanmar due to delayed debt collection
-1.2% 105560.KS (KB Financial): defeat of South Korea's President Yoon's PPP in parliamentary election could reportedly slow 'Value Up' program
-0.4% 5401.JP (NIPPON STEEL): US Justice Department reportedly opens in-depth antitrust investigation into Nippon Steel's proposed takeover of US Steel
Data:
Economic:
China March
CPI +0.1% y/y vs consensus +0.4% and +0.7% in prior month
PPI (2.8%) y/y vs consensus (2.8%) and (2.7%) in prior month
Markets:
Nikkei: (139.18) or (0.35%) to 39442.63
Hang Seng: (44.14) or (0.26%) to 17095.03
Shanghai Composite: 6.91 or +0.23% to 3034.25
Shenzhen Composite: 1.32 or +0.08% to 1721.59
ASX200: (34.90) or (0.44%) to 7813.60
KOSPI: 1.80 or +0.07% to 2706.96
SENSEX: 0.00 or 0.00% to 75038.15
Currencies:
$-¥: (0.02) or (0.01%) to 153.1520
$-KRW: +2.23 or +0.16% to 1366.2600
A$-$: +0.00 or +0.22% to 0.6528
$-INR: (0.04) or (0.05%) to 83.3782
$-CNY: +0.00 or +0.03% to 7.2358
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