Oct 07 ,2024
Synopsis:
Asian equities higher almost everywhere Monday. Asia equity assets finished higher as Hong Kong continued its recent positive run, albeit at a reduced pace, and tech stocks were boosted on read through from the Nasdaq's positive performance Friday. Japan, Hong Kong, South Korea and Taipei all posted +1% gains, Southeast Asia was also higher. India an exception and is trading lower again as crude prices weigh. Mainland China exchanges still closed. US futures soft, Europe under pressure at the open. US dollar flat, yen giving up some of last week's gains, currencies quiet elsewhere. Treasury yields higher at the short end, lower at the long. Crude prices spiking higher, precious metals down, base commodities mixed.
Asia markets higher Monday as they respond to the stronger US dollar and spike higher on Wall Street Friday. Fed Fund Futures now show a 0% chance of a 50 bp cut from 35% just a week ago; together with dovish comments from new Japan PM Ishiba late last week, this benefited the yen the most, rising to above 149 per dollar at one point late Friday. Some pullback today but not enough to dampen the Nikkei or Topix today, which saw its exporters and financials outperform.
Hong Kong also higher but gains today a little more subdued as investors wait for holiday spending data and NDRC economic support briefing Tuesday. Economists speculate authorities could unveil CNY 2.0T fiscal package that could include local government financing support, bank recapitalization, and consumer stimulus. Elsewhere, markets still anticipating an Israeli response to Iran's missile attack last week with some geopolitical experts citing today as a possible day a retaliatory response could materialize. Crude prices flipping from a loss over the morning to a gain in the afternoon, dragging on oil-sensitive markets such as India.
Saudi Arabia's public investment fund may raise its holding in Nintendo (7974.JP) but isn't "in a hurry" according to Kyodo. Sun Hung Kai Properties (15.HK) is said to have sold more than 200 apartments in a single day at steep discount at a project near Hong Kong's old airport. Blackstone has made a non-binding offer for Singapore Post's (S08.SP) Australian assets in a deal that could be worth A$1B ($679.2M). LG Energy Solutions (373220.KS) says it aims to more than double revenue by 2028 and build a balanced portfolio by expanding its non-EV portfolio. Rio Tinto (RIO.AU) Is in talks to buy Arcadium Lithium (ALTM) in a further push to gain a foothold in minerals used to power electric vehicles. Adani Group's Ambuja Cements (500425.IN) is in discussions to acquire Heidelberg Cement India (500292.IN) in a deal worth around $1.2B.
Digest:
China to brief press on policy implementation Tuesday as equity rally draws skeptics:
Reuters reported top officials from China's NDRC will brief reporters Tuesday about implementation of policies to support economic growth. No further details given. Comes as markets await further details about concrete fiscal measures to revive economy. Some thought market expectations have become too elevated with Beijing press sources acknowledging fiscal measures forthcoming but not as big as is being speculated (link). This ties into concerns China market rally has overshot fundamentals with some strategists and fund managers retaining cautious view on equities absent evidence of macro stabilization and meaningful additional policy steps (Bloomberg).Discussions about FOMO/speculative/retail buying seen leaving stocks vulnerable to sudden sentiment shift with Nomura highlighting risk of repeat of 2015 boom/bust episode. While China index valuations still considered cheap relative to multi-year selloff, some pockets of the markets have become stretched with JP Morgan noting property developer valuations already at pre-Evergrande crisis levels.
Economists preview China fiscal package that may be announced Tuesday:
With China expected to announce fresh information about policy support on Tuesday, some economists looking for headline fiscal package of up to CNY2.0T. Morgan Stanley anticipates CNY2T fiscal package that includes mix of local government financing support and recapitalization of major banks. Also noted potential for measures to boost consumption and/or social welfare benefits along with infrastructure capex. While there is risk of headline amount falling short of expectations, onshore investors may nonetheless view package as demonstration of Beijing's commitment to end deflation and support growth. UBS said reasonable to expect modest initial package of CNY1.5-2.0T, though also noted potential follow-up CNY2-3T of fiscal support for 2025 that may be decided at December's Central Economic Work Conference. Similarly expects package to include measures to plug local government financing gaps, aid property destocking, boost social spending and cut company taxes.
Yen weakness spurs debate about outlook for currency:
Yen a notable decliner lately with currency falling to lowest against dollar since mid-August following Friday's hotter-than-expected US payrolls data. US jobs data drove hawkish rate repricing as markets effectively ruled out prospect of 50 bp Fed rate cut in November. Volatility in rate spreads contributing to latest bout of yen weakness with US-Japan 2Y yield gap widening by 38 bp since yen topped out in mid-September. Spread widening has occurred despite recent dovish comments from BOJ Governor Ueda and Japan PM Ishiba that saw odds of another BOJ rate hike in 2024 drop to almost 20% last week (Bloomberg). Positioning highlighted with speculative yen contracts turning most bullish since early 2021 in week through 1-Oct, according to CFTC data (Bloomberg). This was just before Ishiba's remarks. Yen losses have spurred talk about renewed momentum behind carry trade (Bloomberg), though some FX strategists see weakness as temporary with median forecast for USDJPY to hit 140 in Q2 2025 (vs last 148.5). BOJ officials have repeatedly stated policy normalization to continue if economy and inflation evolve in-line with projections, while markets still expect 150 bp of Fed rate cuts by July 2025.
Oil traders flip from bearish to bullish as Israel weighs response to Iran's missile attack:
Crude on the upswing after logging biggest weekly gain since early 2022 amid ramp in Middle East tensions. Markets still awaiting Israel's response to Iran's missile barrage last week. Israeli media latest to report military eyeing "significant" attack while Iran repeated warning of stronger response to any Israeli action (Bloomberg). Possible targets mentioned in press include Iran's oil facilities though President Biden on Friday appeared to walk back notion of support for such an action, saying he'd think about other alternatives (Reuters). In either case, traders positioning for more upside in oil prices with WTI crude's call options skew rising to highest since early 2022 (Bloomberg). After put volumes peaked two weeks ago, total call volumes hit record high on Wednesday. At same time there are thoughts oil rally overshooting fundamentals given prior concerns about slowing China economy weighing on demand, and supply getting a boost from OPEC+ scaling back production cuts in December. Reports have also highlighted OPEC+ ability to cushion market if Iran facilities are hit (Reuters).
Street Account Event Preview: Bank of Korea policy meeting, 11 October:
Bank of Korea could cut base lending rate Friday following recent inflation dip and recent data that showed rapidly decelerating economic growth. Yonhap survey of seven domestic economists showed six forecasted 25 bps cut to 3.25%, first such cut in three years. Dovish tilt supported by September inflation that fell to 1.6% from August's 2.0%, below government's target, while last week's PMI figures revealed a sharp slowdown in manufacturing output and new orders, imperiling South Korea's vital export base. Consumer demand growth also remains in doldrums. However, bank must juggle economic slowdown against surge in household debt, runaway house prices in Seoul. Further, analysts noted September inflation dip mainly caused by decline in oil prices, which have since pared on Middle East geopolitics, and favorable y/y comparisons. Dissenting economist in Yonhap survey added BOK may want to wait for more credit data before cutting in November.
Notable Gainers:
+30.6% 460.HK (Sihuan Pharmaceutical Holdings Group): to conduct up-to-HK$500M on-market buyback, to run for 12 months from 6-Oct
+4.4% 7974.JP (Nintendo): Saudi Arabia's PIF reportedly may raise its holdings in Japanese gaming companies
+1.6% 6723.JP (Renesas Electronics): CG Power & Industrial Solutions to buy Renesas's RF components business for $36M (¥5.35B/INR3.03B)
+1.1% 6406.JP (Fujitec): Activist Farallon Capital Management discloses 6.59% stake in Fujitec
-0.3% 700.HK (Tencent Holdings): Ubisoft Entertainment reported to receive interest from Tencent, Guillemot family for potential buyout
Notable Decliners:
-6.3% 6146.JP (DISCO Corp.): reports preliminary Q2 non-consolidated sales ¥83.3B vs year-ago ¥60.2B
-6.2% 1797.HK (East Buy Holding): rumors of company launching smear campaign against former employee Dong Yuhui
-0.8% 2354.TT (Foxconn Technology): reports September revenue NT$5.61B, (18.5%) y/y
-0.6% 6506.JP (YASKAWA Electric): reports H1 operating income ¥22.93B, (31%) vs year-ago ¥33.06B
Data:
Economic:
Australia September
MI inflation gauge m/m +0.1% versus (0.1%) in prior month
Markets:
Nikkei: 697.12 or +1.80% to 39332.74
Hang Seng: 362.91 or +1.60% to 23099.78
Shanghai Composite: Closed
Shenzhen Composite: Closed
ASX200: 55.40 or +0.68% to 8205.40
KOSPI: 40.67 or +1.58% to 2610.38
SENSEX: (644.68) or (0.79%) to 81043.77
Currencies:
$-¥: (0.41) or (0.27%) to 148.3190
$-KRW: (2.88) or (0.21%) to 1344.0000
A$-$: (0.00) or (0.11%) to 0.6796
INR: (0.06) or (0.07%) to 83.9744
$-CNY: (0.03) or (0.46%) to 7.0174
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