Investors assess Evergrande contagion risk on otherwise quiet day in Asia

General trend

- China Evergrande in further trouble as over the weekend Co. says it is unable to issue new debt while its principal subsidiary Hengda Real Estate Group is being investigated, threatening its restructuring plans.

- This came on top of an earlier weekend announcement that Evergrande is scrapping its $35B debt-restructuring plan. Company shares were down more than -25% at Monday lunch, @HK$0.42/shr.

- The developments threaten the delivery of Evergrande’s ~CNY604B ($83B) of unfinished homes in China, as well as a multitude of Chinese product and service vendors downstream plus domestic and international lenders.

- Focus also stays on another troubled property developer in China, Country Garden, -7% at lunch (HK$0.97), where bondholders said they had not received dollar bonds due a week ago.

- Hang Seng Mainland Properties Index -3.7%, close to the lows of Oct 2022 and 2009.

- Ping An Insurance also down by over -2.2%, with its significant property industry exposure, including to LGFV’s. Ping An Real Estate bonds due 2026 said to decline by >6 cents.

- Regarding recent China PBOC easing, PBOC official Liu Shijin said that further easing in monetary policy was 'unlikely'.

- In other Asian equities, only Japan’s Nikkei traded positively in the morning session.

- USD/JPY rose to 148.50, highest since Nov 2022.

- Japan mega-retailer Aeon cut prices of 31 private brand products in Japan, lending credence to Japan BOJ Gov Ueda’s easy monetary policy continuance and his thoughts expressed last Friday [Sept 22nd] that Japanese firms moves to pass on price hikes are nearing a peak.

- US equity FUTs +0.3% to 0.4% in Asian trading.

Looking ahead (Asian time zone)

- Tue AU RBA Conference on Inflation.

- Wed JP BOJ Monetary Policy Meeting Minutes & AU CPI.

- Wed night US Durable Goods.

- Thu AU prelim Retail Sales.

- Thu night US GDP & initial Jobless Claims.

- Fri JP Retail Sales, Unemployment & Consumer Confidence.

- Fri night EU CPI, US Core PCE / Personal income & spending.

- Sat CN Official Mnfg & non-Mnfg PMI.

- Sun CN Caixin Mnfg & Services PMI.

Holidays in Asia this week

- Thu Sep 28 Indonesia, Malaysia, South Korea.

- Fri Sep 29 China, Taiwan.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens -0.1% at 7,065.

- Australia Council of Financial Regulators Quarterly Statement; See China impact via trade and risk aversion.

- Australia said to consider new and more broad definition of full employment; cites new policy paper.

- ANZ Bank now sees New Zealand house prices rising ~4% in H2 (prior forecast ~3%).

China/Hong Kong

- Hang Seng opens flat at 18,046.

- Shanghai Composite opens flat at 3,131.

- HKMA: Announces amendments to the Mortgage Insurance Program.

- SAMR (China market regulator): Plans to further standardize online auction markets; seeks public comment on draft rules for online auction markets in order to maintain fair business competition.

- Guinzhou Panjiang Coal Co (600395.CN): 16 dead after incident at coal mine on Sept 24th.

- Follow Up: China PBOC official Liu Shijin says further easing in monetary policy 'unlikely' - press.

- Evergrande (3333.HK) Now says in view of Hengda Real Estate Group (a principal subsidiary of the company) being investigated, the group is unable to meet qualifications for issuance of new notes under present circumstances - company statement on HKEX.

- Evergrande (3333.HK) Cancels creditor meetings set for early next week, scrapping its $35B debt-restructuring plan; Notes "necessary to re-assess the terms of the proposed restructuring" - securities filing (weekend update).

- China Pres Xi: Welcomes a Summit between China, South Korea, Japan "at opportune time"; Will seriously consider visiting South Korea, as he meets with South Korea PM Han Duck-soo - China state media (weekend update).

- US Treasury Sec Yellen: Formally launching economic, financial working groups with China's Ministry of Finance to 'establish a durable channel of communication between the world's two largest economies' (weekend update).

- China said to consider easing foreign stake limits to lure global funds (weekend update).

- USTR Tai being very deliberate on US China trade ties; 301 tariffs undergoing careful internal review - speaking at Atlantic council forum (weekend update).

- China upgrades relationship with East Timor to a comprehensive strategic partnership - China Foreign Ministry statement (weekend update).

- China affirms rules to ensure free cross-border money transfers for foreign businesses in Shanghai and Beijing; Shanghai officials say legitimate money transfers should not be delayed (weekend update).

- China President Xi: Sees 2023 China crop harvest to support economic recovery (weekend update).

- China reportedly may restart special refinancial bonds issue in H2 2023 - Xinhua (weekend update).

- China to develop water saving industries; Plans to cut water use per CNY10K GDP by 16% by 2025 v 2020 levels - press (weekend update).

- China Pres Xi: China and Syria to establish a strategic partnership (weekend update).

- China Pres Xi: Signed bilateral agreements with Kuwait for 2024-28 on energy and infrastructure (weekend update).

- China PBOC issues list of 20 systemically important banks; Urges banks to meet capital and leverage ratio requirement (weekend update).

- HUAWEI.CN: Co’s new Kirin 9000S processor confirmed to have 5G wireless speeds by tech firm (weekend update).

- China PBOC sets Yuan reference rate: 7.1727 v 7.1729 prior.

- China PBOC Open Market Operation (OMO): Sells CNY0B in 7-day reverse repos v CNY0B prior; Sells CNY319B in 14-day reverse repos v CNY202B prior; Net injects CNY135B v Net injects CNY97B prior.

Japan

- Nikkei 225 opens +0.4% at 32,517.

- Nomura Holdings (8604.JP) (CN) Senior Nomura banker barred from leaving mainland China - FT.

- Aeon (8267.JP) Said to cut prices of 31 private brand products in Japan.

- Japan gov't considering 5-10-yr tax benefits for firms producing semiconductors and storage batteries as part of upcoming economic stimulus package (weekend update).

- BOJ Gov Ueda: Can't comment on recent interview**; distance to removing negative rates has not moved greatly; i said that patient continuation of easing is needed and can't say when our policy may be adjusted (Friday night update).

- Bank of Japan (BOJ) offers to buy 5-10 year JGBs at fixed rate of 100bps; Opens window to buy unlimited amount of 10-year JGBs at 1.00% [2nd operation during today's session].

South Korea

- Kospi opens -0.2% at 2,504.

- South Korea temporarily expands subsidies for EV passenger cars; cites the Environment Ministry.

Other Asia

- Indonesia Aug Broad Money Supply +5.9% v 6.4% prior.

- Philippines Aug Budget Balance (PHP): -133.0B v -47.8B prior (update).

- Taiwan Semi (TSM) Said to purchase more CoWoS (Chip on Wafer on Substrate) advanced equipment for rush orders from Nvidia, AMD and Amazon.

- Taiwan Aug Industrial Production Y/Y: -10.5% v -13.2%e (weekend update).

- Taiwan Aug Unemployment Rate: 3.4% v 3.4%e (weekend update).

- (VN) White House is in early stage discussions for a large arms transfer to Vietnam, which could include F-16 fighter jets (weekend update).

- Philippines 'strongly condemns' China Coast Guard's installation of a 300-meter floating barrier preventing Filipino boats from entering Scarborough Shoal in South China Sea (weekend update).

- China upgrades relationship with East Timor to a comprehensive strategic partnership - China Foreign Ministry statement (weekend update).

- Thailand PM Sretta expects Tesla, Google, Microsoft to invest $5B into the country (weekend update).

- Apple reportedly plans to scale up production in India by over five-fold to $40B in the next 4-5 years - Indian press.

North America

- Ford (F) Canada's Unifor union members ratify new three-year collective agreement with Ford Motor; Base hourly wage increase of nearly 20% for production and 25% for trades over lifetime of agreement.

- Ford (F) Reiterates there are still significant gaps to close on key economic issues with the UAW.

- Studios and striking Hollywood writers reach Pact, but haggle on language.

- US GOP representative Graves: Republicans are considering a stopgap US govt funding measure that would range from 14 to 60 days; Letting funding lapse would be mistake.

- US Sept preliminary S&P manufacturing PMI: 48.9 V 48.2E (5th straight contraction Composite PMI: 50.1 v 50.4e (lowest since Jan 2023) (Friday night update).

- Fed's Kashkari (voter): Overall consumer spending continues to exceed our expectations.

- Fed's Daly (non-voter): We stood pat this week on rates in recognition that we are closer to our destination.

- Unlikely we will get to 2% inflation goal in 2024; I am completely unwilling to entertain increasing 2% inflation target.

- UAW to announce new strikes at six GM and Stellantis facilities in Michigan - press (Friday night update).

- Fed's Collins (non-voter): Fully supports guidance in Fed's dot plot; continued above-trend economic activity means too soon to be confident inflation is beaten (Friday night update).

- USTR Tai being very deliberate on US China trade ties; 301 tariffs undergoing careful internal review - speaking at Atlantic council forum (Friday night update).

- Fed's Bowman (voter): Expects progress on inflation is likely to be slow under current conditions, suggesting need for even tighter policy (Friday night update).

- META Reportedly plans to announce AI chatbots as soon as this week with distinct personalities across its social-media apps in attempt to attract young users – WSJ (weekend update).

Europe

- Volkswagen: Germany to probe unit Man Energy Solutions asset sale to China.

- EU's Dombrovskis (Trade Chief): EU will do anti-subsidy EV probe work in consultation with China authorities - Follow up comments on Beijing trip.

- (FR) Pres Macron: France to withdraw troops from Niger by end of 2023 and will soon recall its Ambassador after military coup.

- ECB's Villeroy (France): Patience is more important than raising rates further; Recent increase in oil prices won’t derail the ECB's fight to tame inflation.

- (IT) Reportedly Italian banks will be allowed to avoid paying a windfall tax introduced in Aug if they set aside additional capital reserves.

- EU's Dombrovskis (Trade Chief): EU has no intention to decouple from China but needs to protect itself when its openness is abused (weekend update).

- ECB’s Lane (Ireland, chief economist): 4% ECB rate will do quite a bit to bring inflation down to 2% - media interview (Friday night update).

- Eurozone Sept preliminary manufacturing PMI: 43.4 V 44.0E (15th straight contraction); Notes EU firms still show some resilience and optimism in the face of lower demand (Friday night update).

- Germany Sept preliminary manufacturing PMI: 39.8 V 39.5E (3-month high, but 15th straight contraction); Notes its indicators offer hope of an end to this slump in 2024 (Friday night update).

- ECB's de Guindos (Spain): Risks to inflation are now balanced (Friday night update).

- ECB's De Cos (Spain): Current interest rate level, if maintained for sufficiently long, is broadly consistent with achieving target (Friday night update).

Levels as of 01:20 ET

- Nikkei 225, +1.0%, ASX 200 -0.1% , Hang Seng -1.4%; Shanghai Composite -0.4% ; Kospi +0.1%.

- Equity S&P500 Futures: +0.3%; Nasdaq100 +0.4%, Dax +0.2%; FTSE100 flat.

- EUR 1.0643-1.0655; JPY 148.25-148.49 ; AUD 0.6422-0.6449 ; NZD 0.5949-0.5965.

- Gold -0.2% at $1,942/oz; Crude Oil +0.5% at $90.48/brl; Copper +0.1% at $3.6963/lb.