Sep 12 ,2024
Synopsis:
Asia equities finished mostly higher Thursday. Strongest gains in Japan as carmakers and other exporters bounced back from a seven-day selloff. Tech-orientated boards in South Korea and Taiwan also pushed higher. The Hang Seng gained but finished off its high, mainland boards were lower. Australia and Southeast Asia boards higher with Jakarta at fresh record highs. India also trading higher. US futures ticking up, Europe higher in the first hour of trade. Dollar slightly higher, yen weaker. Crude oil, precious and industrial metals all higher.
Asia stocks saw a positive day Thursday on read-through from Wall Street's rally overnight, although China's boards continued to be driven by more local catalysts and trading patterns. A roughly 3% trough-to-peak turnaround on the Nasdaq Wednesday led to strong gains on tech-leaning boards in Taiwan, South Korea and Japan, with the latter also benefiting from a pause in yen strengthening overnight. However, intraday, the yen was volatile after BOJ board member Tamura outlined assumption of 1% neutral rate and warned the market's hike trajectory is too gradual.
Elsewhere, Japan wholesale inflation weakened by more than expected as the yen rebound caused a sharp fall in import cost growth. Japan corporate sentiment unexpectedly improved but current profits seen as mildly negative. Thailand consumer confidence fell to a 13-month low just as new PM Shinawatra outlined her governments new policies to parliament, including a revised digital wallet handout program.
Couche-Tard is said to be mulling a higher offer price for Seven & I (3382.JP) following rejection of its initial offer. Taishin Financial (2887.TT) said it will raise its offer for rival Shin Kong (2888.TT) in an attempt to out-bid CTBC Financial (2891.TT) in what could be Taiwan's largest ever financial group merger. HDFC Bank (500180.IN) is in talks with several global banks to sell as much as $1B in loans to reduce its credit book to a level more in line with deposits, according to press reports. Adaro Energy (ADRO.IJ) plans to spin off its coal mining unit for around $2.45B as part of its shift away from coal; shares substantially higher.
Digest:
BOJ's Tamura assumes neutral rate of 1%, warns market pricing too gradual:
In a speech, BOJ board member Tamura offered the most detailed discussion of neutral rates. Analysis first established that real rates are deeply negative, justifying the need for further rate adjustments. Echoing prior remarks from Governor Ueda, Tamura illustrated the variability of natural rate (long-run r*) calculations based on various methodologies, ranging from about -1% up to +0.5%, and current real rates running clearly below the range. Explicitly mentioned that he is assuming a neutral rate of about 1% and said the policy rate needs to be at least around this level by FY26 in order to curb upside inflation risks and maintain price stability. Clarified this should be achieved in stages according to the confidence level in achieving the inflation target. Reviewing the July rate hike, Tamura acknowledged mixed reviews of the action that presaged major market volatility. Noted BOJ has been consistent with view from April flagging the need to adjust policy if economic trends were on track with forecasts and saw this as mainly a market communication issue. Going forward, remarked that market pricing of the rate hike trajectory is gradual and not reaching his assumption of a 1% neutral rate over the next three years, posing the risk of inflation overshoot in which case rapid rate hikes could not be ruled out.
US business confidence in China falls to record low:
Nikkei cited the 2024 China Business Report published by AmCham in Shanghai showing the proportion of American companies placing China as the top investment destination fell to a record low 13%, down 4 ppt from last year. Proportion of companies placing China in the top three markets also fell to 34% from 53%. Worsening bilateral tensions were cited as the biggest concern. Two-thirds of respondents identified US-China trade tensions as the top challenge for their companies over the next three to five years. When asked how the US could support foreign companies in China, 48% suggested Washington reduce tariffs on Chinese imports. Article added the US presidential debate did little to raise hopes for improved US-China relations ahead of the November election. China's economic slowdown was another concern highlighted by 60% of respondents. On the brighter side, 54% expected positive annual revenue growth, up from 50% last year. Those planning cutbacks to China investment shrank to 20% from 25%. Yet only 37% expect China revenue growth to outperform globally in the next three to five years as longer-term optimism dropped to a record low 47% vs 78% three years ago.
China government bond bull run continues while junk bonds suffer longest slide in a year:
10Y China government bond yield fell below 2.10% on Wednesday to lowest level since at least 2002. Meanwhile 30Y treasury bond futures closed at record high Wednesday. Analysts said bull run in CGBs has continued due to largely cautious outlook on China's economy and lack of alternatives that offer decent returns. Bloomberg citing traders noted big banks buying short-dated notes while selling long-maturity ones, sending one-year yield to a level that's nearly 60 bp below overnight repo rate earlier this week, widest gap since 2021. ShanghaiSecuritesNews added short-dated yields also diverged from rates on interbank certificates of deposit, which were offered around 1.97% compared with 1.3% for one-year yield. Analysts said authorities' ultimate goal is likely to steepen sovereign yield curve to limit speculation in debt market while keeping borrowing costs low. Meanwhile Bloomberg reported China high-yield bonds posted eight straight days of declines, longest stretch since Aug-2023, amid worries about property developers' liquidity due to persistent slump in home sales.
Japan producer price inflation misses amid sharp yen strength:
CGPI rose 2.5% y/y in August, below consensus 2.8%. Follows 3.0% in the previous month and marks the first deceleration since January. Sequential decline of 0.2% m/m was the first since October. Main factor was import prices, which slowed notably to 2.6% in yen terms after a progressive pickup this year to a peak of 10.8% in July. Steady rise in contract currency terms implies FX rates as the catalyst reflecting the spike in yen in early August to a high of 141.69 vs dollar. Recall that subsequent retracement towards 150 has since dissipated and levels now back to the high-142 range. Aggregate details showed petroleum & coal products swung into negative territory as this category slowed sharply in import prices and has the highest weighting. Recall that BOJ board member Nakagawa on Wednesday reaffirmed that higher import prices were viewed as an upside risk factor for inflation. Nikkei noted broader takeaways from the speech were hawkish on the back of repeated BOJ messaging that policy accommodation will continue to be adjusted if economic developments remain in line with projections. Pertinently, four out of nine board members have made this comment so far. Looking ahead, the article drew attention to the next MPM on Sep 19-20 though recent consensus polls indicated rate hike forecasts remain bunched in December and January.
Thailand PM to focus on improving citizen financial status, increase state income:
Newly appointed Thailand PM Paetongtarn Shinawatra said government will focus on comprehensive debt restructuring on home and car loans, support for informal debtors without compromising country's financial stability. Shinawatra outlined her proposals to parliament following appointment earlier this month, said her administration would introduce measures to lower energy and utility prices by altering energy price structures (BangkokPost). Predecessor's $14.4B digital wallet scheme would proceed, to begin distribution to most vulnerable groups first although no timetable announced. Added government faced structural economic problems and would act with urgency to stimulate growth. Gambling to be legalized in effort to attract more tourists. Package will swell public debt towards ceiling of 70% of gross GDP by 2027 from current 63.74% therefore challenge for government to restore growth quickly (Reuters). Reform program came under criticism from economists for lacking specifics that would ensure time-bound outcomes (Bloomberg).
Notable Gainers:
+11.5% 6361.JP (Ebara Corp): To invest ¥16.0B for hydrogen facility
+7.0% 272210.KS (Hanwha Systems): Potential KRW3.5T contract for Cheonggung-II from Iraq
+5.7% 302.HK (CMGE Technology Group): To acquire IP rights from Softstar
+4.9% 3665.TT (BizLink Holding): Acquires Easys s.r.o. for an enterprise value of €51.5M (NT$1.83B)
Notable Decliners:
-2.8% 352820.KS (HYBE Co.): K-pop group New Jeans demand Min Hee-jin's return to the company
-1.5% 3038.JP (Kobe Bussan): Earnings
-1.3% 161890.KS (Kolmar Korea Co.): Chairman Dong Han Yoon discloses sale of 60K shares
Data:
Economic:
Japan
Q3 MOF BSI large manufacturing index 4.5 vs consensus (2.5) and (1.0) in prior quarter
August CGPI +2.5% y/y vs consensus +2.8% and +3.0% in prior month
Markets:
Nikkei: 1,213.50 or +3.41% to 36833.27
Hang Seng: 131.68 or +0.77% to 17240.39
Shanghai Composite: (4.67) or (0.17%) to 2717.12
Shenzhen Composite: (7.20) or (0.48%) to 1492.33
ASX200: 87.80 or +1.10% to 8075.70
KOSPI: 58.72 or +2.34% to 2572.09
SENSEX: 203.44 or +0.25% to 81726.59
Currencies:
$-¥: +0.30 or +0.21% to 142.6640
$-KRW: +1.41 or +0.11% to 1341.2100
A$-$: (0.00) or (0.02%) to 0.6674
$-INR: (0.01) or (0.02%) to 83.9757
$-CNY: +0.00 or +0.04% to 7.1228
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