Sep 03 ,2024
Synopsis:
Asian equities ended mostly lower Tuesday in a quiet day's trading. Stocks in Australia, Hong Kong, Korea and Taiwan picked up losses. Nikkei flat while mainland China mixed with Shenzhen outperforming Shanghai. US futures were marginally higher. Treasury, JGB and Aussie yields were little changed. Dollar and yen strengthening against peers. Aussie fell as iron ore prices down sharply. Brent crude lower. Gold edging up in narrow range. Bitcoin little changed after recouping earlier losses.
Asia stocks in a rather directionless day with dollar and yen rallying against peers as markets get to defensive posture ahead of US nonfarm payrolls on Friday that will offer clues of magnitude (25 vs 50 bp) of September Fed rate cut with markets currently pricing in ~25% chance of 50 bp move this month
On Asia's macro developments, South Korean inflation fell by more than expected to lowest since Mar-2021, widening scope for rate cuts in coming months. BOK commented inflation stabilizing faster than other economies with prices expected to maintain stable trend. Final set of Australian GDP partials showed net exports and government spending to make positive contributions to Q2 GDP growth. China plans to launch ant-dumping investigations into some agriculture, chemical imports from Canada in rising trade frictions between Beijing and Ottawa.
VP and Democratic presidential nominee Kamala Harris said US Steel (X) should remain domestically owned, opposing its planned sale to Nippon Steel (5401.JP). Cathay Pacific (293.HK) has canceled multiple flights and grounded its fleet of 48 Airbus A350 jets after discovering issues with Rolls-Royce engines. China CSSC Holdings (600150.CH) plans to absorb and merge China Shipbuilding Industry Company (601989.CH) through share swap by A-share issuance. CapitaLand Integrated Commercial Trust (C38U.SP) proposes to purchase 50% interest in one of Singapore's most high-end malls from its sponsor CapitaLand Investment (9CI.SP). ByteDance seeks a $9.5B loan that would be the biggest dollar-denominated corporate facility in Asia ex-Japan.
Digest:
South Korea inflation eases to BOK target with some board members open to a policy pivot:
Headline CPI rose 2.0% y/y in August, compared to FactSet consensus 2.1%. Follows 2.6% in the previous month and marks the softest reading since Mar-21. Ex-food & energy inflation edged lower to 2.1% from 2.2%, lowest since Nov-21. Statistics Korea official said inflation pressure weakened notably on falling global oil prices and easing farm produce prices (Yonhap). Petroleum products edged up 0.1% in August after a sharp 8.4% rise in the prior month. Fresh fruit prices rose sharply reflecting supply shortages due to poor harvests amid bad weather in summer, though expected to stabilize in coming months. Inflation from daily necessities basket also moderated to 2.1% from 3.0%. Bloomberg noted headline inflation has returned to the BOK's 2% target, though deceleration was amplified to some extent by unfavorable base effects. Still, slower inflation comes as four out of seven BOK board members are now open to the idea of a rate cut by year-end, and many economists are looking for a move in October.
Japan Q2 GDP growth seen unchanged after MOF corporate survey:
Narrow Nikkei poll (n=10) showed average Q2 GDP growth forecast was 3.1% q/q annualized, unchanged from the first preliminary reading. However, estimates were divided with six looking for an upward revision and the remainder predicting a downgrade. Cited Daiwa Research Institute's view that upgrades would come from private inventories and fixed investment. Nomura Securities sees a slight downward revision to private consumption and investment. Follows yesterday's MOF corporate survey where capex was viewed as solid overall though missed expectations. Takeaways were notably positive on current profits, which grew for a sixth straight quarter to record levels (Nikkei). Historic yen depreciation was a key tailwind for exporters. Elsewhere, retailers were boosted by new store openings and inbound tourism while construction saw a boon from orders for large development projects. Story highlighted internal reserves (measure of cash) expanded to a record JPY600.99T ($4T). Overall implications appear limited. Recall the first GDP print came as a positive surprise and revived optimism towards consumer demand. This largely resolved concerns preceding the July BOJ rate hike when doves had argued that weak private demand posed an obstacle against a move. Attention turns to GDP revisions due 9-Sep.
StreetAccount Event Preview: Australia Q2 GDP
Ahead of data's release on 4-Sep Australian Q2 GDP growth forecast to have edged up to 0.2% q/q from 0.1% in Q1, leaving yearly rate at o ~1.0% vs 1.1% in Q1. However, fairly wide dispersion between economist forecasts, ranging from 0.1% q/q to 0.4%. Main drivers expected to come from government spending (0.4% contribution), investment (+0.1% contribution), and net exports (0.2% contribution), offsetting muted contributions from business and dwelling investment. Key will be extent of consumption weakness and its contribution to private demand. Depletion of Covid-era excess savings and cost of living pressures seen limiting consumer spending growth in Q2, though not by enough to prompt reassessment of RBA's concerns about demand exceeding supply. Also thoughts RBA may look through any consumption weakness in Q2 given potential boost from tax cuts, government rebates and hikes to minimum and award wages that took effect from 1-Jul. While RBA has stuck to its hawkish messaging in dismissing near-term prospect of rate cuts, market continue to price in ~70% chance of easing by end-2024.
BOJ Bond Market Survey shows slight improvement amid broader volatility:
Headline BOJ bond market function DI edged up to -23 in August from -24 in May, marking the sixth straight improvement to the highest level since Feb-22. Details were mixed as component DIs indicated wider bid-ask spreads, lower market depth combined with relatively higher trading frequency and number of counterparties. Median projections for 10-year yield point to a mild uptrend to 1.15% at FY24-end, 1.25% at FY25 and 1.35% at FY26. Attention on this result stems from the first read after the July rate hike and JGB purchase reduction plan. But Nikkei noted the Aug 1-7 survey period was too soon after the BOJ move to reflect much impact. Moreover, market disruptions from the big equity selloff on 5-Aug also limited bond market improvements. Furthermore, ~90% of responses were submitted on 2-Aug on the heels of the US employment report that may have adversely affected risk sentiment. Overall, surrounding volatility resulted in lower liquidity and hence market functioning. Recall latest BOJ rhetoric indicated board members are assessing impacts from the July decisions in weighing prospects for the next rate hike. Latest QUICK FX poll (n=124) conducted Aug 27-29 showed December rate hike calls now verging on a majority at 48%, followed by January at 32% (Nikkei).
Japan LDP leadership contenders spar over financial income tax:
Amid ongoing attention on the LDP leadership race, Nikkei cited comments from former Secretary-General Ishiba in a local TV interview expressing his intention to raise taxes on financial income if he is appointed as Prime Minister. Article recalled PM Kishida originally supported the idea as part of his 2021 party election campaign to narrow the wealth gap but later backtracked after the stock market weakened since winning the vote. Ishiba suggested Kishida may have retreated also due to concerns about capital outflows and proposed the need for countermeasures alongside a tax hike. Story also alluded to broader issues with the tax structure, noting the flat 20% rate applied to financial income is not progressive and benefits the wealthy, particularly as the aggregate tax burden drops off for total annual incomes above JPY100M ($680K). In response, former economic security minister Kobayashi in an X-post opposed the idea on the grounds it would increase taxes for the middle class already burdened by high inflation. Kobayashi called for further efforts to encourage financial investments through schemes such as iDeCo (individual defined contribution pension). Former environment minister Koizumi echoed opposition to tax hikes, stressing the focus should be on how to increase middle class incomes. All three LDP members are expected to run for the leadership vote on 27-Sep.
Notable Gainers:
+9.6% 5726.JP (OSAKA Titanium Technologies): plans to increase titanium sponge production capacity to 50Kt/year from 40Kt/year
+4.5% 9401.JP (TBS Holdings): guides FY net income attributable ¥37.40B vs prior guidance ¥21.60B and FactSet ¥31.84B
+3.3% 9CI.SP (CapitaLand Investment): CapitaLand Integrated Commercial Trust to acquire 50.0% interest in ION Orchard for SG$1.85B
+2% 7550.JP (Zensho Holdings): reports August Sukiya existing stores sales +12.1% y/y
+0.7% 3407.JP (Asahi Kasei): completes public cash offer, acquires 93.3% stake in Calliditas therapeutics
+0.2% 7951.JP (Yamaha): to buy back 6M shares, or 3.7% of outstanding shares, for up to ¥14.0B from 10-Sep to 28-Feb-25
Notable Decliners:
-3% 2593.JP (ITO EN): reports Q1 net income attributable ¥4.44B, (35%) vs year-ago ¥6.83B
-0.7% 293.HK (Cathay Pacific Airways): reportedly inspecting its entire Airbus SE A350 fleet as precautionary measure amidst engine concerns; reportedly finds engine issues on 15 A350s
Data:
Economic:
Australia
Q2 current account balance (A$10.7B) vs consensus (A$5.0B) and revised (A$6.3B) in Q1
Net exports to add 0.2 ppt to Q2 GDP vs (0.9) ppt subtraction from Q1 GDP
South Korea
August CPI +2.0% y/y vs FactSet consensus +2.1% and +2.6% in prior month
CPI ex-food & energy +2.1% y/y vs +2.2% in prior mont
Markets:
Nikkei: (14.56) or (0.04%) to 38686.31
Hang Seng: (40.48) or (0.23%) to 17651.49
Shanghai Composite: (8.06) or (0.29%) to 2802.98
Shenzhen Composite: 16.03 or +1.06% to 1530.73
ASX200: (6.70) or (0.08%) to 8103.20
KOSPI: (16.37) or (0.61%) to 2664.63
SENSEX: 34.91 or +0.04% to 82594.75
Currencies:
$-¥: (0.35) or (0.24%) to 145.8370
$-KRW: +1.11 or +0.08% to 1338.6800
A$-$: (0.00) or (0.26%) to 0.6748
$-INR: +0.08 or +0.10% to 83.9521
$-CNY: +0.02 or +0.30% to 7.1144
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