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StreetAccount Summary - Asian Market Recap: Nikkei +0.61%, Hang Seng (0.29%), Shanghai Composite (0.68%) as of 04:10 ET

Jul 10 ,2024

  • Synopsis:

    • Asian equities ended mixed Wednesday. Several boards recorded new record highs including the Nikkei and Topix in Japan, and Taiwan's Taiex that broke through 24K for the first time; Singapore reached its highest in six years. Another down day in China with mainland stocks giving up some of Tuesday's gains as the Hang Seng traveled from positive to negative over the day. India sharply lower, Southeast Asia mixed. US futures little changed, Europe opened a few points higher following yesterday's steep losses. Dollar flat, NZD weaker, other Asia currencies flat. Treasury yields largely unchanged. Oil contracts under pressure, industrial metals rolling over, precious metals higher.

    • Another rather directionless day in Asia as investors waited US inflation data Thursday, so most markets continuing recent trends. India and exception, succumbing to a bout of profit taking sparked by a sharp decline in market heavyweight Mahindra & Mahindra. Japan scaled new heights on chipmakers gains and a weak yen, Taiwan's semi stocks again higher Wednesday, Singapore's STI at multi-year highs on hopes for regional trade recovery and increased dividends from its banks.

    • In macro developments, China CPI inflation unexpectedly weakened, driven by volatile food prices but also reflecting sales discounting amid weak domestic demand. PPI deflation narrowed in-line with forecasts. RBNZ left OCR unchanged as expected and adopted a more dovish bias. Taiwan's central bank said it wasn't looking at rate cuts while June exports rose by much more than expected.

    • KKR is to halve its holding in Kokusai Electric (6525.JP) with the company considering secondary offering and buyback. Activist investor group 3D Investments sent an open letter to Sapporo (2501.JP) shareholders proposing a new corporate structure including a spin-off of its real estate assets. Japan's ministry of defense has expanded its bribery probe to include Mitsubishi Heavy Industries (7011.JP). China Vanke (2202.HK) said its H1 losses had deepened on higher project costs and discounts. TSMC (2330.TT) said June sales surged almost 33% y/y to NT$207.9B, and up 35.5% in Q2 to NT$673.5B. Samsung Electronics (005930.KS) unionized workers said they would launch an indefinite strike as they press for better wages and working conditions.

  • Digest:

    • RBNZ on hold, opens door to rate cuts:

      • RBNZ left OCR unchanged at 5.50% as expected but main development was a change in policy bias. Committee noted that while policy needs to remain restrictive, extent of restraint will be tempered over time as inflation falls. Minutes leaned dovish with Committee confident of CPI inflation returning to 1-3% target over H2 2024 amid emerging excess capacity and easing in labor market. Saw two-sided inflation risks, noting while domestic inflation could prove more persistent in near-term there is also risk inflation expectations could normalize more rapidly. Pointed out restrictive policy had significantly reduced CPI inflation. Highlighted raft of indicators suggesting economic activity declining, and there is risk tight policy feeding through to demand more strongly than expected. Government budget was discussed though while lower government spending contributing to weaker demand, impact of announced tax cuts yet to occur and are more uncertain. Statement reinforced expectations of a dovish pivot later this year with markets fully pricing in two rate cuts (Bloomberg).

    • China CPI inflation unexpectedly softens, PPI deflation eases:

      • CPI rose 0.2% y/y in June, below consensus 0.4%, following 0.3% in the previous month. NBS noted headline increase entirely reflected base effects, with underlying impetus at zero. Core inflation remained steady at 0.6%. Aggregate remains skewed by falling food prices (mainly fresh fruit & vegetables) with non-food items remaining positive. Goods prices were down 0.1%, outweighed by a 0.7% rise in services. NBS observed accelerating declines in auto prices, down 6.0% for ICE vehicles and 7.4% for NEVs, consistent with attention on auto discounts. Broader inflation narrative/deflation concerns remain little changed though YTD aggregate of 0.1% tracking below 2024 consensus forecast of 0.6% and notably weaker than the government target of 3% (Bloomberg). PPI fell 0.8% y/y in June, matching expectations. Follows 1.4% decline in the previous month, marking the smallest decrease since January 2023. Base effects largely diminished, and headline driven mainly by easing declines in upstream prices, while downstream deflation remained steady. Underlying factors remained global commodity prices and insufficient demand.

    • Japan bank, brokerage views on BOJ JGB purchase reductions vary widely:

      • Nikkei reported deliberations on the first day of BOJ bond market hearings with widely dispersed opinions on the future course of JGB purchase reductions. Market feedback to be incorporated in BOJ's 1-2 year plan to be unveiled at the July 30-31 MPM. Tuesday's session included banks and brokerages with today's meeting to include life insurers. BOJ sought feedback on three broad parameters -- the appropriate magnitude of cutbacks, pace of implementation, and communication methods. BOJ conducted a survey preceding the meeting, which found that preferences for magnitude included an initial reduction to a JPY5T monthly pace (effectively a JPY1T reduction), outright JPY2-3T decrease, and a final goal to eliminate purchases altogether. Views on pace ranged between immediate large cutbacks with some seeing no need for a staggered approach, and those cautious that steep reductions would raise the risk of unnecessary market volatility. Article noted commercial banks seen absorbing most of the slack on a BOJ withdrawal given they held the largest market share prior to BOJ's ultra-easing at some 40% (currently 10%). Compares with a QUICK monthly bond market survey showing consensus looks for purchases to shrink to about JPY3T in two years.

    • Markets still lean towards BOJ rate hike in October, but earlier meetings remain live:

      • Latest JCER monthly ESP Forecast survey found modal estimates for the next BOJ rate hike in October with 14 out of 35 in the poll's first compilation of specific calls. Yet predictions remain dispersed with 10 respondents picking July and seven in September. Consensus on year-end policy rate strengthened on the margins as 28 of 37 see 0.2%~0.3% vs 25 of 36 in June. Core inflation forecasts little changed at 2.52% in FY24 and 1.89% in FY25, compared to BOJ projections of 2.8% and 1.9% respectively. FY24 GDP growth consensus shaved to +0.44% from +0.62%, FY25 little changed at 1.07%. Q2 average edged up to 2.26% q/q annualized from prior 2.19% following the latest downward revisions to reflect corrections to construction inputs. Expectations for the timing of positive real wage growth concentrated in Q3 followed by Q4. Extra question on US elections found 16 of 32 see Trump in the lead, 15 said too close to call and only one respondent favoring Biden. US, China economic deterioration cited as the top two risk factors to the economic outlook, followed by insufficient wage hikes, labor shortages and yen weakness.

    • Taiwan central bank says no plans to cut interest rates:

      • Taiwan's central bank has moved to quash talk of an interest cut, saying it has no plans to cut rates despite sharp drawdown in bank liquidity over past month. Bank still grappling with soaring domestic house prices, moved in June to tighten liquidity by raising lenders' RRR 25 bp to follow surprise 12.5% base rate hike in March. Since then, stock market boom attracted more liquidity from financial system along with tax payment season (Bloomberg), while June inflation rose for third consecutive month to 2.4% y/y from 2.2% in May. Bank meets four times per year, next scheduled meeting 19-Sep. Comments from bank comes as June exports rose 23.5% y/y to $39.9B versus consensus expectations of 10.3%. Finance ministry said AI, high-performance computing responsible for surge with shipments to US growing 74% y/y; those to China rose 7.3% following contraction in May (Reuters).

    • Notable Gainers:

      • +9.0% 2501.JP (Sapporo Holdings): 3D Investment Partners issues open letter to Sapporo holders; proposes structure for maximizing corporate value through tax-qualified spin-off of real estate holding company, complete sales of individual properties

      • +3.6% 6098.JP (Recruit): to launch up to 87.0M-share buyback for up to ¥600B from 10-Jul to 9-Jul-25

      • +1.8% 012450.KS (HANWHA AEROSPACE): wins KRW1.383T supply contract from Romanian Ministry of Defense

      • +1.0% 4661.JP (Oriental Land): to launch Disney Cruises; operation to start from FY28

    • Notable Decliners:

      • -7.2% 6525.JP (Kokusai Electric): KKR reportedly to halve stake in Kokusai Electric; confirms considering various policies including a secondary offering and buyback

      • -6.3% 7011.JP (Mitsubishi Heavy Industries): Japan's Ministry of Defense reportedly expands investigation into bribery allegations to include Mitsubishi Heavy Industries

      • -5.9% 6674.JP (GS Yuasa): revises mid-term management target for FY25 revenue to ¥600.0B from ¥610.0B )

      • -3.4% 5101.JP (The Yokohama Rubber): reportedly in talks to buy off-the-road business from Goodyear

      • -2.8% 9627.JP (Ain Holdings): Oasis condemns acquisition of Francfranc at high valuation; notes inadequate response to recent scandal

  • Data:

    • Economic:

      • China June

        • CPI +0.2% y/y vs consensus +0.4% and +0.3% in prior month

          • PPI (0.8%) y/y vs consensus (0.8%) and (1.4%) in prior month

      • Japan June

        • CGPI +2.9% y/y vs consensus +2.9% and revised +2.6% in prior month

      • South Korea June

        • Unemployment rate 2.8% vs consensus 2.8% and 2.8% in prior month

    • Markets:

      • Nikkei: 251.82 or +0.61% to 41831.99

      • Hang Seng: (51.56) or (0.29%) to 17471.67

      • Shanghai Composite: (20.01) or (0.68%) to 2939.36

      • Shenzhen Composite: (5.49) or (0.35%) to 1582.58

      • ASX200: (12.90) or (0.16%) to 7816.80

      • KOSPI: 0.61 or +0.02% to 2867.99

      • SENSEX: (564.33) or (0.70%) to 79787.31

    • Currencies:

      • $-¥: +0.13 or +0.08% to 161.4690

      • $-KRW: (0.47) or (0.03%) to 1383.8400

      • A$-$: (0.00) or (0.03%) to 0.6738

      • $-INR: (0.03) or (0.03%) to 83.4769

      • $-CNY: +0.00 or +0.03% to 7.2749

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