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StreetAccount Summary - Asian Market Recap: Nikkei (0.32%), Hang Seng (1.55%), Shanghai Composite (0.93%) as of 04:10 ET

Jul 08 ,2024

• Synopsis:

  • Asian equities ended mostly lower Monday. Declining markets led by Hong Kong that shed another 1.6%, and mainland China boards, which were also down steeply. Japan, Australia and South Korea all lower but Taiwan gained more ground as its big chip companies rose with many at record highs. India a few points lower, Southeast Asia mixed. US futures soft, Europe paring early losses. US dollar flat, Euro also flat and little movement in Asia currencies. Treasury yields higher, JGB and CGB yields also up. Crude oil lower, precious metals down, industrial metals under pressure. Cryptocurrencies also down.

  • China markets sinking to multi-month lows with traders becoming increasingly skeptical over Beijing's moves to shore up market confidence or its stuttering economy, and as trade sanctions begin to bite. Today, investors largely dismissed moves by the PBOC to introduce temporary bond repurchases or reverse repos to control interest rates and manage liquidity. Focus still on the upcoming CCP plenum for any signals of stimulus but markets assigning a low possibility authorities will announce any meaningful policy support. Other macro news catalysts to change the recent narrative still thin. Japan base wages rose at fastest pace in 31-years but real wage declines accelerated as core inflation remained elevated. Australian home loan approvals fell sharply.

  • Hitachi Zosen (7004.JP) admitted two of its units improperly rewrote trial results for several of its marine engines. TSMC (2330.TT) stock crossed NT$1,000 for the first time to fresh record high on expectations of tightening chip supplies and higher prices. Workers at Samsung Electronics (005930.KS) began a three-day strike for better pay on Monday and vowed more action if their requests were not met.

• Digest:

  • PBOC to conduct temporary repos & reverse repos depending on market conditions:

    • PBOC said it will conduct temporary bond repurchase or reverse repurchase operations depending on market conditions between 4:00 - 4:20 pm during working days, aiming to maintain reasonably abundant liquidity in banking system and improve "accuracy and effectiveness" of open market operations. The term will be overnight with fixed rates and fixed number of tenders. Interest rates for such repo and reverse repo will be 20 bp less and 50 bp more than the standard 7D reverse repo rate respectively. Move came after last Friday that PBOC announced it now has "hundreds of billions" of yuan of medium- and long-term bonds at its disposal through agreements with several major financial institutions. CGBs have surged this year as haven assets amid lackluster economic outlook and hopes of rate cuts while rally has pushed benchmark yields into multi-year lows. A series of verbal warnings from PBOC on risk of bond bubble, particularly in longer-duration debt, did little to cool bond surge.

  • China market sentiment increasingly bearish as indexes enter correction territory:

    • China stocks under pressure with Hang Seng entering correction, down ~10% from May high. Sentiment bearish going into Third Plenum and Politburo meeting amid low expectations authorities will flag meaningful policy support to arrest waning economic momentum. Real estate developers at forefront of selling with April/May support measures failing to resonate after home sales, prices, investment and construction starts continued to shrink precipitously. Hang Seng Tech ETF down 14% from mid-May highs with earnings under scrutiny amid weak consumer demand and competitive pressures. Broader market weakness also occurring against backdrop of trade tensions with US and EU. Selling pressure more pervasive in small-cap space with CSI 1000 down 16% from May high compared to CSI 300's 8% drop. Goldman Sachs analyzed small-cap underperformance, citing their low earnings visibility, regulatory risk, and share price volatility that is being amplified by higher proportion of retail ownership and exposure to margin trading.

  • BOJ regional economic assessments mostly steady, sees broad-based evidence of wage hikes:

    • BOJ regional economic report for June showed assessments were upgraded in two out of nine regions, with two downgrades and others steady. Follows seven of nine downgrades in April. Report noted eight regions reported some level of pickup in the economy while noting some weakness, similar to the April report. The Hokuriku region showed movement toward recovery but was undergoing normalization in the wake of the Noto Peninsula earthquake. Main focus on wage developments, where most regions reported permeation of strong wage hikes on the back of this year's shunto talks. Next biggest topic was corporate price setting behavior and respondents noted cost passthrough stemming from import prices had eased while price hikes constrained by consumer frugality. Some mention of upward pressure on prices due to recent yen weakness. Firms facing difficulties in passing on higher payroll costs were "not uncommon," though certain segments such as services with a high weighting of payroll costs and/or those experiencing severe labor shortages looking to press ahead with price hikes. Several reports among manufacturers noting the environment becoming more conducive for passthroughs.

  • Japan base salary growth highest since 1993, but real wages extend declines:

    • Nominal average wages rose 1.9% y/y in May, below consensus 2.1%. Prior month was revised to 1.6% from 2.1%. Latest month driven by improvements in scheduled earnings, posting a 31-year high, while overtime payments turned positive for the first time since November. Real wages declined 1.4% vs expectations of a 1.2% decrease. Previous month was revised to a 1.2% dip from 0.7%, extending the down streak to a record 26th month. Total hours worked increased 1.2% following a 0.9% fall in April and marks the first increase since October. Largely reflects similar improvement in scheduled shifts while overtime hours logged narrower declines. Attention on wage data set to elevate going forward as this year's historic shunto wage hikes expected to be reflected in earnest from around June. However, June data may be skewed by highly weighted semi-annual bonuses. Overall expectations are bullish amid ongoing acute labor shortages, though some uncertainty continues to surround small firm momentum that could hamper prospects for real aggregate wage growth.

  • Tokyo Governor Koike wins third term, LDP protest votes go to surprise contender:

    • Politics also a notable focus in Japan as Tokyo Governor Yuriko Koike secured a third term Sunday (Nikkei). Koike ran on a "Tokyo Major Reform 3.0" platform, promising safety, diversity and digitization int he capital. Pledged new measures to protect residents from natural disasters, more support for childbirth and childcare, initiatives to narrow the gender pay gap and the complete digitization of all municipal administration procedures. Koike ran as an independent, though was backed by the LDP, and her victory may provide some respite for the embattled ruling party on the national stage. Main attention among the challengers was on former upper house lawmaker Renho, endorsed by the Constitutional Democratic Party, seeking to attract LDP protest votes. But Renho unexpectedly finished third, behind independent Shinji Ishimaru, former mayor of Akitakata city, Hiroshima (Nikkei). This election saw subdued influence from national parties amid public dissatisfaction over the fundraising scandal. LDP officials played down implications from Koike's victory and still sees the environment as "extremely severe." Ishimaru's surprising turnout was interpreted as confirmation of anti-LDP sentiment ahead of the party leadership vote in September.

  • Notable Gainers:

    • +4.7% 3008.TT (LARGAN Precision): reports June revenue NT$4.04B, +49.9% y/y

    • +4.0% 603501.CH (Will Semiconductor Co Ltd Shanghai): guides H1 net income attributable CNY1.31-1.41B vs year-ago CNY153.1M

    • +1.4% 4732.JP (USS Co.): reports preliminary Q1 vehicles contracted +11.5% y/y

    • +0.3% 373220.KS (LG Energy Solution): reports preliminary Q2 operating profit KRW195.3B vs StreetAccount KRW242.04B, revenue KRW6.162T vs StreetAccount KRW6.591T

  • Notable Decliners:

    • -14.9% 6088.HK (FIT Hon Teng): guides H1 net income $28-33M vs year-ago ($9M); notes potential acquisition

    • -4.4% 6506.JP (YASKAWA Electric): reports Q1 revenue ¥132.41B vs FactSet ¥138.24B, operating income ¥11.12B vs FactSet ¥14.86B

    • -3.7% 7004.JP (Hitachi Zosen): announces two units improperly rewrote shop trial results for marine engines

• Data:

  • Economic:

    • Japan

      • May average nominal wages +1.9% y/y vs consensus +2.1% and revised +1.6% in prior month

        • Real wages (1.4%) y/y vs consensus (1.2%) and revised (1.2%) in prior month

      • June bank lending +3.2% y/y vs revised +2.9% in prior month

      • May current account balance ¥2,849.9B vs consensus ¥2,350.2B and ¥2,050.5B in prior month

    • Australia

      • May housing finance (1.7%) m/m vs +4.8% in April

  • Markets:

    • Nikkei: (131.67) or (0.32%) to 40780.70

    • Hang Seng: (275.55) or (1.55%) to 17524.06

    • Shanghai Composite: (27.48) or (0.93%) to 2922.45

    • Shenzhen Composite: (29.91) or (1.88%) to 1560.97

    • ASX200: (59.10) or (0.76%) to 7763.20

    • KOSPI: (4.47) or (0.16%) to 2857.76

    • SENSEX: (121.88) or (0.15%) to 79874.73

  • Currencies:

    • $-¥: +0.16 or +0.10% to 160.9100

    • $-KRW: +4.71 or +0.34% to 1382.3000

    • A$-$: (0.00) or (0.10%) to 0.6740

    • $-INR: (0.01) or (0.01%) to 83.4630

    • $-CNY: (0.00) or (0.00%) to 7.2687