May 30 ,2024
Synopsis:
Asian equities ended weaker across the region Thursday. Hong Kong stocks down sharply for a second day in an across-the-board selloff to reach month-long lows, mainland stocks also reversed yesterday's gains to close down. Steep losses in Tokyo, Seoul and Taipei; Australia also at four-week lows. Southeast Asia all lower, India down despite some confidence returning over its general election outcome. US futures lower, Europe opened mixed. US dollar stronger, most Asia currencies weaker except the yen, which is notably stronger. Treasury yields mixed after overnight gains, JGB yields dipping slightly. Crude oil, precious metals and industrial metals all down.
Asia stocks sold off sharply from the bell Thursday following a weak US bond auction overnight that added to hawkish Fedspeak late Tuesday to send Treasury yields to month-long highs. Also overnight, the US dollar DXY index rose around 0.5%, placing fresh pressure on Asian currencies that in turn weighed on equities Thursday. Many of the region's exchanges now at one-month lows with sovereign bond yields conversely at one-month highs. Hotter-than-expected inflation prints in Australia and Germany yesterday added to market jitters over higher-for-longer interest rates especially given oil prices extending recent gains.
The yuan in focus again as the onshore rate reached six-month lows against the dollar. Cross also trading towards upper limit of 2% tolerance range prompting more discussion over whether PBOC should let the currency weaken further. The yen advanced today on some haven demand following overnight bond movement markets and increased geopolitical risks. Taiwan Q1 GDP grew 6.5%, in line with expectations. Thailand set for fresh political turmoil with the attorney general setting charges against former PM Thaksin.
Toyota Motor (7203.JP) said April sales fell 4.5% with output also lower following a Prius recall and a sharp drop in sales in China. China Vanke (2202.HK) is said to be in advanced talks over a CNY50B ($6.9B) loan from major banks in what would be Asia ex Japan's largest ever loan deal. SK Group's (034730.KS) chairman was ordered to pay $1B to his wife in a divorce suit, far lower than what she had been asking for; SK stock substantially higher on the report. BHP Group (BHP.AU) said it has walked away from its proposed $50B offer to buy Anglo American (AAL.LN) after Anglo refused it another extension to its offer deadline.
Digest:
Markets saw latest BOJ rhetoric posing little resistance to rising JGB yields:
Nikkei discussed BOJ board member Adachi's speech and Q&A on Wednesday, focusing on JGB purchases amid ongoing market speculation of a near term tapering announcement. Adachi supports an eventual tapering yet reaffirmed operations would depend on prevailing market conditions. Added that an excessive rise in yields based on expectations of QT would be placing the cart before the horse. Article suggested latest rhetoric so far posing little implications to the status quo, recalling BOJ's current buying pace of around JPY6T per month, within a stated guidance range of JPY5T~JPY7T. JGB market still reverberating from an unexpectedly downsized operation on 13-May, bringing forward expectations of a formal tapering announcement. In response to a question about raising the predictability of tapering, Adachi noted the difficulty in making a decision amid caution that doing so would encourage a build-up of expectations for the next stage. Reaffirmed a phased approach and initial stage would be left to the discretion of the Financial Markets Department rather than pre-empting with a formal announcement. Nikkei JGB market wrap for Wednesday indicated traders saw no signs BOJ is seeking to correct market expectations of policy normalization, validating JGB selling pressure.
Yuan set to end May weaker against all major peers:
Bloomberg noted yuan has depreciated against all 31 major currencies expect Argentine peso in May and is once again trading at upper end of fixed trading band against dollar. Onshore yuan hovering around weakest level since November. More concerning is it's likely the first month in 2024 that yuan has fallen despite a broad drop in greenback as pressure mainly from lack of confidence in China's fundamentals and investors will keep offloading Chinese assets for higher returns elsewhere. Beijing's underwhelming stimulus, signs of persistent fund outflows and trade tension have weighed on sentiments, and China's deflation risks seen likely to push dollar-yuan higher. Meanwhile, there are thoughts that policymakers may be taking advantage of recent dollar weakness to slowly guide yuan weaker to boost exports. Analysts pointed to yuan weakness and capital outflow in vicious cycle as Bloomberg reported China's capital outflow surged to highest since 2016 in April.
Australian CPI takeaways see risk of rate hike amid persistent domestic inflation:
Takeaways from hotter-than-expected Australian April CPI reinforced sticky inflation concerns emphasized by RBA in May policy statement. Along with headline surprise, economists pointed out services inflation rose to 4% and non-tradeable inflation at 5%. There was a view domestic inflation pressures heightens risk of elevated inflation prompting RBA to conclude CPI will take longer to return to target. Speaking today RBA Assistant Governor (Economics) Hunter acknowledged CPI data confirmed continued strength in several categories and RBA is mindful of inflationary pressure weighing on households (Bloomberg). While print not considered material enough on its own to pull RBA into a more hawkish stance, risk of a rate hike remains with central bank seen retaining option of tightening again. At a minimum data reinforces expectations of a higher-for-longer RBA with markets pricing out rate cut until mid-2025 at earliest. Economists have also warned of upside inflation risks from federal and state budget subsidies, income tax cuts and another outsized minimum wage hike (decision due Monday).
Analysts remain bullish on Indian markets:
Analysts remain positive on Indian assets beyond election, with stocks, bonds and rupee among Goldman Sachs' top EM picks (Bloomberg). Analysts argued earnings growth to boost equities, stable finances and falling inflation to aid bonds and ample FX reserves to support currency. S&P raised its outlook on India's BBB-rating to 'positive' from 'stable', citing political stability, economic reforms and infrastructure investment supporting economic growth (Bloomberg). Also flagged credit rating upgrade in next 12-18 months, pointing to polices aimed at reducing interest burden. Comes ahead of Indian bonds' inclusion in JPM indexes next month, which has long been expected to boost foreign inflows. Article noted $20-25B of inflows to Indian bonds expected over next 10 months to March. Another Bloomberg highlighted example of how China bond inflows totaled just ~10% of predictions in 2021 when its bonds were included in global indexes in 2019. Some thought Indian bond inflows will also fall short of expectations. However, fixed income analysts argue Indian bond market relatively more attractive from a fundamental standpoint, while China's comparatively weaker economy and geopolitical tensions expected to further encourage allocations to India.
Thailand set for more political upheaval as former PM Thaksin charged:
Thailand's Attorney General has indicted former PM Thaksin Shinawatra on lèse-majesté charges arising from 2015 interview with South Korea newspaper (Reuters). In interview, Thaksin alleged to have said privy councilors supported 2014 coup; subsequent military-appointed defense minister instructed judge to take legal action against Thaksin, who had already fled Thailand (BangkokPost). Thaksin lawyers say his words were doctored, confident of winning case. But Thaksin charges come amid pending legal move against current PM Srettha over ministerial appointment, and separate case that may result in dissolution of election-winning Move Forward Party. Bloomberg cited analysts saying latest legal action on political figures in bloc opposed to establishment will roil markets further, already unsettled by political impasse in forming government last year, dispute between PM Srettha and Bank of Thailand over interest rates. SET index and baht currency among worst performers in Asia YTD amid delays to budget implementation, new government's stimulus agenda.
Notable Gainers:
+16.0% 531162.IN (Emami Ltd): reports Q4 revenue from operations INR8.91B vs FactSet INR8.69B
+9.3% 034730.KS (SK): SK chairman ordered to pay KRW1.38T to wife in divorce
+1.2% 6758.JP (Sony): Sony Music reportedly in talks to acquire Queen's music catalog
Notable Decliners:
-4.5% 500470.IN (Tata Steel): reports Q4 consolidated EPS INR0.49 vs year-ago INR1.40
-1.9% 5711.JP (Mitsubishi Materials): to acquire H.C. Starck Holding for $134.5M (around ¥21B)
-1.8% 7203.JP (Toyota Motor): reports April global production (4.0%) y/y to 756,254
-1.7% BHP.AU (BHP Group): walks away from talks with Anglo American
-0.9% 8015.JP (Toyota Tsusho): to conduct 3-for-1 stock split, effective 1-Jul
-0.6% 5.HK (HSBC Holdings): Expobank completes acquisition of HSBC's Russian unit; terms undisclosed
Data:
Economic:
Australia
Q1 private capital expenditure +1.0% q/q vs consensus +0.6% and revised +0.9% in Q4
April building approvals (0.3%) m/m vs consensus +1.8% and revised +2.7% in March
New Zealand April
Building permits m/m (1.9%) versus (0.2%) in prior month
Markets:
Nikkei: (502.74) or (1.30%) to 38054.13
Hang Seng: (246.82) or (1.34%) to 18230.19
Shanghai Composite: (19.34) or (0.62%) to 3091.68
Shenzhen Composite: (8.02) or (0.46%) to 1726.12
ASX200: (37.40) or (0.49%) to 7628.20
KOSPI: (41.86) or (1.56%) to 2635.44
SENSEX: (529.44) or (0.71%) to 73973.46
Currencies:
$-¥: (0.58) or (0.36%) to 157.0700
$-KRW: +6.50 or +0.47% to 1377.9800
A$-$: (0.00) or (0.05%) to 0.6607
$-INR: (0.02) or (0.02%) to 83.3617
$-CNY: (0.00) or (0.01%) to 7.2487
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