Jul 17 ,2024
Synopsis:
Asian equities tilted negative Wednesday. Gains most notable in tech-leaning Taiwan and South Korea, Japan's Nikkei also saw losses along with mainland China boards. Gains for Australia and New Zealand, Japan's Topix and several Southeast Asia markets. India closed for a holiday. US futures point to a negative open, Europe lower in opening trades. Dollar weaker, yen notably stronger with another steep move lower late afternoon, NZD stronger, other Asia currencies flat. Treasuries mixed, JGB yields higher across tenors, CGB yields lower despite Beijing's move to support bonds. Crude oil contracts lower, precious metals mixed, base metals lower.
Asia equities were mixed all day but ended with a distinctive negative tilt as US futures turned red and Europe opened lower. Japan saw a mixed day as the Nikkei and Topix diverged as heavyweight Tokyo Electron moved sharply lower, then the yen took a sharp dive post equity market close to its weakest in more than a month although traders unable to identify the exact reason, according to Reuters. Greater China boards also diverged as mainland indexes fell but Hong Kong just about stayed positive as investors waited news from the CCP Plenum that ends Thursday.
New Zealand Q2 inflation came in below forecasts as markets weigh prospects of an August rate cut following RBNZ's dovish pivot this month. Bloomberg sources noted PBOC probing exposure of regional lenders to bond investments as yields plumb new lows. Reuters Tankan survey showed Japan manufacturer confidence strengthened for first time in four months. Japan services sector sentiment slipped but remained at elevated level. Singapore exports sharply lower on one-offs but underlying trend still negative. Bank Indonesia kept its base interest rate steady at 6.25%, as expected.
The US government is considering trade restrictions against Tokyo Electron (8035.JP) and ASML if they continue providing China access to advanced chip-making technology; stock sharply lower. China Merchants Bank (3968.HK) is expected to take over Tomorrow Holding's New Times Trust unit. HSBC (5.HK) appointed a new group CEO effective from 2 September. Kakao (035720.KS) is looking to sell several of its non-core businesses, including its game, entertainment, VX, and payment units. Adani Group and Wilmar International (F34.SP) are considering the sale of a 13% stake in their joint venture Adani Wilmar in a deal potentially worth $670M.
Digest:
New Zealand CPI softens more than expected, but domestic inflation pressures elevated:
New Zealand Q2 CPI inflation slowed to 0.4% q/q from prior quarter's 0.6%, below consensus 0.5%. Brought yearly inflation rate down to 3.3% from 4.0%, also below consensus 3.4%. Inflation fell to slowest pace since early 2021 and came in below RBNZ's 3.6% forecast. Non-tradeabales inflation weakened to 5.4% y/y from 5.8%, lowest since Q4-2021 and driven by falls in recreation and culture categories. Housing and utilities were largest contributors due to rents, new house construction and energy. Tradeables inflation dropped to 0.3% y/y from 1.6%, lowest since Q4-2020 as higher fuel costs were offset by lower fruit and vegetables prices. While August was seen as 'live' for a rate cut, elevated non-tradeables inflation adds to doubts whether RBNZ will move next month given it came in above central bank's May forecast of 5.3%. Some economists brought forward their rate cut calls to November from February (NZ Herald), though August still considered 'live' with futures pricing in ~50% chance of a move next month (Bloomberg).
Trump voices skepticism about defending Taiwan unless it pays for its defense:
Donald Trump's Taiwan comments in his Bloomberg interview generating attention after he voiced skepticism about idea of defending island against any Chinese aggression. Trump accused Taiwan taking America's chip business, arguing the 'wealthy' island should pay US for its defense (Reuters). He also noted practical difficulty of defending an island 9,500 miles aways from US and only 68 miles from China. Trump's comments raised questions about potential changes to US policy of strategic ambiguity under 'One China' policy if he wins election. His remarks recalled a Fox Business interview in Jul-2023 when Trump made similar claim about Taiwan taking US chip business, but did not answer whether he'd defend Taiwan if attacked. Earlier this year Beijing speculated Trump could abandon Taiwan under his America First policy (Bloomberg). In response to Trump's latest remarks, Taiwan Premier Cho Jung-tai touted island's increased defense spending and noted shared goal of maintaining peace and stability in Taiwan Strait (Bloomberg).
US exploring tougher measures to curb China's access to advanced technology:
People familiar with discussions told Bloomberg US has told allies it is weighing so-called foreign direct product rule (FDPR) in bid to persuade companies like Tokyo Electron (8035.JP) and ASML (ASML.NA) from doing business in China. FDPR would see US impose controls on foreign-made products that use even smallest amount of American technology, unless Japan and Netherlands take their own steps against China. That would suggest US making little progress convincing allies to curtail China's access to advanced semiconductor technology. Also underscores concerns by American companies that existing US curbs are failing to halt China's progress. Another option under consideration is expanding criteria for 'unverified list' that requires companies to obtain licenses before shipping restricted technology to Chinese customers deemed national security risks. Both options risk diplomatic stoush with Tokyo and Hague, causing them to stop cooperating with US efforts against China.
Bank Indonesia keeps base rate steady to maintain rupiah support:
Bank Indonesia kept its 7D reverse repo unchanged at 6.25% Wednesday despite lower dollar outflows and stable rupiah that had led some to talk of an early cut. Deposit lending facility kept at 5.5%, lending facility at 7.0%. Was the third consecutive hold following April's surprise 25 bps hike. BI also kept 4.7-5.5% FY 2024 GDP growth estimate, 1.5-3.5% inflation target. Governor Perry Warjiyohad said in early July there could be room for interest rate cut in Q4 if the rupiah built on its recent gains but most economists think bank will wait until the Fed gives firm indication US rates have peaked before considering cut. Warjiyo said he believed rupiah would extend gains as US dollar weakens. Domestically, BI must also weigh weaker external balances, fiscal stance of incoming government that has promised to increase spending (Bloomberg).
PBOC checks lenders' bond holdings as it prepares to short sell bonds to cool rally:
Bloomberg citing sources reported local branches of PBOC have started fresh round of checks on bond holdings in regional lenders in at least three provinces. Move will help central bank gauge potential impact of its bond sales plan and prepare for future steps, though it is unclear when it will begin to intervene in the secondary market. Bloomberg survey of bond traders noted two red lines at 2.25% and 2.45% for 10Y and 30Y yields as potential triggers, while majority of respondents also saw only modest impact with yields gaining five to 10 bp if PBOC sells bonds. Another Bloomberg article described PBOC's plan to cool bond rally as "bold new experiment in global monetary policy" and is using typical hedge fund strategy to short sell bonds. Noted policy conundrum, keep interests low to support growth meanwhile prevent further weakening of yuan and bank profits, facing Governor Pan Gongsheng.
Notable Gainers:
+25.9% 383220.KS (F&F Co.): to acquire exclusive license for DISCOVERY trademark in China and Southeast Asia for KRW52.39B
+12% 9602.JP (Toho Co): reports Q1 revenue ¥85.98B vs FactSet ¥82.67B, operating income ¥24.58B vs FactSet ¥19.43B
+7.9% 028050.KS (Samsung E&A Co.): Abu Dhabi Oil Refining Company accepts deliverable in Waste Heat Recovery Project
+4.0% 326030.KS (SK Biopharmaceuticals Co.): signs KRW792.10B licensing-in agreement with Full-Life Technologies for FL-091
+1.2% 3088.JP (MatsukiyoCocokara & Co.): reports June same-stores sales +2.3% y/y
+0.7% 035720.KS (Kakao): reportedly looking to sell game, entertainment, VX, payment units
+0.6% F34.SP (Wilmar International): Adani Wilmar holders Adani Enterprises, Wilmar International reportedly looking to sell combined 13% stake by February next year
+0.1% 5.HK (HSBC Holdings): appoints Georges Elhedery as group CEO, effective 2-Sep
Notable Decliners:
-7.5% 8035.JP (Tokyo Electron): US reportedly exploring most severe trade restrictions available if Tokyo Electron and ASML continue providing China access to advanced semiconductor technology
-3.9% 902.HK (Huaneng Power International): reports Q2 total electricity sold (within China) 97.64B kWh, (6.2%) y/y
-3.5% 6770.TT (Powerchip Semiconductor Manufacturing): reports Q2 EPS (NT$0.47) vs FactSet (NT$0.05)
-2.5% 9449.JP (GMO Internet Group): submits ¥130M shelf
Data:
Economic:
Japan
July Reuters Tankan manufacturers sentiment index +11 vs +6 in prior month
Service sector index +27 vs +31 in prior month
New Zealand
Q2 CPI +0.4% q/q vs consensus +0.5% and +0.6% in prior quarter
CPI +3.3% y/y vs consensus +3.4% and +4.0% in prior quarter
Singapore
June non-oil exports (8.7%) y/y vs consensus (1.2%) and (0.1%) in prior month
Non-oil exports (0.4%) m/m vs consensus +4.1% and (0.7%) in prior month
Markets:
Nikkei: (177.39) or (0.43%) to 41097.69
Hang Seng: 11.43 or +0.06% to 17739.41
Shanghai Composite: (13.45) or (0.45%) to 2962.86
Shenzhen Composite: (12.52) or (0.78%) to 1599.29
ASX200: 58.60 or +0.73% to 8057.90
KOSPI: (22.80) or (0.80%) to 2843.29
SENSEX: Closed
Currencies:
$-¥: (1.60) or (1.01%) to 156.7790
$-KRW: (5.77) or (0.42%) to 1378.0700
A$-$: +0.00 or +0.03% to 0.6737
$-INR: +0.01 or +0.01% to 83.5457
$-CNY: +0.12 or +1.72% to 7.2638
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