Sep 11 ,2024
Synopsis:
Asian equities ended mostly lower Wednesday. Losses greatest in Japan where stocks gapped lower then took a second leg down after hawkish BOJ remarks. More losses in Hong Kong but main board off its low by the close, mainland China markets down with the Shanghai Composite breaking five-year low. South Korea and Taiwan down, Australia lower despite rally in lithium miners. India flat, Singapore slightly up but Southeast Asia markets generally weak. US futures lower but off their troughs, Europe opened with small gains. US dollar weaker, yen strengthening sharply on BOJ news, other Asia currencies largely unchanged. Treasury yields largely lower, JGB yields lower despite BOJ, CGBs hovering at record lows. Crude futures sharply higher, precious metals also higher, industrial metals mixed. Cryptocurrencies slipping sharply post US presidential debate.
Asia markets weaker almost everywhere but rallied late on as US and European futures ticked higher. Major risk event of Asia's trading day passed with little market reaction as the Harris-Trump debate led to a modest Treasury rally, a stronger euro, and a cryptocurrency selloff just as betting markets tilted the debate toward Harris. Dollar movement skewed by a significant strengthening of the yen after BOJ board member Nakagawa reiterated further rate hikes were on the table if the economy and inflation evolve as expected. Attention now switches to US CPI with a 2.6% increase y/y forecast for the headline level, 3.2% for core.
In macro developments, Japan manufacturer sentiment fell to seven-month low amid soft China demand. South Korea exports rose 24.6% y/y in first 10 days of September while its unemployment level fell slightly to 2.4% in August. RBA's Hunter noted labor market still operating above full employment. Singapore's central bank survey showed higher GDP growth and lower inflation forecast among economists.
Nippon Steel (5401.JP) said it had sent its VP to Washington in an attempt to rescue its bid for US Steel. CATL (300750.CH) may reduce its production of lithium, according to press reports; Australian lithium miners including Pilbara Minerals (PLS.AU) and Liontown Resources (LTR.AU) substantially higher. Sino-Ocean (3377.HK) won a two-week adjournment in its liquidation hearing in Hong Kong as it works to secure more creditor support for its debt restructuring plan. Star Entertainment (SGR.AU) admitted it was not yet in a position to finalize its results for the year and now faces a trading suspension.
Digest:
BOJ's Nakagawa reaffirms policy normalization trajectory:
In a speech, BOJ board member Nakagawa repeated the messaging that policy accommodation would continue to be adjusted so long as economic, price and financial developments were in line with projections. Also reaffirmed a cautious approach while monitoring financial market conditions following the July rate hike, which Nakagawa supported given the Outlook Report scenario was largely on track. Added to emphasis that real rates are deeply negative to clarify financial conditions remain accommodative. On JGB purchases, conveyed current reduction plan will undergo an interim review in June next year along with a new plan for FY25. Noted the assumption is the current trajectory will continue, though may be subject to changes depending on market conditions. Described three risk factors on the economic outlook -- (1) called for attention that rising import prices may encourage stronger cost passthrough and lead to upside risk to inflation, (2) uncertainties surrounding overseas economies, particularly amid concerns of a hard-landing scenario in the US, and (3) lagging improvement in consumer sentiment may disrupt the virtuous cycle from income growth to spending.
China reflation stimulus requirements estimated at up to $1.4T:
FT discussed economists' views on the size of stimulus required to reflate the economy with estimates ranging up to CNY10T ($1.4T). Highlighted the most aggressive forecast came from Morgan Stanley Chief China Economist Robin Xing, which would be up to 2.5 times the major stimulus package implemented in 2008. Story noted a broader consensus that measures would need to directly target households through social welfare spending rather than investment and infrastructure. Furthermore, analysts warned the matter was becoming more urgent and spending requirements would grow the more embedded deflation became. Article noted the current policy stance supporting the manufacturing industry is increasing the supply of consumer goods and exacerbating deflationary forces. Echoed other reports noting that deflationary pressures are suppressing nominal GDP growth as soft corporate profits lead to lay-off and salary cuts. Clarified Morgan Stanley's estimate was a "bull case," whereby CNY10T could be deployed over two years. Breakdown includes CNY7T to boost social welfare spending for migrant workers lacking benefits, and CNY3T to accelerate sales of existing housing inventory. Such stimulus would lift the augmented budget deficit from 11% to 14% of GDP.
China property rescue efforts continue to see slow progress:
Bloomberg discussed the glacial implementation pace of property support measures, highlighting that only 29 out of more than 200 cities have responded to the central government's call to buy housing inventories as of August. Suggested that disappointing progress raises the pressure for more forceful measures. Cited a Shanghai CRIC Info Tech report indicating purchases stood at only 1.9% of unsold apartments nationwide as of July. Local governments seen to be balking at buying when prices are expected to continue falling. Story echoed earlier reports noting rental yields are running below the cost of PBOC funding. Fitch said potential for better returns would arise only if unsold homes were bought at a significant discount, but local governments might be wary of acting on this due to "socio-political repercussions for local homeowners. Article cited examples where Foshan city proposed an upper limit of 50% on the purchase price, while Dongguan city aims to price affordable housing at around 50%, implying purchase costs would be even lower. Local government finances also pose a constraint amid record declines in land sale revenues and Shanghai stood out as the only jurisdiction among all 31 provinces and municipalities recording a fiscal surplus in H1.
RBA Assistant Governor Hunter says labor market operating above full employment:
In a speech, RBA Assistant Governor (economics) Hunter noted RBA assesses labor market operating above full employment though has moved to better balance since late 2022. Among labor market measures RBA monitors, decline in vacancies has coincided with only modest rise in unemployment rate. Average hours worked has not fallen materially even amid a slowing economy while layoff rate remains low historically, suggesting labor market conditions tighter than implied by full employment. This has occurred even as labor force participation has strengthened to record high in July. Going forward RBA expects growth in labor demand to slow relative to supply though outlook is highly uncertain. Hunter acknowledged risk unemployment rate could rise more quickly than expected though added labor demand could also turn out stronger than RBA anticipates. While markets continue to expect RBA rate cut by year-end, odds of a dovish pivot in coming months have eased after Governor Bullock stuck to hawkish script last week.
Trump and Harris square off in presidential debate:
Trump and Harris concluded their presidential debate on Tuesday after clashing on range of issues (FT, Bloomberg, Washington Post, NY Times). Election betting markets moved in Harris' direction during course of debate (RCP), while CNN instant poll showed 63% of viewers thought she won. Harris also received endorsement of Taylor Swift following debate. No major revelations from either candidate with both mostly rehashing existing talking points and criticism of the other. Trump attacked Harris over Biden administration's handling of immigration and economy, Harris sought to pin Trump on abortion rights, and both went after the other on foreign policy. Press takeaways noted Harris managed to put Trump on defensive over controversial issues such as Project 2025, Jan-6, and stolen 2020 election claims. Still, unclear whether debate will shift trajectory of what is a very close race after latest batch of polls showed Trump and Harris essentially tied nationally and in battleground states (NY Times, CBS, PBS). Spokespeople from both campaigns voiced readiness for second debate.
Notable Gainers:
+11.1% 112610.KS (CS Wind): To appoint Bang Sung-hoon as new CEO
+8.3% 079550.KS (LIG Nex1): Wins DAPA's unmanned surface vehicle system order
+4.1% 9907.TT (Ton Yi Industrial): August revenue
+3.8% 4536.TT (Topkey): August revenue
+3.6% 039200.KS (Oscotec): To receive $24.0M (KRW32.1B) milestone payment for EGFR-Targeted Anti-Cancer Drug
Notable Decliners:
-16.1% 6966.JP (Mitsui High-tec): Earnings; lowers FY guidance
-15.8% 6110.HK (Topsports International Holdings): H1 profit attributable to decrease by (35%) y/y
-7.2% 009420.KS (HANALL BIOPHARMA): US partner Immunovant releases results from phase 2a clinical trial of Batoclimab
-6.4% 7453.JP (Ryohin Keikaku): August mainland China LFL sales (12.0%) y/y
-3.7% 8464.TT (Nien Made Enterprise Co.): August revenue
Data:
Economic:
Japan
September Reuters Tankan manufacturers sentiment index +4 vs +10 in prior month
Service sector index +23 vs +24 in prior month
South Korea
August unemployment rate 2.4% vs 2.5% in prior month
Markets:
Nikkei: (539.39) or (1.49%) to 35619.77
Hang Seng: (125.38) or (0.73%) to 17108.71
Shanghai Composite: (22.40) or (0.82%) to 2721.80
Shenzhen Composite: (0.72) or (0.05%) to 1499.53
ASX200: (24.00) or (0.30%) to 7987.90
KOSPI: (10.06) or (0.40%) to 2513.37
SENSEX: 42.49 or +0.05% to 81963.78
Currencies:
$-¥: (0.98) or (0.69%) to 141.4730
$-KRW: (5.55) or (0.41%) to 1338.8300
A$-$: +0.00 or +0.20% to 0.6665
$-INR: (0.03) or (0.04%) to 83.9436
$-CNY: (0.01) or (0.13%) to 7.1121
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