Jun 07 ,2024
Synopsis:
Asian equities ended Friday mixed. South Korea outperformed after missing Thursday's rally because of a holiday but also on reports of SK's potential hook up with TSMC to develop AI-related chips. Elsewhere markets soft with losses in Japan, most of Greater China, Taiwan and parts of Southeast Asia. India markets sharply higher to record a weekly gain in one of its most volatile periods in years. US futures slightly higher, Europe opened mixed. US dollar flat with some modest gains in Asia currencies. Treasury yields higher across tenors, JGB yields mixed. Crude oil contracts, precious and industrial metals largely unchanged.
Asia markets edged lower as the day progressed in a quiet day's trading with few regional catalysts to change market direction. Ahead tonight, US non-farm payrolls with a modest weakening of the job market expected by economists following falls in recent job openings and ADP payrolls. Regional focus was on China where may exports were better than expected but early analysis pointed to low base-year effects and firming of global demand. Imports were also lower than forecast, implying domestic demand is still weak.
Elsewhere, the RBI left rates unchanged and retained its hawkish "withdrawal of accommodation" stance, setting to one side PM Modi's narrower-than-expected general election win. India markets completely paring losses from Tuesday and re-approaching record highs. Japan personal spending grew for first time in more than a year while forex reserves dipped sharply in the wake of last month's yen intervention.
Mitsubishi UFJ (8306.JP) and Sumitomo Mitsui Financial (8316.JP) are planning to 'dramatically' reduce their $8.5B stakes in Toyota Motor (7203.JP). Japan's securities regulator is to recommend punitive action against MUFG (8306.JP) for sharing client information without their permission. CATL (300750.CH) and Gotion High Tech (002074.CH) were named in a US select committee report as companies that have ties to 'slave labor' in Xinjiang. Samsung Electronics (005930.KS) union staged its first ever labor stoppage Friday but the walkout is thought to have little impact on chip production. SK Inc (034730.KS, SK Hynix 000660.KS) and TSMC (2330.TT) have agreed to partner in HBM offerings and expand AI chip collaboration, according to local media reports.
Digest:
RBI holds base rate steady at 6.5%, raises FY GDP growth forecast:
Reserve Bank of India held its repo rate steady at 6.5%, as widely expected, as inflation concerns around inflation outweighed pressure to cut. Bank's MPC also kept its "withdrawal of accommodation" stance in signal no rate pivot likely in short term. MPC vote to maintain status quo was four to two. Bank also increased its FY (to Mar-25) GDP growth forecast to 7.2% from 7.0%, maintained inflation forecast at 4.5%. Governor Shaktikanta Das said MPC needed to retain focus on inflation risks, especially related to food. Decision comes despite narrower-than-expected general election win for NDA alliance, which left PM Modi and BJP needing support of allies. Analysts said possible slower pace of promised fiscal reform, higher welfare payments that could stoke inflation further, may influence RBI rate decision in future however June's MPC meeting came too soon after election outcome to merit weight this time.
China's exports grow faster than expected in May while import growth slows:
Customs exports grew 7.6% y/y in May, beating Reuters forecast of 6% and 1.5% growth in April; while imports rose 1.8%, falling short of 4.2% consensus and April's 8.4% rise, leading to trade surplus of $82.62B, compared with $73B expected and $72.35B in prior month. Rising exports confirmed some economists' views that global demand is giving bigger boost to China's economy than previously anticipated and foreign tariffs making little impact in near term. Recall Caixin Manufacturing PMI showed new export orders grew for fifth consecutive month in May despite at slower pace. Bloomberg added Beijing relying on overseas sales to offset weak domestic consumption amid protracted property woes, while cautioning China's strong exports of lower-value goods, including steel and animal feed, are starting to generate backlash among trade partners. NBS's official manufacturing PMI's gauge of new export orders signaled contraction for first time in three months.
Indian equities rebound as election shock fades:
Indian markets continue rebound following post-election selloff with Nifty 50 up 8% from Tuesday's lows, corresponding with drop in volatility with VIX down 40% from this week's high to lowest levels in a month. Initial shock from PM Modi's smaller-than-expected election win appears to have faded with policy continuity considered likely to remain a feature even in a coalition government. Economists retained positive outlook on Indian market, economy and corporate earnings, though influence of coalition partners has generated debate about reorienting of policy priorities. Government seen continuing with fiscal consolidation though with an altered policy mix favoring welfare spending, which has been attributed for this week's outperformance of consumer stocks (Bloomberg). At the same time, bond inclusion in JP Morgan index this month expected to continue attracting foreign flows, underpinning expectations 10Y yield will fall back below 7% (Bloomberg).
China imposes housing construction curbs to fight supply glut:
Nikkei reported China has moved to restrict housing construction in some areas in its latest attempt to resolve the glut of unsold homes weighing on prices. New rules stop local authorities from selling land usage rights to developers in cities with unsold housing inventories that would take three years or more to clear -- a criterion that more than 40% of major cities meet. Article noted property measures unveiled in May was seen as too small to prompt a meaningful drawdown in housing inventories, estimated to require several trillions of yuan in funding. Cities can resume selling once inventories drop below the three-year threshold. Article cited a Caixin report estimating more than 40% of China's 100 largest cities would need more than three years to clear their stock of new housing, up from less than 20% at the end of 2022 and around 30% at the end of 2023. At least one city would need more than a decade to clear its inventory at the current pace. Nikkei also noted restrictions would hit a vital source of income for local governments, which saw land sale revenues down 33% in 2023 from the 2021 peak, and likely to fall further if limits are applied strictly.
Slim majority anticipate BOJ dialing back JGB purchases next week:
Broad Bloomberg survey (n=50) found 54% expect BOJ to announce a formal reduction in JGB purchases from the current monthly pace of ~JPY6T at next week's MPM. Followed an earlier Bloomberg report indicating the topic would likely be discussed next week while paying due caution to market impacts. Most see the possibility of such a move as a response to yen weakness. However, views on specifics varied -- several see a reduction by JPY1T, others suggested a smaller cut at the start, while some only expect BOJ to signal a more concrete plan in coming months. Meanwhile, article noted rate hike expectations brought forward with one-third forecasting a July move compared with 19% in an April poll. Calls for October fell to one-third from 41%. Only one economist predicted a rate hike next week. Story contained some discussion regarding the blurring of rate policy with JGB purchases as well as calls for improved predictability. Some 65% of respondents supported some sort of roadmap for JGB purchase adjustments.
Notable Gainers:
+7.1% 000660.KS (SK Hynix): SK, TSMC reportedly agree to partner up in HBM field, to strength AI chip collaboration
+4.9% 6920.JP (Lasertec): responds to Scorpion Capital's short report; notes company has been receiving high level of demand for the ACTIS Series; discusses accounting practices concerning inventories
+1.6% 2702.JP (McDonald's Holdings): reports May same-store sales +4.9% y/y
Notable Decliners:
-12.9% 4507.JP (Shionogi & Co.): preliminary Phase 2 results for obesity treatment S-309309 didn't meet expectations
-7.2% 9866.HK (NIO Inc): reports Q1 adjusted EPADS (CNY2.39) vs StreetAccount (CNY2.20)
-1.7% 8306.JP (Mitsubishi UFJ Financial): Japan's SESC reportedly to recommend FSA take administrative actions against MUFG's units for sharing client information
-1.6% 7203.JP (Toyota Motor): Mitsubishi UFJ, Sumitomo Mitsui reportedly planning to "dramatically" reduce or divest stakes in Toyota Motor
Data:
Economic:
China
May trade balance $82.62B vs consensus $73B and $72.35B in prior month
Exports +7.6% y/y vs consensus +6% and +1.5% in prior month
Imports +1.8% y/y vs consensus +4.2% and +8.4% in prior month
Japan
April household spending +0.5% y/y vs consensus +0.6% and (1.2%) in prior month
Spending (1.2%) m/m vs consensus +0.2% and +1.2% in prior month
Markets:
Nikkei: (19.58) or (0.05%) to 38683.93
Hang Seng: (109.85) or (0.59%) to 18366.95
Shanghai Composite: 2.48 or +0.08% to 3051.28
Shenzhen Composite: 1.64 or +0.10% to 1679.31
ASX200: 38.20 or +0.49% to 7860.00
KOSPI: 33.17 or +1.23% to 2722.67
SENSEX: 1,307.15 or +1.74% to 76381.66
Currencies:
$-¥: (0.05) or (0.03%) to 155.4930
$-KRW: +2.26 or +0.17% to 1366.6400
A$-$: +0.00 or +0.05% to 0.6669
$-INR: (0.07) or (0.09%) to 83.4003
$-CNY: (0.00) or (0.03%) to 7.2430
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