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StreetAccount Summary - Asian Market Recap: Nikkei +0.12%, Hang Seng closed, Shanghai Composite +0.92% as of 04:10 ET

Jul 01 ,2024

  • Synopsis:

    • Asian equities mostly higher Monday. Mainland China gained with Shanghai Composite outperforming regional benchmarks, Hang Seng closed for public holiday; Kospi, Nikkei and Taiex all higher, ASX slightly weaker, southeast Asia mixed, India trading higher, US futures advancing. Treasury yields little changed, Aussie and JGB yields both higher across tenors. USD/JPY higher and back into 161 range, crude higher, copper and gold lower, Bitcoin rebounding to one-week high.

    • Busy day with release of key APAC macro data. China official manufacturing PMI released over the weekend shrunk in-line with expectations, weighed down by continued declines in new orders and exports. Accompanied by dissipation of pricing pressures amid soft demand. Non-manufacturing PMI below consensus as construction activity fell to lowest in eleven months. Data offers early signal that tepid domestic demand continued into June, underlining focus on upcoming Politburo meeting for fresh policy signals. In contrast, Caixin manufacturing PMI recorded strongest reading since May-2021. Despite robust Caixin reading, onshore 10Y CGB yield dropped to lowest on record amid broad pessimism about domestic economy and expectations for further stimulus, prompting PBOC to signal possible CGB sales to cool bond market rally and yields rose subsequently. Private survey data suggested slump in China's home sales slowed in June following slew of supportive policies.

    • In Japan, BOJ Tankan showed confidence among Japan's large manufacturers rose with inflation metrics also strengthening and capex plans upgraded. Japan Q1 GDP contraction revised lower reflecting corrections to construction data inputs. Final PMI a touch weaker than preliminary. South Korean export growth slowed though semi shipments surged to record high. Taiwan and South Korean PMIs rose to two-year high. Indonesia's inflation eased to lowest level in nine months in June.

    • Eisai (4523.JP) is developing an Alzheimer's disease treatment that targets a protein linked to symptoms, aiming to release it in the US by FY30. SK Hynix (000660.KS) plans to invest KRW103T ($74.8B) through 2028 in growing bet on semiconductors with 80% to be allocated to HBM chips. Boeing (BA) has restarted wide-body plane deliveries to China that were halted in recent weeks due to a Chinese regulatory review.

  • Digest:

    • BOJ Tankan confidence DIs mixed, capex outlook strong, inflation expectations tick higher:

      • Headline large manufacturers business conditions DI was 13 in June, slightly above consensus 12, following 11 in March. Eight of 16 sectors logged improvements, led by textiles, chemicals and petroleum & coal products. Aggregate skewed somewhat lower by a relatively sharp deterioration in iron & steel. Large nonmanufacturing DI was 33, matching expectations, following 34 in March. Retail saw the biggest downshift while other declines in consumer services and accommodation were mild. Medium-sized firms improved mildly while small firms were little changed. Supply-demand conditions remain negative though eased somewhat mostly in overseas dynamics, coinciding with alleviation in excess finished goods inventories. Inflation metrics strengthened with broad-based increases in output and input DIs. Broader inflation expectations were unchanged in the 1-year horizon though 3-year and 5-year measures ticked higher. FY24 large firm capex projections revised up notably to 11.1% from 4.0% in March, well above the long-term average. Underlying signals mixed with current profits tracking deeper declines despite upgrades to topline sales. Output gap proxies benign on the surface with all-industry production capacity unchanged and employment edging higher, albeit latter continues to show acute labor shortages.

    • China official manufacturing PMI steady as expected, nonmanufacturing index disappoints:

      • Official manufacturing PMI was unchanged at 49.5 in June, matching expectations, marking the second straight month in contraction. Reflected little changes in core components with production in marginal expansion while new orders and exports continued declines. Largest moves came in inflation as input price growth eased notably and output prices returned to contraction after one month in expansion. NBS cited lower commodity prices and weak demand. By industry size, large firms saw growth virtually stalling, offset by narrower declines among medium and small firms. Nonmanufacturing PMI was 50.5, below consensus 51.0. Follows 51.1 in prior month and marks the lowest level this year. Main driver was construction, logging the slowest pace since July 2023 amid heavy rainfall in southern regions. Services growth edged lower with capital markets and real estate sectors cited as notable drags. New orders remained well in contraction while employment declines strengthened. Recall latest consensus 2024 GDP growth forecast has edged up to 5%, matching the government growth target, on the back of recent upside surprises in monthly exports. Caixin manufacturing PMI remained relatively positive, posting 51.8, better than consensus 51.2, following 51.7 in the prior month.

    • China bond yields hit record low as PBOC signals it may sell bonds:

      • China government bond rally continues with 10Y yield falling to lowest on record. Yields further along the curve also at record lows while 2Y yield dropped to lowest in four years. Tepid Chinese economic activity underlined by weak June PMIs and reinforcing expectations of additional rate cuts with liquidity already ample. Persistent risk aversion and low consumer confidence also fueling appetite for haven assets. Bond rally continues to defy commentaries in PBOC-backed press warning about duration risk (Financial News). With verbal warnings failing to resonate, attention turning to whether PBOC will seek to slow descent in yields by actively trading in government bonds. Bloomberg cited PBOC statement noting central bank will trade directly with primary dealers, signaling it may consider selling bonds. However, PBOC's ability to influence yields through trading may be limited given it holds ~CNY1.5T of government bonds on its balance sheet, equivalent to ~5% of treasury bonds in circulation (Reuters).

    • Yen intervention debate reverts to volatility over levels:

      • USD/JPY remained in the 160 range after Friday's US PCE came in line with expectations. Headlines were quiet over the weekend given lack of evidence of yen intervention despite remaining above the level that prompted the last operation (160.24 on 29-Apr). Nikkei commentary shifted attention to the next major risk events this week -- French elections and US payrolls. Moreover, discussion reverted to the pace of change rather than absolute levels to gauge prospects for intervention. Recalled FX chief Kanda's remarks in March suggesting a 4% swing over two weeks would not meet the definition of FX stability. Compares with latest 2% yen decline in the past two weeks. Kanda also said in September 2022 that a 25% depreciation over half a year could be construed as excess volatility, also well above the 14% decline from six months earlier. Noted FX strategists' views that yen hasn't moved enough to compel intervention. Still, article noted tendency for intervention operations to be conducted during periods of low market liquidity to maximize impact. Mizuho said many think MOF may be eyeing the 4th of July US holiday as the optimal window for action.

    • South Korea factory activity sees fastest growth in over two years while exports rise for ninth month:

      • S&P data shows South Korea manufacturing PMI rose to 52.0 in June, from 51.6 in prior month and stayed in expansion for second consecutive month. Marked highest reading since Apr-22 with solid expansions in new orders and output. Export demand also strengthened, while employment levels rose as companies sought to boost production capacity. However business confidence dipped to YTD low and cost pressures intensified amid weak won while rising raw material prices pushed up operating expenses. Meanwhile trade data shows country's exports grew 5.1% y/y in June, versus 6.3% expected to $57.07B and imports decreased by 7.5% to $49.07B, leaving a trade surplus of $8B, biggest since 2020. Exports rose for ninth consecutive month while Reuters noted data missed analysts' forecasts likely due to calendar effects that may not have been factored in. Chip exports surged 52.2% thanks to price gains in memory chips while car exports rose 3.8%. Economists expected overseas shipments to continue expansion in H2 due to robust global demand for chips and weak won.

    • Notable Gainers:

      • +14.7% 3086.JP (J. FRONT RETAILING): Reports Q1 net income attributable ¥11.32B, +77% vs year-ago ¥6.40B

      • +9.8% 086280.KS (Hyundai GLOVIS Co.): Launches 37.5M-share bonus issue; mid to long term dividend policy; targets (consolidated basis) payout ratio of at least 25%

      • +6.4% FBU.NZ (Fletcher Building): Updates on NZICC and Hobson Street Hotel projects

    • Notable Decliners:

      • -16.1% STX.AU (Strike Energy): Gas supply agreement with Wesfarmers subsidiary reverts to original terms following delayed West Erregulla FID; downgraded to underperform from neutral at Macquarie

      • -14.6% D03.SP (Del Monte Pacific): Reports Q4 net income ($76.7M) vs year-ago ($11.9M); expects to incur net loss in FY2025 although at reduced amount

      • -6.9% MAH.AU (Macmahon Holdings): Appointment of administrators for Calidus Resources and subsidiaries; preliminary net current exposures of ~A$33.9M; reappointed as mining contractor at Dawson South; 3-year contract period adds A$130M annually to secured order book

  • Data:

    • Economic:

      • China

        • June

          • Official manufacturing PMI 49.5 vs consensus 49.5 and 49.5 in prior month

            • Non-manufacturing PMI 50.5 vs consensus 51.0 and 51.1 in prior month

            • Composite PMI 50.5 vs 51.0 in prior month

          • Caixin manufacturing PMI 51.8 vs consensus 51.2 and 51.7 in prior month

      • Japan

        • BOJ June Tankan large manufacturers business conditions index 13 vs consensus 12 and revised 11 in March

          • June large non-manufacturers business conditions index 33 vs consensus 33 and revised 34 in March

        • June final manufacturing PMI 50.0 vs preliminary 50.1 and 50.4 in prior month

        • Revised Q1 GDP (2.9%) q/q annualized vs prior (1.8%)

          • GDP (0.7%) q/q vs prior (0.5%

      • Australia

        • June ANZ-Indeed job advertisements (2.2%) m/m vs revised (1.9%) May

      • South Korea

        • June trade balance $8.00B vs consensus $5.24B and $4.86B in prior month

          • Exports +5.1% y/y vs consensus +6.3% and +11.5% in prior month

          • Imports (7.5%) y/y vs consensus (2.2%) and (2.0%) in prior month

    • Markets:

      • Nikkei: 47.98 or +0.12% to 39631.06

      • Hang Seng: 0.00 or 0.00% to 17718.61

      • Shanghai Composite: 27.33 or +0.92% to 2994.73

      • Shenzhen Composite: 12.42 or +0.77% to 1630.49

      • ASX200: (16.80) or (0.22%) to 7750.70

      • KOSPI: 6.49 or +0.23% to 2804.31

      • SENSEX: 409.38 or +0.52% to 79442.10

    • Currencies:

      • $-¥: +0.18 or +0.11% to 161.0310

      • $-KRW: (0.57) or (0.04%) to 1380.8800

      • A$-$: +0.00 or +0.07% to 0.6674

      • $-INR: +0.08 or +0.10% to 83.4447

      • $-CNY: 0.00 or 0.00% to 7.2673

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