Apr 24 ,2024
Synopsis:
Asian equities ended higher Wednesday as tech's overnight rally on Wall Street spread to the region. Taiwan Taiex and Japan's Nikkei led the gainers with +2% gains apiece, South Korea's Kospi and the Hang Seng also saw strong uplift. Mainland China, Southeast Asia and India saw more modest gains. Australia was flat. US futures indicate a higher open, Europe strong in the first hour. US dollar stable following overnight falls, yen within a hair's breadth of 155 per dollar, yuan flat, AUD higher post inflation data. Treasury yields higher, JGB yields lower. Crude and precious metals flat, industrial metals supported as iron ore rallied to near two-month high.
Asia's main indices spiked sharply higher on the tails of the overnight rally on the Nasdaq, with the tech-heavy boards of Taiwan, South Korea and Japan outperforming by some distance. Australia's ASX was the day's underperformer as inflation came in higher than expected, suggesting the RBA may have to keep rates higher for longer. IT and internet stocks in Hong Kong were also notably higher with the Hang Seng now 6% higher for the week to date; Kuaishou Tech, 20% higher WTD, property stocks also better again Wednesday just as Country Garden said it had avoided default on a local bond.
Australian Q1 CPI hotter-than-expected with headline and trimmed mean inflation accelerating on q/q basis, bringing annualized rate to 4.0%. BOJ board members set to discuss yen weakness at Friday's meeting but no intervention action as of today with the yen inching closer to the 155 level. PBOC talked up concerns over the rally in long term Chinese bonds, pulling yields on the CBGs up off their record lows. Bank Indonesia somewhat unexpectedly raised its base rate 25 bps to 6.25% as it moved to support the rupiah. Thailand's cabinet approved methodology for Senate elections and will push through referendums on changes to the constitution.
Country Garden (2007.HK) won approval from holders to push back payments on three yuan-denominated bonds to avoid its first default on local bonds. SenseTime (20.HK) released the latest version of its SenseNova generative AI model that has "significantly improved" linguistic and creative capabilities; stock substantially higher. LG Energy Solution (373220.KS) is to licence out battery patents to block attempts at infringement. Lynas Rare Earths (LYC.AU) posted a slump in Q3 revenue but its CEO said the company was open to merger ideas to challenge Chinese dominance.
Digest:
BOJ only to discuss yen impacts this week:
Latest Nikkei preview of this week's BOJ meeting suggested board members will discuss impacts from yen weakness on inflation. Reiterated that few market watchers expect a policy change so soon after the March decision to lift NIRP and YCC. Cited a monthly QUICK FX poll conducted last week showing modal forecasts in October (22%) followed by September (18%) with only 2% in April. Focus on underlying inflation trends and further confirmation of a virtuous wage/price cycle indicate MPC in no rush to raise rates. Assessing yen impacts will also take time as BOJ internally has yet to see notable pressure on trend inflation on the back of recent weakness. Highlighted the Outlook Report as the key feature. First FY26 core inflation forecast expected to be ~2% and MPC to discuss an upgrade to the FY24 projection of 2.4%. Noted market attention on potential reduction in JGB purchases though recent BOJ rhetoric indicated a gradual path with no hints on the specific timing. Bloomberg's poll showed 52 out of 53 economists see no policy change this month, a bigger concentration of forecasts in October (over 40%) while bulk of the remainder point to an earlier move in July or September.
Hotter-than-expected Australian CPI further dims RBA rate cut prospects:
Australian Q1 headline CPI rose 1.0% q/q from 0.6% in Q4, higher than 0.8% forecast, taking yearly rate to 3.6% from 4.1% - also above expected 3.5%. Trimmed mean inflation climbed to 1.0% q/q from 0.8% in Q4 (which was also consensus), taking yearly rate to 4.0% from 4.2%. On annualized basis, headline and trimmed mean inflation running at 4.0%, well above RBA's 2-3% target. Inflation also tracking above RBA's H1 projections. Inflation again driven by sticky services components with rental inflation rising to highest since Q1 2009, insurance premiums and healthcare costs rising strongly, and education fee hikes reflecting start of school year. Offset somewhat by price declines in some discretionary goods. Separately, monthly inflation picked up to 3.5% y/y in March from 3.4%, driven by fuel, health and housing components. Figures strengthen views RBA unlikely to moderate guidance at next month's meeting, further dimming prospect of a rate cut in 2024.
Bank Indonesia raises base rate to support rupiah:
Indonesia's central bank raised its seven-day repo rate to 6.25% from 6.0% versus majority expectations of no change. Some economists had forecast hike as rupiah continued its weakening trend in recent weeks against an elevated US dollar. Officials recently expressed concern over currency's fall however analysts said hike may look like 'panic hike' that could lead to increased outflows. Analysts had expected BI to keep rates on hold, avoid cut, until Q1 2025 as US dollar volatility impacted local currency, other Indonesia financial markets. Investors withdrawn $2.1B from Indonesia bond market YTD, helping to weaken rupiah by around 4.0% to lows last seen during pandemic volatility. Bank also raised overnight deposit rate to 5.5% and lending facility to 7.0%. Governor Warjiyo said "current conditions require strong policy response" referring to hawkish Fed, geopolitical risks.
China's long-duration yields rise after PBOC steps up rhetoric against bond rally:
Yields on China's government bonds jumped on Wednesday with 30Y yield up 4 bp and 10Y yield rising more than 2 bp. Treasury index futures also fell across the board (Reuters). Bloomberg citing PBOC-backed Financial News reported central bank ramped up rhetoric against rally in long-term government bonds and warned about a reversal. Added yields will be within reasonable range that matches economic outlook while current deviation is temporary and caused by supply and demand. Recall investors rushed to bonds on dovish monetary policy, haven demand from local institutions and shortfall in debt supply, which pushed both 10Y and 30Y yields trading at discount to key policy rate. Its credit yields also fell to record lows (Bloomberg). PBOC warned investors about interest rate risks, particularly for long-duration bonds with leveraged positions, with mention of lesson from SVB Financial Group liquidity crisis. Reiterated China to stick to normal monetary policy and dispelled suggestions that country would resort to quantitative easing.
Thailand approves plans to replace military-appointed Senate, reduce its powers:
Thailand's cabinet late Tuesday approved plan to select new senators and remove ability of Senate to vote on PM appointment, effectively ending military's role in government (BangkokPost). Senate's term expired this year and new senators won't be directly elected, however change still marks decisive move towards full civilian government. Senate reduced to 200 members from 250, to be chosen from 20 social and professional categories and will vote for each other, across groups, and on local, provincial and national level in complex indirect voting structure. In last year's general election, Senate's military bloc prevented election winning Move Forward Party and leader from forming government, new system will prevent this from happening again. Cabinet also approved three national referendums to amend constitution on provisions surrounding royal family. Proposals to lower threshold for referendums to change government policy also approved by cabinet (BangkokPost).
Notable Gainers:
+10.3% 7731.JP (Nikon Corp): Silchester discloses 5.02% stake in Nikon
+5.5% 4689.JP (LY Corp.): SoftBank Corp reportedly in discussions to acquire shares in A Holdings from Naver
+4.1% 2318.HK (Ping An Insurance (Group) Co. of China): reports Q1 results, NBV Life and health insurance CNY12.89B, +21% vs adjusted year-ago CNY10.68B
+4.0% 7309.JP (Shimano): reports Q1 revenue ¥100.56B vs FactSet ¥96.61B, operating income ¥13.42B vs FactSet ¥8.82B
+3.5% 388.HK (Hong Kong Exchanges & Clearing): reports Q1 net income attributable HK$2.97B vs StreetAccount HK$2.82B
+1.8% 3659.JP (NEXON Co.): reportedly expects to see double-digit operating profit growth in Q4
+1.4% 656.HK (Fosun International): unit Fidelidade to start working on 2025 IPO
+0.7% 6594.JP (Nidec): reports Q4 operating profit (¥6.17B) vs StreetAccount ¥12.49B; records ¥59.8B of structural reform expenses due to strategic shift to improve Battery EV related business
Notable Decliners:
-8.6% 4004.JP (Resonac Holdings): to issue ¥100.00B zero coupon convertible bonds due 2028, sets initial conversion price at ¥4,638/share
-7.5% 4684.JP (OBIC Co.): reports FY revenue ¥111.59B vs FactSet ¥111.99B, operating profit ¥70.91B vs guidance just under ¥71.0B and FactSet ¥71.30B
-5.3% 2438.HK (Mobvoi): opens (15.0%) at HK$3.24/share in trading debut
-4.4% 500800.IN (Tata Consumer Products): reports Q4 consolidated EPS INR2.28 vs year-ago INR2.89
Data:
Economic:
Japan March
Services PPI +2.3% y/y vs consensus +2.1% and revised +2.2% in prior month
Australia Q1
Headline CPI +1.0% q/q vs consensus +0.8% and +0.6% in Q4
Headline CPI +3.6% y/y vs consensus +3.5% and +4.1% in Q4
Trimmed mean CPI +1.0% q/q vs consensus +0.8% and +0.8% in Q4
Trimmed mean +4.0% y/y vs consensus +3.8% and +4.2% in Q4
New Zealand March
Trade Balance +NZ$0.6B versus (NZ$0.3B) in prior month
Markets:
Nikkei: 907.92 or +2.42% to 38460.08
Hang Seng: 372.34 or +2.21% to 17201.27
Shanghai Composite: 22.84 or +0.76% to 3044.82
Shenzhen Composite: 19.78 or +1.18% to 1694.82
ASX200: (0.50) or (0.01%) to 7683.00
KOSPI: 52.73 or +2.01% to 2675.75
SENSEX: 271.25 or +0.37% to 74009.70
Currencies:
$-¥: +0.08 or +0.05% to 154.9040
$-KRW: (2.74) or (0.20%) to 1371.0600
A$-$: +0.00 or +0.29% to 0.6506
$-INR: +0.01 or +0.01% to 83.2940
$-CNY: (0.00) or (0.01%) to 7.2447
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