Jul 11 ,2024
Synopsis:
Asian equities ended higher Thursday. The region was again led higher by Taiwan's TSMC with other chip stocks following behind. Strong gains in other tech-leaning boards including Japan, South Korea and Australia. Southeast Asia also higher with Singapore at another multi-year high, India broke the trend to trade slightly down. US futures slightly lower, Europe higher in the first hour. US dollar flat, yen and yuan flat, AUD at six-month highs. Treasury yields mixed, CGBs little changed. Crude and precious metals higher, industrial metals mixed as iron ore fell but nickel rose on BHP news.
Asia markets surged higher Thursday with many again following recent trajectories to ascend to fresh records. Taiwan's Taiex led by TSMC, which reached fresh record highs after it beat monthly sales estimates and gave a bullish outlook statement. Other semiconductor and AI-related tech stocks also rose to take the Kospi to multi-year highs and the Nikkei to another record. The Hang Seng rose strongly in a broad rally, and mainland China indexes also rose on the first day of new short-selling restrictions, and as Beijing also promised to tighten rules on high-frequency trading to support the market.
In macro developments, the Bank of Korea and Bank Negara Malaysia left their policy rates unchanged as expected. Japan core machinery orders unexpectedly shrank, marking second consecutive monthly slide. South Korean exports over first 10 days of July up 34% y/y amid strong demand for semiconductors. Australia inflation expectations eased slightly.
Mitsui & Co (8031.JP) to buy a 10% stake in a $5.5B UAE natural gas project. CK Hutchison (1.HK) said to be reviewing its options for its European telecom operations with a view to reducing its share in the overall business. Samsung Electronics (005930.KS) is to raise its mobile phone prices and revealed new foldable models; said it sees AI accelerating sales growth. BHP (BHP.AU) said it was to suspend nickel operations at its Western Australia mine amid a market slump. Yes Bank's (532648.IN) $5B stake sale could attract buyers from Middle East and Japan, according to press reports.
Digest:
Bank of Korea keeps base rate unchanged at 3.50%, examining timing of rate cut:
Bank of Korea held rates steady at 3.5% Thursday as widely expected, and said it would weigh timing of rate cut but needed more evidence inflation was returning to target. Rate frozen for 12th consecutive meeting despite early signals of slowing economy while headline and core inflation also ticked lower again in June (Yonhap). However, bank cognizant of rising household debt that in June saw new loans increase for a third month on new mortgage issue while broader economy remained supported by buoyant exports. Governor Rhee said hold decision was unanimous although two members said they would consider rate cut within next three months. Bank needed to assess how policy rate cut would affect financial stability, added household debt would be consideration as well as how Fed rate cut could impact won. Said market expectations for rate cut were "a little excessive" (Reuters). Economists do not expect BOK to cut rates until Q4 once Fed has started its rate easing cycle.
Markets anticipating gradual PBOC policy target shift to seven-day repo rate:
Bloomberg discussed PBOC policy developments after Governor Pan last month hinted the central bank will consider a transition to a single short-term target rate. Noted markets already starting to downplay the importance of the 1-year MLF rate after PBOC announced new bond repo operations last week, adding to existing open market operations, strengthening expectations the seven-day repo will become the new benchmark. Next MLF operation comes Monday, and economists predict no change for the 11th straight month, partly due to yuan implications. Limitations of MLF rate already apparent given languishing demand for MLF funds with interbank rates cheaper. Furthermore, 7D reverse repo rate is managed daily and offers more flexibility for policy fine-tuning. However, the process is expected to be gradual, citing HSBC's view the transition phase will take at least another year or so while PBOC makes necessary preparations. ANZ recalled historical precedent in which PBOC in 2013 scrapped the 1-year benchmark rate (basis for LPR rate at the time) but continued publishing the rate until 2015 out of consideration for outstanding loans still linked to the old benchmark. Current LPR implications, now linked to the MLF rate, is unclear with doubts over using the 7D rate due to maturity mismatch.
Malaysia central bank holds key rate steady:
Bank Negara Malaysia (BNM) held its key rate steady at 3.0% Thursday as it looks to test the impact of fuel subsidy cuts on inflation over coming months, despite headline and core inflation remaining at or below 2.0% for much of the year. Government started to unwind series of fuel subsidies from June, which economists have warned has suppressed inflation, could lead to spring back in prices when subsidies removed. Economists also said holding rate unchanged gives BNM scope to act should price pressures resurface (Bloomberg). BNM also kept its annual inflation forecast at 2.0-3.5% while acknowledging economic indicators had improved in Q2; bank also seeing less pressure from ringgit depreciation and is now looking at ringgit support away from monetary policy. Bank said it expects tourist arrivals to improve, exports to grow and help boost wages and employment growth, reiterated warnings over external trade factors and geopolitics.
India's record-high stocks set to get tested by cooling corporate earnings, high inflation:
Bloomberg-compiled data showed India's Nifty 50 trading at 27% premium to its historical mean as stocks need consistent earnings growth to justify the valuations. However strategists see only lackluster profit growth, ranging from 2 to 4% y/y for June quarter, for Nifty 50 companies, in contrast to more than 11% expansion in March quarter. Noted the benchmark rebounded 11% from 4-Jun low that was triggered by election shock. Cooling earnings caused in part by severe heat wave, election activity, and RBI curbs on unsecured loans, all have dampened consumption. In addition Mint poll showed India inflation for June, due 12-Jul, may have edged up to 4.9% y/y from 4.75% in May, first rise in six months and largely due to jump in vegetable prices. Recall persistent high food inflation and its uncertain trajectory have been major headaches for RBI, which Reuters noted central bank will cut rates just once this year in December quarter. BusinessStandard added market under temporary risk towards high Union Budget expectations, which were well factored in recent rallies.
China suspends securities re-lending, bolsters regulation of algo trading:
CSRC announced a suspension to securities re-lending effective 11-Jul. Existing contracts may be extended but must be settled by 30-Sep. Also raised margin ratio for securities lending to 100% from 80% for stock exchanges and 120% from 100% for private funds effective 22-Jul. Statement still acknowledged margin trading as an important basic system for the capital market (Reuters). As a result of stronger regulation since August 2023, securities re-lending has shrunk by as much as 75% as of June. Such activity accounted for about 0.05% of A-share liquidity as proportion of daily turnover fell to 0.2% from 0.7%. Separately, Xinhua reported CSRC also disclosed plans to draw a "red line" for algo transactions, especially high-frequency trading, to enhance supervision. Regulator to introduce differentiated fee structures for high-frequency trading, entailing higher traffic/cancellation fees based on volumes. CSRC also eyeing northbound activity in Hong Kong to ensure consistency. Noted high-frequency trading accounts declined more than 20% y/y to around 1,600, and abnormal activity triggers have dropped by nearly 60% in Q2.
Notable Gainers:
+13.5% 3064.JP (MonotaRO): reports June sales ¥22.49B, +5.6% vs year-ago ¥21.30B
+5.3% 251270.KS (Netmarble): CJ ENM to sell 4.3M Netmarble shares for KRW250.13B
+5.0% 6415.TT (Silergy): reports June revenue NT$1.58B, +24.0% y/y
+4.7% 1.HK (CK Hutchison Holdings): reportedly reviewing options for European telco unit in the hope of reducing its share in the overall business
+3.3% 2330.TT (Taiwan Semiconductor): reports June revenue NT$207.87B, +32.9% y/y
+2.8% 6525.JP (Kokusai Electric): to launch up-to-¥18B buyback; to offer 52.5M shares for holders
Notable Decliners:
-26.2% 3697.JP (SHIFT Inc): reports Q3 revenue ¥28.84B vs FactSet ¥29.46B , operating income ¥2.38B vs FactSet ¥2.96B
-3.0% 2408.TT (Nanya Technology): reports Q2 EPS (NT$0.26) vs FactSet (NT$0.18), revenue NT$9.92B vs FactSet NT$10.95B
-2.5% 8473.JP (SBI Holdings): to issue ¥100.0B EUR/JPY convertible bonds due 2031; sets initial conversion at ¥4,898/share
Data:
Economic:
Japan May
Core machinery orders (3.2%) m/m vs consensus +0.8% and (2.9%) in prior month
Markets:
Nikkei: 392.03 or +0.94% to 42224.02
Hang Seng: 360.66 or +2.06% to 17832.33
Shanghai Composite: 31.02 or +1.06% to 2970.39
Shenzhen Composite: 37.24 or +2.35% to 1619.82
ASX200: 72.80 or +0.93% to 7889.60
KOSPI: 23.36 or +0.81% to 2891.35
SENSEX: (168.73) or (0.21%) to 79756.05
Currencies:
$-¥: (0.09) or (0.06%) to 161.5620
$-KRW: (5.36) or (0.39%) to 1378.6000
A$-$: +0.00 or +0.15% to 0.6757
$-INR: +0.08 or +0.09% to 83.5765
$-CNY: (0.01) or (0.09%) to 7.2697
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