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StreetAccount Summary - Asian Market Recap: Nikkei +2.13%, Hang Seng +1.28%, Shanghai Composite +0.03% as of 04:10 ET

Jul 29 ,2024

  • Synopsis:

    • Asia equities ended mostly higher Monday. Japan markets bounced back from several days of steep losses last week and the Hang Seng also regained some lost ground. Mainland China markets were mixed as Shanghai hugged the flatline and Shenzhen fell. South Korea outperformed and there was a solid day in Taipei. India higher, most of Southeast Asia higher. US futures higher, Europe opened with modest gains. US dollar flat, yen strengthening after early weakness; other Asia currencies flat. Treasury yields lower, JGB yields also down. Crude futures higher following more Middle East violence, precious metals up, more losses in base metals. Cryptocurrencies are higher following Trump speech.

    • Asia equities followed through from the positive day on Wall Street Friday but many of the markets gapped higher and stayed little changed for the remainder of the day, indicating a degree of caution from investors ahead of keep central bank decisions later in the week. As well as the Fed and BOE, the Bank of Japan meets and will announce its rate decision Wednesday, with yen movements last week suggesting forex traders started to price in a narrowing of the Treasury-JGB yield differential, with any hawkish tones potentially reversing some of the yen's gains. Short yen contracts have fallen significantly in recent weeks with speculators least bearish since February.

    • Few regional catalysts to change the overarching narrative today. China industrial profit growth rebounded in June but analysts focused on the export element and low base effect, as well as lower PPI impact as reasons for the surge. Singapore and Malaysia producer prices rose in June, Vietnam economic indicators rose strongly but inflation also returned. Taiwan consumer mood reached a three-year high.

    • Alibaba (9988.HK) is to start charging a basic software service fee of 0.6% on confirmed transactions for Tmall and Taobao ecommerce platforms; stock sharply higher. Eisai (4523.JP) failed to receive marketing approval from EU authorities for its lecanemab Alzheimer's drug; shares sharply lower. Mitsubishi Motors (7211.JP) to join the EV and automotive software alliance of Honda Motor (7267.JP) Nissan Motor (7201.JP). A Hong Kong court adjourned a hearing into a petition to liquidate Country Garden (2207.HK) until 20-Jan 2025, saying it expected to publish offshore debt restructuring in September. Ola Electric priced its IPO at INR 72-76 per share as Fidelity, Nomura and Norges Bank set to bid.

  • Digest:

    • BOJ rate hike offers some positive implications for households:

      • BOJ rate hike discussions continued in the press with Nikkei pivoting to implications for the household sector. The article essentially noted households stand to gain some positive effects, though did not suggest such analysis would be a key driver in the BOJ's decision this week. Higher deposit rates would be a boon for households, albeit megabank and regional rates on at-call deposits have so far been raised to just 0.02% from 0.001%. Contrasts with prospects for higher home loan rates, though some thoughts that hikes would vary, and one bank suggested a move would still be difficult with the policy rate at 0.25%. One regional lender expected some time lag from a rise in the short-term prime rate to higher home loan rates. Story noted that household savings exceed outstanding loans, which means a BOJ rate hike would be net positive. Cited Mizuho Research & Technologies calculations assuming a BOJ rate hike to 0.5% in September with long-term yields at around 1.5% would increase annual household income by JPY1.5T ($9.7B). Furthermore, a USD/JPY rate of 160 through H2 FY24 would increase household burden by JPY94K, while a rebound to 140 by year-end would ease the burden to JPY90K.

    • China industrial profit growth rebounds, some positive macro read-throughs:

      • Industrial profits rose 3.6% y/y in June, following 0.7% in the previous month. Raises H1 growth to 3.5% from 3.4% in Jan-May. NBS noted steady recovery in top-line revenue, supported by industrial production growth combined with a significant narrowing in PPI declines. Gross margins also continued to recover to 5.41% YTD, the highest since the 2023 aggregate. By sector, mining remained the primary drag though pace of declines easing notably, helped by peak summer coal demand and also attributed to narrowing decline in new real estate construction starts as well as the large-scale equipment renewal program. Steelmaker earnings swung positive in Q2 from net losses in Q1 on the back of a more favorable pricing environment. Manufacturing earnings remained positive, underpinned by high value-added and green technologies. Contrasting dynamics saw manufacturing earnings share climb to 35.0% of aggregate profits. By stage of demand, consumer goods profits continued solid growth, reflecting recovery in domestic consumer demand, acceleration in export growth and favorable base effects.

    • August RBA rate hike could hinge on Wednesday's Australia Q2 CPI data:

      • RBA stands out as potential outlier as most of world's major central banks pivot in dovish direction. While markets pricing in rate cuts elsewhere amid disinflation progress and cooling labor market activity, RBA's tightening cycle may have more room to run depending in large on outcome of Wednesday's Q2 CPI data (Bloomberg). Futures pricing in 20% chance of August rate hike, an outcome could eventuate if underlying inflation tops RBA's forecast 3.8%. RBA has previously expressed low tolerance for another delay to achieving inflation target, and a hotter-than-expected print could another prompt another upgrade to CPI forecasts. Still-tight Australian labor market, resilient retail spending and stimulative government budgets also viewed as indicative of lingering excess demand that is keeping domestic inflation elevated. At the same time, slowing inflation elsewhere, looming Fed rate cuts and China economic weakness among factors some economists argue makes it high bar for another RBA rate hike.

    • Mitsubishi Motors rallies on Honda-Nissan alliance report:

      • Mitsubishi Motors (7211.JP) closed up 5.33% Monday following a Nikkei report the company will join the Honda-Nissan alliance, consolidating the Japanese market into a second group to compete with Toyota (7203.JP) which has been building alliances with Daihatsu, Suzuki, Subaru, Mazda and Hino Motors. Mitsubishi signed a nondisclosure agreement with Honda and Nissan and began discussions. The three companies intend to standardize the in-vehicle software to be developed by Nissan and Honda. They will also consider complementing each other's vehicle lineups with Mitsubishi's strength in plug-in hybrids and pickup trucks. Article cited underlying motivation as a sense of crisis over a major shift in the auto industry amid the shift to EVs while Japanese automakers are lagging behind in market penetration. Story recalled Honda and Nissan were forced to change their growth strategy in China as they struggled against low-priced local alternatives.

    • Retail investors lacking confidence in China equities:

      • SCMP highlighted how China's equity market weakness is being accompanied by waning retail participation amid low confidence in prospects for economic growth. Underwhelming policy signals from Third Plenum added to sense of pessimism stemming from lackluster consumer demand, an ongoing property market crisis, and uncertain outlook for employment and incomes. Heightened risk aversion has contributed to rally in bonds that has driven yields to record lows despite mainland media warnings about bubble formation. Depressed stockmarket valuations failing to entice retail investors with Bloomberg noting CSI 300's forecast dividend yield 0.8% above 10Y sovereign bond rate - widest premium since 2006. Stocks also losing support from offshore investors. Foreign inflows rebounded notably during early months of 2024, helping to fuel bull run in Chinese equities. However, Reuters noted 80% of CNY96B that flowed into Chinese equities having reversed out since peaking in May.

    • Notable Gainers:

      • +20.4% 5423.JP (Tokyo Steel Manufacturing): reports Q1 operating income ¥9.70B vs FactSet ¥8.70B; raises guidance; announces buyback

      • +8.6% 4063.JP (Shin-Etsu Chemical): reports Q1 operating income ¥191.02B vs StreetAccount ¥168.00B

      • +6.8% 047810.KS (KOREA AEROSPACE INDUSTRIES): reports Q2 operating profit KRW74.3B vs FactSet KRW54.56B

      • +5.4% 9143.JP (SG Holdings): reports Q1 operating income ¥19.50B vs FactSet ¥17.97

      • +5.3% 7211.JP (Mitsubishi Motors): Honda-Nissan alliance reportedly to become Honda-Nissan-Mitsubishi alliance

      • +2.3% 4921.JP (FANCL Corp): Kirin extends tender offer period for FANCL to 13-Aug from 5-Aug

    • Notable Decliners:

      • -13.0% 4523.JP (Eisai): CHMP has adopted a negative opinion on lecanemab for EU; Eisai to seek re-examination of the opinion

      • -7.3% 7735.JP (SCREEN): reports Q1 net income attributable ¥18.22B vs StreetAccount ¥18.57B

      • -7.1% 4.HK (The Wharf (Holdings)): guides H1 net income attributable (HK$2.50B)-(HK$2.80B) vs year-ago HK$696M

      • -5.9% 600660.CH (Fuyao Glass Industry Group): reports being subject to unannounced search by US federal government agency on 26-Jul

      • -2.5% 300750.CH (Contemporary Amperex Technology Co.): reports H1 revenue CNY166.77B, (12%) vs year-ago CNY189.25B

      • -0.2% 530005.IN (India Cements): UltraTech to acquire promoters' stake in India Cements for INR390/share

  • Data:

    • Economic:

      • China Jan-June industrial profits YTD +3.5% y/y vs +3.4% in prior month

        • June industrial profits +3.6% y/y vs +0.7% in prior month

    • Markets:

      • Nikkei: 801.22 or +2.13% to 38468.63

      • Hang Seng: 217.03 or +1.28% to 17238.34

      • Shanghai Composite: 0.95 or +0.03% to 2891.85

      • Shenzhen Composite: (7.40) or (0.47%) to 1562.19

      • ASX200: 68.30 or +0.86% to 7989.60

      • KOSPI: 33.63 or +1.23% to 2765.53

      • SENSEX: 127.29 or +0.16% to 81460.01

    • Currencies:

      • $-¥: +0.01 or +0.01% to 153.7410

      • $-KRW: (1.91) or (0.14%) to 1382.9600

      • A$-$: (0.00) or (0.11%) to 0.6541

      • $-INR: (0.00) or (0.00%) to 83.7303

      • $-CNY: +0.01 or +0.08% to 7.2562

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