Jul 15 ,2024
Synopsis:
Asian equities finished mixed Monday. Hong Kong traded lower alongside several of the mainland boards although the Shanghai composite ended a few points higher. Australia and South Korea gained, while India's main bourses are trading at fresh record highs. Losses in Taiwan, most of Southeast Asia. Japan closed for a holiday. US futures higher, Europe soft in the opening hour. Dollar back to unchanged after spiking first thing, yen flat with traders on intervention alert, other currencies flat. Oil contracts flat, precious metals lower, no movement of note in base metals.
Asia markets reacted calmly to the attempted assassination of former President Trump. Political pundits hinted the ordeal may help Trump's candidacy somewhat although with Treasuries not trading in Japan today, it was left to the dollar to show a mild spike higher first thing before settling back. Elsewhere, markets followed regular catalysts as the Hang Seng gapped lower to track its futures first thing then accelerated losses post release of Q2 and June economic data, finishing just above 18K. India breaking new record highs on another across-the-board gain and shrugging off higher-than-expected wholesale and retail inflation for June.
China Q2 GDP growth fell by more than expected with consumption and property market again the main drags. June retail sales, industrial production and fixed asset investment growth all slowed. Housing metrics were subdued with real estate investment, new home prices, construction starts and home sales all falling at a steep pace. The PBOC left MLF rate unchanged as expected while rolling over maturing funds. Weak China data has also led further fall in CGB yields, particularly in belly of the curve. Comes after PBOC-backed Financial News on Saturday issued fresh warning against rally in accusing bond bulls of 'shorting economy.'
Hyundai Heavy Industries (329180.KS) said it had won a four-year contract with a Europe-based container ship company. The Japanese government effectively retracted its demand for Naver (035420.KS) to sell its stake in LY Group (4689.JP) to Softbank (9434.JP) over a personal details leak scandal. Mahindra & Mahindra (500520.IN) said to be considering an offer for a 15-20% stake in Skoda Auto Volkswagen India.
Digest:
China economic growth slows with weak consumption a notable drag:
China Q2 GDP growth slowed to 4.7% y/y from 5.3% in prior quarter, weaker than consensus 5.1%. Growth slowed to 0.7% q/q from revised 1.5%, also below consensus 0.9%. Consistent with China's two-speed economy as stronger exports are offset by waning domestic demand, reinforcing calls for additional policy support. Consumption a notable area of weakness with June retail sales growth to 2.0% y/y from 3.7% in May, below forecast 3.4%. Driven by sharp falls in autos and household appliances, suggesting upgrade incentives struggling to gain traction. Industrial production growth slowed to 5.3% from 5.6%, but better than consensus 5.0%, driven in part by another large rise in EV output that has fed global concerns about overcapacity. Fixed asset investment growth weakened to in-line 3.9%. from 4.0%. Housing metrics consistent with a prolonged downturn with YTD real estate investment down 10.1% y/y, compared to 10.0% fall in May. New residential construction starts by area down 23.6% y/y and new residential sales down 21.9%. NBS spokesperson described overall economy as stable amid a complex and severe external environment.
China new home prices fall sharply while rescue package has done little to revive sentiment:
New home prices in China were down 0.7% m/m in June and in decline for 12th straight month, logging same pace of decline in May, which was steepest drop since Oct-2014, based on Reuters calculation of NBS data. Prices were lower 4.5% y/y, worst since Jun-2015, compared with 3.9% slide in May. 64 out of 70 cities reported m/m price drop in new home prices, compared with 68 in May. Meanwhile 66 cities reported m/m drops in existing home prices, compared with price drops in all 70 cities in May. Bloomberg noted value of existing homes was down 0.9%, compared with May's 1% decrease. Figures add to evidence that property rescue package unveiled in May has done little to revive market sentiments. Excessive inventory adds pressure for further price drops while homebuyers hesitant to enter market where prices are falling. Property policies will be key focus during Third Plenum, however market watchers do not expect more aggressive measures to emerge. Bloomberg economists said Beijing could end housing crisis with forceful solution that involves pumping money like what Fed did during GFC, but unlikely to do so amid mounting collateral damage.
PBOC keeps MLF rate unchanged, withdrawing cash from banking system for fifth straight month:
PBOC conducted a CNY100B ($13.8B) MLF operation and left the 1-year rate unchanged at 2.50%, matching what most economists expected in Reuters poll. With CNY103B in maturing funds, it left a net liquidity drain of CNY3B, marking fifth straight month of no liquidity injection via MLF operations. Meanwhile MLF was supplemented by CNY129B injection via seven-day reverse repos. Economists said a weak yuan remains key constraint limiting PBOC's monetary easing efforts, which could further widen yield gap with US and fuel more capital outflows. July's MLF operation also came as market watchers believe that significance of the rate will gradually diminish as PBOC tries to improve effectiveness of its interest rate corridor. Recall central bank announced last Monday it would conduct bond repo and reverse repo operations in afternoon in addition to usual morning operations, narrowing volatility around 7D repo rate and strengthening expectations for it to become new policy benchmark (Bloomberg).
India June wholesale inflation rises most in more than a year:
India's wholesale prices (WPI) rose 3.36% y/y in June, slightly lower than consensus forecast 3.50% but above May's 2.61% rise as vegetable prices rose strongly in face of inclement weather. Price rises offset by small declines in fuel and power (BusinessStandard). Figure represents fourth consecutive month of WPI increases and highest in 16 months. Ministry of commerce and industry acknowledged food price increase, said crude petroleum and natural gas prices, manufacturing cost increases also contributed to overall inflation figure. Data adds to Friday's retail inflation reading that showed CPI rising for first time in five months, also as food prices increased (Reuters). June consumer prices rose 5.08% from May's 4.75%, above consensus forecasts; retail food prices rose 9.36% y/y versus May's 8.69%, including more than 29% y/y gain in vegetable prices following extreme heat, floods in northern states.
China state media makes another attempt to push back against bond rally:
China bond yields continue to plumb new lows following repeated efforts by state media to push back against the rally. Late last week PBOC-backed Financial News expressed determination to maintain positive sloping yield and fend off risks (Reuters). Paper also dialed up rhetoric in accusing institutional bond bulls of 'shorting yuan and China's economy.' Verbal warnings come on the heels of PBOC's plans to borrow Treasury bonds from primary dealers, which has been interpreted as attempt to slow descent in yields. However, skeptics have pointed to lack of details, and concerns magnitude of selling will prove insufficient against the more pervasive demand pressures, limiting effectiveness of the mechanism to putting a floor under yields rather than engineering a trend reversal. Fundamental forces remain widely attributable for China bond dally amid weak domestic demand and credit growth, deflation headwinds, expectations of additional monetary easing, and risk aversion fueling demand for haven assets.
Notable Gainers:
+2.8% 000338.CH (Weichai Power): guides H1 net income attributable CNY5.46-6.24B s year-ago CNY3.90B
+2.2% 002241.CH (GoerTek): guides H1 net income attributable CNY1.18-1.27B vs year-ago CNY421.8M
+1.5% 329180.KS (HD Hyundai Heavy Industries Co.): signs KRW1.842T 4-year contract for container ship construction with European shipping company
+0.9% 035420.KS (NAVER): Japanese government effectively retracts its demand for Naver to sell its stake in LY
+0.6% 500520.IN (Mahindra & Mahindra): reportedly among contenders for 15-20% stake in Skoda Auto Volkswagen India
+0.3% O39.SP (Oversea-Chinese Banking Corp.): concludes offer for Great Eastern Holdings with 93.5% share acceptance
Notable Decliners:
-5.0% 688036.CH (Shenzhen Transsion Holding): reportedly faces lawsuits for patent infringements from Qualcomm and Philips
-1.3% 601888.CH (China Tourism Group Duty Free): reports preliminary H1 net income attributable CNY3.29B vs year-ago CNY3.87B
Data:
Economic:
China
Q2 GDP +4.7%% y/y vs consensus +5.1% and +5.3% in prior quarter
Q2 GDP +0.7% q/q vs consensus +0.9% and revised +1.5% in prior quarter
June new house prices (0.7%) m/m vs (0.7%) in prior month (Reuters)
June industrial production +5.3% y/y vs consensus +5.0% and +5.6% in prior month
Retail sales +2.0x% y/y vs consensus +3.4% and +3.7% in prior month
Fixed asset investment (YTD) +3.9% y/y vs consensus +3.9% and +4.0% in prior month
Unemployment rate 5.0% vs consensus 5.0% and 5.0% in prior month
India
Provisional WPI +3.36% y/y vs consensus +3.50% and +2.61% in May
Markets:
Nikkei: Closed
Hang Seng: (277.44) or (1.52%) to 18015.94
Shanghai Composite: 2.72 or +0.09% to 2974.01
Shenzhen Composite: (13.47) or (0.83%) to 1604.01
ASX200: 58.30 or +0.73% to 8017.60
KOSPI: 3.92 or +0.14% to 2860.92
SENSEX: 289.48 or +0.36% to 80808.83
Currencies:
$-¥: (0.05) or (0.03%) to 157.8640
$-KRW: +6.17 or +0.45% to 1381.2800
A$-$: +0.00 or +0.04% to 0.6783
$-INR: +0.03 or +0.04% to 83.5524
$-CNY: +0.01 or +0.17% to 7.2629
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