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StreetAccount Summary - Asian Market Recap: Nikkei (0.72%), ASX 200 +0.39%, Shanghai Composite (0.81%) as of 04:10 ET

Sep 06 ,2024

  • Synopsis:

    • Asian equities mixed in lackluster trade on Friday. Shares in mainland China, Japan and Korea all ended lower while semis saw broad gains and led to gains in Taiex. ASX closed higher. Hang Seng trading canceled due to typhoon. Thailand was the best performer and SET Index jumped for second straight day as political risks fizzled. India trading sharply lower. US futures lower. Treasury yields lower across the curve while JGB curve bull flattening. Yen strengthening against dollar. Crude, gold and copper all edging up. Bitcoin at one-month low.

    • Asian stocks struggled for direction as investors await for US jobs report, which is forecasted to show step up in headline jobs growth and downtick in unemployment rate. Follows July's soft print a month ago that ignited concerns about economic slowdown and fueled early August volatility. Tonight's print takes on added importance in shaping hard vs soft landing debate, as well as determining expectations around whether Fed will cut by 25 bp or 50 bp this month.

    • In Asia macro developments, Japan household spending remained weak even as income growth accelerated. Former BOJ Governor Kuroda said central bank has a lot of room to raise borrowing costs in policy normalization process, adding nominal neutral rate could be just under 2%. Australian housing lending growth picked up. Former PBOC Governor Yi Gang also got some attention after he made a rare mention of needing to fight deflationary pressure in China.

    • CFIUS said Nippon Steel's (5401.JP) proposed takeover of US Steel (X) would create national security risks because it could hurt vital steel supplies; Japan PM contender and top government spokesman Hayashi still hopeful deal will be resolved in mutually beneficial way while minister Kono said "inappropriate' for Washington to block the deal. Seven & i (3382.JP) rejected $38.7B takeover offer made by Alimentation Couche-Tard (ATD.CN), adding it is not in the best interest of its shareholders. Sumitomo Chemical (4005.JP) priced JPY100B ($700M) of hybrid debt at 280 bp over JGBs, widest spread for corporate debt this year. Guotai Junan Securities (2611.HK) will merge with smaller rival Haitong Securities (6837.HK) through a share swap to create China's largest brokerage.

  • Digest:

    • Japan TSE short selling ratio swells to YTD high ahead of US payrolls:

      • Nikkei discussed Japan equity market dynamics, highlighting short-sales rose to 47.3% of all sell orders on TSE this week, marking the highest ratio this year, as an indication that many participants are bracing for a negative surprise from the upcoming US payrolls data. Technical indicators already bearish after the Nikkei 225 has lost 5.28% over the prior three sessions, tracking below its 25 and 200-day moving average. Yet while short positions are currently profitable, story noted thoughts the rule of thumb that a ratio above 45% indicates oversold conditions, which actually implies the risk of a market bounce when the positions are closed. Article cited three main scenarios eyed by the market: (1) Payrolls beat and Fed cuts by 25 bp, prompting a V-shaped rebound in equities, (2) Payrolls miss and Fed cuts by 50 bp though market direction inconclusive, (3) Payrolls miss but Fed cuts by only 25 bp and markets will be disappointed. Moreover, given expectations the Fed will cut regardless, implications for yen strength may well pose a separate headwind for stocks. With yen already firming towards the end of the Tokyo session and auto sector stocks lagging Topix, prospects for a rebound in Japan market Monday may be limited to short-covering if FX factor becomes the dominant theme.

    • Seven & i turns down Couche-Tard buyout proposal:

      • Seven & i (3382.JP) said in a statement that the offer made by Alimentation Couche-Tard (ATD.CN) is not in the best interest of its shareholders. Conclusion was unanimous among board members and the Special Committee that reviewed the proposal. Noted the Committe believes the proposal was opportunistically timed and grossly undervalues Seven & i's business strategies. Board members noted that even if the bid price is raised, the proposal lacks adequate acknowledgement of the challenges the deal would face from US regulators and provides no certainty it would go through. Seven & i's crucial role in Japan's society through its expansive portfolio of business cited as a clear area requiring further discussion. Nikkei revealed the deal was valued at JPY6T ($41.8B) and further negotiations would be required even if the price is raised. Calculations were based on a non-binding proposal thought to be submitted in late July priced about $15/sh, translating to JPY2,200-2,400/sh at prevailing FX rates. Seven & i shares were trading in the JPY1,700-1,900 range. While premium was some 30% at the time, buffer has eroded after the share price rallied on the news while coinciding with yen strength.

    • Japan's Koizumi declares for LDP leadership, aiming for snap election:

      • Nikkei cited former environment minister Shinjiro Koizumi in a press conference officially announcing his bid for the LDP leadership with the vote to be held on 27-Sep. Added he would aim to hold an early general election to validate a public mandate. Article noted this brings the official candidate list to six members, already the largest on record under current party rules going back to 1995 (with more expected to follow). Recalled Koizumi emerged as the most popular candidate among the general public in a recent opinion poll, ahead of former Secretary-General Ishiba and Economic Security Minister Takaichi. Koizumi is the son of former Prime Minister Junichiro Koizumi. At age 43, Shinichiro is vying to become the youngest prime minister in history under the current constitution. Policy platform includes a proposal to relax employee dismissal rules, endorsing a referendum on constitutional reforms to formally acknowledge the Self-Defense Forces and restart of ministerial talks on reactivating the Kashiwazaki-Kariwa nuclear plant. Economic policies remain aligned with those of the Kishida administration (Kyodo). Amid growing interest in the prospect for younger members to ascend to the leadership, Nikkei discussed waning LDP support among younger voters, who are particularly dissatisfied with government corruption.

    • Japan household spending misses despite solid income growth:

      • Household spending rose 0.1% y/y, below consensus 1.2%. Follows 1.4% decline in the previous month, marking the first rise in three months. Main swing factor was a sharp rebound in housing after a similar drop in the prior month. Leisure, education and medical services were also positive. Gains were negated by softness in other categories, led by apparel, utilities and food. More attention on incomes, where growth accelerated to 5.5% in total from prior 3.1%. Aggregate was boosted by sharp growth in bonuses alongside broad increases in main breadwinner salaries as well as dependents incomes. Disposable household income expanded 7.3%, logging the third straight month of notable growth. Strength was somewhat supported by favorable base effects while consistent with temporary tax cuts implemented in June, as well as a pickup in base wages as seen in the Monthly Labor Survey. However, lackluster spending resulted in marked declines in propensity to spend. Face value implications suggestive of limited transmission from income to spending, against broader optimism surrounding the permeation of wage hikes. Subsequent BOJ consumption activity index showed a 0.3% m/m increase after adjusting for cross-border traveler spending following 0.6% in June, marking a moderately positive start to Q3.

    • China yields make fresh lows as PBOC sells bonds it recently purchased:

      • China bond yield have to continue to plumb new lows this week after weak August PMIs and more subdued property market data reinforced narrative of a weakening economy and expectations policymakers will follow-up with additional rate cuts. Bond market strength concentrated in front-end of the curve with 2Y yield sliding to its lowest since Covid shock in May2020. Curve continues to steepen with 2/10Y spread reaching around +70 bp, highest since July, as 10Y rate climbed around three bp on Friday to 2.15%. Comes after Bloomberg cited traders who said PBOC on Thursday began selling 10Y special notes it bought last week with one deal completed at yield of 2.125%. Central bank confirmed on 29-Aug it bought net CNY400B via CNY300B in 10Y bonds and CNY100B in 15Y bonds. Recent market activity suggest PBOC is acting on plans to manage yields and maintain a positive sloping curve. However, piece meal actions and repeated verbal warnings have failed to halt a continued fall in yields that many attribute to China's pervasive economic weakness, deflation pressures, subdued credit demand, and risk averse investors favoring only safest of assets.

    • Notable Gainers:

      • +8.1% EA.TB (Energy Absolute Public): reportedly in talks to raise THB12-15B ($360-450M) in new share sale

      • +3.2% 2379.TT (Realtek Semiconductor): reports August revenue NT$10.21B, +15.3% y/y

      • +0.3% 3387.JP (create restaurants holdings): to acquire Ichigen Food Company

      • +0.2% 9735.JP (SECOM Co.): SECOM, ITOCHU to privatize PASCO, to start tender offer at ¥2,140/share from tomorrow to 22-Oct; to conduct 2-for-1 stock split, effective on 1-Oct

      • +0.1% 3401.JP (Teijin): holder Effissimo Capital Management raises stake to 7.67% from 6.03%

    • Notable Decliners:

      • -1.4% 3382.JP (Seven & i): board concludes that non-binding proposal from Aimentation Couche-Tard is not in best interest of 7&i shareholders and other stakeholders

      • -0.9% 000333.CH (Midea Group): reportedly to take orders next week for Hong Kong IPO to raise ~$4B (HK$31.18B)

  • Data:

    • Economic

      • Japan

        • July household spending +0.1% y/y vs consensus +1.2% and (1.4%) in prior month

          • Spending (1.7%) m/m vs +0.1% in prior month

      • Australia

        • July housing finance +3.9% m/m vs +1.3% in June

    • Markets:

      • Nikkei: (265.62) or (0.72%) to 36391.47

      • Hang Seng: 0.00 or 0.00% to 17444.30

      • Shanghai Composite: (22.51) or (0.81%) to 2765.81

      • Shenzhen Composite: (24.44) or (1.60%) to 1505.18

      • ASX200: 31.00 or +0.39% to 8013.40

      • KOSPI: (31.22) or (1.21%) to 2544.28

      • SENSEX: (1,053.55) or (1.28%) to 81147.61

    • Currencies:

      • $-¥: (0.88) or (0.61%) to 142.5660

      • $-KRW: (5.74) or (0.43%) to 1327.8600

      • A$-$: (0.00) or (0.09%) to 0.6732

      • $-INR: (0.07) or (0.08%) to 83.9273

      • $-CNY: (0.01) or (0.11%) to 7.0844

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