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StreetAccount Summary - Asian Market Recap: Nikkei (5.81%), Hang Seng (2.08%), Shanghai Composite (0.92%) as of 04:10 ET

Aug 02 ,2024

• Synopsis:

  • Asia stocks fell sharply Friday to cap a volatile week. Japan markets fell the most since 2020 with the Nikkei and Topix grazing a technical bear market. Steep falls everywhere else however with tech-orientated boards in Seoul, Taipei and Australia down the most. Greater China also lower but mainland boards relative outperformers, and Hong Kong capping losses to maintain a modest gain for the week. Southeast Asia also lower but outperforming, India trading down. US futures lower, Europe down again in early trading. Dollar flat, yen also holding despite more early strength. Treasury yields lower, JGB yields lower across tenors. Crude higher, gold also higher, base metals sharply lower.

  • Asia equities followed through from steep overnight falls in the US with a particularly sharp decline in Japan as markets continued to adjust to the BOJ's decision to hike its base interest rate and taper bond purchases. Analyst commentary leaning toward the BOJ hiking again as soon as October or December as the pace of rate increases are rethought across brokers. There was also steep falls among AI-related chip stocks including SK Hynix, TSMC and Hon Hai following Intel's miss overnight in the US. Renewed fears over the state of the US economy behind the structural move in stocks and bonds post weaker-than-expected factory output data raised fears over whether the US really could avert a recession.

  • Little cheer in macro developments regionally today to change the narrative with Australia producer prices accelerating to 1.0% in June, and South Korea CPI also rose although the BOK was quick to remind markets this was expected, and it should cool again in August.

  • BHP Group (~BHP.AU~) workers in Chile rejected the company's wage offer with only mediation phase remaining before a strike starts. Tata Motors (500570.IN) said its Jaguar Land Rover unit will spend a further $3.8B in a strategic overhaul and keep producing combustion engine cars, reacting to a slower shift to EVs.

• Digest:

  • Nikkei suffers second-biggest absolute drop on record, behind Black Monday:

    • Japan markets reeling from accelerated equity weakness. Nikkei index absolute declines of 2,216 yen Friday were the second largest on record behind Black Monday (20-Oct-87). Nikkei cited US macro weakness and yen strength as the main factors, though dominated by the former. Indiscriminate selling left gains in just 14 (0.8%) TSE Prime Market names. TSE Growth Market 250 index fell as much as 8%, triggering a circuit-breaker. Immediate catalyst was latest US macro data, with initial jobless claims climbing to the highest in a year, while the ISM manufacturing index weakened further, posting the fourth month in contraction territory. Noted Japan institutional investor sentiment toward the US economy shifting from a soft to hard landing scenario. Expected Fed rate cuts now seen driven by outright deterioration in growth momentum rather than easing inflation. High-tech sector has driven market strength up to this point, though cautious guidance from key names also contributed to the deterioration in investor sentiment. AI optimism also wavering amid questions over profitability. Major swing in yen rapidly eroding latent FX windfall gains. Attention now squarely on upcoming US payrolls with misses on headline metrics auguring for extended losses next Monday.

  • China macro drags impacting multinational corporate earnings:

    • Reuters discussed how lackluster China growth momentum is increasingly affecting a wide range of multinational corporate earnings. Stimulus measures have so far failed to boost consumption, and the overleveraged property market has made consumers less likely to spend. Some analysts have warned that barring a structural shift that gives consumers a greater role in the economy, the current path fuels risks of a prolonged period of near-stagnation and persistent deflation threats. Still, article noted MSCI World with China Exposure Index is up 11.6%, comparable with a 12% gain in the broader MSCI index. However, most of the China Exposure index's performance is owed to a surge in semiconductor stocks, including Broadcom (AVGO) and Qualcomm (QCOM), which have benefited from AI-driven demand. Article listed a plethora of affected Western listed stocks and added a list of names with the highest percentage of revenues in China, led by Qualcomm at 62%, Corning (GLW) 33% and Broadcom 32%. Other notables include Intel (INTC) 27%, Applied Materials (AMAT) 27%, Tesla (TSLA) 22% and Apple (AAPL) 19%. Amid growing Sino-US trade tensions, analysts expect pressures unlikely to ease soon.

  • Broader consensus leans toward BOJ rate hike in December:

    • Latest Bloomberg survey (n=41) showed some 68% of economists projecting a BOJ policy rate of 0.5% by year-end with nearly a quarter looking for October, 44% for December and 20% for January. Follows year-end projection of 0.25% before this week's move, reflecting an adjustment to clear signals from Governor Ueda that more hikes in the pipeline. Further ahead, 2025-end rate seen at 0.75% implying only one hike next year, approaching the estimated neutral rate. Consensus places the terminal rate of this rate hike cycle at 1%. Recall that discussions surrounding neutral/terminal rates still in early stages, especially while Governor Ueda remains reluctant to offer ballpark estimates given the wide variation depending on methodology. Underlying drivers remain inflation developments and progress in wage cost passthrough. Recall the BOJ policy statement was explicit in signaling more rate hikes if the July outlook scenario is realized. Notably, BOJ sees risks to the FY24/25 inflation outlook skewed to the upside. Outlook report reaffirmed expectations of a gradual, yet meaningful uplift in underlying inflation, citing expected improvements in output gap, medium to long-term inflation expectations alongside a virtuous wage/price cycle. Also continued to foresee inflation generally tracking the price stability target in the second half of the projection period (currently through FY26).

  • South Korea inflation rises for first time since February:

    • South Korea CPI inflation rose to 2.6% y/y from 2.4% in prior month, representing first increase since February. CPI inflation rose 0.3% m/m, quickest in five months and reversing prior month's decline. Underlying inflation unchanged for a second month at 2.2%. Food and non-alcoholic beverages, transport, clothing and footwear, household equipment and furnishings, and restaurants and hotels saw biggest inflation increase among CPI components. BOK cited as saying inflation in-line with prior projection and it anticipates resumption of declining trend from August. Recall BOK said last month it will examine timing of rate cut following assessment of inflation trend as well as trade-offs between growth and financial stability risks amid high household debt and FX fluctuations. South Korea GDP unexpectedly contracted in Q2 amid weak household consumption, and economists anticipate BOK will begin easing in October following an expected Fed rate cut in September (Korea Times).

  • China consumer stimulus strategy seen falling short:

    • Reuters discussed China's latest policy support strategy focused on consumption, though analysts suggested vague promises of "incremental measures" look likely to fall short. Recalled the key measure to use CNY150B ($20B) in government debt to finance trade-ins on consumer goods. While this marks a departure from a longstanding reliance on exports and infrastructure spending, this amounts to just 0.12% of GDP. Citi analysts see additional consumption stimulus next year as plausible in the face of potentially stronger external headwinds. But Gavekal Dragonomics estimated CNY3T~8T needed to revive consumption just to its pre-pandemic trendline, which is unlikely. Debt constraints loom large as authorities are growing wary of leveraged projects as they increase scrutiny on heavily indebted municipalities. Most of China's fiscal stimulus still goes into investment, but returns are dwindling, and spending has saddled local governments with $13T in debt. Story added LGSB issuance lagging with 38% of the annual quota utilized in H1. Furthermore, threat of higher tariffs on Chinese goods poses a headwind against China's export-driven growth model, especially if Trump returns to the White House. Economist Intelligence Unit estimated a 10% increase in US import tariffs could cut China GDP growth by 0.3~0.4 ppt in 2025/2026.

  • Notable Gainers:

    • +7% 2282.JP (NH Foods): reports Q1 business profit ¥14.56B vs FactSet ¥12.28B

    • +3.1% 352820.KS (HYBE Co.): unveils details for new business strategy HYBE 2.0

    • +2.8% 9766.JP (KONAMI): reports Q1 revenue ¥90.04B vs FactSet ¥84.54B, operating income ¥25.15B vs FactSet ¥20.59B

    • -0.7% 5802.JP (Sumitomo Electric Industries): reports Q1 revenue ¥1.116T vs FactSet ¥1.038T, operating profit ¥53.29B vs FactSet ¥34.81B; raises guidance

    • -1.9% 4151.JP (Kyowa Kirin): reports Q1 results; raises FY guidance; to restructure and sell APAC region business to WinHealth for CNY720M (¥15.0B)

  • Notable Decliners:

    • -10.6% 8031.JP (Mitsui & Co.): reports Q1 net income attributable ¥276.11B vs FactSet ¥279.54B

    • -7.4% 011790.KS (SKC Co.): reports Q2 operating profit (KRW62.7B) vs FactSet (KRW38.12B)

    • -6.7% 6971.JP (Kyocera): reports Q1 operating profit ¥20.96B vs StreetAccount ¥22.63B

    • -3.2% 868.HK (Xinyi Glass Holdings): reports H1 revenue HK$11.81B, (6%) vs year-ago HK$12.62B

• Data:

  • Economic:

    • South Korea

      • July CPI y/y +2.6% versus consensus +2.6% and +2.4% in prior month

    • Australia

      • June Housing Finance M/M +1.3% versus (1.7%) in prior month

      • Q2 PPI q/q +1% versus +0.9% in prior quarter

  • Markets:

    • Nikkei: (2,216.63) or (5.81%) to 35909.70

    • Hang Seng: (359.45) or (2.08%) to 16945.51

    • Shanghai Composite: (27.05) or (0.92%) to 2905.34

    • Shenzhen Composite: (20.39) or (1.27%) to 1581.80

    • ASX200: (171.50) or (2.11%) to 7943.20

    • KOSPI: (101.49) or (3.65%) to 2676.19

    • SENSEX: (767.32) or (0.94%) to 81100.23

  • Currencies:

    • $-¥: (0.30) or (0.20%) to 149.0760

    • $-KRW: (2.95) or (0.22%) to 1367.0500

    • A$-$: +0.00 or +0.20% to 0.6516

    • $-INR: +0.00 or +0.00% to 83.7501

    • $-CNY: (0.03) or (0.42%) to 7.2136