Hang Seng falls deeper into bear territory and CN Yuan again pushes towards 15-yr lows

Asia market update: China PBOC disappoints with smaller LPR cuts than expected; Hang Seng falls deeper into bear territory and CN Yuan again pushes towards 15-yr lows; FDI is leaving China; China gov’t promises more support (again), but no specifics (again).

General trend

- China’s PBoC surprisingly left the much-anticipated LPR rate cuts significantly less than expected. The benchmark 5-yr rate was left unchanged at 4.20%, while the 1-yr rate was cut only 10bps. Markets had expected both to be cut by 15bps.

- Markets were disappointed particularly by the 5-yr rate, with the Hang Seng down heavily -1.5% within an hour of opening and Shanghai Composite -0.6%, while USD/CNY headed strongly back towards last week’s new lows for the Yuan (7.35 level was nearly reached last week, within sight of a 15 year low of 7.37 for both onshore and offshore Yuan).

- Hang Seng Mainland Banks -1.3%, Shanghai Banks -0.7%. There is some speculation that CN banks’ squeezed profit margins (at a time the PBOC has asked banks to lend more) is a potential reason for the 5-yr LPR being left unchanged.

- PBOC set today’s Yuan fix >900 pips higher than estimates.

- China released its Jan-July Foreign Direct Investment figures YTD over the weekend, which indicates that foreign capital is not only weak, it is now actually leaving China in aggregate. [Read more in yesterday’s TTN Research Alert: “China’s economic problems compound; Foreign Direct Investment (FDI) is leaving China”].

- On Sunday evening China’s PBoC promised further “powerful” monetary policy and financial support for the real economy, to “optimize credit policies for the property sector and coordinate LGFV debt risks”. However, yet again no specifics were released.

- At the end of last week Hong Kong’s Hang Seng index fell back into bear market territory for the second time this year, piercing its previous low of 18,216 set back on June 1st. Friday’s decline of -2.1% set a new low for 2023 at 17,950; now a -21% fall from the late January high of 22,688. With today’s -1.5% fall, The Hang Seng falls even deeper into bear territory.
(** Note: June’s first bear market touch of -20% abruptly ended the very next day on June 2nd with the first rumors of impending China gov’t stimulus measures for the property sector, sparking a ~10% rally over the next few weeks. The market is still waiting for more specifics about the promised stimulus).

- Taiwan was noticeably bolder in its refutation of Saturday’s Chinese military drills in the Taiwan Strait and war-like rhetoric. Taiwan’s Foreign Minister said that it was up to Taiwan's citizens to decide on their upcoming elections, "not the bully next door", and that "China should hold its own elections; I'm sure its people would be thrilled".

- New Zealand’s Balance of Trade deficit slightly worsened.

- US equity FUTs +0.1% to 0.2% in Asia trading.

Looking ahead (Asian time zone)

- Wed AU & JP Manufacturing & Services PMI, SG CPI.

- Wed evening German Manufacturing PMI Flash.

- Thu night US Durable Goods and Initial Jobless Claims.

- Aug 24-26, US Fed Jackson Hole Symposium (Night of Aug 25th Fed Chair Powell speech).

- Fri JP Tokyo CPI.

- Fri evening ECB Pres Lagarde Speech.

Holidays in Asia this week

- Mon Aug 21 Philippines.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens -0.1% at 7,144.

- Australia PM Albanese: Has 'no plans or any intention' to change the rate of GST.

- Australia to purchase >200 Tomahawk cruise missiles from the US for the Royal Australian Navy for ~A$1.3B.

- New Zealand July Trade Balance (NZD): -1.1B v 0.0B prior.

- RBNZ: Seasonally adjusted total billings in New Zealand were NZ$4.4B in July, no change from June 2023.

- New Zealand PM Hipkins: Aware of financial pressure on Crown Accounts.

- New Zealand senior doctors, dentists vote to strike.

- Westpac expects New Zealand FY24 budget forecast to widen by NZ$4-5B.

China/Hong Kong

- Shanghai Composite opens -0.2% at 3,125.

- Hang Seng opens -0.8% at 17,798.

- China PBOC monthly 1-year and 5-year loan prime rate (LPR) Setting; leaves 5-yr unchanged at 4.20% (15BPS cut was expected); cuts 1-year by 10BPS TO 3.45% (less than the 15bps cut expected).

- China 5-year and 10-year government bond yields decline to the lowest levels since 2020.

- China Jan-July YTD Foreign Direct Investment (FDI) (CNY-denominated): CNY766.71B ($105.2B), Y/Y growth -4.0% v -2.7% prior (Friday night update).

- TTN Research Alert: China’s economic problems compound; Foreign Direct Investment (FDI) is leaving China. (Weekend update).

- China PBOC: Will better implement prudent monetary policy in precise and powerful manner - financial press (Weekend update).

- General Administration of Customs: China, BRICS members trade +19.1% y/y to CNY2.38T (~$330.6B).

- China's MOF and Ministry of Water: Allocates CNY500M to support disaster-stricken residents in national flood storage areas.

- China Foreign Minister Wang: After China's dialogue with Iran and Saudi Arabia, both countries have continued to improve relations.

- China PBOC sets Yuan reference rate: 7.1987 v 7.2006 prior.

- China PBOC Open Market Operation (OMO): Sells CNY34B in 7-day reverse repo; Net injects CNY28B v net injects CNY96B prior.

Japan

- Nikkei 225 opens +0.3% at 31,552.

- Japan mulls infrastructure support for Kumamoto chip plants.

- US, Japan and S. Korea call for peace, stability in Taiwan Strait; To launch working group on N. Korea cyber threats, evasion of sanctions - Trilateral Summit.

- 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%.

South Korea

- Kospi opens +0.3% at 2,51.

- South Korea Aug 1-20th Day Exports Y/Y: -16.5% v -15.2% prior; Imports Y/Y: -27.9% v -28.0% prior.

- South Korea Central Bank (BoK) Dep Gov Yoo; Expects excessive volatility in FX to reduce.

- South Korea Pres Yoon: US, Japan, South Korea to expand Alliance function along with AUKUS, QUAD.

- South Korea Pres Yoon: US, S. Korea and Japan must tighten solidarity - comments at summit with Pres Biden and PM Kishida (weekend update. Post-Camp David Summit).

Other Asia

- Taiwan Foreign Min: "China should hold its own elections; I'm sure its people would be thrilled" - post on X (Weekend update).

- US State Dept urges China to cease military, diplomatic and economic pressure against Taiwan.

- Taiwan to increase 2024 defense spending to over NT$534B.

- Taiwan Q2 Final GDP Y/Y: 1.4% v 1.5%e (Friday evening update).

- Singapore PM Lee Annual Policy Address: Singapore is keeping up economically and expects positive growth this year (Weekend update).

- Thailand Q2 GDP Q/Q: 0.2% v 1.2%e; Y/Y: 1.8% v 3.0%e.

- Thailand Planning Agency (NESDC): Cuts 2023 GDP growth forecast to 2.5-3.0%.

- Thailand Q2 Jobless Rate: 1.1% v 1.1% prior.

- Malaysia Q2 Current Account (MYR): 9.1B v 3.3Be (Friday evening update).

- Malaysia July Trade Balance (MYR): 17.1B v 21.2Be (Friday evening update).

- Malaysia Central Bank (BNM) Gov Ghaffour Current level of policy rate is slightly accommodative (Friday evening update).

North America

- (US) NHC Update on Hurricane Hilary: (US) NHC: Moving near coast of Southern California; Catastrophic and life-threatening flooding likely over Northern Baja California and portions of the Southwestern US through Monday.

- (US) Economist survey shows slight majority (50.5%) believe Fed will wait at least until the end of March to cut rates; 47% see first cut coming during Q1 - press (Friday night update).

- (US) SEC to appeal Ripple verdict that found cryptocurrency is not a security (Friday night update).

Europe

- Ukraine reportedly nears deal with global insurers to cover grain ships – FT.

- UK Aug Rightmove House Prices M/M: -1.9% v -0.2% prior; Y/Y: -0.1% v 0.5% prior (largest monthly fall since Aug 2018).

- Eurozone July final CPI Y/Y: 5.3% V 5.3%E; CPI CORE Y/Y: 5.5% V 5.5%E (Friday night update).

- UK July retail sales (EX-AUTO/FUEL) M/M: -1.4% V -0.7%E; Y/Y: -3.4% V -2.2%E (Friday night update).

- UR According to US intel community assessment, Ukraine’s counteroffensive will likely fail to reach key southeastern city Melitopol and will not fulfill its key objective of severing Russia’s land bridge to Crimea this year - WaPo (weekend update).

Levels as of 01:20 ET

- Nikkei 225 +0.3%; ASX 200 -0.1%; Hang Seng -1.2%; Shanghai Composite -0.4%; Kospi +0.3%.

- Equity S&P500 Futures flat; Nasdaq100 +0.1%, Dax -0.1%; FTSE100 -0.7%.

- EUR 1.0869-1.0888 ; JPY 145.15-145.62; AUD 0.6394-0.6419; NZD 0.5907-0.5936.

- Gold +0.3% at $1,921/oz; Crude Oil +0.6% at $81.14/brl; Copper -0.1% at $3.7162/lb.