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StreetAccount Summary - Asian Market Recap: Nikkei (2.45%), Hang Seng +2.59%, Shanghai Composite +0.03% as of 04:10 ET

Jul 12 ,2024

• Synopsis:

  • Asian equities mixed Friday. Big losses in semis/tech weighed on Nikkei, Taiex and Kospi, following overnight US losses. Japan equities also hit by yen's overnight rally following softer-than-expected US CPI data. Hang Seng outperformed amid rally in property developers while mainland China closed flat. ASX also gained. India trading at all-time highs. S&P 500 futures flat. Treasury yields nudging higher after overnight dip while Japan and Australian bonds rallied. Yen underwent some retracement after the overnight rally, though still left USD/JPY in the 159 range for the first time since late June. Dollar stronger against offshore yuan and won. Precious and base metals weaker while crude gaining. Bitcoin retreating.

  • Yen spiked more than 2% against the dollar overnight, triggering speculation about possible intervention by Japan's MOF. There were press reports that BOJ conducted a rate check on the euro, which is typically seen as a precursor to intervention. However, Japan FX chief Kanda did not comment on whether there was an intervention, repeating that recent yen moves were "not in line with fundamentals." While there was a view that the magnitude of the rally was consistent with government action, there were competing thoughts that move was more a function of repositioning as the soft US CPI data fueled a broader pullback in the dollar and an unwind of crowded short yen positions. Meanwhile, Japanese households see inflation at record levels over coming year. Japanese government is also expected to slightly trim forecast for economic growth of 1.3% to about 1% in fiscal year ending Mar-2025.

  • China's trade surplus soared to multi-decade high in June as export growth topped forecasts to highest since early 2023. Growth thought to have been driven by western importers front-loading purchases ahead of potential tariff hikes. Imports unexpectedly shrunk, underlining extent of domestic economic weakness. June credit data tentatively slated for this evening with economist anticipating seasonal rebound in new yuan loans but M2 money growth slowing to another record low. In other developments, Singapore's economic growth accelerated in Q2 amid rebound in manufacturing. India central bank head says it is premature to discuss rate cuts yet as inflation remains above target.

  • Softbank (9984.JP) has acquired UK-based chipmaker Graphcore in push into AI. CK Infrastructure (1038.HK) is considering a secondary listing, with London Stock Exchange as a potential option. CATL (300750.CH) has held talks with global SWFs and private offices of super-rich about raising $1.5B fund to build out its global supply chain. ANZ Group (ANZ.AU) plans to probe allegations of inflated bond trades and will hold people accountable for any wrongdoing, CEO said in email to staff.

• Digest:

  • China's strong exports lead to highest trade surplus since 1990:

    • Customs exports rose 8.6% y/y in June, beating Reuters forecast of 8% and 7.6% growth in prior month; while imports unexpectedly shrank 2.3% amid still weak domestic demand, versus 2.8% growth expected and 1.8% gain in May, leading to trade surplus of $99.05B, the highest since at least 1990 (Bloomberg), compared with $85B expected and $82.62B in prior month. Notably, exports grew at the fastest pace since Mar-2023 as manufacturers frontloaded shipments in anticipation of tariffs from growing number of China's major export markets. Exports have been bright spot for China's economy in recent months, bolstering Beijing's target to achieve annual growth target of around 5% in 2024. SCMP citing Minsheng Bank economist noted China's exports are likely to peak in middle of the year before declining with annual growth of around 5%. Recall EU's provisional tariffs on Chinese EVs took effect last week while US and a few other nations mulling tariff hikes too. Trump's potential return to White House expected to exert further pressure on future exports from China.

  • Yen spikes after US CPI, BOJ said to have conducted rate check on euro:

    • Yen spiked more than 2% vs dollar overnight in the wake of softer than expected US CPI. Press cited an unsourced TV Asahi report that MOF intervened (Bloomberg, Reuters). Echoed by a Mainichi article citing government sources. FX chief Kanda was quoted as saying he could not comment on whether or not there was an intervention, but that recent moves in the yen were "not in line with fundamentals." Yet intervention was subject to market debate. Commentators acknowledged the sheer magnitude was consistent with government action, but analysts argued the move was likely caused by repositioning triggered by CPI headline effects given crowded short yen positions and carry trades. Nikkei report was also non-committal, citing some interbank dealers who pointed to yen intervention. However, story noted broader dollar weakness against majors albeit yen volatility was notably higher. Suggested speculator short-covering as a possible driver as well as momentum trades in reaction to the intervention headlines. In breaking news, Nikkei sources said BOJ conducted a rate check on euro, seen as a precursor to intervention. Highlighted that follow-through would be an unprecedented operation outside the dollar by Japan.

  • Market-implied probability of July BOJ rate hike remains off peak levels:

    • Nikkei discussed recent price action in OIS markets and noted a July rate hike scenario remains only partially priced in. Key assumption was the next rate hike would take the uncollateralized OCR to 0.25% from current 0~0.1%, for a 15 bp increase. Attributed lack of market conviction to ongoing doubts BOJ would proceed with a rate hike alongside the launch of a plan to cut back JGB purchases. Also echoed prior views citing softening economic backdrop as another factor, auguring for a downward revision to BOJ FY24 GDP growth projections (latest technical GDP downgrades due to construction data corrections another factor). Story observed the implied probability was in the 20% range just after the June MPM when BOJ flagged changes to JGB purchases. Metric peaked at almost 50% on 27-Jun amid concerns that yen weakness would add to inflation pressures and has since retreated back below 40% amid prolonged softness in private consumption. Earlier this week, Reuters sources affirmed BOJ likely to downgrade FY24 growth with no major changes to FY25/26. Recall that JCER poll showed 10 out of 35 respondents (27%) forecasting July and 14 (40%) looking for October.

  • Foreign investor buying of Japan equities regaining momentum after quarterly rebalancing:

    • Nikkei discussed TSE data showing foreign investors bought net JPY881.0B ($5.5B) in Japan equities -- cash and futures -- in the first week of July. Marks the second straight week of net purchases on both fronts and the total was second-highest YTD behind the peak in early January. Inflows were attributed to building confidence in a September Fed rate cut and led by long-term institutional investors such as pension funds, as well as short-covering among fast money investors. Notable pickup in July was seen as a result of institutional quarterly rebalancing after a plateau in the Nikkei index combined with yen depreciation, leaving dollar-denominated returns down 8%, underperforming among G3 markets. Story cited evidence of increased allocations -- Waverton Investment Management raised its Japan weighting to 15%, well above MSCI ACWI of 5%. Canada Pension Plan Fund told Nikkei of plans to raise its Japan weighting 1~2 ppt from current 5%. Report also mentioned brokerage views that hedge funds see Japan as more attractive than China and Europe based on relative macro performance.

  • At NATO press conference, Biden rejects calls for him to exit presidential race:

    • President Biden finished highly anticipated NATO press conference where he brushed off questions about his viability as a candidate (Politico, NY Times, Bloomberg). Biden dismissed concerns about his age and health, rejected calls for him to drop out and was adamant he will be party's standard bearer (though he did add caveat that he might consider exiting if he is convinced he could not beat Trump). Biden made some gaffes when he called Ukraine President Zelensky 'President Putin' ahead of the press conference, before correcting himself. Also referred to Vice President Harris as 'Vice President Trump' and appeared to lose his train of thought on occasions (Reuters). Unclear whether press conference will meaningfully shift the narrative with VP Harris still favored to replace him (RCP). Comes as Biden faces calls by small, but growing, number of Democrats and high profile donors to pull out of race (Washington Post, Axios). Press articles have also cited sources noting top Democrats such as Schumer, Pelosi and Obama have signaled doubts about his prospects (CNN, Politico).

  • Notable Gainers:

    • +19.3% 6532.JP (BayCurrent Consulting): reports Q1 revenue ¥27.30B vs FactSet ¥26.24B, operating profit ¥9.46B vs FactSet ¥8.83B

    • +10.1% 8905.JP (AEON Mall): reports Q1 revenue ¥109.43B vs FactSet ¥108.10B, operating income ¥15.47B vs FactSet ¥13.48B

    • +6.5% 1038.HK (CK Infrastructure Holdings): considering second listing on overseas market without fundraising

    • +1.5% 601600.CH (Aluminum Corp. of China): guides H1 CAS net income attributable CNY6.50-7.30B vs year-ago CNY3.40B

  • Notable Decliners:

    • -11.9% 6323.JP (Rorze Corp): reports Q1 revenue ¥29.29B vs FactSet ¥29.69B

    • -7.2% 036460.KS (Korea Gas): reports June sales volume

    • -6.5% 3382.JP (Seven & i): reports Q1 operating income ¥59.34B vs StreetAccount ¥76.06B

    • -4.4% 9984.JP (SoftBank Group): to acquire Graphcore; terms undisclosed

    • -4.3% 034020.KS (Doosan Enerbility): to spin off investment unit, have it merge with Doosan Robotics

• Data:

  • Economic:

    • China

      • June trade balance $99.05B vs consensus $85B and $82.62B in prior month

        • Exports +8.6% y/y vs consensus +8.0% and +7.6% in prior month

        • Imports (2.3%) y/y vs consensus +2.8% and +1.8% in prior month

    • Japan

      • May final industrial production 3.6% m/m vs preliminary +2.8% and (0.9%) in prior month

    • Singapore

      • Q2 GDP +2.9% y/y vs consensus +2.7% and +2.7% in prior quarter

        • GDP +0.4% q/q vs revised +0.3% in prior quarter

  • Markets:

    • Nikkei: (1,033.34) or (2.45%) to 41190.68

    • Hang Seng: 461.05 or +2.59% to 18293.38

    • Shanghai Composite: 0.91 or +0.03% to 2971.30

    • Shenzhen Composite: (2.35) or (0.14%) to 1617.48

    • ASX200: 69.70 or +0.88% to 7959.30

    • KOSPI: (34.35) or (1.19%) to 2857.00

    • SENSEX: 811.05 or +1.02% to 80708.39

  • Currencies:

    • $-¥: +0.38 or +0.24% to 159.2030

    • $-KRW: +3.55 or +0.26% to 1375.6500

    • A$-$: +0.00 or +0.18% to 0.6772

    • $-INR: +0.02 or +0.02% to 83.5309

    • $-CNY: +0.00 or +0.00% to 7.2583