PETER’S BUSINESS & FINANCE BRIEFING – Friday 19 April 2024, 06:00 Hong Kong
• China criticises Biden calls for hikes in steel tariffs • US, Japan & South Korea seek to limit dollar’s rise • TSMC net profits jump 8.9% on strong demand for AI chips
Friday’s Opening Call
Hang Seng (Hong Kong) Projected Open: 16,381 -5 points -0.0%
Nikkei 225 (Japan) Projected Open: 37,755 -325 points -0.9%
Quick Summary - 4 Things To Know Before Asian Markets Open
The Chinese Embassy in the United States has criticised proposals by US President Joe Biden to impose higher tariffs on Chinese metal products. A spokesman for the embassy, Liu Pengyu, said "the US is making the same mistake again and again" by seeking higher tariffs. In a statement, he also dismissed levies already in place as “the embodiment of unilateralism and protectionism of the US”. On Wednesday, President Biden called for a tripling of tariffs on some steel and aluminium from China.
Indians head to the polls today in what will be the world’s largest democratic election, as close to one billion voters pick their next government. The 2024 general elections will take place in seven phases over the next six weeks until June 1. Votes will be cast electronically across more than one million polling stations in the country. Analysts widely expect Narendra Modi’s ruling Hindu-nationalist Bharatiya Janata Party (BJP) to score another landslide victory in the elections, giving Mr. Modi a third consecutive term as prime minister.
The Biden administration has joined with Japan and South Korea in a bid to limit the dollar’s recent rise against Asian currencies. The US, Japan and South Korea agreed to “consult closely on foreign exchange market developments” during their first trilateral meeting. The US acknowledged “serious concerns” over a rapidly weakening yen and won. Bank of Korea Governor Rhee Chang-yong also said they have various options to counter extreme volatility in the currency markets, signalling readiness to intervene to shore up the won. China also took steps to limit the impact of the dollar’s strength. On its social media account, the PBoC on Thursday said it would “resolutely correct” what it called “procyclical behaviour”, and said it was “determined and unwavering in its stance to keep the relative stability of the yuan rate.”
Taiwan Semiconductor Manufacturing Company on Thursday beat revenue and profit expectations in the first quarter, thanks to continued strong demand for advanced chips, particularly those used in AI applications. TSMC reported net revenue rose 16.5% from a year ago to NT$592.64 billion (US$18.3bn), while net income increased 8.8% from a year ago to NT$225.49 billion (US$6.9bn). It was the first profit rise in a year for the chip maker.
China Criticises Biden Calls For Hikes In Steel Tariffs
The Chinese Embassy in the United States has criticised proposals by US President Joe Biden to impose higher tariffs on Chinese metal products. A spokesman for the embassy, Liu Pengyu, said "the US is making the same mistake again and again" by seeking higher tariffs. In a statement, he also dismissed levies already in place as “the embodiment of unilateralism and protectionism of the US”.
On Wednesday, President Biden called for a tripling of tariffs on some steel and aluminium from China. Speaking to members of the United Steelworkers union in Pennsylvania, the president said the Chinese prices were "unfairly low" due to the government subsidising companies "who don't need to worry about making a profit". "They're cheating," Mr Biden said. "And we've seen the damage here in America." He said tens of thousands of steelworker jobs had been lost in the early 2000s because of Chinese imports. "We're not going to let that happen again," he said. Mr. Biden said of China, “they’ve got a population that has more people in retirement than working. They’re not importing anything. They’re xenophobic — nobody else coming in. They’ve got real problems.”
It is the latest protectionist policy to be embraced by Mr Biden as he campaigns for re-election against Donald Trump, who introduced sweeping tariffs against China when he was president. Mr Trump, who called himself "tariff man", has pledged to be even more aggressive on trade should he be re-elected. He has proposed a 10% border tax on all imports, which would jump to more than 60% for products from China.
The International Monetary Fund warned on Tuesday that this kind of geopolitical tension risked damaging global economic growth and pushing inflation higher. The White House has denied that the tariffs, which would lift a key border tax rate from an average of 7.5% to 25% on a tiny fraction of imports, would raise prices in the US. It said the proposal was aimed at protecting US jobs against "unfair" competition.
Meanwhile, the Biden administration is launching an investigation into Chinese trade practices across the shipbuilding, maritime and logistics sectors, which could lead to more tariffs. In response, the Commerce Ministry said the “US petition is full of false accusations.” It “misinterprets normal trade and investment activities as damaging to US national security and corporate interests," the ministry said in a statement.
TikTok Ban Set To Advance In US House
An effort by the US Congress to force TikTok’s Chinese owner to divest the video app has gained momentum after House Speaker Mike Johnson unveiled legislation to help send aid to Ukraine that could compel the Senate to act on control of the app. Mr. Johnson told fellow Republican party members on Wednesday that he would publish draft legislation on three bills with additional military funding for Israel, Taiwan and Ukraine. He said the separate aid bills could be put to a vote on Saturday. There will also be a vote on a fourth bill that includes measures to confront China, Russia and Iran. This would contain language about the popular video-sharing platform that is almost identical to a previous measure that easily passed the House last month, but which has languished in the Senate. Assuming the House approves the bills when they come up for votes, they would be bundled into one package and sent to the upper chamber. That would significantly boost the odds of the Senate passing the measure, since many senators will be reluctant to scupper military funding for Ukraine.
The House in March overwhelmingly approved a bill to force ByteDance, the Chinese owner of TikTok, to divest it within 180 days, or else app stores would be banned from distributing the video-sharing platform. People briefed on the TikTok bill told the Financial Times the only change from the earlier measure was that it gave the president the option to give ByteDance a one-time extension of six months. If the bill is passed by the House and the Senate in the coming days, ByteDance would have to divest TikTok before the US presidential election in November. If President Biden extended the deadline, it would be pushed back into the next administration.
World’s Largest General Election Begins In India
Indians head to the polls today in what will be the world’s largest democratic election, as close to one billion voters pick their next government. The 2024 general elections will take place in seven phases over the next six weeks until June 1. The country has about 970 million registered voters and they will be voting for 543 seats in the 545-seat lower house of parliament, called the Lok Sabha, with two other seats nominated by the country’s president. The Lok Sabha is the more powerful of the two houses of Parliament. Votes will be cast electronically across more than one million polling stations in the country. Electoral laws require that each voter is no more than two kilometres (1.2 miles) away from a polling booth. The party with a simple majority of 273 or more seats in the lower house is invited to form a government with its choice of prime minister. If no single party reaches that mark, India's president will ask the leading party to try to put together a coalition.
Analysts widely expect Narendra Modi’s ruling Hindu-nationalist Bharatiya Janata Party (BJP) to score another landslide victory in the elections, giving Mr. Modi a third consecutive term as prime minister. A victory would make Mr. Modi, 73, only the second prime minister after Jawaharlal Nehru, India's independence hero and its first prime minister, to win a third straight term.
Mr. Modi has set a target of 370 seats for BJP and 400-plus for the National Democratic Alliance (NDA) it heads in the lower house of parliament, up from the 303 the BJP won and more than the 350 the NDA won in 2019. The 2019 performance was the best ever for the party which was formed in 1980. Mr. Modi will be challenged by an alliance of some two-dozen opposition parties led by the main opposition Congress party called INDIA or the Indian National Developmental Inclusive Alliance. His opponents have been hamstrung by infighting and what they say are politically motivated criminal cases aimed at hobbling challengers to the BJP. The alliance formed last year has been struggling to stay united and share seats amicably to be able to put up a single candidate to fight against the BJP. Support for Congress, which has ruled India for 54 of its 76 years since independence from Britain, has sunk to record lows after Mr. Modi swept to power.
Under Mr. Modi’s rule, India’s economy has become the world’s fifth-largest economy with a GDP of US$3.7 trillion and has set its sight on becoming the world’s third largest economy by 2027. The world’s most populous country is among the fastest growing economies in the world. Its economy grew 7.2% in fiscal 2022-2023, the second highest among the G20 countries. The International Monetary Fund projects that India’s economy will grow 6.8% in 2024 and 6.5% for 2025, compared to China’s predicted growth of 4.6% in 2024 and 4.1% in 2025.
Solomon Islands Vote Counting Underway
Vote counting was underway Thursday in the South Pacific's Solomon Islands, in what has been described by observers as the most important election in the Pacific archipelago’s nearly 50-year history as an independent nation. It’s the first parliamentary election since Prime Minister Manasseh Sogavare struck a security pact with China in 2022 and drew the Pacific Islands nation closer to Beijing. Mr. Sogavare switched diplomatic ties from Taiwan to Beijing soon after becoming prime minister in 2019, and has pledged to strengthen relations with China, which is building ports, roads and a telecommunications network in the Solomon Islands. Some opposition politicians have called for a review or repeal of the security deal in recent months. The election outcome will be closely watched by the United States, China and Australia for its potential impact on US-China rivalry in the Pacific.
In the outermost reaches of the volcanic archipelago, ballot boxes were still making their way to provincial hubs for tallying, potentially delaying some results by days. Chief electoral officer Jasper Anisi said that "everything is peaceful" so far, in a nation where elections have often spilled over into violence. Hand counting the paper votes is only the start of an arduous electoral process. Once the parliament's 50 members are finally elected, they will begin bartering with each other behind closed doors to cobble together a ruling coalition. Opposition parties say voters are focused on struggling health services, education and inadequate roads.
Hong Kong Falls Out Of World’s Top 10 Busiest Ports Ranking
Hong Kong has dropped out of the top 10 busiest container ports in the world for the first time in history, according to data from Alphaliner on the 30 busiest box ports worldwide. Last year, the Hong Kong port saw a significant drop in traffic, with a decline of 14.1% to 14.3 million twenty-foot equivalent units (TEUs) for 2023. Hong Kong has now been surpassed by Dubai, which will take its place in the top 10 busiest ports list in the world in 2023. Shanghai maintained the top spot as the world's busiest port (49.16 million TEUs), followed by Singapore (39 million TEUs), Ningbo-Zhoushan (35.3 million TEUs), Qingdao (30 million TEUs), and Shenzhen (29.9 million TEUs). Guangzhou (25.04 million TEUs), Busan (23.15 million TEUs), Tianjin (22.16 million TEUs), Los Angeles/Long Beach (16.65 million TEUs), and Dubai/Jebel Ali round out the top 10 list.
Alphaliner noted that the only other major port to have suffered a steeper volume decline in 2023 than Hong Kong was New York & New Jersey, which saw its throughput decline 17.7% to 7.8 million TEUs for 2023. This marks a long-term decline trend for the port, which has also seen a 21.6% reduction in its volumes compared to the pre-pandemic period in 2019. Hong Kong was once a major container port and used to rival Singapore and Shanghai for the title of the world's busiest port for decades.
Australia Unemployment Rate Rises Less Than Expected
Australia’s seasonally adjusted unemployment rate inched up to 3.8% in March from 3.7% in February, but the figure was still lower than the 3.9% expected by economists polled by Reuters. The number of unemployed individuals increased by 20,600 to 569,900. Meanwhile, employment unexpectedly fell by 6,600 people, a surprise compared to the 10,000 gain expected by Reuters. As a result, the participation rate in Australia fell to 66.6%, down marginally from the 66.7% seen in February.
Japan Policy Rate Adjustment Likely To Be Slow
The pace of adjustments in policy interest rates in Japan would be incomparably slower than recent examples of other major central banks, the central bank's board member Asahi Noguchi said in a speech Thursday. He added that domestic inflation still was not very strong and that policymakers should proceed carefully with further changes in monetary policy. Mr. Noguchi believed that it would take more time before underlying inflation in the country reaches and stays around the central bank's 2% target. The Bank of Japan (BoJ) delivered the first interest rate hike since 2007 in March, halting eight years of negative interest rates. Mr. Noguchi voted against the decision, saying the BoJ should avoid ending negative interest rates and yield curve control at the same time.
Hong Kong Jobless Rate Rises To 3%
Hong Kong’s seasonally adjusted unemployment rate edged up to 3% in the three months ending March 2024, after steadying at 2.9% in the previous five periods. The number of unemployed persons rose by 9,400 from a month earlier to 111,700, while employment declined by 6,300 to 3.688 million. Almost all the major economic sectors recorded a rise in jobless rate. Meanwhile, the underemployment rate rose slightly to 1.1%. The youth unemployment rate, measuring jobseekers between 20 to 29 years old, increased to 6.2% from 5.6% previously. The labour force participation rate was unchanged at 57%.
In a statement, Secretary for Labour and Welfare, Chris Sun, said the unemployment rate was generally low despite the uptick. "The unemployment rates of most sectors increased in January - March 2024 compared with the preceding three-month period, but stayed low in general," he said. "As the economy continues to grow, the labour market will likely remain tight in the near term."
US Existing Home Sales Fall In March As Mortgage Rate Top 7%
Existing home sales in March, posted their biggest monthly drop in more than a year, the National Association of Realtors said Thursday. Existing-home sales, a measure of completed transactions, declined 4.3% to a seasonally adjusted annualised rate of 4.19 million units in March 2024, partially reversing from a 9.5% rise in February and compared to forecasts of 4.2 million. The median existing-home price was $393,500, an increase of 4.8% from the previous year ($375,300). The average rate on the standard 30-year fixed mortgage jumped by nearly a quarter percentage point to 7.1%, according to a survey of lenders released Thursday by mortgage-finance giant Freddie Mac. That is the highest level since late 2023 and the largest weekly increase in nearly a year.
US Leading Indicators Post Worse Than Expected Decline
The Conference Board’s index of leading economic indicators declined more than expected in March, reversing the previous month’s gain. The index posted a drop of 0.3% on the month, down from a 0.2% increase in February and below economists’ forecasts for a -0.1% reading. The index measures 10 indicators including stocks, housing statistics, employment data and various credit and bond market measures. “Overall, the Index points to a fragile, even if not recessionary, outlook for the US economy. Indeed, rising consumer debt, elevated interest rates, and persistent inflation pressures continue to pose risks to economic activity in 2024,” said Justyna Zabinska-La Monica, senior manager of business cycle indicators at The Conference Board.
Philadelphia Fed Manufacturing Index Up Most In 2 Years
A gauge measuring manufacturing activity in the Philadelphia region posted an unexpectedly sharp gain in April, largely due to a jump in prices paid, a measure of inflation. The Philadelphia Federal Reserve’s manufacturing index rose to 15.5 for the month, up more than 12 points from March and better than economists’ estimates of 2.5. It was the third consecutive positive reading and the highest since April 2022. The index measures the percentage difference between companies reporting expansion and contraction, so anything above zero is positive. Most of the gain came from three categories: prices paid, which saw a nearly 20-point surge to 23; new orders, which increased nearly 7 points to 12.2, and shipments, which posted a nearly 8-point gain to 19.1. The employment index edged lower to -10.7 and the average work week plunged to -18.7, a drop of 18.5 points.
US Jobless Claims Unchanged
The number of people claiming unemployment benefits in the US was unchanged last week from the prior week at 212,000, below economists’ expectations of 215,000. Additionally, continuing claims were largely unchanged at 1,812,000 at the start of the month, below forecasts of 1,818,000. The four-week-moving average, which reduces week-to-week volatility, was also unchanged at 214,500. The data indicates that the unemployed are finding jobs at a relatively easy pace when compared to historical standards, pointing to a tight labour market.
TSMC Beats Revenue & Profit Forecasts
Taiwan Semiconductor Manufacturing Company on Thursday beat revenue and profit expectations in the first quarter, thanks to continued strong demand for advanced chips, particularly those used in AI applications. TSMC reported net revenue rose 16.5% from a year ago to NT$592.64 billion (US$18.3bn), while net income increased 8.8% from a year ago to NT$225.49 billion. The firm guided first-quarter revenue to be between US$18 billion and US$18.8 billion. It was the first profit rise in a year for the chip maker. TSMC is the world’s largest producer of advanced processors and counts companies such as Nvidia and Apple as its clients. It said in January it expects revenue to grow by at least 20% this year as the broader semiconductor market recovers, though uncertainty persists given global macroeconomic volatility. TSMC’s AI revenue is growing at a rate of 50% annually, the company said in January.
Asian Markets Defy Wall Street Gloom
Asian markets rallied on Thursday despite a four-day sell off on Wall Street. South Korea’s stock market was the standout performer in Asia. The Kospi climbed 2.0%, with steel pipe manufacturing company Histeel leading gains. Histeel soared 18% after US President Joe Biden announced plans to triple tariffs on Chinese steel. Japan’s Nikkei 225 was more muted, inching up 0.3%, snapping three days of losses. In Australia, the S&P/ASX 200 climbed 0.5%, snapping a five-day losing streak, as the country’s unemployment rate inched up to 3.8% in March, less than the 3.9% expected by Reuters. In India, The BSE Sensex index lost 455 points, or 0.6%, to close near one-month lows of 72,489 on Thursday, marking the fourth consecutive session of drops.
Airline stocks in Asia soared after Brent crude oil sank 3%, due to higher-than-expected US inventories. South Korean carrier Asiana Airlines was up 4.2%, while counterpart Korean Air posted a 2.2% gain. Australian flag carrier Qantas was up 3.4%, while Japan’s ANA and Japan Airlines climbed 1.1% and 3.1%, respectively.
China Stocks Gain For Second Session
Mainland stocks climbed for the second straight session and tracked a broad advance in the Asia Pacific region. But the upside was capped by fears over a new trade war after President Joe Biden called for a tripling of tariffs on some steel and aluminium from China. The Shanghai Composite rose 0.1% to 3,074. In Hong Kong, the Hang Seng jumped 134 points or 0.8% to 16,386, moving away from its lowest level in over five weeks hit earlier in the week. The Tech Index added 0.5%.
European Markets Higher
European stocks followed Asian markets higher as strong results from TSMC, the world’s largest chipmaker, eased concerns about the strength of the artificial intelligence rally, and Japan, South Korea, and the US released a joint statement addressing concerns over the resurgent dollar. The benchmark Stoxx 600 index was up 0.2%, with most sectors in the green. Banks led with a 1.6% gain, as oil and gas stocks dropped 1.5% following a sharp fall in oil prices Wednesday. London’s FTSE 100 rose 0.4%.
Shares in the French biotechnology equipment provider Sartorius led losses on the region-wide Stoxx 600 index, dropping 15.7% after the company reported disappointing first-quarter sales and weak demand in China. Shares in the London-listed low-cost carrier Easy Jet rose 2.3% after it reported results above expectations. Other airline stocks rose as oil prices fell. Lufthansa ended the day 5.6% higher. Shares in the German provider of semiconductor components Aixtron rose 4.4% after the company said that US silicon carbide manufacturer Wolfspeed had placed multiple orders for its silicon carbide epitaxial wafers. Shares of Swiss engineering firm ABB rose 6.3% after the company reported an expectation-beating rise in operating profit.
S&P 500 Down For Fifth Session
The S&P 500 declined for the fifth straight session on Thursday, its longest losing streak since October. The benchmark index fell 0.2% to 5,011, with the tech sector performing the worst, led by semiconductor stocks. TSMC tumbled almost 5% following its earnings report where it trimmed its outlook for the semiconductor industry as a whole, despite decent quarterly figures and its own guidance. The tech-heavy Nasdaq Composite fell 0.5% to 15,602. It was also the index’s fifth straight losing session, a first since January. The Dow outperformed, rising 22 points, or 0.1%, to 37,775. All three indices are down on the week. The S&P 500 has slid more than 2% so far in the week, while the Nasdaq is down over 3%, as technology stocks struggle. Tesla shares fell 3.6%, their fifth loss in a row. The electric car maker has fallen 14% in April.
After the closing bell, Netflix reported earnings that beat on the top and bottom line. Netflix reported operating income rose 54% in the first quarter as it added 9.3mn new subscribers worldwide. That’s more than five times the number of customers it added during the same period a year earlier, with its efforts to limit password sharing continuing to bear fruit. Netflix ended the first quarter with 269.6 million paying customers globally and said it now has an audience of more than a half billion people. The streaming service reported earnings of $5.28 per share, well ahead of Wall Street forecasts of $4.51. Operating income totalled US$2.6bn, up from US$1.7bn a year ago. Shares of Netflix fell 3.6% in after-hours trading. Its shares are up 27% so far this year and around 85% over the last 12 months.
Treasuries Sold
Traders sold US government debt after a strong Philly Fed survey, with prices paid at a YTD peak and the overall index at its highest level since 2022. That helped push the yield on the 2-year Treasury note up 5 bps to 4.99%. The yield on the 10-year bond climbed 5 bps to 4.64%.
US Dollar Edges Higher
In the currency markets, the US dollar edged higher. The US Dollar Index added 0.2% to 106.17. The British pound gave up early gains after higher-than-expected UK inflation data which pushed back market expectations for interest rate cuts later in the year. Sterling was flat against the greenback around $1.2440. The euro was sold after French central bank head and ECB policymaker Villeroy de Galhau said on Thursday that they could cut rates in the ates in the next meeting, barring a major surprise. The euro fell 0.3% to $1.0641.
Asian Currencies Rebound After Finance Ministers’ Meeting
Asian currencies rebounded Thursday from their recent selloff as the US, Japan and South Korea agreed to “consult closely on foreign exchange market developments” during their first trilateral meeting. The US acknowledged “serious concerns” over a rapidly weakening yen and won. Bank of Korea Governor Rhee Chang-yong also said they have various options to counter extreme volatility in the currency markets, signalling readiness to intervene to shore up the won. The BOK regularly intervenes in currency markets to prevent undesirable volatility in the won, but China’s increasingly weak daily reference rates limit the room for response for other Asian economies, as a sharp appreciation against the yuan hampers the competitiveness of Korean goods and services in foreign markets. Japan’s top currency official, Masato Kanda, reiterated his country’s commitment to currency stability while speaking to reporters on the sidelines of the IMF and World Bank spring meetings in Washington.
The South Korean won appreciated 0.9% past 1,375 per dollar after sinking to 18-month lows earlier in the week. The Japanese yen initially rose but then slipped back in US trading to ¥154.63 per dollar remaining close to a 34-year low hit earlier in the week amid diverging monetary policy between the Bank of Japan and the US Federal Reserve. Indonesia’s rupiah was up 0.3% against the dollar at Rp16,170.
The renminbi has weakened in recent days in line with other Asian currencies. The People’s Bank of China set a stronger renminbi reference rate on Thursday, fixing the trading midpoint at Rmb7.102 a dollar in an attempt to discourage sales of the renminbi against the dollar. On its social media account, the PBoC on Thursday said it would “resolutely correct” what it called “procyclical behaviour”. The PBoC added that it would prevent the “formation of one-sided consensus and self-reinforcement” of views on the direction of the currency. “The central bank is determined and unwavering in its stance to keep the relative stability of the yuan rate,” Zhu Hexin, head of the State Administration of Foreign Exchange and vice-governor of the PBoC, told reporters in Beijing on Thursday. In Shanghai, the yuan was unchanged at Rmb 7.2382.
Gold Close To All-Time High
Spot gold rose 0.8% to $2,380 per troy ounce, flirting with a record closing high set earlier this week.
Oil Prices Slightly Lower
Oil prices were choppy on Thursday as traders await further developments in the Middle East. Brent crude oil slipped 0.2% to $87.11 a barrel.
Bitcoin Extends Bounce Ahead Of ‘Halving’
Bitcoin extended Wednesday's bounce off $60,000 ahead of what is expected to be the 'halving' today. The world’s largest cryptocurrency jumped over 4% to $63,480.
Peter Lewis’ Money Talk Podcast
On Friday’s “Peter Lewis’ Money Talk” podcast, I’ll be joined by Francis Lun, the CEO of GEO Securities, and William Ma, Chief Investment Officer at GROW Investment Group. With a view from Australia, is Toby Lawson, CEO at Statton Partners.
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