Global Market Quick Take: Asia – August 14, 2023

What’s happening in markets?

US equities (US500.I and USNAS100.I): Semiconductor stocks declined

Stocks continued to slide on Friday. The S&P500 shed 0.1% while the Nasdaq 100 declined by 0.7%. While Information technology, communication services, and consumer discretionary were the worst-performing sectors, the energy, healthcare, and utilities sectors were the top gainers. Nvdia (NVDA:xhas) dropped by 3.6%, losing for four days in a row. Lam Research, (LRCX:xnas) plunged by 5%. The Philadelphia Semiconductor Index declined by 2.3%. Meanwhile, News Corp (NWS:xnas) advanced 4.5% on earnings beat.

Treasuries (TLT:xnas, IEF:xnas, SHY:xnas): Yields rise on firmer PPI

Treasuries sold off, yields surging, after the PPI prints surprised to the upside. Yields rose the most in the belly of the curve as the 5-year yield climbed 7bps to 4.25%. Meanwhile, the 2-year and 10-year yields ended the session around 5bps higher at 4.89% and 4.15% respectively.

Hong Kong & Chinese equities (HK50.I & 02846:xhkg): CSI300 plunges 2.3% on wealth management products and local government debt concerns

The Hang Seng Index declined 0.9% while the Hang Seng TECH Index plunged 2.4% last Friday. Chinese property developer Country Garden (02007:xhkg) continued to decline, falling 5.8% after preannouncing a USD7.6 billion loss estimate for the first six months of the year. China’s securities regulator met with some property developers and banks but Country Garden was not invited to the meeting. President Biden’s remarks about China as a “ticking time bomb” and “bad folks” also added to the worry about the Sino-American relationship. Alibaba (09988:xhgk) gained 1.1% and Li Ning (02331:xhkg) added 0.8%, both on earnings beat.

The CSI300 tumbled 2.3%. Non-bank financial led the market decline as online stories said Zhongrong Trust and three other trust companies defaulted on wealth management products.  Concerns about local government debts also mounted. Northbound Stock Connect has a new sale of RMB12.3 billion, the largest outflow from the A-share market since October last year.

FX: USDJPY breaks above the 145 handle

USDJPY has touched the 145 barrier on Friday and this morning in Asia with the surge higher in Treasury yields continuing. This week’s GDP and CPI data in Japan could be key, as will be the US data such as retail sales which if firmer could continue to push yields higher. Traders are also continuing to watch whether Japanese authorities could intervene but lack of verbal intervention so far suggests potential patience from them. EURUSD slid further below 1.10 to touch lows of 1.0940 with fears of surge in European gas prices cooling. GBPUSD supported by strong GDP data last week but labor market and inflation data this week will be in focus.

Crude oil: a small gain for the seventh week in the row

Crude oil recorded its seventh consecutive weekly gain as signs of stronger demand comes amid tightening supplies. The International Energy Agency said on Friday that oil demand surged to a record high in June and may even soar higher due to Chinese consumption. But prices were lower at the start of the new week with reports suggesting that Iran is pumping exports at an increasing pace, which helped to offset concerns about Saudi Arabia extending its production cuts. Still, escalating tensions over the Black Sea further threaten disruption of the crude oil exports from Russia. This week, oil traders will also focus on a lot of macro data from US retail sales to China’s activity indicators.

Copper: under pressure on China woes

Copper prices dropped to over one-month lows amid signs of stress in China’s property market. Concerns over liquidity of one of the country’s biggest property developers, Country Garden Holdings Co, brought back into the focus the troubled property sector. Meanwhile, China’s loan growth increase in July was also the smallest since the financial crisis. Copper prices are now threatening a break below $3.70 which could threaten the June low of $3.65.

What to consider?

US PPI comes in firmer-than-expected

Headline PPI rose 0.3% MoM (exp 0.2%) and accelerated from the prior 0.0%, which was revised down from 0.1%. The Y/Y rose 0.8%, up from the prior 0.2% (revised up from 0.1%) and above the 0.7% forecast. Core and super core measures were also higher than expected and steady at last month’s pace with core at 2.4% YoY and super-core at 2.7% YoY. The higher core measures suggest that the uptick is not just coming from the energy prices but a broader uptick in services inflation and could alert the Fed. Meanwhile, prelim University of Michigan saw the headline fall to 71.2 (prev. 71.6), but above the expected 71.0. Current conditions printed 77.4 rising from the prior 76.6 and topping the consensus of 76.9, but forward-looking expectations declined more-than-anticipated to 67.3 (exp. 68.1, prev. 68.3).

China’s credit growth falls more than expected in July

New aggregate financing plunged to RMB528 billion in July from RMB4,224 billion in June. While seasonally July was a slow month in credit, the number came in less than half of the RMB1,100 billion anticipated by economists. The growth rate of outstanding aggregate financial slowed to 8.9% Y/Y in July from 9.0% in June. New RMB loans were RMB346 billion in July, down from RMB3,050 billion in June, and were also less than half of the RMB780 billion expected. The growth of outstanding RMB loans fell to 11.1% Y/Y from 11.3% Y/Y. New loans to both the corporate sector and the household were weak. New loans to corporate dropped to RMB238 billion in July from RMB2,280 billion in June and RMB288 billion in July last year. New loans to households fell to net repayment of RMB201 billion in July, from new lending of RMB964 billion in July and RMB122 billion in July last year. The growth in M2 declined to 10.7% Y/Y in July from 11.3% in June.

Japan Q2 GDP on the radar tomorrow

Japan’s preliminary Q2 GDP will be released tomorrow morning in Asian hours, and estimates are suggesting we could see a strong uptick. Annualized GSP is seen coming in higher at 2.9% QoQ from 2.7% in Q1 as per Bloomberg forecast. While this could rattle the JGB markets and the Japanese yen as further tightening expectations build in, most of the GDP gains will likely come from net exports and consumer spending could remain weak. This could keep the BOJ’s focus on wage growth and give them room to argue need for continued stimulus.

Tesla cuts prices in China

After several rounds of price cuts earlier both in US and China, Tesla has now cut prices in China for some models. Price was Model Y Long-range and Model Y Performance has each been cut by RMB 14,000 ($1900). The Model Y forms part of the stable of vehicles, along with the Model 3, which are the best-sellers for Elon Musk’s company. The push for local EV makers in China has made the landscape for Tesla relatively tougher and Tesla’s China deliveries slumped 31% in July to lowest levels this year.

Country Garden suspends trading in 11 onshore bonds

Country Garden has suspended the trading of 11 onshore bonds at the exchange. Investors are expecting that the Chinese developer which failed to pay coupons of two offshore bonds and preannounced a huge loss for the first half of the year is set to start restructuring talks with creditors.

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