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StreetAccount Summary - Asian Market Recap: Nikkei (0.01%), Hang Seng (0.94%), Shanghai Composite (1.65%) as of 04:10 ET

Jul 23 ,2024

• Synopsis:

  • Asian equities traded mixed again Tuesday with most of the region higher, ex China. Much of the damage done in mainland China boards in the first and final hour of trading; Hong Kong was higher for a time before falling steeply. Elsewhere, tech boards bounced back from Monday's losses with notable gains in Seoul and Taipei; Australia led higher by tech. Japan closed near unchanged line despite bright start. India lower on budget announcement, Southeast Asia mixed. US futures lower, Europe mixed at the open but off its highs. US dollar flat, yen strengthening notably again, AUD weaker on China worries. Treasuries mixed, Asia sovereigns unchanged. Crude futures now higher after being lower for much of the day, precious metals mixed, copper and iron ore under more pressure.

  • Asia markets largely benefitting from read across from a strong day on Wall Street with notable outperformances in tech-orientated boards. China underperformed once again with an across-the-board decline in Shanghai, and everything ex financials dropping in Hong Kong. Few fresh catalysts today to reverse negative sentiment that began yesterday with Beijing's surprise rate cuts, with much of the analysis overnight emphasizing the limited impact of the move and continued lack of consumer stimulus. In contrast, India budget Tuesday pledged increased spending in many areas but also surprised by cutting the budget deficit target further, increasing capital gains taxes, and cutting customs duties; market reaction was negative on balance as equities fell on CGT changes, rupee fell to record lows on cuts to gold import duty, IGB yields hiked to two-month high on limited borrowing downsize. Singapore inflation dipped enough to prompt FY inflation forecast by MAS but unlikely to change monetary policy decision due Friday.

  • In corporate news, Berkshire Hathaway cut its stake in BYD (1211.HK) to below 5%; stock sharply lower. Kakao's (035720.KS) founder Kim Beom-su was arrested on charges of stock price manipulation related to the company's takeover of SM Entertainment (041510.KS). China's regulator approved 105 new gaming titles including those developed by Tencent (700.HK), Kingsoft (3888.HK) and Baidu (9888.HK). VietJet (VJC.VN) confirmed it had bought $7.4B worth of Airbus aircraft; Japan Airlines has ordered 20 Boeing 787-9 Dreamliners with an option for 10 more; and Korean Air (003490.KS) said it will buy up to 50 Boeing widebody aircraft. Grab Holdings (GRAB) has bought Singapore's restaurant reservation app Chope for an undisclosed sum.

• Digest:

  • India lowers fiscal deficit target, increases capital gains tax in first post-election budget:

    • India FM Nirmala Sitharaman in budget Tuesday said government will lower FY 25 fiscal deficit target to 4.9% from 5.1%, raise capital gains tax, and focus on rural employment, urban housing, tax cuts for middle-income earners. But government only lowered borrowing target slightly to INR14.01T from INR14.13T, leading to sharp increase in IGB yields. Sitharaman also announced simplification of capital gains tax code, increasing long-term profit rate to 12.5% from 10.0%, short-term rate to 20% from 15%. Equity markets traded lower on announcement with Sensex and Nifty 50 down around 1% each. Customs duty on gold imports cut to 6%, led rupee to fall to fresh record low against dollar. Tax relief for salaried employees to boost consumption. Other measures include corporate tax rate on foreign corporates cut to 35% from 40%; $24B pledged for new jobs programs, financial help for small-, medium-sized sectors; Bihar and Andhra Pradesh states given additional cash. Early analysis noted CGT increases negative for markets, tax cuts supportive for consumption, cut to customs duty in line with earlier pledges to support domestic manufacturing.

  • PBOC seen maintaining moderate easing trajectory while preparing new policy target regime:

    • Economist takeaways following Monday's rate cuts reflected views that macro impact would be limited and left forward projections mostly unchanged with yuan risks still cited as the main impediment to aggressive easing. There were no additions among those that were looking for a 10 bp LPR cut in Q3 and some continue to forecast another 10 bp in Q4. Reaffirmed a 25 bp RRR cut remains on the cards this year. Still, yesterday's moves were seen as follow-through after the Third Plenum vowed "resolute" achievement of annual economic goals. Deutsche suggested rate cuts may presage additional property and fiscal easing measures in a repeat of the pattern in mid-2023. Discussions largely revolved around the structural changes to MLF/OMO frameworks, whereby relaxed MLF collateral requirements will alleviate supply-demand pressures in central government bonds, while switch to fixed-rate method will enhance focus on the interest rate rather than quantity. Developments also seen consistent with a transition away from MLF operations to the 7-day reverse repo rate as the main policy target. While the transition is still in its early stages, a couple have suggested latest developments point to the 7-day rate as the new basis for LPRs (though press noted earlier this was subject to debate given maturity mismatch).

  • Singapore June inflation dips as quarterly MAS meeting approaches:

    • Singapore June inflation slowed by more than expected and by enough to warrant MAS to review FY forecast. Headline CPI fell to 2.4% from May's 3.1% versus FactSet consensus 2.6%, lowest level since Aug-21. Slowdown largely on sharp decline in private transport costs that contracted 0.7%, retail prices also fell notably to just 0.5%. Core CPI down to 2.9% from May's 3.1%, also below consensus expectations. On m/m basis, headline CPI down 0.2%, core unchanged. Food cost inflation unchanged at 2.8% y/y, utility prices rose 6.9%, also unchanged. MAS set to meet Friday to announce new inflation forecast, decide on monetary policy. Consensus expects no change to the slope of the S$NEER policy band, used by MAS to manage SGD exchange rate and control inflation. New data unlikely to prompt policy rethink given strong growth prospects for country, potential for dollar appreciation going into Presidential election (Bloomberg).

  • BOJ said to be monitoring consumer spending ahead of potential rate hike:

    • Bloomberg was latest to highlight BOJ concerns about weak private consumption as a constraint against a possible rate hike next week. Some BOJ officials said to take the view that skipping a rate hike in July is an option to provide more time to examine incoming data to confirm a pickup in spending. Some hold the position that the BOJ should avoid giving the impression of being overly hawkish. But others are open to raising rates next week given that inflation remains broadly in line with forecasts and keen to restore policy bullets against the backdrop of elevated outlook uncertainties. Key point was that a rate hike is likely to be a last-minute call. On JGB purchases, BOJ officials said to be encouraged by the recent bond market hearings, which dispelled initial skepticism toward major changes, and they observed many market participants anticipate monthly buying to be tapered to JPY3T in two years. Article was consistent with recent Nikkei discussions, noting that while inflation continues to track BOJ's outlook scenario, negative real wage growth is stifling consumer confidence and spending. Recalled that retail sales were firm in May, though inbound tourism has been a notable support factor, while household spending fell.

  • Japan politicians express support for BOJ policy normalization:

    • Nikkei discussed increased government rhetoric on BOJ policy, seemingly endorsing the normalization path. LDP Secretary-General Motegi in a Monday speech called for a clearer normalization roadmap that includes consideration of gradual rate hikes. Also urged for market communication to be easier to understand in order to stem excessive yen depreciation. Added that corporate sector is sufficiently capable of absorbing policy normalization. Follows last week's comments from Prime Minister Kishida at the Keidanren Summer Forum suggesting monetary policy normalization would facilitate economic transition to a new stage and reaffirmed a pledge to coordinate closely with the central bank. Also cited a 17-Jul Bloomberg interview with Digital Transformation Minister Kono, emphasizing concerns about yen weakness, and was quoted as saying BOJ needs to raise rates. Article suggested such remarks could provide a tailwind for rate hikes, countering concerns about soft household sector activity. Cited a BOJ source who interpreted the comments to mean that policymakers support normalization so long as it does not come at the expense of economic growth momentum.

  • Notable Gainers:

    • +8.2% 9101.JP (Nippon Yusen): revises FY guidance upward; guides FY operating income ¥215.00B vs prior guidance ¥165.00B and FactSet ¥182.56B

    • +7.9% 5101.JP (The Yokohama Rubber): Goodyear Tire & Rubber to sell OTR tire business to Yokohama Rubber for $905M in cash

    • +0.6% 7203.JP (Toyota Motor): reportedly to announce share buyback plan

    • +0.3% 5401.JP (NIPPON STEEL): reportedly to pull out of China JV, cut local production by 70%

  • Notable Decliners:

    • -5.4% 035720.KS (Kakao): founder Brian Kim reportedly arrested amid market manipulation allegations

    • -1.0% 4967.JP (Kobayashi Pharmaceutical): chairman, president reportedly resign due to red yeast rice scandal

    • -0.7% 3038.JP (Kobe Bussan): reports June non-consolidated operating profit ¥2.53B, (6.4%) y/y

    • -0.4% 6525.JP (Kokusai Electric): prices 52.5M-share placement at JPY4,578/share

• Data:

  • Economic:

    • Singapore June

      • CPI +2.4% y/y vs FactSet consensus +2.6% and +3.1% in prior month

        • Core CPI +2.9% y/y vs consensus +3.0% and +3.1% in prior month

  • Markets:

    • Nikkei: (4.61) or (0.01%) to 39594.39

    • Hang Seng: (166.52) or (0.94%) to 17469.36

    • Shanghai Composite: (48.85) or (1.65%) to 2915.37

    • Shenzhen Composite: (41.54) or (2.58%) to 1566.95

    • ASX200: 39.40 or +0.50% to 7971.10

    • KOSPI: 10.78 or +0.39% to 2774.29

    • SENSEX: (631.33) or (0.78%) to 79870.75

  • Currencies:

    • $-¥: (0.94) or (0.60%) to 156.0980

    • $-KRW: (2.76) or (0.20%) to 1385.2300

    • A$-$: (0.00) or (0.35%) to 0.6621

    • $-INR: +0.02 or +0.02% to 83.6973

    • $-CNY: (0.00) or (0.00%) to 7.2735