Apr 19 ,2024
Synopsis:
Asian equities ended mostly lower Friday although those that did fall were off their lows by the close. Stocks gapped lower at the open but accelerated declines on reports of Israel's attack on Iran, capping losses when strikes appeared measured and Tehran did not immediately respond. Nevertheless, equity declines across the board, worst in Taiwan and on Japan's Nikkei board, South Korea's Kospi also sharply lower. More mild declines in Greater China, dollar-exposed Southeast Asia soft. India opened lower but is now slightly higher. US futures lower, Europe opened with losses although now rallying modestly. US dollar slightly lower but volatile; AUD and yen weaker, won flat after BOK warned on intervention. Treasury yields lower at the long end, higher at the short; JGB yields lower, CGB 10Y yield at record low. Crude spiking early on but off session high; gold flat, industrial metals lower. Cryptocurrencies higher.
Asia equities, already experiencing a shaky week on sliding risk sentiment, sold off sharply Friday morning amid reports of Israel's attacks on Iran and Syria that caused a rush to haven assets. The US dollar, yen, Swiss franc, crude oil, and precious metals all spiked alongside steep declines in Asia equities, particularly the tech-orientated boards in Taipei and Tokyo, which had already opened much weaker on tech's selloff overnight. Trends pared as Tehran downplayed attacks and said it had no plans for immediate retaliation, but tension remains elevated. Taiwan's Taiex was a notable underperformer as TSMC fell on a poor consumer chip-product outlook.
In regional developments today, BOJ Governor Ueda said rate hike may be warranted if yen's declines significantly push up inflation while headline and core inflation fell by more than expected in March. India's six-week long general election began with the ruling party seeking to gain two-thirds of seats. Malaysia Q1 GDP was better than expected with March trade data also better than economists had forecast.
Sony Corp (6758.JP) and Apollo Global Management (APO) are considering a joint bid for Paramount Global (PARA). Nissan Motor (7201.JP) missed early FY operating profit estimates on an aging line up of cars, lack of hybrids in North America and intense competition in China. Geely Auto (175.HK) is to sell its entire Class B stake in Volvo (VOLV.B.SS) worth $1.32B but will remain the group's largest shareholder with 88.5M A shares. TSMC (2330.TT) quarterly results poorly received despite better-than-expected outlook with caution over smartphone and personal computing markets.
Digest:
Israel strikes targets inside Iran, but details sketchy:
According to multiple outlets, US officials confirmed Israel fired missiles at targets inside Iran on Thursday night (Bloomberg, CNN, NY Times). Initial reports noted explosions occurred near Isfahan, where Iranian nuclear facilities are located. Iran's IRNA news agency acknowledged blasts but ruled out missile attack or large scale explosion. US officials said nuclear facilities were not an intended target and IAEA confirmed no damage to nuclear sites. IRNA also said flights returned to normal, after Iran was reported to have shut its air space and activated air defense systems. Recall Israel had been threatening to respond to Iranian missile and drone barrage last weekend and according to a US official it had given US advance notice on Thursday of a pending strike (which US did not endorse). Among main questions is whether reported strikes would prompt Iranian response. However, Iranian official cited as saying no plans for immediate retaliation while Iran media dismissed reports of foreign involvement in incident.
BOJ Governor Ueda reaffirms potential policy change if yen weakness pushes up inflation:
BOJ Governor Ueda told reporters at the Washington G20 that a rate hike may be warranted if the yen's declines significantly push up inflation (Reuters), reaffirming previous remarks. Repeated the potential transmission of yen depreciation pushing up inflation through import prices and, "If the impact becomes too big to ignore, it might lead to a change in monetary policy." Comments on yen implications echoed those from board member Noguchi yesterday -- while noting immediate impacts are believed to be temporary, BOJ would have to consider a policy change if it affects momentum in wage hikes and inflation (Nikkei). Noguchi's speech and Q&A generated broadly dovish takeaways after he emphasized BOJ's gradual rate hike trajectory as a function of the expected timeframe for fulfilling the inflation mandate. Nikkei highlighted the remark that BOJ's slow trajectory would be incomparable with recent activity among other central banks, and that board members' running assessments on rates and JGB purchases would be cautious.
South Korea readies FX response amid discussions about potential multilateral intervention:
According to Yonhap, South Korea Finance Minister Choi Sang-mok told reporters in Washington following the trilateral finance minister meeting with US and Japan, noting Seoul is "thoroughly" monitoring developments in the FX market with scenario-based response plans in place. Added that FX market messaging would be conveyed through international cooperation and the joint meeting was part of that effort. Asked whether it was reasonable to believe US gave tacit approval for FX intervention, Choi deferred to the joint statement. Nikkei cited some thoughts the trilateral meeting brings intervention a step closer and stirred discussions about potential multilateral action. Recall that prior reports indicated broad consensus that unilateral intervention would have limited impact. Article noted developments underline broader response to dollar strength in Asia -- Indonesia stepped in on Tuesday after rupiah fell to a four-year low vs dollar, Malaysia issued verbal intervention Monday. Bloomberg expanded on this topic, echoing doubts about the efficacy of unilateral intervention. Also, with the latest G7 finance statement reaffirming the 2017 FX commitment, story cited analysts' as saying market malaise has yet to reach the stage that would prompt a multilateral response.
Japan CPI inflation broadly softer:
Core CPI rose 2.6% y/y in March, slightly below consensus 2.7% and previous month's 2.8%. Ex-fresh food & energy inflation similarly moderated to 2.9% vs consensus 3.0% and prior 3.2%, marking the first sub-3% print since November 2022. Main drivers came from non-energy categories, reflecting waning increases in non-fresh food, household durables and accommodation. Outweighed easing drags from energy amid slower declines in utilities. Total goods inflation edged down by 0.04 ppt to 1.73% y/y while closely watched services inflation also dipped 0.1 ppt to 2.1%. Results were broadly consistent with preceding Tokyo data. Attention now mostly on service inflation dynamics as BOJ board members look for confirmation of transmission from wage hikes. While the strength of this year's shunto wage hikes provided the confidence required to proceed with the March policy changes, board member Noguchi remained cautious and mapped out a slow normalization trajectory going forward. Immediate focus has been on whether current yen depreciation might prompt action via monetary policy. Noguchi and Governor Ueda have been the latest to signal that is a possibility if currency weakness impacts inflation via import prices, while clarifying FX is not a direct input in policy calculations and yen weakness alone would not prompt action.
Malaysia Q1 GDP beats estimates but exports contract in March:
Malaysia's economy grew by 3.9% y/y in Q1-24, beating forecasts and ahead of Q4's 3.0% growth. All sectors contributed to growth as construction outperformed with 9.8% expansion along with services that saw 4.4% y/y growth (BusinessTimes). Manufacturing expanded 1.9% following contraction in Q4. Separate data Friday showed exports, which had dragged on growth for FY2023, fell again to MYR12.8B from more than twice its level in February but was better than analysts had expected, implying worst was over for trade-dependent country (Bloomberg). Imports rose 12.5% to 19-month peak. Better-than-expected trade numbers pushed embattled Malaysia ringgit to outperform region Friday and remain flat against US dollar, stronger against Singapore dollar. But currency still trading at 26-year low that earlier this week forced Bank Negara Malaysia to issue warning it was willing to "manage risks" arising from financial market volatility.
Notable Gainers:
+19.3% 3778.JP (SAKURA Internet): Japanese government to provide a total of up to ¥72.5B in subsidies to tech companies
+8.3% 2343.HK (Pacific Basin Shipping): provides Q1 update; to launch up-to-$40M buyback, to run between 25-Apr and 31-Dec
+1.3% 3382.JP (Seven & i): to separate positions of chair and CEO; to appoint Stephen Hayes Dacus as chair, pending board approval
Notable Decliners:
-17.6% 2013.HK (Weimob): to repurchase remaining convertible zero coupon bond due 2026; launches 277.0M-share placement at HK$1.13/share
-6.7% 2330.TT (Taiwan Semiconductor): reports Q1 earnings; guides Q2 gross margin 51-53%
-3.6% 590.HK (Luk Fook Holdings (International)): reports Q4 retail same store sales growth (5%) y/y
-1.8% 6758.JP (Sony): Sony and Apollo Global Management reportedly considering joint proposal to acquire Paramount Global
-0.9% 3141.JP (Welcia Holdings): to acquire Welpark from Inageya and Aeon for ¥8.30B; appoints current Chairman Takamitsu Ikeno as President; effective today
-0.6% 500209.IN (Infosys): reports Q4 EBIT INR76.21B vs StreetAccount INR79.99B; guides FY operating margin of 20%-22%
Data:
Economic:
Japan March
Core CPI +2.6% y/y vs consensus +2.7% and revised +2.8% in prior month
CPI excl. fresh food & energy +2.9% y/y vs consensus +3.0% and revised +3.2% in prior month
Overall CPI +2.7% y/y vs consensus +2.8% and revised +2.8% in prior month
Markets:
Nikkei: (1,011.35) or (2.66%) to 37068.35
Hang Seng: (161.73) or (0.99%) to 16224.14
Shanghai Composite: (8.96) or (0.29%) to 3065.26
Shenzhen Composite: (12.36) or (0.73%) to 1686.56
ASX200: (74.80) or (0.98%) to 7567.30
KOSPI: (42.84) or (1.63%) to 2591.86
SENSEX: 214.90 or +0.30% to 72703.89
Currencies:
$-¥: (0.23) or (0.15%) to 154.4050
$-KRW: (1.04) or (0.07%) to 1379.5700
A$-$: (0.00) or (0.11%) to 0.6416
$-INR: (0.06) or (0.07%) to 83.5171
$-CNY: +0.00 or +0.03% to 7.2402
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