Apr 26 ,2024
Synopsis:
Asian equities ended very mixed Friday as catalysts diverged in the region. The Hang Seng surged again to give the benchmark its best weekly return in almost 12 years. Mainland China markets also higher on the day. Japan's benchmarks finished higher post the BOJ's decision to keep its base rate unchanged. Gains in Seoul and Taipei as tech names recovered. Australia lower with BHP dragging, Southeast Asia and India lower. US futures indicate a positive open, Europe opened with a sharp upswing. US dollar flat, yen weaker all day before late afternoon volatility saw some strengthening, AUD and NZD continued recent rallies. Treasury yields down at the long end, JGB yields volatile in late afternoon trade. Crude oil and precious metals higher, industrial metals led by copper at two-year highs.
Market reaction to the BOJ's decision to leave its base rate on hold at 0.0-0.1% leaned dovish, as equity benchmarks rose, and JGBs at first traded mixed before heading higher. The yen weakened significantly, accelerating its move after Governor Ueda said there was a chance it could see a sustained period of weakness, and falling to levels not seen since 1990 before a period of volatility in late afternoon trade.
Elsewhere, Australian benchmarks dragged lower by a negative reaction to BHP's proposed takeover of Anglo American. Technology-heavy bourses in South Korea and Taiwan reacted favorably to Alphabet's after-hours surge. The Hang Seng closed off its best week in over a decade with another +2.0% gain as a string of positive catalysts converged. Tokyo core inflation slowed to weakest since Mar-2022, due in part to the city's education subsidies that won't be reflected in nationwide figures. Australian PPI inflation accelerated on a y/y basis with construction costs elevated amid ongoing labor and input shortages. Singapore manufacturing output fell by more than expected with steep falls in the cyclical pharma sector.
Honda Motor (7267.HK) and as yet unknown joint venture partners are to invest $11B in Ontario to build a 'comprehensive' EV value chain. KB Financial (105560.KS) said losses related to investor losses on equity-linked derivative sales in Hong Kong weighed on Q1 results but allocation was lower than expected. Anglo American (AAL.LN) rejected BHP Group's (BHP.AU) $39B all share offer, saying it undervalued the group.
Digest:
BOJ Governor Ueda still sees limited impact from yen weakness on trend inflation:
Governor Ueda's press conference focused on three main areas -- rate hike path, yen impacts and JGB purchases -- yet indicated little change in views since the March MPM and recent public comments (Reuters). Repeated that rate hikes would be likely if inflation moves in line with their outlook and decisions will depend on economic and price developments at the time. Added that if the main scenario is realized, that would imply that conditions are close to a state of neutral rates (somewhat toned down in follow-up comments) while re-emphasizing the difficulties in calculating the actual levels. Still doesn't see a notable impact on trend inflation from yen depreciation. Acknowledged prolonged currency weakness is a risk factor though refrained from describing anything specific that might warrant a change in view. Remarked that individual board members' inflation projections partly reflect yen weakness and oil prices -- the latter seen as a broader upside risk to global inflation. BOJ still not in a position to elaborate on a reduction in JGB purchases as they continue to monitor effects from the March decisions. Asked about flexibility/discretion, Ueda replied that any explicit instruction to the financial markets department to taper buying in market operations would be preceded by an MPC decision.
BOJ leaves target rate unchanged, sees achievement of inflation target in second half of projection period:
Brief policy statement confirmed no change in the short-term rate target at 0~0.1% as widely expected. Most of the attention went to the April Outlook Report, which showed an initial FY26 core CPI forecast of 1.9% while FY25 was revised up to 1.9% from 1.8% and FY24 upgraded to 2.8% from 2.4%. Inflation discussions focused largely on the ex-fresh food & energy measure -- projected at 1.9% in FY24/25 and 2.1% in FY26 -- amid ongoing energy volatility and after Governor Ueda signaled future rate hikes would be based on underlying trend inflation. GDP forecasts were largely unchanged, seen tracking 1% in FY25/26, while FY24 was shaved to 0.8% from 1.2% reflecting soft private consumption. Commentary on growth increased emphasis on relative performance versus potential with brief mention of the output gap. Follows some discussion in recent speeches acknowledging awareness of external debates based on neutral/terminal rates. BOJ sees inflation risks skewed to the upside for FY24 but generally balanced thereafter. Signaled underlying inflation in the second half of the projection period is likely to be generally consistent with the price stability target.
Yen market disappointed by BOJ inaction, puts focus back on MOF:
Nikkei discussed initial market reactions to the BOJ decisions as yen was sold down into the 156 range vs dollar (weakest since May 1990) while 10-year JGB yield fell, reflecting disappointment over the lack of action against currency weakness. Some expected a reduction in JGB purchases given USD/JPY anchored by rate differentials. And, with business leaders expressing renewed concern over yen depreciation, such a step was seen as easier to implement compared to last month's historic policy change. Yet, the unusually brief policy statement did not contain any specific guidance on asset purchases, only referring to the March MPM that indicated JGB buying would remain at current ~JPY6T per month. Main implication is that markets are increasingly anticipating FX intervention with each shift lower. Article suggested the lack of BOJ action puts the ball back in MOF's court. Finance Minister Suzuki on Friday vowed a "solid response" to yen weakness, rephrasing repeated warnings. Story recalled similar circumstances in September 2022 when dovish BOJ messaging at the MPM added to yen pressures, prompting an intervention operation later that afternoon.
Tokyo inflation eases notably on high school tuition subsidies:
Tokyo core CPI rose 1.6% y/y in April, notably below consensus 2.2%. Follows 2.4% in the previous month and marks the lowest since March 2022. Ex-fresh food & energy inflation similarly moderated to 1.8% from prior 2.9%, also missing consensus 2.7%. Energy drags eased by 0.13 ppt reflecting slower declines in electricity and gas. But underlying softening was driven by major declines in high school tuition fees reflecting Tokyo government subsidies and relatively sharp deceleration in highly weighted non-fresh food. Added headwinds came from volatility in accommodation and stronger declines in household durables. Overall, Tokyo figures portend an extension of easing nationwide inflation. While headline effects apt to dampen BOJ rate hike expectations in the near term, speculation has been driven by BOJ rhetoric rather than data. Press discussions have continued to resonate from recent remarks by board members including Governor Ueda, who provided fairly clear indications that policy focus is leaning towards more rate hikes depending on underlying trend inflation with yen depreciation adding to risks, as well as an aim to taper JGB purchases at some point.
Hang Seng on track for best week since Dec-2022 amid continuous mainland inflows:
Hang Seng rose sharply Friday, extending week's rally to nearly 9% and had best week since 2011 (Bloomberg). Mainland investors have bought Hong Kong-listed stocks on net basis every day since 26-March via Southbound Stock Connect, turning HSI into best-performing major index in April, after languishing for months among worst (Bloomberg). Supportive measures from CSRC are aiding sentiment this week as Chinese securities regulator announced last Friday it would deepen cooperation with Hong Kong via five measures to consolidate city's status as international financial hub (SCMP). Notably CSRC will relax eligibility criteria for ETF Connect scheme, potentially doubling pool of choices and is welcomed by global fund managers (SCMP). It will also loosen listing rules for "qualified mainland industry leaders" wishing to go public in Hong Kong, which analysts noted slew of mainland firms expected to shift fundraising plans to the city following tightening of onshore listing rules and heed Beijing's call to consider Hong Kong as top offshore listing venue (SCMP).
Notable Gainers:
+25.8% 1456.HK (Guolian Securities): proposes to acquire shares of Minsheng Securities
+9.7% 105560.KS (KB Financial): reports Q1 gross operating income KRW4.412T vs StreetAccount KRW4.182T, NIM 2.11% vs SA 2.08%; proposes Q1 dividend KRW784/share
+7.8% 6861.JP (KEYENCE): reports FY net income attributable ¥369.64B vs FactSet ¥358.49B, revenue ¥967.29B vs FactSet ¥962.83B
+5.1% 4568.JP (Daiichi Sankyo): reports Q4 revenue ¥428.4B vs FactSet ¥407.12B, core operating income ¥23.0B vs FactSet ¥8.93B; to launch up-to-¥200.0B buyback, to run between 26-Apr and 15-Jan
+3.7% 883.HK (CNOOC): reports Q1 revenue CNY111.47B, +14% vs year-ago CNY97.71B
+1.6% 9434.JP (SoftBank Corp): to conduct 10-for-1 stock split, effective 1-Oct; launches tender offer to privatize SB Technology at ¥2,950/share
Notable Decliners:
-5.4% 4063.JP (Shin-Etsu Chemical): reports Q4 revenue ¥591.5B vs StreetAccount ¥595.55B, operating income ¥141.5B vs StreetAccount ¥172.52B; to launch tender offer for Mimasu Semiconductor Industry at ¥3,700/share
-4.6% BHP.AU (BHP Group): confirms all-share proposal delivered to Anglo American 16-Apr; presents terms
-2.6% 010950.KS (S-Oil Corp): reports Q1 operating profit KRW454.11B vs StreetAccount KRW509.67B, revenue KRW9.308T vs StreetAccount KRW9.529T
-2.3% 6702.JP (Fujitsu): reports Q4 revenue ¥1.113T vs StreetAccount ¥1.134T, operating profit ¥112.1B vs StreetAccount ¥170.48B
-0.2% 9613.JP (NTT DATA Group): reportedly set to appoint Chief Technology Officer Yutaka Sasaki as president to replace Yo Honma
Data:
Economic:
Japan
April Tokyo core CPI +1.6% y/y vs consensus +2.2% and +2.4% in prior month
CPI excl. fresh food & energy +1.8% y/y vs consensus +2.7% and +2.9% in prior month
Overall CPI +1.8% y/y vs consensus +2.5% and +2.6% in prior month
Australia
Q1 export price index (2.1%) q/q vs consensus (0.6%) and +5.6% in Q4
Import price index (1.8%) q/q vs consensus +0.1% and +1.1% in Q4
Q1 PPI +0.9% q/q vs +0.9% in Q4
PPI 4.3% y/y vs +4.1% in Q4
Singapore March
Manufacturing production y/y (9.2%) versus +4.4% in prior month
Markets:
Nikkei: 306.28 or +0.81% to 37934.76
Hang Seng: 366.61 or +2.12% to 17651.15
Shanghai Composite: 35.74 or +1.17% to 3088.64
Shenzhen Composite: 30.16 or +1.78% to 1728.49
ASX200: (107.10) or (1.39%) to 7575.90
KOSPI: 27.71 or +1.05% to 2656.33
SENSEX: (458.41) or (0.62%) to 73881.02
Currencies:
$-¥: +0.42 or +0.27% to 156.0590
$-KRW: +1.55 or +0.11% to 1373.7100
A$-$: +0.00 or +0.47% to 0.6549
$-INR: (0.02) or (0.02%) to 83.3313
$-CNY: +0.00 or +0.07% to 7.2444
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