Oct 31 ,2024
Synopsis:
Asian equities mixed Thursday. Shares in Japan, Australia and Korea all declined while Greater China markets mixed with mainland higher and Hong Kong ended lower. Taiwan closed due to typhoon. India trading lower too. S&P 500 and Nasdaq futures were lower as Microsoft and Meta dropped in post-market trade after earnings results. Treasuries were little changed while JGB yields were lower. Yen rallied against dollar during BOJ governor's pres conference. Crude gaining while gold is lower. Bitcoin fluctuating below record high.
BOJ dominated Asia macro headlines. The bank left policy unchanged as widely expected by unanimous vote, citing high uncertainties, FX developments and need to monitor US economic outlook. Repeated will continue to normalize policy if outlook for economy and prices are realized. Outlook Report saw only minor changes, including downgrade to FY25 core inflation forecast. Notably during the press conference in the afternoon, Governor Ueda said it was no longer necessary to use phrase "ample time" mentioned previously to describe proximity to the next rate hike and henced did not include it in the official statement. Added US data has improved since August payrolls and outlook risks have receded slightly. Ueda added a policy move would be difficult if US macro risks remain as high as they were in August. Separately, some of Japan's data in September came mixed with industrial production rebounded, boosted by autos while retail sales fell more than expected and marked first decrease in six months.
In other developments, China official PMIs showed both manufacturing and non-manufacturing activity returned to expansion in October. Details mixed with manufacturing output hitting six-month high but new export orders stuck in contraction. South Korea industrial production unexpectedly shrunk amid decline in chip output. New Zealand business confidence hit fresh 10-year high. Australian retail sales growth dissipated amid weakness in discretionary goods. Thailand finance minister said its economy is expected to grow 3% in 2025 and maintains this year's growth forecast at 2.7%.
Fujitec (6406.JP) has held talks with PE firms about potential sale of the company valued at $2.7B. Toyota (7203.JP)., NTT (9432.JP) plan to jointly invest JPY500B ($3.3B) to develop autonomous driving software powered by AI between now and 2030. BYD (1211.HK) Q3 revenues topped Tesla (TSLA) for first time while the latter still beat BYD in terms of EV sales globally during July to September. Samsung (005930.KS) signaled meaning progress in supplying its most advanced AI memory chips to Nvidia. Korea Zinc (010130.KS) shares dropped sharply after local media reported that Seoul's market watchdog wants more details on share sale plan.
Digest:
BOJ Governor Ueda says 'ample time' phrase no longer necessary:
Yen rallied vs dollar during BOJ Governor Ueda's press conference. Initially read from prepared remarks based on the Outlook Report when asked about the policy outlook. Refrained from commenting on domestic politics or FX. But when asked about the phrase "ample time" used previously to describe proximity to the next rate hike, said it was no longer necessary and hence not included in the official statement. Noted US data have been a bit better since the fateful US payrolls headline print in August that triggered major market volatility on the heels of the July BOJ rate hike. Stressed that US risks have subsided slightly, though remain elevated and replaced by other areas of concern. This was reflected in the Outlook Report guidance that highlighted attention on overseas economies particularly the US. Later added a policy move would be difficult if US macro risks remain as high as they were in August, though did not elaborate on the tipping point. Meanwhile, Ueda said key domestic dynamics such as wage/price passthrough are in line with projections. Recall the 'ample time' language reverberated in the markets, hinting at a more gradual normalization path in light of prevailing data/market volatility which prompted a dovish tilt in expectations. Prior narrative had been hawkish under the core message that policy adjustments would continue as long as economic developments remained in line with forecasts.
BOJ leaves policy rate unchanged, marginal tweaks to economic forecasts:
BOJ kept policy rate unchanged as widely expected by unanimous vote. Policy statement was reduced to just two sentences to note the decision with no description of the economic assessment or forward guidance, which was shifted into the accompanying October Outlook Report. Reaffirmed that policy adjustments will continue if outlook scenario is realized. Economic projections were little changed. Core CPI inflation now expected to ease to 1.9% in FY25 and stabilize at the same pace in FY26. Few notable developments in the economic assessment, reaffirming expectations that underlying inflation will be at a level generally consistent with the price stability target in the second half of the projection period. Minor tweak to FY25 was attributed mainly to lower crude oil and other commodity prices. Reiterated outlook uncertainties remain high, and inflation is more susceptible to FX developments compared to the past (repeating Governor Ueda's earliercomments). Risk balance seen balanced for economic growth and remain skewed to the upside for FY25 inflation. Corresponding dot plot showed three members placed risks to the high side and one to the low side.
China manufacturing activity back to expansion for first time since April:
Official manufacturing PMI was 50.1 in October, better than Reuters consensus of 49.9 and September's 49.8. Factory activity back into expansion for first time since April. Production accelerated from prior month while new orders were just marginally higher. Export fell for second straight month. Inflation metrics much stronger with input prices turning positive combined with narrowing declines in output prices. By industry size, stronger expansion among large firms while medium-sized firms in contraction but improved from prior month. However, contraction deepened for small-sized firms. Food & beverage, ferrous and non-ferrous metal, automobile and electrical machinery are among the most optimistic. Nonmanufacturing PMI rose to 50.2 from 50.0 in September but was below expectations of 50.4. Services activity got a boost from Golden Week holiday, especially in rail and air transportation. Real estate activity saw slight improvement but still in contraction. Construction sub-index still in expansion but decelerated from prior month. NBS said roll out of new policy measures and existing policies began to make an impact gradually. Overall, composite PMI rose to 50.8 from 50.4.
China economic package likely to focus on stabilization rather than stimulus:
Reuters highlighted economists' sobering expectations for the upcoming stimulus package after having previously reported China is considering new debt issuance of more than CNY10T ($1.4T) over the next few years. Comes in the context of elevated market hopes. Some CNY6T will be allocated mainly to local government debt restructuring while CNY4T will be spent on clearing backlogs of idle land and unsold housing. Measures would represent a more calibrated approach to stimulus, contrasting with previous all-out strategies to revive growth, such as infrastructure investment. Emphasized that measures are unlikely to resemble the post-financial crisis package in 2008. Suggested lingering uncertainties already reflected in lackluster equity market price action. Still, article acknowledged a headline figure equating to 8% of GDP cannot be dismissed and would help to address two key longstanding drags on China's long-term economic growth. Yet, questions remain over how much progress would be made. Cited IMF calculations that total local government on-and-off-balance sheet debt has reached 92% of GDP. Goldman Sachs estimated unsold housing inventory amounts to CNY93T. Furthermore, indications of household sector support remain light.
Japan data mixed; industrial production poised to ramp up in Q4, retail sales sluggish:
Industrial production rose 1.4% m/m in September, above consensus 0.8%, rebounding from a 3.3% decline in the previous month. Main drivers were autos, inorganic/organic compounds and electric/IT equipment. Tech parts & devices edged higher. Total shipments were notably stronger than output, though still left a marginal increase in inventories. Core capital goods shipments fell for a second straight month. Going forward, METI survey projections pointed to a sharp 8.3% gain in October, followed by a 3.7% drop in November as payback. At face value, this points to the fastest Q4 growth since 3Q20 after an actual 0.4% q/q decline in Q3. Adjusted METI October forecast of 5.1% points to more normal momentum (highest since 3Q22) though still notably firm. Sector guidance was unanimously positive, albeit skewed by outsized 40.5% m/m growth in production machinery. Autos and electric machinery looking strong. Retail sales fell 2.3% m/m, softer than expectations of a 0.3% decline. Follows revised 1.0% growth in August and marks the first decrease in six months. All major categories were down. Apparel fell back relatively moderately from an outsized spike in the prior month. Autos, appliances and others (including drugs and cosmetics) logged back-to-back declines.
Notable Gainers:
+9.3% 7211.JP (Mitsubishi Motors): reports Q2 results ahead of StreetAccount estimates; some analysts positive on sales mix
+6.4% 6857.JP (Advantest): reports Q2 results above StreetAccount estimates; launches buyback of up to ¥50B; analysts broadly highlight SoC demand drove robust growth
+5.6% 600887.CH (Inner Mongolia Yili Industrial Group): repots Q3 earnings and operating data
+1.1% 1398.HK (Industrial & Commercial Bank of China): reports Q3 results with net income attributable growth y/y
+0.7% 6902.JP (DENSO Corp.): reports H1 results with revenue and operating growth y/y
+0.4% 1299.HK (AIA Group): reports Q3 new business results with VONB growth y/y
+0.2% 005930.KS (Samsung Electronics): reports full Q3 results; DS Division operating profit below StreetAccount estimates; company guides FY facility investment KRW56.7T
Notable Decliners:
-13.5% 2413.JP (M3): reports H1 results and confirms FY guidance; analysts broadly note weaker-than-expected pharmaceutical marketing performance
-10.4% 6971.JP (Kyocera): reports Q2 earnings below StreetAccount estimates; lowers FY guidance; analysts highlight losses at KAVX continue to weigh on earnings; company also plans to sell one-third of KDDI shares over next five years
-6.3% 034020.KS (Doosan Enerbility): reports Q3 results with revenue and net income attributable below FactSet estimates
-5.4% 6501.JP (Hitachi): reports Q2 results with adjusted operating income below FactSet estimates; some analysts disappointed by smaller-than-expected guidance revision
-4.9% 600150.CH (China CSSC Holdings): reports Q3 with net income attributable decline y/y
-4.6% 1211.HK (BYD Co.): reports Q3 results; analysts broadly highlight earnings were in line or slightly ahead of expectations and some note net profit per car improved q/q but fell y/y
-1.6% 9433.JP (KDDI Corp): Kyocera to sell one-third of KDDI shares over next five years
-0.1% 601888.CH (China Tourism Group Duty Free): reports Q3 results below FactSet estimates
Data:
Economic
China
October official manufacturing PMI 50.1 vs consensus 50 and 49.8 in prior month
Non-manufacturing PMI 50.2 vs consensus 50.4 and 50.0 in prior month
Composite PMI 50.8 vs 50.4 in prior month
Japan September
Industrial production +1.4% m/m vs consensus +0.8% and (3.3%) in prior month
METI survey projections +8.3% in October, (3.7%) in November
Retail sales (2.3%) m/m vs consensus (0.3%) and revised +1.0% in prior month
Retail sales +0.5% y/y vs consensus +2.1% and revised +3.1% in prior month
Australia
September retail sales +0.1% m/m vs consensus +0.3% and +0.7% in August
September building approvals +4.4% m/m vs consensus +2.2% and revised (3.9%) in August
September private sector credit +0.5% m/m vs consensus +0.5% and +0.5% in August
Q3 export price index (4.3%) q/q vs (5.9%) in Q2
Import price index (1.4%) q/q vs +1.0% in Q2
New Zealand
October ANZ Business Confidence +65.7 vs +60.9 in September
South Korea
September industrial production (0.2%) m/m vs consensus +1.2% and revised +4.4% in prior month (08:00 KST)
Industrial production (1.3%) y/y vs consensus +0.2% and +3.8% in prior month
Markets:
Nikkei: (196.14) or (0.50%) to 39081.25
Hang Seng: (63.31) or (0.31%) to 20317.33
Shanghai Composite: 13.59 or +0.42% to 3279.82
Shenzhen Composite: 18.14 or +0.92% to 1991.76
ASX200: (20.40) or (0.25%) to 8160.00
KOSPI: (37.64) or (1.45%) to 2556.15
SENSEX: (512.88) or (0.64%) to 79429.30
Currencies:
$-¥: (1.23) or (0.80%) to 152.1580
$-KRW: (2.08) or (0.15%) to 1377.4300
A$-$: +0.00 or +0.00% to 0.6572
$-INR: (0.01) or (0.01%) to 84.0904
$-CNY: +0.00 or +0.03% to 7.1172
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