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StreetAccount Summary - Asian Market Recap: Nikkei +0.96%, Hang Seng (1.55%), Shanghai Composite (0.61%) as of 04:10 ET

Oct 30 ,2024

• Synopsis:

  • Asia equities ended mainly lower Wednesday as the recent cautious trend continued. The Hang Seng fell the most to close at its lowest in eight sessions; mainland markets also down. Sharp losses in Australia and South Korea, India seeing more losses although off its lows, Taiwan and Southeast Asia relative outperformers. Japan benchmarks both finished higher to buck the regional trend. US futures higher but off their peak, Europe opened lower. US dollar unchanged, AUD weaker on CPI reading, yen and yuan flat. Treasury yields mixed, JGB yields lower. Crude oil contracts higher, precious metals mixed, base metals lower. Cryptocurrencies a little lower.

  • Risk-off sentiment building ahead of key catalysts next week, namely the NPC Standing Committee announcement on China fiscal stimulus, and the US presidential election. Events ahead proving to be tailwind for non-China Asia sovereign bonds, several regional currencies, and blocks of China equities as investors seek safe havens. Analysts see asset movements reflective of potential Trump win but warn of considerable unwinding if election outcome is close or Harris wins. Still ahead this week, Thursday's BOJ decision, at which no change is widely expected but Ueda comments will be carefully watched, regional PMI readings Friday, and US tech corporate results, which were mixed overnight with Alphabet beating but AMD disappointing.

  • Elsewhere today, Australia Q3 inflation was in line with forecasts with headline gauge returning to 2-3% target; trimmed mean inflation eased as expected though remains above target band. Thailand industrial output contracted by more than expected, Singapore business confidence ebbed in Q3.

  • Fujitec (6406.JP) has held talks with several private equity groups over a potential sale of the group. Toyota Motor (7203.JP) says car sales in Japan and China fell 8% in September despite more hybrids sales in North America. Korea Zinc (010130.KS) is raising $1.8B through a SPO in an effort by its chairman to fend off a takeover attempt by its largest shareholder and a private equity group. Hongkong Land (H78.SP) said it is to focus on investments in regional gateway cities, will no longer invest in build-to-sell segment. Pilbara Minerals (PLS.AU) is to stop lithium its processing plant in Western Australia as price downturn impacts the sector.

• Digest:

  • Japan DPP holds balance of power, opposes BOJ rate hikes until real wage growth tops 4%:

    • Nikkei top story reviewed comments by Democratic Party of the People (DPP) leader Yuichiro Tamaki at a press conference on Tuesday, dismissing the idea of joining a coalition with either the LDP/Komeito amid opposition from umbrella union Rengo, or the largest opposition Constitutional Democratic Party (CDP). Tamaki also declined invitations from CDP to negotiate on supporting CDP leader Yoshihiko Noda in the upcoming Diet vote to name a prime minister in a special session reportedly planned for 11-Nov. With the Japan Innovation Party also reluctant to join the LDP-led coalition, Prime Minister Ishiba is navigating a path toward a minority government. However, Tamaki indicated DPP is open to a partial alliance with LDP on key bill proposals such as the budget, provided the LDP accepts DPP feedback. Attention shifting to the special Diet vote, where first round is expected to follow party lines. If nobody wins a majority, there will be a runoff between the top two candidates. Yet Tamaki indicated DPP members would still vote for him in a runoff, which would render their votes invalid. This effective abstinence stands to favor the LDP/Komeito which hold 215 seats vs opposition's combined total of 210 excluding DPP. Amid prospects for DPP's greater influence on policy, Reuters cited additional remarks from Tamaki calling for BOJ to avoid policy changes until there is certainty that real wage hikes exceed 4% at next year's spring wage negotiations.

  • Australia underlying inflation remains elevated:

    • Australia Q3 headline inflation eased to 2.8% y/y from 3.8% in Q2, just below consensus 2.9%. Quarterly inflation dropped to 0.2% from 1.0 %, also below consensus 0.3%. Headline figure heavily distorted by energy subsidies with electricity prices down 17.3% y/y. Trimmed mean inflation slipped to 0.8% q/q from revised 0.9% while on y/y basis fell to in-line 3.5% from revised 4.0%, in-line with RBA's year-end forecast and above 2-3% target band. Services inflation picked up to 4.6% from 4.5% with rents rising another 8.5% excl subsidies. Insurance, education, and medica/hospital remain top contributors to elevated services inflation. Discretionary goods inflation also little changed from prior quarter. September monthly inflation fell to 2.1% y/y from 2.7% in August, compared to consensus 2.3%. Excluding energy subsidies, trimmed mean inflation fell to 3.2% from 3.4%. Inflation pullback not considered to have near-term policy implications with RBA focused on sustained disinflation and alert to upside inflation risks. Ongoing evidence of tight labor market also leaves high bar for any change in tone from RBA next month.

  • Asia investors turn to sovereign bonds to ride out US election volatility:

    • Asset Managers increasing exposure to Emerging Asia ex China sovereign bonds as sanctuary to possible volatility over US election, according to Bloomberg. Cited several AMs saying Indonesia, Philippine sovereign bonds seen as safe havens; South Korea, Thailand, India GBs also seeing interest boost. Economists forecast decline in yuan amid risk of escalating tariffs, potential trade war; yen could slide further if US dollar spikes, other EM Asia currencies at risk of weakening. Reuters reported investors taking shelter in cash, India equities, pockets of China markets, Singapore dollars. Japanese manufacturers, Hong Kong stocks seen as vulnerable to tariff risk. Harris victory seen as broad continuation of Biden policies toward Asia; Trump victory seen as short-term positive for US equities, cryptocurrencies; Treasury yields, dollar could rise on inflation risk. However, Temasek Tuesday warned outlook for 2025 and beyond less clear under Trump as tariffs create uncertainty for Asia (Bloomberg). Analysts say risk factor for region increases significantly over short term if election outcome close, protracted (as in 2000), electoral college count tied, results seriously challenged in courts.

  • StreetAccount Event Preview: BOJ meeting

    • BOJ widely expected to stay on hold at the Oct 30-31 MPM. Bloomberg consensus (n=53) was virtually unanimous. Recall that October calls were always in the minority and diminished ahead of the lower house election, where political uncertainties from the coalition defeat clouded the near-term path for monetary policy. US presidential election risk has also been broadly cited as an obstacle against a near term policy change. Bloomberg poll reaffirmed slight 53% majority still look for a December rate hike with the cumulative total reaching 87% by January. Yet OIS market only fully pricing in a 25 bp hike by Jun-25. Political implications seen permeating into BOJ calculations through financial market volatility, which board members have cited as a key risk factor. Yen weakness has fanned rate hike speculation as board members have been watchful of upside inflation risks driven by import prices. Some thoughts that dovish BOJ signals would encourage further yen depreciation, posing a possible dilemma for board members. In the absence of policy change expectations, attention usually defaults to the Outlook Report. But there have been no reports signaling BOJ forecast revisions and press sources (including Reuters) indicated notable changes to inflation projections are unlikely.

  • Japan PM Ishiba's approval rating tumbles after election, but thoughts on future path unclear:

    • Kyodo opinion poll showed Prime Minister Ishiba's cabinet approval rating dropped to 32.1% after the election from 50.7%. However, views on implications were mixed. Only 28.6% said Ishiba should resign to take responsibility for the election defeat, well below the 65.7% that saw it as unnecessary. Slim majority 53.0% disapproved the LDP/Komeito coalition remaining in power. Furthermore, strong 79.2% opposed the appointment of scandal-hit members who won their seats being assigned key positions. Still, clear support for opposition parties remained lacking. Asked about preferred government structure, 31.5% chose a vague "new framework through political realignment," followed by 24.6% favoring a government centered around the Constitutional Democratic Party and other opposition parties. These scenarios were above the 18.1% support for an LDP/Komeito-led minority government. Overwhelming 91.4% confirmed the slush fund scandal led to the LDP's loss of seats. Voter distrust remained high with 72.5% unconvinced the election results would lead to resolution. Party preferences saw LDP drop to 31.8% from 42.3%, though remained ahead of CDP which rose to 20.3% from 11.7%.

  • Notable Gainers:

    • +13.9% H78.SP (Hongkong Land Holdings): issues strategy update; discloses targets by 2035

    • +9.2% 6406.JP (Fujitec): holds talks with private equity groups including EQT about potential sale

    • +6.6% 2327.JP (NS Solutions): reports H1 results with y/y revenue and operating income growth; revises FY guidance upward

    • +3.8% 047810.KS (KOREA AEROSPACE INDUSTRIES): reports Q3 operating profit ahead of FactSet estimates

    • +3.2% 6861.JP (KEYENCE): reports H1 results with y/y revenue and operating income growth

    • +2.1% 2888.HK (Standard Chartered): reports Q3 underlying EPS $0.40 vs FactSet $0.37

    • +1.5% 004170.KS (Shinsegae): president Chung Yoo-kyung to be promoted to chairman

  • Notable Decliners:

    • -29.9% 010130.KS (Korea Zinc Co.): launches 3.7M-share public offering at KRW670,000/share

    • -13.3% 7205.JP (Hino Motors): reports H1 net income attributable (¥219.60B) vs year-ago ¥76M; records extraordinary loss of (¥230B) related to legacy certification issues in North America

    • -12.1% 2600.HK (Aluminum Corp. of China): reports Q3 results; analysts widely note company posted a big miss

    • -5.9% 051900.KS (LG H&H): reports Q3 results below StreetAccount estimates

    • -2.5% 6701.JP (NEC Corp): reports Q2 results with non-GAAP net income below FactSet estimates; to launch tender offer for 76.5M NEC Networks & System Integration shares at ¥3,250/share

• Data:

  • Economic:

    • Japan October

      • Consumer confidence index 36.2 vs consensus 36.7 and 36.9 in prior month

    • Australia

      • Q3 headline CPI +0.2% q/q vs consensus +0.3% and +1.0% in Q2

        • Headline CPI +2.8% y/y vs consensus +2.9% and +3.8% in Q2

        • Trimmed mean CPI +0.8% q/q vs consensus +0.8% and +0.9% in Q2

          • Trimmed mean +3.5% y/y vs consensus +3.5% and +4.0% in Q2

      • September CPI +2.1% y/y vs consensus +2.3% and +2.7% in August

  • Markets:

    • Nikkei: 373.71 or +0.96% to 39277.39

    • Hang Seng: (320.50) or (1.55%) to 20380.64

    • Shanghai Composite: (20.17) or (0.61%) to 3266.24

    • Shenzhen Composite: 0.69 or +0.04% to 1973.62

    • ASX200: (68.80) or (0.83%) to 8180.40

    • KOSPI: (24.01) or (0.92%) to 2593.79

    • SENSEX: (327.33) or (0.41%) to 80041.70

  • Currencies:

    • $-¥: (0.17) or (0.11%) to 153.2060

    • $-KRW: (6.55) or (0.47%) to 1377.7300

    • A$-$: +0.00 or +0.07% to 0.6566

    • $-INR: (0.07) or (0.08%) to 84.0829

    • $-CNY: (0.01) or (0.11%) to 7.1239