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StreetAccount Summary - Asian Market Recap: Nikkei +0.46%, Hang Seng (0.22%), Shanghai Composite (0.07%) as of 04:10 ET

May 14 ,2024

• Synopsis:

  • Asia equities again ended mixed Tuesday. Markets that saw modest gains included Japan, South Korea and Taiwan. India is also higher for a second day although sentiment here remains capped on general election uncertainty. Australia ended down ahead of its budget, Greater China stocks leaned towards losses although the main Hong Kong and Shanghai boards were only slightly lower. Southeast Asia was mixed. US futures flat, Europe opened lower. US dollar largely unchanged, the yen was weaker again, other Asia currencies quiet. Treasury yields largely unchanged, JGB yields all higher with the 2Y and 30Y yields at multi-year highs. Oil contracts lower again, precious and industrial metals edging higher.

  • A second relatively quiet day with volumes marked lower again as investors wait for US PPI this evening and CPI tomorrow before resetting trades. Despite the subdued day, the MSCI Asia Pac ex Japan index still scaled a fresh 52W high, backed by gains in India and Taiwan. Japan markets bounced back a little from recent losses just as yields on several JGB tenors reached multi-year highs post the BOJ reduction in debt purchases on Monday, and despite more warnings from lawmakers and advisors over the BOJ hiking too soon.

  • Macro headlines were limited for a second day. Japan CGPI was a fraction ahead of consensus with import prices rising amid prolonged yen weakness. India retail inflation eased marginally although food prices remain elevated. Ahead, Australia's federal budget announcement Tuesday evening. Government likely to announce a back-to-back surplus in fiscal 2023-24 but concerns linger on revised stage-3 tax cuts and additional inflation relief measures.

  • Sony Group (6758.JP) has restructured the leadership team of its key games unit following cut to PS5 sales forecast and low turnout of new games. Agile Group (3383.HK) admitted it had defaulted for the first time on 6.05% 2025 dollar bonds with its grace period ending at Monday. Foxconn (Hon Hai, 2317.TT) reported a 72% increase in Q1 profit on AI server demand but the growth was lower than forecast. Qantas (QAN.AU) will suspend flights to Shanghai because of the slow recovery in demand. Shriram Finance (511218.IN) announced plans to sell its housing finance business to private equity group Warburg Pincus for $554.6M.

• Digest:

  • China special treasury bond issuance sparks expectations of follow-up rate cut:

    • Ministry of Finance on Monday evening confirmed plans to commence sales of CNY1T ($140.8B) in ultra-long special treasury bonds from Friday (Xinhua). Issuance to come via multiple tranches and completed by mid-November. Announcement prompted various takeaways. Bond market reactions were positive albeit has long been factored in since the NPC unveiling. Still, analysts now looking for follow-up RRR and/or policy rate cuts to free up more liquidity to supplement bond sales (Bloomberg, Reuters). Also, some discussions on the timing, coming against the backdrop of US ramp in tariffs on Chinese imports, follows markedly weak monetary/credit data released over the weekend, as well as a dearth in bond issuance in Q1. Economic growth optimism was largely absent, given markets were already disappointed by NPC guidance. Not much follow-through on QE speculation, even after Premier Li called for good use of "both conventional and unconventional policies and strengthen coordination between fiscal and monetary instruments" (Xinhua).

  • BOJ QT speculation gains traction after smaller than expected JGB purchase operation:

    • Nikkei discussed BOJ's JGB purchase operation Monday, which was downsized to JPY425B ($2.7B) from prior JPY475B for the first time since the March policy shift. Article noted announcement came as a genuine surprise to markets, which had expected the size to remain steady for now. While downplaying reactions this was a response to recent yen depreciation, market watchers interpreted the move as laying the groundwork for QT. Cited some thoughts BOJ is now likely to announce a formal reduction in JGB purchases at the June 13-14 MPM. Market expectations have moved relatively swiftly after BOJ in March guided JGB purchases to remain steady for the time being. Article noted Financial Markets Department has discretion over operation execution, though had not made any notable changes since March. Hence, yesterday's change was seen as meaningful and thought to reflect BOJ's assessment that some reduction was unlikely to trigger a spike in JGB yields. Still, size remains well within stated ranges and a bona fide reduction requires a formal MPM decision.

  • Japan sees evidence of yen weakness adding to cost pressures:

    • Nikkei discussed evidence of yen depreciation becoming a bigger driver of price hikes, posing hawkish implications for BOJ policy. According to Teikoku Databank analysis, Japan's leading 195 food makers raised prices on 417 items in May with the magnitude averaging 31%, the highest since the survey began in 2022. Weak yen adding to elevated materials costs and logistics expenses. Respondents cited yen weakness for price hikes on 28.9% of items so far this year, already well above the 11.4% logged in all of 2023. Thinktank warned that a prolongation or strengthening of yen depreciation begets another wave of price hikes in autumn. Noted latest CGPI data for May showed accelerating import price increases since February, which stands to permeate into retail prices. Article recalled recent remarks by BOJ Governor Ueda indicated growing concern about FX risks, acknowledging a possible weakening in the BOJ's assumption that cost-push factor via import prices would moderate while also noting inflation may now be more susceptible to FX fluctuations than in the past.

  • Australian federal budget surplus to be short-lived:

    • Treasurer Chalmers is set to present the federal budget at 7:30 pm AEST today. Latest information brought attention back to fiscal sustainability with indications of a A$9.3B surplus for the year ending June to presage larger than expected deficits for the next three years (AFR). Near term focus has been on whether fiscal policy would help or hinder RBA efforts to bring inflation back down to its target range, as the much-debated reworked Stage 3 tax cuts and additional cost of living relief measures prompted concerns the budget will add to inflation pressure. Government unusually released its inflation projections early and were lower than RBA estimates, prompting some debate over government motives to insulate against scrutiny in the event RBA hikes rates again, while also encouraging a narrative more conducive for a rate cut by the next federal election in May next year. Still, government forecasts were met with some skepticism. Further ahead, deficit projections reflect structural growth in welfare and interest payments, while the Future Made in Australia plan will invest A$ billions in strategic sectors, underscoring longer term debt management challenges.

  • Two China "Megabanks" to start CNY60B TLAC bond sale:

    • Two Chinese state-owned "megabanks" will begin combined CNY60B ($8.3B) debt sale Wednesday amid push to build capital and support investment in wider economy (Bloomberg). ICBC (1398.HK) will issue CNY20B in four-year total loss-absorbing capacity (TLAC) bonds redeemable in three years, CNY10B in six-year bonds with conditional redemption at end of fifth year (Reuters). Bank of China (3988.HK) will issue CNY 30B alsoin two tranches beginning Thursday. TLAC bonds are relatively new instruments issued by globally systemically important banks (G-SIBs) and can be converted into common equity in disposal stage or during risk event. Earlier this year, China's five megabanks said they would issue up to CNY440B in TLAC bonds, first such issuance by Chinese banks, in drive to beef up capital just as Beijing pushed lenders to ensure plentiful credit supply.

  • Notable Gainers:

    • +22.4% 1821.HK (ESR Group): confirms it has received non-binding conditional privatisation proposal from consortium of investors comprising Starwood, Sixth Street and SSW Partners

    • +13.4% 1802.JP (Obayashi): reports FY operating income ¥79.38B vs FactSet ¥74.04B; revises FY22-26 medium-term business plan

    • +10.8% 5020.JP (ENEOS): reports FY operating profit ¥464.95B vs FactSet ¥436.76B; terminates previous buyback announced on 9-Feb; to launch up to 680M-shares buyback from 15-May to 31-Mar-25

    • +6.9% 2587.JP (Suntory Beverage & Food): reports Q1 operating income ¥33.88B vs FactSet ¥28.23B

    • +6.4% 7269.JP (Suzuki Motor): reports Q4 operating profit ¥118.9B vs FactSet ¥105.36B; declares year-end dividend ¥67/share vs guidance ¥55/share

    • +6.3% 7272.JP (Yamaha Motor Co.): reports Q1 operating income ¥77.97B vs FactSet ¥73.34B

    • +4.3% 9984.JP (SoftBank Group): reports Q4 net income attributable ¥231.08B, Vision Funds income (¥96.74B) vs year-ago (¥297.54B)

    • +2.2% 500440.IN (Hindalco Industries): Novelis files form F-1; listing on NYSE to be under symbol "NVL" through Morgan Stanley, BofA Securities and Citigroup

    • +1.0% 008930.KS (Hanmi Science Co.): co-CEO Lim Jong-hoon reportedly seeking to dismiss co-CEO Song Young-sook

  • Notable Decliners:

    • -12.9% 3383.HK (Agile Group Holdings): will not be able to fulfill all payment obligations under offshore debts after missing recent payment

    • -8.9% 1812.JP (Kajima): reports FY operating income ¥136.23B vs FactSet ¥146.56B; issues FY24-26 medium-term business plan

    • -6.8% 8601.JP (Daiwa Securities): to acquire 21.5M shares in Aozora Bank at ¥2415.5/share through third-party allotment

    • -5.9% 4021.JP (Nissan Chemical): reports FY revenue ¥226.71B vs FactSet ¥226.79B

    • -5.0% 097950.KS (CJ CheilJedang): reports Q1 revenue KRW7.216T vs FactSet KRW7.284T

    • -0.5% 5803.JP (Fujikura): reports FY results; guides FY ending Mar-25 operating income ¥70.00B vs FactSet ¥73.37B

    • -0.2% BHP.AU (BHP Group): Anglo American board rejects revised takeover offer from BHP

• Data:

  • Economic:

    • Japan April

      • CGPI +0.9% y/y vs consensus +0.8% and revised +0.9% in prior month

    • India April

      • CPI +4.83% y/y vs consensus +4.80% and +4.85% in prior month

  • Markets:

    • Nikkei: 176.60 or +0.46% to 38356.06

    • Hang Seng: (41.35) or (0.22%) to 19073.71

    • Shanghai Composite: (2.25) or (0.07%) to 3145.77

    • Shenzhen Composite: 6.20 or +0.35% to 1773.00

    • ASX200: (23.20) or (0.30%) to 7726.80

    • KOSPI: 3.13 or +0.11% to 2730.34

    • SENSEX: 376.23 or +0.52% to 73152.36

  • Currencies:

    • $-¥: +0.26 or +0.16% to 156.4660

    • $-KRW: +1.11 or +0.08% to 1368.3000

    • A$-$: (0.00) or (0.08%) to 0.6603

    • $-INR: (0.00) or (0.00%) to 83.5097

    • $-CNY: +0.00 or +0.04% to 7.2362