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StreetAccount Summary - Asian Market Recap: Nikkei +0.49%, Shanghai Composite +0.49%, ASX +0.01% as of 04:10 ET

Sep 18 ,2024

  • Synopsis:

    • Asian equities ended mixed Wednesday in another quiet day's trading. Japan's markets finished best with a rally into the close, mainland China boards also rallied in the afternoon session as several chipmakers rose. Most of Southeast Asia well bid. India, Singapore and Taiwan the markets with losses, Australia ended flat. Hong Kong closed for a holiday. US futures a few points higher, Europe paring early gains. Dollar flat, yen weakened against a basket of currencies, offshore yuan strengthened. Treasury yields higher across tenors, CGBs breaking to record lows. Crude futures lower, precious and industrial metals mixed.

    • Asia equities struggled for direction all day in a choppy session that tilted to the upside toward the close. Fed's rate decision due well after Asia's close this evening with Fed Fund Futures currently show a 61% chance of a 50 bps but economists forecasting a 25 bps reduction. Focus will also be on Chair Powell's press conference at which he is expected to maintain a dovish stance, while the dot plot will also be watched closely for any changes from its current 75 bps of cuts by year-end.

    • Asia markets bracing for the outcome. Whatever size the Fed chooses, a cut is likely to trigger Asia rate cuts through to year end with Southeast Asia and India considered best placed to benefit according to analysts. Today, Bank Indonesia surprised markets by cutting 25 bps when most had expected no change, thanks to stabilizing currency, low inflation. Japan assets could be volatile through to week-end with the yen vulnerable to further carry-trade unravelling with subsequent impact on Nikkei and Topix. BOJ also announces rate decision Friday.

    • Today, Japan export growth came in below consensus as growth in shipments of chipmaking equipment was offset by autos weakness; import growth also well below forecasts. Japan core machinery orders also unexpectedly contracted amid manufacturing weakness. Mainland China markets rallying late after early morning losses post holiday; bonds more sensitive to the weak economic data last weekend with 10Y government yields sinking to record low 2.04%.

    • J-Power (9513.JP) is seeking an equity partner for Bulli Creek Stage 1 solar power farm project, according to press reports. The White House has pushed the review of Nippon Steel's () takeover of US Steel to beyond the US election. CTBC Financial Holding (2891.TT) will revise and resubmit its investment plan for Shin Kong Financial (2887.TT) after the Taiwan regulator rejected its initial bid; CTBC stock rose; rival bidding firm Taishin Financial Holdings (2887.TT) stock fell. Macquarie Group (MQG.AU) is considering the sale of its UK-based Wavenet for up to $1.6B.

  • Digest:

    • BofA Asia FMS showed increased bearish sentiment towards China, Japan remains the regional favorite:

      • BofA Asia Fund Manager Survey highlighted Asia ex-Japan 12-month economic growth outlook DI tumbled to -23% in September from +22% in August, marking a two-year low. Relative weakness vs global aggregate largely explained by China, where its outlook DI dropped to -35%, the lowest since the start of the survey in 2022. Softening China credit impulse points to further downside risk to nominal GDP growth notably below 5%, reinforcing elevated monetary easing expectations. Bulk of respondents were looking for opportunities elsewhere (33%) or waiting for more credible signs of policy easing before adding exposure (23%). Lack of buying interest reinforced by strong majority (78%) who expect Chinese households to prioritize savings over investments or discretionary spending. China allocations DI showed net 33% underweight vs 15% in August and readings have been in negative territory over the past four months. Optimism on Asia ex-Japan equity returns eroded as profit growth expectations DI fell to 18% from 57% in July. Bearish China sentiment contrasts sharply with Japan, where most see a stronger economy and modal group sees Japan equity returns in the 5-10% range (vs 0-5% for Asia ex-Japan). Japan remains the favorite market (net 45% overweight), followed by India (25%) and Taiwan (20%). Respondents most overweight in Japan banks, followed by semis. Asia ex-Japan sector allocations saw notable paring in tech, though report noted this segment remained at the top as growth risks weighed on sentiment towards cyclicals.

    • Japan trade growth well below expectations, core machinery orders also miss:

      • Customs exports rose 5.6% y/y in August, well below consensus 10.6%. Follows revised 10.2% in the previous month and marks the ninth straight increase. Similarly, imports also missed considerably with 2.3% growth vs consensus 14.6% and 16.6% in prior month. Regional export growth was underpinned by Asia/China, logging the ninth straight rise, while US shipments turned negative and EU shipments fell for the fifth straight month. Notably, customs cleared USD/JPY averaged 150.89, indicating yen depreciation of 6.1% y/y. Favorable pricing continued to inflate nominal export and import figures, both showing declines in volume terms with exports down for the seventh straight month. BOJ real trade indices showed exports up 1.3% m/m and imports up 0.5%, though imports tracking a higher Q3 trajectory given a faster start to the quarter, pointing to a net drag on GDP from net external demand. Core machinery orders declined 0.1% m/m in July, missing expectations for a 0.5% rise, following 2.1% growth in June. Weakness came entirely from manufacturers (shipbuilding, chemicals) which negated growth in nonmanufacturers (mining, logistics). Headline marks a neutral start to Q3, consistent with the survey projection of +0.2% q/q.

    • Asia markets, central banks brace for impact of Fed rate cut:

      • Asia markets' quiet week-to-date set to receive substantial jolt as Federal Reserve cuts base rate but markets, analysts split over whether it will be a 25 or 50 bps cut. Asia analysts say yen, JGBs could be particularly volatile with BOJ also set to meet Friday; Southeast Asia, India equities could rally further ahead of their own likely CB easing cycle (Bloomberg). Fed Fund Futures currently indicate 65% chance of 50 bps. Economists forecast Asia central banks likely to follow easing trajectory to year end regardless of Fed cut size later Wednesday. Bloomberg noted Fed's move gives room for India, Thailand, Indonesia, Philippines, South Korea, Singapore, Australia CBs to ease policy before year end; Malaysia and Taiwan to hold rates steady; Japan likely to hike. China also likely to ease policy to boost economic growth. Swap markets pricing in RBNZ cut of 50 bps on 9-Oct. Near-term inflation pressures in India, Philippines likely to delay easing there, soaring house prices also likely to delay BOK. Investors have anticipated regional CB rate cuts, leading to three-month long cross-asset rally particularly in Southeast Asia with room to grow (Bloomberg).

    • Bank Indonesia surprises with 25 bps rate cut:

      • Bank Indonesia (BI) surprised markets by trimming its base interest rate to 6.0%, just weeks after Governor Warjiyo said the bank would wait until Q4 before cutting. BI said repeatedly it was viewing interest rates with rupiah in mind, given inflation back below bank's 1.5%-3.5% target, however rupiah rallied 6.6% QTD giving scope to cut now, ahead of Fed and most other regional banks. Warjiyo said bank to pay close attention on room to cut rate within its own forecasts of reduced inflation, stable rupiah. Added domestic economic support needed beyond year end, with efforts needed on supply and demand side. Said rupiah well buffered amid record high forex reserves, narrow current account deficit. Despite surprise in cutting today, economists warned pace of future cuts likely to be moderate as global risks remain elevated (Bloomberg).

    • Economists weigh potential for China RRR cut in coming months:

      • With latest activity data confirming China's slowdown extended into August, multiple sell-side firms made fresh downgrades to their GDP forecasts and warned of growing risk government will fail to achieve its 2024 growth target of ~5%. With time running short for fresh policy support measures, China Securities Journal cited views that PBOC has more room to cut RRR. Director of PBOC's monetary policy department recently noted average statutory RRR among financial institutions is ~7% while economists argued that some institutions have implemented a 5% RRR, suggesting room for ~200 bp of RRR cuts. Analysts further noted some CNY4.28T of MLF funds are maturing in Q4 and a RRR cut would act as a hedge against maturing funds. Some estimate 0.5% cut to RRR could release CNY1T. As for timing, RRR cut may be implemented before end of Q3 at earliest while others saw higher probability of cut in Q4. Last RRR cut was implemented in February and historically PBOC has spaced out RRR cuts every six months or so to release medium-term liquidity.

    • Notable Gainers:

      • +33.3% 88E.AU (88 Energy): Updates Project Phoenix 2C gross contingent resource to 378mmboe

      • +5.3% 2413.JP (M3): Simulmedia announces strategic partnership with M3 MI

      • +5.3% CXO.AU (Core Lithium): Issues Shoobridge Project gold, tin and lithium drilling update

      • +2.8% 2891.TT (CTBC Financial Holding): CTBC to revise, resubmit investment plan for acquisition of Shin Kong Financial

    • Notable Decliners:

      • -7.9% 2888.TT (Shin Kong Financial Holding): CTBC to revise, resubmit investment plan for acquisition of Shin Kong Financial

      • -3.4% 2887.TT (Taishin Financial Holdings): Rival CTBC to revise, resubmit investment plan for acquisition of Shin Kong Financial

  • Data:

    • Economic:

      • Japan

        • August trade balance (¥695.3B) vs consensus (¥1,432.4B) and revised (¥628.7B) in prior month

          • Exports +5.6% y/y vs consensus +10.6% and revised +10.2% in prior month

          • Imports +2.3% y/y vs consensus +14.6% and +16.6% in prior month

        • July core machinery orders (0.1%) m/m vs consensus +0.5% and +2.1% in prior month

    • Markets:

      • Nikkei: 176.95 or +0.49% to 36380.17

      • Hang Seng: Closed

      • Shanghai Composite: 13.19 or +0.49% to 2717.28

      • Shenzhen Composite: (2.53) or (0.17%) to 1473.73

      • ASX200: 1.20 or +0.01% to 8142.10

      • KOSPI: Closed

      • SENSEX: (87.01) or (0.10%) to 82992.65

    • Currencies:

      • $-¥: (0.53) or (0.37%) to 141.8850

      • $-KRW: (2.47) or (0.19%) to 1323.2300

      • A$-$: +0.00 or +0.33% to 0.6777

      • $-INR: (0.09) or (0.11%) to 83.7088

      • $-CNY: (0.00) or (0.07%) to 7.0887

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