Oct 25 ,2024
Synopsis:
Asian equities finished mixed Friday. Gains in Greater China led by Shenzhen but benchmarks well off their highs by the close. Small advances in South Korea and Taiwan, Australia also a few points higher. Steep losses in India, Japan also lower ahead of weekend general election. Southeast Asia mixed. US futures mixed, Europe opened lower. US dollar flat, yen a little stronger, AUD/NZD weakening again. Treasury yields lower at the long end, higher at the short. Crude oil prices higher, precious metals down, industrials mixed.
Another quiet day in terms of catalysts so Asia equities continuing their recent trajectories. Japan's benchmarks fell steeply over the week as its general election loomed with considerable doubt over the outcome. Overnight, BOJ Governor Ueda appeared to advocate for more patience over rate hikes, adding to previous dovish comments this week, but the yen was flat Friday as investors adopt a wait-and-see approach to the election.
Today, Tokyo core inflation fell back below 2% target for first time since May although this reflected the reinstatement of electricity subsidies. Japan services PPI inflation also eased. The PBOC left 1Y MLF rate unchanged following September's 30 bp cut, and net drained CNY89B. IMF warned China's economic growth trend could fall below 4% without reforms to boost consumption, and said recent stimulus measures are insufficient to beat deflation. Singapore volatile manufacturing output rose 9.8% y/y but was a substantial slowdown m/m.
SK Hynix (000660.KS) reported to be in discussions with Tesla over supply of enterprise-grade solid state drives (eSSDs) worth up to KRW1T. Qantas (QAN.AU) raised revenue expectations from its domestic operations and lowered fuel cost forecasts following oil price drop; said it is not opposed to Qatar stake in Virgin Australia. Whitehaven Coal (WHC.AU) said it was optimistic over further gains in metallurgical coal prices because of supply constraints, reported better-than-expected Q1 output. WiseTech Global's (WTC.AU) CEO resigned following reports on his private life; shares sharply higher.
Digest:
Latest BOJ Ueda remarks lean back towards patience:
In a press conference at the Washington G20, BOJ Governor Ueda repeated there is ample time to deliberate on the next rate hike (Nikkei, Bloomberg). On recent potential impacts from yen weakness, said they will carefully analyze the whole picture while specifying attention on US macro developments and refrained from acknowledging upside risks to inflation. Takeaways tilted back dovish on the latest comments. Follows yesterday's quotes expressing concerns about a major build-up in speculative positions if the policy normalization trajectory remained very gradual for an extended period, while also noting that it is taking time to sustainably achieve the 2% inflation target. Reactions have oscillated on BOJ's dual-edged messaging that policy normalization would continue while economic developments tracked in line with forecasts, though there is enough time to consider the next moves. Latest dovish tilt is consistent with near-unanimous expectations of no policy change at next week's MPM. Recall that October forecasts were in the minority and diminished after a snap election was confirmed for Sunday and Prime Minister Ishiba told Ueda during their inaugural meeting that current conditions do not warrant a rate hike. Growing uncertainties over the election outcome added to reasons to stay on hold.
Foreign investors unwind popular swap trades for Indian bonds:
India's so-called Fully Accessible Route (FAR) bonds, a special category of debt that's freely available to foreigners, have seen outflows of about INR40B ($476M) MTD as October is set to log first monthly withdrawal since April (Bloomberg). Morgan Stanley and Gama AM said some of outflows in Indian bonds are tied to unwinding of total return swaps as these instruments give foreign investors to gain India exposure without need to open domestic account or deal with investing rules. JPMorgan survey in June showed 17% of investors were using such OTC swaps while there were more than $9B inflows cumulatively into FAR bonds from June through September since India's debt was added to JPMorgan EM debt index in June. However uncertainty over size of Fed rate cuts, reallocations to China markets and RBI's reluctance to cut rates have dampened appeal of India's debt and contributed to unwinding of the swaps. Local press also said rising odds of Trump returning to White House, which was expected to further drive up Treasury yield, also prompted foreign traders to lighten their position.
PBOC keeps MLF rate unchanged as widely expected:
PBOC kept 1-year MLF rate unchanged at 2.00% in today's operation after cutting the funding costs by most on record in September. Operation size was CNY700B, while CNY789B loans expired on 16-Oct, leaving a net drain of CNY89B in liquidity for October. 14 out 15 economists polled by Bloomberg expected rate would remain unchanged. Recall PBOC's recent overhaul of monetary policy tools has placed seven-day reverse repo rate as main policy rate to send out clearer signal, downplaying role of MLF rate. Noted seven-day tool can be used daily, providing more flexibility. PBOC also moved date it conducts MLF operation to 25th of each month from 15th, delinking rate from LPRs, published on 20th of every month (Bloomberg). Separately Bloomberg reported yield on one-year NCDs sold by AAA-rated banks rose to highest since June earlier this month with its premium over seven-day repo rate hovering near widest since February as Chinese banks under more funding pressure. China's monetary easing measures have caused erosion of savings deposits while rally in stocks has diverted more funds from wealth management products that invest heavily in bonds and NCDs.
IMF says China needs to spend 5% of GDP to stabilize property market:
IMF Asia-Pacific chief Krishna Srinivasan told Bloomberg that China's recent barrage of fiscal measures is insufficient to address deflationary risks. While acknowledging that stimulus could pose upside risks to the IMF"s 2024 GDP growth forecast of 4.8%, stressed the government must spend more to address the property crash and ease price pressures. Noted the underlying problem is weak domestic demand. Recommended that China spend about 5% of GDP to stabilize the housing crash, implying a figure of around CNY6.3T ($885B). While a timeframe was not specified, article recalled IMF has suggested spending could be spread over four years. On implementation strategy, Srinivasan urged efforts to ensure completion of pre-sold housing and a resolution of defining viable vs non-viable developers. Comments on the inadequacy of domestic demand stimulus echoed those from IMF chief economist Gourinchas and US Treasury Secretary Yellen (Reuters). IMF Managing Director Georgieva warned China's trend growth could drop to "way below" 4% unless it implements reforms to lift domestic consumption (Reuters).
Japan opinion poll explores possibility of minority parties joining LDP-led coalition:
Ahead of Sunday's general election, latest Nikkei opinion poll found LDP seen likely to win only around 30% of the 289 single-seat districts. Projections still fall short of 50% when including LDP-leaning districts. In the proportional representation ballot, LDP seen losing more than 10 seats after having held 72 prior to dissolution. Coalition partner Komeito may also lose some of their 32 seats. Results echoed those from other media outlets indicating a coalition victory at risk, which have weighed on the stock market this week. Amid the prospects for a minority government, an Asahi Digital poll posed the question of which minority parties might join the coalition. While there were no strong endorsements, 55% of respondents saw a potential alliance with the Democratic Party for the People (DPP), while 48% looked to the Japan Innovation Party (JIP). Reuters noted DPP had seven seats and advocates for lower taxes while JIP is defending 44 seats and pledged tougher donation rules to clean up politics. DPP alliance would require agreement on tax policies as the party proposed halving the 10% consumption tax in addition to lower income taxes, which are not supported by the LDP. Article also recalled DPP party leader Yuichiro Tamaki has so far rejected the idea of working with an LDP-led coalition while JIP chief Nobuyuki Baba has not ruled out a partnership.
Notable Gainers:
+15.0% 9688.HK (ZAI Lab): presents data from ongonig Phase 1a/1b study of ZL-1310 at ENA Symposium 2024
+10.0% 300014.CH (EVE Energy): reports Q3 results; analysts highlight core earnings were in line or slightly ahead of expectations, largely driven by recovery in unit profits and strong performance in ESS battery production
+8.4% 105560.KS (KB Financial): Q3 results and Value-Up plan announced just before close 24-Oct; gross operating income and NIM ahead of StreetAccount expectations; analysts highlight commitment to CET1-ratio linked scheme
+6.0% 1208.HK (MMG Ltd): reports Q3 copper production 101,695 tonnes, +24% y/y
+3.4% 055550.KS (Shinhan Financial): reports Q3 results with NII ahead of StreetAccount estimates and NIM in line with the consensus; to launch KRW400.00B buyback
+2.6% 012330.KS (Hyundai Mobis): reports Q3 operating profit and revenue ahead of StreetAccount estimates
+2.0% 000270.KS (Kia Corp.): reports Q3 revenue ahead of StreetAccount estimates; raises FY guidance
+1.4% 000660.KS (SK Hynix): reportedly in talks to supply eSSDs worth up to KRW1T to Tesla
Notable Decliners:
-18.7% 532187.IN (IndusInd Bank): reports Q2 results; posts net interest income and NIM below StreetAccount estimates
-9.0% 6755.JP (Fujitsu General): reports H1 results; analysts broadly note earnings came in below expectations, several highlight negative effect of discounts, write-downs on old models in North America
-7.8% 302440.KS (SK bioscience Co.): reports Q3 results; posts operating profit and revenue decline year-on-year
-1.6% 7751.JP (Canon): reports Q3 results below StreetAccount estimates; lowers FY guidance; analysts highlight weakness in medical, printing and mention progress on restructuring
-10.3% 268A.JP Rigaku Holdings): debuts (4.4%) at ¥1,205/share on the Tokyo Stock Exchange, falls further over the day
Data:
Economic:
Japan
October Tokyo core CPI +1.8% y/y vs consensus +1.7% and +2.0% in prior month
CPI excl. fresh food & energy +1.8% y/y vs consensus +1.6% and +1.6% in prior month
Overall CPI +1.8% y/y vs consensus +1.8% and revised +2.1% in prior month
September services PPI +2.6% y/y vs consensus +2.7% and revised +2.8% in prior month
Singapore September
Manufacturing production y/y +9.8% versus +22% in prior month
Markets:
Nikkei: (229.37) or (0.60%) to 37913.92
Hang Seng: 100.53 or +0.49% to 20590.15
Shanghai Composite: 19.44 or +0.59% to 3299.70
Shenzhen Composite: 35.84 or +1.85% to 1974.65
ASX200: 5.00 or +0.06% to 8211.30
KOSPI: 2.24 or +0.09% to 2583.27
SENSEX: (815.13) or (1.02%) to 79250.03
Currencies:
$-¥: +0.07 or +0.05% to 151.9680
$-KRW: +8.74 or +0.63% to 1388.1200
A$-$: (0.00) or (0.19%) to 0.6625
$-INR: (0.01) or (0.01%) to 84.0685
$-CNY: +0.00 or +0.04% to 7.1225
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