Jun 10 ,2024
Synopsis:
Asia equities ended mixed Monday in a holiday-affected session. Japan stocks ended higher after the yen weakened considerably late Friday post the close, and India is also a few points higher. South Korea, Singapore lower, Thailand underperformed to hit fresh 3.5-year low. Mainland China, Hong Kong, Taiwan and Australia all closed for holidays. US futures flat, Europe weaker at the open post the weekend's election results. US dollar higher with the DXY index back above 105, euro at month-long lows, yen weaker and past 157 per dollar again. Treasury yields higher across tenors, JGB yields also up. Little movement in oil contracts, gold seeing more weakness following Friday's declines, industrial metals little changed.
With much of the region closed and few catalysts to excite traders, Asia saw a quiet day's trading with few movements outside of Japan's 1% gain. This was largely following a yen weakening Friday evening post the close that benefited exporters, with little pushback from the BOJ or Finmin today to counter the currency's move back toward 157, close to the level that spurred intervention last month.
Elsewhere, sentiment rocked in European markets that saw the euro dip sharply on news of the far-right surge in European parliament elections, and France's President Macron calling for a snap general election. Regionally, Japan revised Q1 GDP saw annualized contraction marginally shaved. Capex also tweaked to a milder decline following MOF corporate survey. Narendra Modi sworn in as India's PM but is still facing demands from its coalition partners. Thailand's government to accelerate investment spending and set a new GDP growth target of 2.5% for this year. Malaysia's government shelved a blanket fuel subsidy to save MYR4B a year but will likely face political repercussions.
Hitachi (6501.JP) is to invest an additional $4.5B in clean-energy transition by 2027. Nexon Games (225570.KS) said it will release its long-awaited First Descendant game on 2 July. Nine Entertainment (NEX.AU) said its chairman Peter Costello had resigned to be replaced by his deputy chair.
Digest:
BOJ seen discussing JGB purchase reduction this week:
Nikkei preview of this week's BOJ meeting highlighted attention on JGB purchases amid expectations for a reduction in response to yen weakness. Suggested that board members would consider scaling back purchases, though a BOJ insider noted the program should be retained as a stabilizing tool in case bond yields spike. Article noted broad external expectations for a reduction from the current monthly pace of JPY6T ($39B). Furthermore, with the current pace roughly matching redemptions, cited thoughts that a significant downsizing to JPY5T would be interpreted as an effective quantitative tightening. Hence, most economists look for a minor tweak (echoing an earlier Bloomberg report) in a symbolic gesture to demonstrate the BOJ is doing something about yen weakness. Progressive reductions stand to be another source of debate going forward as Deutsche looks for monthly buying to be pared to JPY3T at the December MPM. Meanwhile, no rate hike expected this month, but a recent QUICK bond market poll found 38% of 122 bond market participants looking for a move at the July 30-31 meeting.
Japan Q1 GDP revisions negligible:
Revised figures showed Q1 GDP contracted 1.8% q/q annualized compared to 2.0% in the first preliminary estimates. Non-annualized figure was unchanged at a 0.5% contraction. Main development was an upward revision to private inventories, lifting its contribution by one-tenth. Following the MOF corporate survey, private non-residential investment decline was shaved to 0.4% q/q from 0.8%, though contribution was little changed. Private consumption and residential investment were unchanged. Tweaks to external demand resulted in marginal downgrade to exports. Going forward, recall Q2 consensus forecast looks for a rebound, reflecting temporary effects of Q1 drags which were broadly attributed to auto suspensions and the Noto Peninsula earthquake. Industrial production data showed auto production began recovering in March but stalled in April. Still, auto sector projected double-digit growth in May. While latest auto certification issues expanded to companies beyond Toyota group firms, financial impacts so far seen limited. Optimism remains largely underpinned by this year's historic wage hikes with scheduled wages already lifted in April to the strongest growth since 1994.
China's forex reserves rise in May while PBOC pauses gold purchases:
China's foreign exchange reserves rose by $31.2B to $3.23T in May, more than Reuters consensus $3.21T. State Administration of Foreign Exchange (SAFE) said increase in forex reserves due to combined effects of exchange rate conversion and changes in asset prices as economists noted dollar weakened while prices of global assets increased. Notably China's gold reserves remained unchanged at 72.8M ounces by end-May after 18-month rising streak. Data, together with strong US jobs report, led to sharp drop in gold prices on Friday, slumping as much as 3.7% and most since Aug-2021, to below $2,300 an ounce. Anecdotal evidence showed retail prices for gold jewelry fell CNY15/g in a day over weekend as high prices took a toll on sales (SecuritiesTimes). Caixin added there had been signs of slowing PBOC purchase this year amid higher prices, while Bloomberg citing commodity strategist noted China's pause means it is balking at prospect of paying record-high prices but is not done buying the precious metal as Beijing seeks to diversify reserves and fight against yuan depreciation.
Narendra Modi sworn in as India PM for third time but still faces coalition challenges:
Narendra Modi sworn in as India's prime minister Sunday along with new cabinet, but new government weakened as he and Bharatiya Janata party (BJP) continue to face demands from coalition partners (Reuters). Up to 14 coalition, mainly regional-based, partners vying for government participation with India media reporting coalition allies may receive 11 of 71 ministerial positions with senior roles still likely to go to BJP (TimesofIndia). No Muslims included in cabinet for first time. FT cited analyst saying Modi must learn new diplomatic skills having been used to legislative control, raises risks of BJP alienating partners by encouraging defections, splits as it did previously. Of most economists' worry surrounds fiscal consolidation, promised in February's draft budget but which may come under pressure if coalition partners demand concessions on welfare payments, financial support for regional interests.
China home de-stocking push seen providing little relief for developers:
Reuters discussed views among analysts and developers who see government efforts to convert unsold homes into affordable housing as unlikely to help developers, citing the limited size of support and potentially low prices. Recalled plans for a CNY300B ($41B) lending facility, which could provide up to CNY500B in bank financing for SOEs to purchase completed unsold homes at "reasonable prices." Article cited some private developers' skepticism that very few, if any, of their projects would be selected given the scheme is only expected to launch in bigger cities where affordable housing is available. Furthermore, SOEs are seen offering low prices for properties. Noted a town in Guangzhou was the first local government to proceed with the new scheme and local media reported homes would be bought at cost, equating to a 20~30% discount to market prices. Some suspect other cities will offer lower prices that are insufficient to cover construction loans. Story cited Citi and BofA estimates that discounts of 50% needed to ensure modest returns for SOEs, as affordable homes typically sell at 10-50% discounts to private homes.
Notable Gainers:
+6.4% 225570.KS (Nexon Games Co.): The First Descendant game reportedly to be released 2-Jul
+4.9% 6501.JP (Hitachi): to invest additional $4.5B in clean-energy transition by 2027
+3.1% 8630.JP (Sompo): to acquire 23% stake in RIZAP group as part of capital and business alliance
+1.5% 6592.JP (Mabuchi Motor): to acquire small motor business from Oki Micro Engineering; terms undisclosed
+1.3% 8002.JP (Marubeni): acquires majority of R.G. Barry, making it a subsidiary; terms undisclosed
Notable Decliners:
-4.6% 532667.IN (Suzlon Energy): Marc Desaedeleer resigns as independent director over governance concerns
-3.9% 9468.JP (Kadokawa): several of group's websites are currently unavailable; high possibility company was victim of cyber attack
-0.8% 1801.JP (TAISEI): to acquire 17.4% stake in Heiwa Real Estate for ¥29.22B from Simplex and Mitsubishi Estate
Data:
Economic:
Japan
Q1 revised GDP (1.8%) q/q annualized vs consensus (1.9%) and preliminary (2.0%)
GDP (0.5%) q/q vs consensus (0.5%) and preliminary (0.5%)
April current account balance ¥2,050.5B vs consensus ¥1,783.5B and ¥3,398.8B in prior month
May bank lending +3.0% y/y vs +3.1% in prior month
Markets:
Nikkei: 354.23 or +0.92% to 39038.16
Hang Seng: Closed
Shanghai Composite: Closed
Shenzhen Composite: Closed
ASX200: Closed
KOSPI: (21.50) or (0.79%) to 2701.17
SENSEX: 40.00 or +0.05% to 76733.36
Currencies:
$-¥: +0.29 or +0.19% to 156.9030
$-KRW: (5.35) or (0.39%) to 1374.2200
A$-$: +0.00 or +0.21% to 0.6596
$-INR: (0.03) or (0.03%) to 83.4991
$-CNY: (0.00) or (0.01%) to 7.2468
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