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StreetAccount Summary - Asian Market Recap: Nikkei (1.05%), Hang Seng (0.07%), Shanghai Composite +0.14% as of 04:10 ET

Sep 05 ,2024

• Synopsis:

  • Asian equities mixed Thursday. Markets steadied following Wednesday's tech-led selloff. Taiwan rebounded with TSMC (2330.TT) leading semi recovery. ASX logged mild gains while Kospi slightly lower. Japan was worst performer as sentiment weighted down by yen strength. Greater China mixed with Hang Seng underperforming mainland indexes. India trading slightly lower. US futures edging up. Treasury yields little changed after tumbling on Wednesday. JGB yields remain lower following BOJ Takata's remarks. Yen flat against dollar after earlier advance. Offshore yuan stronger. Both crude and gold higher. Iron ore at lowest in almost two years. Bitcoin reversing lower.

  • Asian stocks were subdued with Japanese stocks dropping to three-week low while yen strengthened to highest against dollar since early August. Comes amid growing attention back on US-Japan yield gap after this week's soft ISM manufacturing and JOLTs data saw markets price in 50/50 chance of 50 bp Fed rate cut this month. Meanwhile BOJ board member Takata backed more rate hikes if inflation trends in-line with projections. His speech came after Japan's real wages unexpectedly rose for second month, supporting BOJ's views on wage outlook.

  • In other developments, RBA Governor Bullock repeated board is not thinking about cutting rates in near-term with inflation as the highest priority. Comes after takeaways from soft Australian GDP argued data was not weak enough to shift RBA from its on-hold message. More global banks have trimmed their forecasts for China's economic growth for this year. PBOC senior official said there is still room to lower reserve requirement ratio. South Korea's economy shrank 0.2% q/q in Q2, unchanged from BOK's advance estimate issued in July. RBI Governor said India is likely to grow 7.2% in FY25 despite lower Q1 growth. Malaysia's central bank has kept overnight policy rate unchanged at 3% as widely expected.

  • President Biden is expected to block Nippon Steel's (5401.JP) acquisition of US Steel (X) on national security grounds in coming days. KKR will launch tender offer at price unchanged at JPY8,800/sh to acquire Fuji Soft (9749.JP) following a higher counter bid from Bain Capital. Alibaba (9988.HK) will allow payment services from rival Tencent (700.HK) on its online marketplaces.

• Digest:

  • BOJ's Takata supports careful policy normalization path:

    • Not much new in BOJ board member Takata's speech to differentiate his views from those outlined by Governor Ueda. Bottom line was that Takata also supports policy normalization provided inflation tracks their forecasts, capex and wage growth are solid with continued cost passthrough. Content hit on recurring themes such as the difficulties in pinpointing where neutral rates should be. In the absence of a North Star, suggested an approach to proceed gradually while monitoring rate hike impacts as the most realistic. Yet, Takata also noted ongoing reverberations from market volatility in early August, calling on the need to closely monitor trends for the time being. Despite that, reaffirmed the dynamics are still in place to envisage a realization of the price stability target. Acknowledged that import prices have been rising again this year though doesn't see the magnitude on par with the forces in play in 2022. Most of the speech was devoted to a historical analysis of structural paradigm shifts since the bubble era as well as BOJ policy responses ultimately leading to the July decision to reduce JGB purchases. Agreed in principle with guidance that BOJ should reduce buying in a predictable manner by an appropriate amount, though stressed the difficulties in discussing the desired final size of BOJ's balance sheet.

  • RBA Governor Bullock dismisses near-term pivot, flags another rate hike if inflation doesn't fall:

    • In a speech on Thursday, RBA Governor Bullock repeated board doesn't expect to be in position to cut rates in near-term, adding it will respond if circumstances change and economic conditions don't evolve as expected. In follow-up remarks Bullock flagged another rate hike if inflation doesn't retreat. She reiterated board is trying to return inflation to target in a reasonable timeframe while preserving labor market gains. However, full employment goal best served by achieving inflation target. Said highest priority remains on bringing inflation down and there is further to go with risks to the upside. When questioned on soft Q2 GDP/consumption data, Bullock noted growth is still tracking RBA's forecasts and while demand is softening it remains above supply, keeping inflation high. Recapped ongoing inflation pressures from strong growth in services, housing and labor costs, reflecting rental squeeze, wage increases, labor shortages in certain trades and weak productivity. Overall, nothing in her remarks to suggest RBA may have shifted its policy stance in light of weak consumption with Bullock continuing to emphasize risks from too-high inflation.

  • Japan wage growth softens, but details encouraging:

    • Nominal average wages rose 3.6% y/y in July, above consensus 2.9%, though softening from 4.5% in the previous month, which was the strongest since Jan-97. Deceleration came from slower growth in special payments with weighting remaining elevated reflecting semi-annual bonuses. Yet successive positive growth largely ensures bigger summer bonuses on aggregate. Furthermore, contracted earnings picked up to 2.5% from revised 2.1% in June, driven by firmer increases in scheduled payments, outweighing stalled growth in overtime compensation. Headline growth left real wages up 0.4% after 1.1% in the prior month, marking the second straight gain. Forward expectations remain generally optimistic as wage hikes permeate alongside easing inflation. Total hours worked rebounded moderately reflecting a similar recovery in scheduled shifts while overtime hours fell for the 13th straight month. Developments so far continue to validate BOJ confidence in the wage outlook, while stronger than expected GDP figures restored optimism toward consumer demand.

  • Biden set to block Nippon Steel takeover of US Steel:

    • Multiple media reports indicated US President Biden will block Nippon Steel's (5401.JP) acquisition of US Steel (X) on national security grounds (FT, Washington Post, Bloomberg, Reuters). A decision is expected in the coming days. Biden said to be waiting for a CFIUS referral and plans to reject the deal as soon as it lands on his desk. CFIUS recommendation is not known but sources indicated the regulator had informed Nippon Steel recently that the deal posed national security concerns that could not be overcome. Nikkei cited Nippon Steel's response to the reports, clarifying they have not received official updates from CFIUS and made clear to the US government the deal poses no security risk. Yet Reuters sources said the Biden administration told Nippon Steel in a letter on Saturday the deal would pose a national security risk by harming the American steel industry. Developments follow Vice President Harris's remarks that US Steel should remain American owned and operated. Nippon Steel has been awaiting the results from USW/US Steel arbitration expected in mid-September and believed that a positive outcome would allow the company to move forward with the deal (Nikkei).

  • Strategists continue to temper their outlook for China equities:

    • JP Morgan downgraded China to neutral from overweight, citing geopolitical risks tied to US election and prospects of Trump tariffs, and growth slowdown as weak consumption, property market downturn and deflation impact earnings. Lackluster policy support magnifying earnings impact from weaker growth. Bloomberg noted MSCI China EPS shrunk 4.5% y/y in Q2, worst since Q4-2022 and driven by 19% drop in big tech profits. Weak sales guidance, particularly from internet retail platforms, underscores challenging outlook for consumption. Banks margins pressured by low interest rates and tepid credit demand. Real estate developers contending with sliding property sales. MSCI EPS growth estimate has fallen to ~11% from 15% at beginning of 2024. Morgan Stanley recently said it anticipates profit weakness to trigger more downgrades to consensus estimates. HSBC bucked the trend, maintaining overweight rating on China equities. Cited potential catalysts such as recovery in real estate and consumption, stronger capital return, industry consolidation and corporate reforms. However, also acknowledged these aren't likely to spark significant equity rebound in near-term.

  • Notable Gainers:

    • +8.3% 020150.KS (Lotte Energy Materials): completes sulfide-based solid electrolyte pilot plant; begins full-scale sales of key materials for next-generation all-solid-state batteries

    • +7.8% 035250.KS (Kangwon Land): receives revised casino permit, allowing for greater size, more machines and tables

    • +5.8% 2518.HK (Autohome): launches new share repurchase program to buy back up to $200M shares including ADSs in next 12 months

    • +3% 4307.JP (Nomura Research Institute): to join Nikkei 225, effective 1-Oct

    • +0.8% 5225.MK (IHH Healthcare): subsidiary PHSB to acquire Island Hospital for equity consideration MYR3.92B in cash

  • Notable Decliners:

    • -5% 002736.CH (Guosen Securities): to acquire 96.1% stake in Vanho Securities via share issuance; financial terms not determined

    • -2.8% 1910.HK (Samsonite International): reportedly may consider making US its primary listing

    • -2.2% 968.HK (Xinyi Solar Holdings): major photovoltaic glass manufacturers in China reportedly agree to cut production after meeting

    • -2.1% 9749.JP (Fuji Soft): KKR launches tender offer to acquire Fuji Soft at ¥8,800/share, to run from 5-Sep to 21-Oct

    • -0.4% 5401.JP (NIPPON STEEL): White House reportedly plans to block United States Steel's proposed sale to Nippon Steel; Nippon Steel responds to reports and reiterates belief that there are no national security concerns

• Data:

  • Economic:

    • Japan

      • July average nominal wages +3.6% y/y vs consensus +2.9% and +4.5% in prior month

        • Real wages +0.4% y/y vs +1.1% in prior month

    • Australia

      • July trade balance A$6.01B vs consensus A$5.00B and revised A$5.43B in June

        • Exports +0.7% y/y vs +1.7% in June

        • Imports (0.8%) y/y vs +0.5% in June

    • South Korea

      • Q2 revised GDP (0.2%) q/q vs preliminary (0.2%) and +1.3% in prior quarter

        • GDP +2.3% y/y vs preliminary +2.3% and +3.3% in prior quarte

  • Markets:

    • Nikkei: (390.52) or (1.05%) to 36657.09

    • Hang Seng: (13.04) or (0.07%) to 17444.30

    • Shanghai Composite: 4.04 or +0.14% to 2788.31

    • Shenzhen Composite: 7.98 or +0.52% to 1529.62

    • ASX200: 31.90 or +0.40% to 7982.40

    • KOSPI: (5.30) or (0.21%) to 2575.50

    • SENSEX: (106.55) or (0.13%) to 82246.09

  • Currencies:

    • $-¥: (0.15) or (0.10%) to 143.5890

    • $-KRW: +0.57 or +0.04% to 1335.4300

    • A$-$: (0.00) or (0.04%) to 0.6721

    • $-INR: +0.01 or +0.01% to 83.9820

    • $-CNY: (0.01) or (0.19%) to 7.0993