May 20 ,2024
Synopsis:
Asian equities advanced Monday. MSCI APAC ex-Japan index hit two-year highs. Nikkei outperformed while Kospi, ASX and Shanghai Composite all higher. Hang Seng hit new high since August. India off as Mumbai went to polls. S&P 500 and Nasdaq futures up slightly. European markets opened higher. US Treasury yields little changed while JGB 10Y yield hit 11-year high. Dollar steady against yen while stronger against won and kiwi. Broad-based gains in metals with gold and copper hitting fresh record highs. Crude edging up. Bitcoin drifting higher.
Asian stocks benefited from positive headline effects from investors' bet of Fed's likely pivot to interest rate cuts and latest China property rescue measures. Meanwhile some market watchers expressed skepticism of the measures, arguing costlier efforts needed to meaningfully clear excess inventory and revive housing demand. Execution risks and pressure on bank interest margins also discussed. Meanwhile, China left 1Y and 5Y LPRs unchanged as expected after PBOC kept MLF rate steady last week. Commerce Ministry also announced anti-dumping investigation into thermoplastics imports from US and EU following Biden administration's tariff hike. Also warned of countermeasures against EU anti-subsidy probes.
Speculation around BOJ rate hike timing continues with Nikkei discussing prospects of a July increase. Thailand's economy grew 1.5% y/y in Q1, topping analysts' expectations for 0.8% expansion while government also trimmed growth forecast for 2024 due to exports seen to increase at slower pace than previously though. Lai Ching-te sworn in as new leader of Taiwan while he said island open to engagement with Beijing and rejected latter's territorial claims. Iranian President Raisi and foreign minister killed in a helicopter crash while Supreme Leader Ayatollah Ali Khamenei has said there "won't be any disruption to the country's affairs" after the incident.
Star Entertainment (SGR.AU) confirmed receipt of approaches about potential deals, including one from a consortium that includes Hard Rock Hotels & Casinos. Apple COO Jeff Williams reportedly visited TSMC (2330.TT) recently while two companies discussed Apple's development of its own AI chips and bulk contracting of TSMC's whole batch of advanced production capacity to produce related chips. AstraZeneca (AZN.LN) plans to build a $1.5B cancer drug manufacturing facility in Singapore.
Digest:
China LPRs unchanged as expected:
LPRs were unchanged as widely expected with 1y at 3.45% and 5y at 3.95%. Reuters poll showed 27 out of 33 respondents looked for no change to either tenor, while remainder pointed to a cut of 5~20 bp, mainly in the 5y year rate. Article recalled preceding MLF rate was unchanged last week as yuan weakness continued to constrain scope for monetary easing. Additional factor stems from impending dividend payment season, much of which is paid overseas and requires currency conversion. Cited HSBC forecast for $66B in dividend payments this year. Still, skew in 5y LPR cut projections consistent with spate of real estate sector support measures announced last week that included a removal of the floor rate on mortgage loans for first and second home purchases and lowering of minimum downpayment ratios. PBOC also set up a CNY300B ($42B) relending facility for affordable housing. However, press takeaways noted size falls short of analyst estimates pointing to some CNY1T required to clear inventories. Still, resurgence in stimulus optimism provided notable support to equity markets and stimulating further speculation of follow-up PBOC easing via RRR or policy rate cuts.
China real estate sector support seen as meaningful but may not be enough:
Press takeaways after last week's series of real estate sector support announcements acknowledged that measures were forceful though size of financing pales in comparison to analyst estimates of the sheer amount of housing inventories (Bloomberg, Reuters). PBOC's CNY300B ($42B) relending facility for affordable housing is expected to translate to ~CNY500B expansion in effective credit as funds can cover 60% of loan principal. But analysts forecast at least CNY1T needed to clear inventories -- raising questions about sustained headline effects. Additionally, mortgage floor rate deregulation began in 2022 and has led to lower average new loan rates but failed to ignite demand. Furthermore, easing measures set to further squeeze NIMs, already at a record-low 1.69% at the end of last year, well below the 1.8% threshold regarded as the minimum required to maintain reasonable profitability. Fundamentally, concerns continue to surround depressed household sentiment as housing delivery and property developer solvency issues persist.
Debate over early BOJ rate hike continues:
Nikkei discussed prospects for an early BOJ rate hike with speculation encouraged by yen depreciation and hawkish signals from board members. Noted that 2-year JGB yield at 0.32% implies a 25 bp rate hike in H2 this year and the policy rate moving towards 0.5% next year. Article highlighted the main dynamic as hawkish BOJ rhetoric in the context of yen weakness after Governor Ueda said on 8-May that a rate hike would be warranted sooner if inflation surprises to the high side. FX factor eroding household purchasing power complicating BOJ efforts to maintain accommodative policy, with soft private consumption reaffirmed by the latest Q1 GDP figures. Article cited JPMorgan forecasts for a 25 bp hike in July and another by year-end. BofA also now looks for a 25 bp hike in July, revised from September, and further moves in January and Q2 next year. However, BofA noted BOJ needs time to build evidence that underlying inflation is building as justification for a move. Meanwhile, others such as Nomura are skeptical of an early rate hike and argue BOJ wants to see a steeper yield curve to stem yen depreciation. Moreover, some recognize limits of what BOJ can do alone given the US dynamics are a bigger driver.
Iran President Raisi killed in helicopter crash:
Iranian state-run media confirmed President Raisi killed in helicopter crash in eastern Azerbaijan on Sunday (Reuters, Bloomberg, FT). Cause of crash unknown as yet though helicopter was flying in dense fog just before the incident. Others aboard the helicopter also perished. Among them was Iran's Foreign Minister, Hossein Amir-Abdollahian. Raisi to be succeeded by Mohammad Mokhber, Iran's first vice-president, on a temporary basis before an election that must be held within 50 days. Market impact muted in Asian trade Monday with Raisi's death not expected to result in major shifts in policy such as Iran's nuclear program, its role in Middle East or relations with other countries - all which remain under domain of Supreme Leader Khamenei. Raisi was considered a hardliner who was mooted as a potential successor to Khamanei and who oversaw deterioration of relations with the west in favor of closer ties with China and Russia. Under Raisi's presidency, Iran has lifted crude output in recent years with most of it shipped to China. Iran has also played a key role in supplying Russia with drones in its war in Ukraine.
China announces anti-dumping probe into thermoplastics imports following US tariff hike:
China Ministry of Commerce announced anti-dumping probe into thermoplastics imports from EU, US, Taiwan and Japan (FT). Investigation into polyoxymethylene copolymer, used in consumer electronics and auto industries, to last a year with option of six month extension. Comes after Commerce Ministry vowed to take "resolute measures" following Biden administration deciding to hike tariffs on imports from China such as EVs. China has also left open possibility of further countermeasures after state-media affiliated social media post vowed retaliation against EU if it continues with anti-subsidy investigations (Bloomberg). EU has opened several trade and subsidy probes into Chinese imports, latest being an investigation into tinplate steel (Reuters). Limited scope of China's probe fits with thoughts authorities seeking to avoid tit-for-tat cycle against countries it runs large trade surpluses with (FT). However, risk of broader trade war in 2025 seemingly contingent on outcome of US election after Trump repeated his call for US tariffs on several other Chinese products (Reuters).
Notable Gainers:
+20% SGR.AU (Star Entertainment Group): confirms receipt of confidential, unsolicited, preliminary and non-binding interest from Hard Rock Hotels & Resorts (Pacific)
+7.5% 9868.HK (XPeng, Inc.): co-president Brian Gu reportedly says firm will launch new products in H2 including those using large-scale AI model
+4.7% 5406.JP (Kobe Steel): issues FY24-26 mid-term management plan; guides FY24-26 ROE at 10% level
+4.7% 2128.HK (China Lesso Group Holdings): unit EDA Group sets indicative price range for 97.6M-share Hong Kong IPO at HK$2.28-3.06/share
+4.2% 4063.JP (Shin-Etsu Chemical): to launch up-to-¥100B buyback, to run from 20-May through 29-Nov
+2.2% 5401.JP (NIPPON STEEL): vice chairman Takahiro Mori reportedly to seek support for US Steel purchase in Pittsburgh next week
+0.4% 8601.JP (Daiwa Securities): issues FY2024- FY2026 mid-term management plan, targets ordinary income of ¥240B or higher; revises FY24-26 dividend policy; minimum of ¥44/share per year
Notable Decliners:
-13.6% 067310.KS (HANA MICRON): launches 5.0M-share placement at KRW22,500/share
Data:
Markets:
Nikkei: 282.30 or +0.73% to 39069.68
Hang Seng: 82.61 or +0.42% to 19636.22
Shanghai Composite: 17.12 or +0.54% to 3171.15
Shenzhen Composite: 8.39 or +0.47% to 1793.98
ASX200: 49.30 or +0.63% to 7863.70
KOSPI: 17.52 or +0.64% to 2742.14
SENSEX: 0.00 or 0.00% to 73917.03
Currencies:
$-¥: +0.05 or +0.03% to 155.7170
$-KRW: +3.94 or +0.29% to 1357.9500
A$-$: +0.00 or +0.03% to 0.6693
$-INR: (0.02) or (0.03%) to 83.2736
$-CNY: +0.01 or +0.10% to 7.2310
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