Jun 26 ,2024
Synopsis:
Asian equities turned positive over the day Wednesday. Greater China boards all higher to end a five-day losing streak, led by Shenzhen. Strong gains in Japan as the Nikkei outperformed the Topix, South Korea and Taiwan also higher. India markets setting fresh record highs. Most of Southeast Asia lower, Australia saw losses post inflation print. US futures higher, Europe strong at the open. US dollar slightly stronger, notable gains in the AUD, yuan weaker again, yen slightly weaker. Treasury yields mostly higher, Australia yields higher, CGB yield dipped to near record lows. Crude futures higher, precious metals and industrial metals mixed.
Asia markets turned positive as the day wore on, with technology stocks once more taking the lead following a surge in Nvidia stock overnight. More gains in Japan's equities too as the yen saw no signs of intervention with the currency ticking higher over the day towards multi-decade highs at 160; analysts split on where next with some forecasting a slide to 170, but one outlier forecasting 120 in 18 months.
BOJ meeting still another month away but a Bloomberg survey showed a third of economists expect a July rate hike, with a plurality forecasting an October move. Australian monthly CPI hotter-than-expected with inflation reaching highest since Dec-2023. Data triggered hawkish market reaction with futures pricing in more than 20% chance of RBA rate hike by Sep-2024. PBOC set another weak yuan fixing point first thing, triggering another weakening in the tradable yuan, while the yield on the 10Y CGB reached its lowest since 2002. Singapore industrial production in May was better than expected at 2.9% y/y growth.
Nissan Motor (7201.JP) is to start producing EVs for Dongfeng Motor (489.HK) by the end of the year at its Wuhan facility. CSPC Pharmaceutical (1093.HK) will begin human trials of an mRNA vaccine it developed to treat certain cancers, will begin human clinical trials. A liquidation case against Shimao Group (0813.HK) in Hong Kong was adjourned until 31-Jul to give more time for creditors to consider a debt restructuring plan. SK On (SK Inc, 034730.KS) signed a deal with Exxon for the US energy major to supply it with lithium from its Arkansas project. Adani Group CFO called the regulator notices received by group firms including Adani Enterprises (512599.IN) "trivial" in nature.
Digest:
Australian inflation accelerates, markets dial up odds of another RBA rate hike:
Australian monthly inflation climbed to 4.0% y/y in May from 3.6% in April, above consensus 3.8%. Represents third straight increase with inflation back to highest since Dec-2023. Annual trimmed mean inflation climbed to 4.4% from 4.1%. Main contributors were food, transport (fuel) and alcohol. Holiday spending registered first yearly increase since Oct-2023. Excluding volatile items inflation eased to 4.0% from 4.1%. Inflation rose in other discretionary categories such as clothing and footwear and holiday travel. Extremely low vacancy rates left rental inflation elevated while persistently high input costs drove rise in new dwelling prices. Electricity inflation also rising as 2023 rebates get used by households. Markets pricing in ~40% chance of Aug-2024 rate hike with data underlining RBA's concerns about sticky inflation. In an earlier speech, Assistant Governor Kent said recent mixed economic data reinforced need to remain vigilant against upside inflation risks and repeated not ruling anything in or out with respect to rates.
Economists change their calls following hot Australian CPI, now see RBA hiking in August:
Initial reactions to hotter-than-expected Australian CPI leaning hawkish with Morgan Stanley and Deutsche Bank changing their rate calls and now forecasting RBA will hike cash rate by 25 bp to 4.60% in August. Judo Bank chief economist Warren Hogan was already in the hawkish camp, having called for rate hikes in August and November. May CPI seen heightening risk of Q2 CPI (31-Jul) overshooting RBA's forecasts and necessitating August rate increase. While others made no changes to rate predictions following May CPI, there was an acknowledgement risks of near-term rate hike have risen. Common theme highlighted was distinct lack of progress on disinflation compared to other developed economies, compounded by RBA's less restrictive policy stance. Coming government stimulus (tax cuts, rebates) also encouraging notion of an 'insurance rate hike' in August. However, also thought August hike faces high bar with monthly CPI series noted for its shortcomings relative to more comprehensive quarterly read that RBA Governor Bullock is focusing on. RBA has also said it will consider other data in determining policy, such as employment.
BOJ simultaneous July rate hike, JGB purchase reduction scenario in the minority:
With BOJ set to unveil its plan to cut back JGB purchases at the July MPM, Bloomberg survey found 33% also look for a rate hike next month, unchanged from an earlier poll. Article noted the BOJ's announced of impending JGB purchase reductions next month prompted thoughts that the likelihood of a rate hike had diminished. Expectations for a rate hike in October rose to 42% from 33%. However, market debate has elevated since the June MPM saw rigorous discussions on the case for a rate change. Consensus sees monthly buying pared to about JPY5T ($31.4B) from current JPY6T pace starting in August. Economists expect a further cut back to JPY3T in two years time, taking BOJ holdings down ~11% to JPY520T. Estimates of the frequency of adjustments were divided with one-third anticipating quarterly and 36% looking for semi-annual tweaks. Recall market reactions were hawkish following the Summary of Opinions for the June meeting. Reuters cited three sources indicating each MPM would be considered 'live', including July, barring some tail risk event.
Economists nudge China GDP forecasts higher, but consumption outlook weak:
Bloomberg economist poll showed China 2024 GDP growth forecasts raised slightly to 5.0% from 4.9% in May poll. Upgrade driven by stronger outlook for exports, which are expected to rise 4.3% from 2.8% prediction in May and reflecting an improving trade environment. However, forecasts for consumer spending, inflation and credit growth downgraded amid ongoing drag from property sector, and low consumer confidence about prospects for employment and incomes. Trade tensions another headwind with some economists flagging negative impact on exports from tariff hikes. Tepid outlook for domestic demand underpins expectations for cuts to RRR, LPR and policy rates in Q3, underscoring interest in whether authorities outline more forceful policy response at Politburo meeting and Third Plenum in July. However, expectations are low with Third Plenum likely to focus on longer-term structural reforms (fiscal and land reform). Also limited hope for stronger stimulus signals at Politburo meeting after PBOC Governor Pan last week said authorities would avoid large-scale easing.
RBI governor Das says India moving steadily toward 8% annual growth but inflation must fall:
RBI governor Shaktikanta Das said Tuesday India's economic growth progressing toward sustainable annual GDP growth of 8.0% but inflation must be brought lower (BusinessStandard). Said country at threshold of major structural shift in growth trajectory, bank confident of 7.2% growth projection for this fiscal year ending Mar-25. But to maintain growth rates policymakers must bring inflation under control. May inflation at 4.75% versus bank's target 4.0%, Das said maintaining price growth at 4.0% would "significantly" strengthen economy, financial system, growth drivers. Added one severe weather event could push up vegetable prices, headline inflation to 5.0%. This would make economy uncompetitive, lower purchasing power especially of poor. RBI's MPC seeing growing split on monetary policy amid sticky inflation; minutes from latest meeting showed external MPC members view current high rate as hurting growth, MPC's RBI members including Das retain hawkish view (Bloomberg).
Notable Gainers:
+8.5% 4887.JP (SAWAI GROUP HOLDINGS): plans up-to-¥33.00B buyback, to run from 1-Jul-2024 through 31-Mar-2025
+7.0% 4506.JP (Sumitomo Pharma): considering cutting jobs in Japan
+5.4% 002024.CH (Suning.com): expects profit turnaround in Q2; launches CNY80-100M buyback at up to CNY2.04/share, to run for 3 months from today
+2.0% 8174.JP (Nippon Gas Co Ltd): to launch up-to-¥3.0B on-market buyback
+0.6% 005930.KS (Samsung Electronics): reportedly sees setback in chip yield due to defects in wafer foundry
Notable Decliners:
-7.7% 7649.JP (Sugi Holdings): reports Q1 operating income ¥8.61B vs FactSet ¥9.18B
-4.5% 4716.JP (Oracle Corp Japan): reports Q4 revenue ¥67.66B vs FactSet ¥67.98B, operating income ¥22.11B vs FactSet ¥23.35B
Data:
Economic:
Australia May
CPI +4.0% y/y vs consensus +3.8% and +3.6% in April
Singapore May
Manufacturing production y\y +2.9% versus (1.2%) in prior month
Markets:
Nikkei: 493.92 or +1.26% to 39667.07
Hang Seng: 17.03 or +0.09% to 18089.93
Shanghai Composite: 22.53 or +0.76% to 2972.53
Shenzhen Composite: 32.44 or +2.02% to 1641.47
ASX200: (55.80) or (0.71%) to 7783.00
KOSPI: 17.66 or +0.64% to 2792.05
SENSEX: 501.34 or +0.64% to 78554.86
Currencies:
$-¥: +0.19 or +0.12% to 159.8890
$-KRW: (1.14) or (0.08%) to 1390.4500
A$-$: +0.00 or +0.48% to 0.6678
$-INR: +0.15 or +0.19% to 83.5840
$-CNY: +0.00 or +0.04% to 7.2656
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