Jul 18 ,2024
Synopsis:
Asian equities ended mixed Thursday as tech-orientated boards fell sharply but Greater China rose. Japan's Nikkei fell 2.3% and its Topix was 1.6% lower in a broad selloff, South Korea and Taiwan also saw sharp declines. Hong Kong led gainers in Greater China in a broad rally, all major mainland boards were higher. India higher post its holiday yesterday, some Southeast Asia indexes higher. US futures indicate a mixed opening with gains for the Nasdaq but losses elsewhere, Europe extending opening losses. US dollar flat; yen volatile, weakened in early trade but fell back to the flatline late afternoon. JGB yields mixed, Treasury yields little changed. Crude futures saw support, precious metals higher, iron ore and copper both under more pressure.
Asia stocks under pressure from the bell Thursday following a steep fall on the Nasdaq overnight especially from the 'Magnificent Seven' stocks. Many Asia names that had risen sharply over the past few weeks seeing the heaviest of the selling including SK Hynix, Hon Hai and TSMC, although the latter posted estimate-beating Q2 numbers after the close. More pressure on Tokyo Electron too following yesterday's threat to the company from Washington over chip exports to China.
Yen continuing its recent volatile path Thursday although was flat in late afternoon trade with conjecture yesterday's moves may not have been Finmin intervention and instead caused by 'trigger-happy' traders unwinding carry trades. In macro news, Australian unemployment rate rose in-line with forecasts and probably not enough to change RBA direction; Japan exports for June were lower than expected but import growth was also substantially lower than forecasts; Malaysia exports also fell sharply.
TSMC (2330.TT) raised its FY revenue guidance to $22.4-23.2B, reported Q2 EPS above expectations. KEPCO Engineering & Construction (052690.KS) won a contract to build two new nuclear power plants; stocks sharply higher. SK Innovation (096770.KS) confirmed its merger with SK E&S, with parent SK Inc's (034730.KS) stake in Innovation increasing to 55.9%. Woori Bank (Woori Financial, 316140.KS) sold a 3.8% stake in Kumho Tire (073240.KS) at a 8-12% discount to previous day's close. ThaiBev (Y92.SP) is to increase its stake in Fraser & Neave (F99.SP) to nearly 70% through a complex asset swap program involving shedding its Frasers Property (TQ5.SP) holdings.
Digest:
US tech crackdown on China, Trump's Taiwan comments weigh on Asian semis:
Fallout continues from Bloomberg report that US weighing tougher controls on foreign-made products that use even smallest amount of American technology, in bid to persuade companies like Tokyo Electron (8035.JP) and ASML (ASML.NA) from doing business in China. Tokyo Electron off more than 15% in past two sessions to lowest since early February, pulling Japan TOPIX towards two-week low. Article appears to have diverted attention to geopolitical risks facing tech firms from US policy towards China. That was brought into sharper focus by Trump questioning US commitment to Taiwan in his Bloomberg interview, building on concerns related to his vow to impose punitive tariffs on China. Taiwan semis extended Wednesday selloff with with Taiex nearing two-week low. At same time, there are thoughts latest tech weakness is simply function of overbought conditions and extreme positioning following prior record-breaking rally, leaving secular growth story underpinning semis largely intact.
TSMC's earnings beat expectations:
Taiwan Semiconductor (2330.TT) reported Q2 results, coming in with a top and bottom line beat. Stock finished down 2.4% in Taiwan but US ADRs higher following result. Recorded 36% y/y increase in Q2 net profit to TWD247.84B, underpinned by strong AI chip demand. Revenue (USD) rose better than expected 33% y/y, contributing to gross margin beat. Company guided FY revenue growth to 'slightly above mid-20s' from 'low-mid-20s.' Also guided higher bottom end of FY capex range. Analysts were bullish on stock going into earnings with Morgan Stanley last week raising its price target by 9% in anticipation of an FY guidance upgrade. TSMC shares down sharply in recent days following Trump's Bloomberg interview in which he said Taiwan should pay US for its defense, highlighting company's exposure to geopolitical risks. However, also thoughts market reading too much into Trump's remarks with analysts pointing to TSMC's strong market position in N3, N4 and N5 nodes leaving it primed to continue taking advantage of demand for AI chips.
Australian jobs growth much stronger than forecast, raising odds of August RBA rate hike:
Australian employment rose 50.2K in June, higher than May's 39.5K increase and more than double consensus for 20K increase. Unemployment rate rose to an in-line 4.1% from 4.0%, driven in part by rise in participation rate to 66.9% from 66.8%. Composition was strong with full-time jobs rising 43.3K and part-time employment climbing 6.8K. Underemployment rate fell to 6.5% from 6.7% and monthly hours worked climbed. Main takeaway appears to be the much larger-than-expected increase in headline employment, underlining RBA's view labor market conditions are tighter than consistent with target inflation. Attention now turns to highly anticipated Q2 CPI (31-Jul) after hotter-than-expected May CPI prompted some economists to predict an August rate hike. Futures pricing in ~33% chance of August rate hike following data (Bloomberg). June RBA minutes showed board weighed hiking rates last month, citing risk disinflation progress may be slower than forecast. Added that it would assess spare capacity in labor market and economy at August's meeting.
Japan swings to trade surplus but export growth cools:
Japan trade balance swung to surplus of ¥224B in June from ¥1.22T deficit in prior month and contrasted with forecast deficit of ¥185.7B. Export growth slowed to 5.4% y/y from 13.5%, lower than consensus 7.2%. Weak yen inflated value of exports with average USD/JPY averaging 156.64, down 12.5% y/y. Exports to China rose 7.2%, slower than prior month's 17.8% increase while export growth to US halved to 11%. Semiconductor machinery volumes rose 23.2%, offsetting 17% fall in power machinery. Auto shipments fell 12.5%. Import growth slowed 3.2% from 9.5% in prior month and weaker than 9.6% forecast. Slower growth in exports and import growth drove concerns of a tepid GDP rebound in Q2, underlining challenging trade backdrop and ongoing softness in domestic demand. Consumption remains weak after household spending contracted in May amid elevated cost of living and negative real wage growth.
"Trigger happy" traders may have been behind yen's surge Wednesday:
Debate continued Thursday on reasons behind yen's surge late Wednesday with initial assumption finance ministry intervention was behind move questioned. Reuters cited analyst who said post intervention last week, many traders were re-loading trades and were caught offside by sudden jump, pushing them to quickly unwind positions and exacerbating move. Also noted Trump's comments on dollar strength/yen weakness as potential catalyst. Second Reuters article said intervention Wednesday did not make sense as there was no volatility or move in spot rates. Bloomberg also noted several EM currencies weaker as traders rushed to unwind carry trades funded by yen. BOJ meeting later July background to currency moves with economists still debating whether bank will hike or wait. Former BOJ official Hideo Hayakawa said Wednesday bank unlikely to hike this month, will cut bond buying a little more than expected to avoid fueling yen weakness (Bloomberg). Added consumer weakness on prolonged decline in real wages is unexpected weakness for BOJ so more likely to wait.
Notable Gainers:
+21.5% F99.SP (Fraser & Neave): ThaiBev to increase its stake in F&N to 69.61%
+7.0% 052690.KS (KEPCO Engineering & Construction): Czech government reportedly picks South Korea's KHNP to build two new nuclear power units
+4.3% BPI.PM (Bank of the Philippine Islands): reports Q2 net income PHP15.3B, +17.5% y/y
+3.1% 3898.HK (Zhuzhou CRRC Times Electric): guides H1 net income attributable CNY1.51B vs year-ago CNY1.15B
+1.9% TQ5.SP (Frasers Property): ThaiBev to fully divest its stake in FPL
Notable Decliners:
-11.1% 073240.KS (KUMHO TIRE): Woori Bank reportedly to sell 3.83% stake in Kumho Tire via block trade
-4.1% 034730.KS (SK): SK Innovation confirms merger with SK E&S; post-merger, SK Inc.'s stake in SK Innovation is anticipated to increase from 36.22% to 55.9%
-3.0% 7267.JP (Honda Motor): 259.9M-share secondary priced at ¥1664.5/share
-2.2% 500820.IN (Asian Paints): reports Q1 consolidated profit after tax INR11.87B vs StreetAccount INR13.78B
-1.6% 259960.KS (KRAFTON): Kakao Games reportedly to issue KRW280B bonds convertible to KRAFTON shares
-0.2% 3994.JP (Money Forward): : : to split home domain business to form JV with Sumitomo Mitsui Card
Data:
Economic:
Japan
June trade balance ¥224B vs consensus (¥185.7B) and (¥1,221T) in prior month
Exports +5.4% y/y vs consensus +7.2% and +13.5% in prior month
Imports +3.2% y/y vs consensus +9.6% and +9.5% in prior month
Australia
June employment +50.2K m/m vs consensus +20.0K and revised +39.5K in May
Unemployment rate 4.1% vs consensus 4.1% and 4.0% in May
Participation rate 66.9% vs consensus 66.8% and 66.8% in May
Markets:
Nikkei: (971.34) or (2.36%) to 40126.35
Hang Seng: 39.00 or +0.22% to 17778.41
Shanghai Composite: 14.28 or +0.48% to 2977.13
Shenzhen Composite: 5.30 or +0.33% to 1604.59
ASX200: (21.40) or (0.27%) to 8036.50
KOSPI: (18.94) or (0.67%) to 2824.35
SENSEX: 445.60 or +0.55% to 81162.15
Currencies:
$-¥: +0.07 or +0.05% to 156.2560
$-KRW: +0.66 or +0.05% to 1380.3200
A$-$: +0.00 or +0.14% to 0.6738
$-INR: +0.04 or +0.04% to 83.6337
$-CNY: (0.00) or (0.05%) to 7.2569
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