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StreetAccount Summary - Asian Market Recap: Nikkei +0.20%, Hang Seng (1.60%), Shanghai Composite +0.08% as of 04:10 ET

Jul 16 ,2024

  • Synopsis:

    • Asian equities ended mixed Tuesday. Hong Kong led the list of declining boards with a steep 1.6% fall, Australia, Singapore and most of Southeast Asia also lower. India at fresh record highs early on, now flat. Mainland China were boards higher, South Korea and Taiwan gained. US futures now lower after gains early on, Europe opened lower. US dollar flat, yen notably weaker, AUD also off recent highs, yuan weaker. Treasury yields lower, Australia and JGB 10Y yields at three-week lows. Crude down sharply, precious metals supported, copper down sharply in the industrial metals space.

    • Asia equities again mixed with currency headwinds stalling rallies and sending others lower. Yen, yuan, Australia and New Zealand dollars together with several other emerging Asia currencies all weaker but against a largely flat US dollar, as traders start to price in a Trump Presidential election win following a series of positive polls.

    • Rhetoric against China deepened overnight when Trump's VP nomination JD Vance called China a greater problem for the US than the Russia-Ukraine war. Takeaways from China Q2 GDP and June activity data focused on persistent weakness in consumer demand and property market. Weaker-than-expected GDP renewed doubts about achievability of government's annual target of 'around 5%', adding to calls for stronger policy support at this week's Plenum but analysts believe it unlikely to be forthcoming.

    • Employees at China Everbright (165.HK) among those working at SoEs in Hong Kong that have been asked to return a portion of their pay to contribute to Xi's 'common prosperity' program. Paytm (One 97 Communications, 543396.IN) received a warning from SEBI over 2020-22 transactions at its banking unit, company said it had compiled with regulations. HD Korea Shipbuilding & Offshore Engineering's (009540.KS) acquisition of STX Heavy Industries (071970.KS) was approved by the South Korea regulator. Yangzijiang Shipbuilding (BS6.SP) will invest CNY3B in a new clean energy ship building base in China.

  • Digest:

    • Takeaways from China GDP and activity data focus on weak consumption, property market:

      • Mostly negative takeaways from soft China Q2 GDP and June activity data, which reinforced calls for more policy support. GDP miss renewed doubts about achievability of government's 2024 target of ~5% as some economists lowered their full-year growth estimates in response. Lot of focus on extent to which retail sales growth softened, suggesting policy incentives to boost consumption struggling to gain traction amid weak prospects for household income. Negative GDP deflator also indicative of persistent deflation pressures. There were some positive takes from better-than-expected industrial production growth driven by export demand, and FAI stabilization on strong manufacturing investment and equipment upgrades. However, economists acknowledged momentum slowed over Q2 while export outlook clouded by tariffs/trade tensions. Housing market remains depressed with key property metrics again falling sharply (home prices, sales, construction starts, funding). Some moderation in pace of declines attributed to support measures and base year effects, though recovery prospects considered slim.

    • Trump tariffs could slice 2.5% from Chinese GDP growth:

      • Donald Trump's policies drawing more attention as his odds of winning November's presidential election firm. While much of the focus lately has been on potential impact on US economy and markets, Trump's proposal to impose up to 60% tariffs on Chinese goods caries negative implications for China's economy. UBS estimated 60% tariff would slice 2.5% from China GDP growth over 12 months, reflecting direct impact on exports and indirect effect on consumption and investment (Bloomberg). Growth in China exports over recent months thought to have been driven in part by importers front-loading purchases ahead of potential Trump tariffs, putting exports on course for slowdown in 2025. Ramp in trade and geopolitical tensions may also accelerate supply chain shifts and weigh further on already shrinking China FDI. In response China seen more likely to ease fiscal and monetary policy, while allowing modest yuan depreciation to cushion blow from tariffs.

    • China's finance ministry to sell treasury bonds on secondary market as yields near record-lows:

      • China's ministry of finance (MOF) said it planned to sell up to CNY2.49B ($344M) worth of two types of 10-year treasury bonds on the secondary market to improve liquidity for CGBs and to improve yield curve to reflect market supply and demand. SCMP noted China's long-term treasury bond has seen record rally since late-2023, sending yields to record lows as investors rush to haven assets amid tepid sentiments toward China's economic outlook. MOF's move attracts more attention after a series of warnings and actions from PBOC, aiming to cool bond rally. Caixin cited a source close to central bank that policymakers determined to maintain normal upward-sloping yield curve. Meanwhile another local press citing fixed income strategists noted move mainly to increase supply of active bonds, having little to do with PBOC's possible treasury bond sales. Adding scale of the operation is small and is a MOF routine operation.

    • Powell says Q2 data has given Fed more confidence on inflation:

      • In an event at the Economic Club of Washington, Fed Chair Powell said Q2 data has given policymakers more confidence that inflation is headed back to target, though Powell also said that he wouldn't be offering any signals on policy decisions for the coming meetings (Bloomberg). Powell also said that labor market has also cooled and that both mandates are in much better balance. Chicago Fed's Goolsbee (temporary voter) also said today recent inflation data has given him more confidence, suggesting cuts warranted soon (link). Goolsbee also cautioned holding rates would make policy more restrictive than necessary as falling inflation means rates means rates are getting tighter in real terms. With the latest Fedspeak mostly in line with other recent commentary, market pricing for a July cut remains below 10%, though the odds of a September cut holding ~95% and the year-end median fed funds rate of 4.80% represents 57 bp of cuts from the current midpoint.

    • Thailand to roll out digital wallet handouts on 1 August:

      • Thailand PM Srettha Thavisin said late Monday government will begin Bt10,000 'digital wallet' program on 1-Aug, ending year-long battle to launch largest economic stimulus package for Thai economy since Covid era (BangkokPost). Srettha added program scaled back to Bt450B ($14B) from Bt500B after estimating 90% of eligible citizens will sign up but would still have positive impact on economy. Program to be funded through 2024/25 federal budgets, including Bt284 from fiscal year starting Oct-24. Will result in public debt to GDP ratio rising to 68.6 in 2028 from 65.7 this year having rejected plan to borrow Bt172B from state-owned agriculture bank (Bloomberg). BoT remains in opposition to scale, scope of handout, saying 15M welfare-targeted program would be more prudent. Remaining Bt165M to come from spending tweaks, supplementary budget for current fiscal year. 50M Thai eligible to receive Bt10K handout probably in Q4.

    • Notable Gainers:

      • +9.3% 071970.KS (STX Heavy Industries Co.): South Korea FTC conditionally approves HD KSOE-STX Heavy Industries merger

      • +5.7% BS6.SP (Yangzijiang Shipbuilding (Holdings)): to invest CNY3B in new clean energy ship manufacturing base

      • +3.5% 7453.JP (Ryohin Keikaku): reports 9M revenue ¥495.70B, +14% vs year-ago ¥435.80B, operating income ¥42.47B, +87% vs year-ago ¥22.67B

      • +2.4% 7936.JP (ASICS Corp): upgrades FY earnings guidance; guides revenue ¥660.00B vs prior guidance ¥590.00B; to launch underwritten secondary offering of 73.9M shares, 11.1M shares under over-allotment

    • Notable Decliners:

      • -29.8% EA.TB (Energy Absolute Public): Thai SEC charges Energy Absolute (now former CEO) Somphote Ahunai with corruption; company appoints Somchainuk Engtrakul as chairman and acting CEO, effective 14-Jul; intends to roll over short-term loans and repay long-term loans and debentures; total outstanding ~THB16.5B

      • -5.5% 2318.HK (Ping An Insurance (Group) Co. of China): confirms proposed issue of $3.50B convertible bonds due 202

      • -2.5% RIO.AU (Rio Tinto): reports Q2 iron ore production (Mt) 79.5 vs StreetAccount 81.5, FY guidance updated

      • -2.5% 8267.JP (AEON Co.): reports Q1 operating profit ¥47.80B vs FactSet ¥52.28B

      • -1.0% 271560.KS (ORION Corp (Korea)): reports June net revenue KRW228.8B

  • Data:

    • Economic:

      • Japan May

        • Retail sales y/y +2.8% versus consensus +3% and +3% in prior month

    • Markets:

      • Nikkei: 84.40 or +0.20% to 41275.08

      • Hang Seng: (287.96) or (1.60%) to 17727.98

      • Shanghai Composite: 2.29 or +0.08% to 2976.30

      • Shenzhen Composite: 7.80 or +0.49% to 1611.80

      • ASX200: (18.30) or (0.23%) to 7999.30

      • KOSPI: 5.17 or +0.18% to 2866.09

      • SENSEX: 93.44 or +0.12% to 80758.30

    • Currencies:

      • $-¥: +0.47 or +0.30% to 158.5430

      • $-KRW: (1.72) or (0.12%) to 1383.5600

      • A$-$: (0.00) or (0.33%) to 0.6737

      • $-INR: +0.02 or +0.02% to 83.5889

      • $-CNY: (0.00) or (0.01%) to 7.2589

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