Jun 14 ,2024
Synopsis:
Asian equities ended mixed Friday. Japan equities spiked sharply higher after the BOJ delayed detailing its bond repurchase program but closed off their highs; Nikkei futures are sharply lower after Ueda spoke at the news conference. South Korea's Kospi and Taiwan's Taiex ended higher, the latter to fresh record highs above 22.5K, India also brushing records again today. Mixed day in Greater China as mainland markets ended higher but the Hang Seng stayed in the red all day. Southeast Asia mostly lower as the strong dollar continued to weigh. US futures mixed, Europe opened with more losses following steep overnight declines. US dollar higher, yen weakening to 158 per dollar briefly before recovering on Ueda comments. Treasury yields mixed, JGB yield sharply lower. Oil contracts lower, precious metals higher, industrial metals mixed.
A complex week for Asia equities ended with technology-orientated bourses again outperforming the rest of Asia, and Greater China prolonging its poor week to end at two-month lows. The Bank of Japan said it would keep its interest rate unchanged at 0.1%, as widely expected, and announced plans to slow JGB purchases but, crucially, excluded a full timetable until its next policy meeting. This pushed swaps to indicate a rate hike in July was less likely now, and sent JGB yields sharply lower with the 10Y nearing 0.9% at one point. The yen weakened to levels last seen when intervention last occurred, and equities rallied from early losses. Governor Ueda later said the bank would cut bond purchases by an 'appropriate' and 'reasonable' amount, giving some relief to yen bulls but sending Nikkei futures tumbling.
Newsflow elsewhere in the region was light. More tepid China economic data, this time with monthly car sales, that increased only 1.5% y/y in May, slowing significantly from April's 9.3% y/y gain. India wholesale inflation rose to 2.6%, a 15-month high. Japan April industrial output fell by more than expected. Taiwan's central bank late Thursday kept interest rates unchanged at 2.0% but tightened its reserve deposit ratio to curb soaring house prices.
Karin (2503.JP) launched a ¥210B ($1.3B) bid for Fancl (4921.JP) at a 30% premium to previous close price, with Fancl expected to support the offer. Marubeni (8002.JP) has started supplying All Nippon Airways (9202.JP) with cheaper, lower emission aviation fuel. Adani Group's Ambuja Cements (500425.IN) has bought out rival Penna Cement Industries for INR104.22B ($1.2B) in an all-cash deal. Vodafone Idea (532822.IN) is to issue shares worth INR24.58B to Nokia Solutions and Ericsson India as part of a plan to clear the company's debt.
Digest:
BOJ votes to reduce JGB purchases, unveil specific plan next month:
BOJ left uncollateralized OCR at 0~0.1% as widely expected. Reaffirmed purchases of JGBs, CP and corporate bonds would continue for the time being in accordance with the March decisions, though voted 8-1 to reduce JGB buying to allow more market-orientated rate formation. Lone dissenter was Toyoaki Nakamura, who favored holding off until re-evaluating the economic assessment based on the July Outlook Report. BOJ will collate views from market participants (details pending) and present a plan at the next MPM (July 30-31) for the next "one to two years or so." Economic assessment was little changed. Policy statement observed core inflation tracking in range of 2.0%~2.5% recently with service prices rising moderately reflecting factors including wage hikes, though cost pass-through has waned (no mention of recent rise in CGPI import prices amid yen weakness). Still sees underlying trend rising on the back of output gap improvement and longer term inflation expectations lifted by intensifying virtual wage-price cycle. Early takeaways saw notably bearish knee-jerk reactions in yen as a reflection that progress on JGB tapering is slower than expected. Also some thoughts the publication of the revised JGB purchase plan in July makes a simultaneous rate hike less likely (Reuters).
BOJ Governor Ueda says JGB purchase reductions will be sizable:
Following dovish reactions to the BOJ decisions, Governor Ueda at his press conference indicated that cutbacks to JGB purchases would likely be sizable (Nikkei). With the total tapering timeframe undetermined, MPC decided on roughly one to two years as a starting point and would reassess based on market reactions and prevailing financial/economic conditions, suggesting this is the first phase in the QT path as widely described in the press. Ueda was also quoted as saying he does not see balance of JGB holdings reaching a desirable level in one or two years. Furthermore, market disappointment over the delay in cutbacks to July prompted initial concerns this makes a rate cut unlikely in the same month. However, Ueda explicitly did not rule out a simultaneous move, though latter remains data dependent. On FX, Ueda expressed vigilance to the susceptibility of yen depreciation on corporate price-setting behavior and inflation, pledging to continue close monitoring. Only acknowledged signs of a slightly rise in import prices.
Bond rally continues:
Bond yields continue to pull sharply lower with Treasury 2Y and 10Y yield down to their lowest since early April. While Fed officials now only projecting one rate cut in 2024 vs three previously, markets eyeing more dovish outcome with two cuts priced in after CPI and PPI surprised to the downside. Strong 30Y auction also appeared to temper supply concerns. Across Asia, JGBs have rallied with 10Y yield at a one-month low amid dovish market reaction to BOJ's decision to delay taper details until next meeting (Bloomberg). Australian 10Y yield at one-month low going into an expected hold decision at Tuesday's RBA meeting. However, Reuters poll shows strong majority of economists anticipate rate cut in Q4 2024 amid view tepid growth will exert downward pressure inflation. Indian bonds extending recovery following initial yield spike on PM Modis' surprisingly narrow election win. Indian 10Y yield back below 7%, as sell-side firms flag ongoing global demand from inclusion of bonds in JPM indexes this month (Bloomberg).
PBOC seen leaving MLF rate steady Monday:
Bloomberg survey showed 11 out of 14 economists look for MLF rate to remain unchanged at 2.50% in Monday's operation. Yet story highlighted growing minority on the margins calling for a rate cut. While negative yuan implications remain a constraint, analysts suggested rate cuts by ECB and BOC provide some leeway. Timing aside, article underscored economic fragility as a longstanding basis for stimulus calls. Recent macro data have been mixed, reinforcing lack of confidence in growth momentum. This pattern is expected to extend into May activity data also due Monday, alluding to consensus forecasts for slower industrial production growth and somewhat firmer retail sales. Particular attention on real estate investment, seen deteriorating further to a 10% y/y YTD decline from 9.8% in Jan-Apr. Follows takeaways the policy support measures unveiled last month, spearheaded by a CNY300B relending facility for affordable housing, would be insufficient. Nikkei reported China's leading property developers saw sales volumes climbing 4% m/m in May, though remain in deep contraction in year-ago terms.
Taiwan central bank keeps base rate unchanged but raises deposit reserve ratio:
Taiwan's central bank left discount interest rate unchanged at 2.0% late Thursday, as fully expected, but raised lenders' reserve requirement ratio by 25 bps, its first hike in almost two years (FocusTaiwan). Separately, it lowered mortgage cap on second homes in certain areas - both measures seen as moves to dampen soaring home prices. Bank said tightening would drain around NT$120B ($3.7B) from financial system. Comes after March's surprise 12.5 bps rate hike made to counter domestic energy price increase, which analysts said was proving impactful. Bank also raised FY-24 GDP growth forecast to 3.77% from 3.22% in March, warned H2 growth would lag on y/y basis given high comparables (FocusTaiwan). Added expects FY inflation to moderate to 2.12% from earlier estimate of 2.16%. Analyst cited by Bloomberg said modest tightening more case of tightening liquidity than precursor to future policy tightening.
Notable Gainers:
+3.4% 9984.JP (SoftBank Group): ARM included as a component of NASDAQ 100 Index
+2.9% 8002.JP (Marubeni): reportedly begins supplying All Nippon Airways with cheaper, lower-emissions sustainable aviation fuel
+1.8% 6669.TT (Wiwynn): proposes 8.5-11.0M-share GDR private placement and $600.0M convertibles issuance
+1.3% 2357.TT (ASUSTek Computer): sees much faster for its server business "to grow five folds in five years from 2022"
+0.5% 2891.TT (CTBC Financial Holding): sees chance for record high profit this year at AGM
Notable Decliners:
-16.0% 450080.KS (ECOPRO Materials): BlueRun Ventures sells 2.1M shares at KRW119,480/sh
-8.8% 1929.HK (Chow Tai Fook Jewellery Group): reports FY net income attributable HK$6.50B vs FactSet HK$7.81B
-1.5% 2503.JP (Kirin): reportedly to acquire Fancl for ¥210B, or at ~30% premium
Data:
Economic:
Japan April
Final industrial production (0.9%) m/m vs preliminary (0.1%) and +4.4% in prior month
Operating ratio +0.3% m/m vs +1.3% in prior month
Production capacity (0.2%) y/y vs (0.2%) in prior month
Markets:
Nikkei: 94.09 or +0.24% to 38814.56
Hang Seng: (170.85) or (0.94%) to 17941.78
Shanghai Composite: 3.71 or +0.12% to 3032.63
Shenzhen Composite: 6.17 or +0.37% to 1689.63
ASX200: (25.40) or (0.33%) to 7724.30
KOSPI: 3.53 or +0.13% to 2758.42
SENSEX: 93.91 or +0.12% to 76904.81
Currencies:
$-¥: +0.31 or +0.20% to 157.3350
$-KRW: +3.83 or +0.28% to 1380.3900
A$-$: (0.00) or (0.21%) to 0.6618
$-INR: (0.07) or (0.08%) to 83.5445
$-CNY: +0.00 or +0.03% to 7.2547
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