HK correction ends stunning one-week streak, Japan PM Ishida MoPo about-turn

Asia Market Update: HK correction ends stunning one-week streak; Japan PM Ishida MoPo about-turn; Focus on US Sept ISM Services PMI (and US Sept NFP tomorrow).

General trend

- A correction for HK today after the past week’s surge in China shares (despite the mainland China holidays). Hang Seng down >4%, Hang Seng Tech index -7% and Mainland Properties index down >10%. Property developer Shimao fell 30% soon after the open today after its 85% gain yesterday.

- New Japan PM Ishiba’s comments overnight (and following his first meeting as PM with BOJ Gov Ueda) saw an apparent about-turn of policy stance by Ishiba. JPY/USD fell ~2% after his comments last night. Note that now he is PM, Ishiba’s new-found acceptance of BOJ easy monetary policy is at odds with his consistent opposition over many years to the extreme monetary easing policies of BOJ Gov Kuroda and now Gov Ueda. As recently as August 7th, just two days after the Yen's massive upswing to ~140 level and Japanese equities plunging 20% in just a few days, Ishiba still said at the time that ‘The BOJ is on the right policy track to gradually align with global interest rates; Ideal range for USD/JPY is between 110-140”.

- Markets are currently readjusting to a likely more dovish monetary policy stance under Ishiba & Ueda for Japan going forward than previously expected. Overnight-indexed swaps now price only a 17% chance of a BOJ rate hike in Dec, down from 26% a day earlier.

- Today the Nikkei recovered yesterday's losses, rising 2.5% at the open on the weakest Yen levels for 6 weeks post-Ishiba comments. The markets have now fully reversed their initial knee-jerk reaction (sharply higher Yen and lower equities) after Ishiba’s surprise win last Friday over the first-round leading LDP PM candidate Takaichi, who was herself seen as another Abenomics-dove.

- BOJ Board member Noguchi, who dissented at both the March and July rate increases, today said that it is vital to keep financial conditions easy and admitted that there was a gap between the BOJ's view and market understanding back in July (when the BOJ surprised by raising rates by a further 0.15%).

- Australia confirmed the 8th month of expansion for its Sept PMI, while Japan Sept PMI confirmed its 3rd month of expansion.

- Australia trade balance for August was overall inline, but noting that both exports and imports fell evenly.

- No further developments in Middle East tensions during Asian trading.

- US equity FUTs -0.2% to -0.3% during the Asia session.

Looking ahead (Asian time zone)

- Thu Oct 3rd (Thu night US Sept ISM Services PMI).

- Fri Oct 4th (Fri night US Sept NFP).

Holidays in Asia this week

- Tue Oct 1st China, Hong Kong, South Korea (one-off holiday).

- Wed Oct 2nd China, India.

- Thu Oct 3rd China, South Korea.

- Fri Oct 4th China.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens +0.1% at 8207.

- Australia Aug Trade Balance (A$): 5.6B v 5.5Be.

- Australia Sept Final PMI Services: 50.5 v 50.6 prelim (confirms 8th month of expansion).

- IMF: If disinflation stalls, Australia needs fiscal tightening - Staff Concluding Statement of the 2024 Article IV Mission.

- New Zealand Sept ANZ Commodity Price M/M: 1.8% v 2.1% prior.

- New Zealand Fin Min Willis: Future budgets will be about reprioritising, not austerity - comments at NZME event in Auckland.

- New Zealand sells total NZ$500M vs. NZ$500M indicated in 2031, 2034 and 2041 bonds.

- New Zealand Sept CoreLogic Home Prices M/M: -0.5% v -0.8% prior [overnight update].

China/Hong Kong

- Hang Seng opens +0.2% at 22,484; Shanghai Composite closed for holidays Oct 1st through Oct 7th.

- Hong Kong Dollar 1-month HIBOR rises for 9th straight day (longest run since Nov) - financial press.

- US has banned China steel and food-additives companies over Xinjiang human rights, the first time that steel and aspartame companies have been added to the list - SCMP.

- (US) Investor Stan Druckenmiller: Shorting US bonds and staying away from the China rally as long as Xi Jinping is running country [overnight update].

Japan

- Nikkei 225 opens +1.7% at 38,459.

- Japan Sept Final PMI Services: 53.1 v 53.9 prelim (confirms 3rd month of expansion).

- BOJ Board member Noguchi: Vital to keep financial conditions easy; There was a gap between BOJ's view and market understanding in July.

- Bank of Japan (BOJ): Q2 Output gap at -0.55 (v -0.72 prior).

- Japan PM Ishiba: Will push for wage growth above inflation - financial press.

- Japan Fin Min Kato: Want to promote tax-free investment program to households.

- Japan PM Ishiba: Japan is not in environment now for additional rate hike; Will coordinate with BOJ on economy [overnight update].

- Japan Chief Cabinet Sec Hayashi: Reiterates PM Ishida and Gov Ueda confirmed cooperation in line with govt and BOJ accord [overnight update].

- Japan Fin Min Kato: Expect thorough BOJ communication with market and Govt; No change in primary balance goal [overnight update].

- Japan Foreign Min Iwaya: Asian NATO is one idea for the mid to long term [overnight update].

- BOJ Gov Ueda: Talked about market and economy with PM Ishiba; To adjust policy if outlook is realized
[overnight update].

-Fast Retailing (9983.JP) Reported Sept UNIQLO sales +22.1% v +25.3% prior [overnight update].

Korea

- Kospi closed for holiday.

Other Asia

- Indonesia Central Bank (BI) Official: Enters FX market to ensure "balance of supply and demand" (Rupiah -0.9% to Sept 13th levels).

- Singapore Sept PMI (whole economy): 56.6 v 57.6 prior.

North America

- US) United States Maritime Alliance (USMX): Regarding ILA negotiations, we cannot agree to preconditions to return to bargaining table.

- (US) MBA Mortgage Applications w/e Sept 27th: -1.3% v 11.0% prior (1st decline in 6 weeks).

- (MX) Mexico Sept Domestic Vehicle Sales: 116.5K v 127.7K prior.

- (US) SEPT ADP EMPLOYMENT CHANGE: +143K V +125KE (biggest gain in 3 months); job changers pay growth premium over job-stayers shrank to 1.9 percent, matching a low we last saw in January.

- (US) DOE CRUDE: +3.9M V -0.5ME; GASOLINE: +1.1M V -0.5ME; DISTILLATE: -1.3M V -1.5ME.

- (US) Fed’s Barkin (voter for 2024; non-voter for 2025): 50bps of cuts in Sept warranted because rates were 'out of synch' with drop in inflation; Expects little further drop in PCE until next year - speech text.

- (IR) Pres Biden: I will not support an attack on Iran nuclear sites; There will be new sanctions on Iran.

- (US) Fed’s Barkin (voter for 2024; non-voter for 2025): Sees two additional quarter percentage point cuts this year as a reasonable path if economy evolves as expected.

Europe

- (IE) Ireland Sept PMI Services: 55.7 v 53.8 prior (42nd month of expansion).

- (HU) Hungary Central Bank (MNB): Reiterates stance that disciplined and tight monetary policy still needed to reach and maintain price stability.

- (IE) Ireland Sept Unemployment Rate: 4.3% v 4.4% prior.

- (FR) France said to plan €60B in spending cuts and tax hikes next year; Sees 2025 debt 'just below' 115% of GDP - press.

- (DE) German Econ Min Habeck: ECB should cut rates faster; Survived three quarters of economic crisis caused by Russian invasion of Ukraine.

- (PL) POLAND CENTRAL BANK (NBP) LEAVES BASE RATE UNCHANGED AT 5.75%; AS EXPECTED.

- OPEC+ No policy change at JMMC, as expected; Delegate confirms committee is working on a new schedule for compensation cuts - press.

- (RU) Russia Dep PM Novak: OPEC+ to start output increase from December 1st as previously decided; Oil market is volatile, yet Mideast tensions already priced in.

- (EU) ECB’s Vasle (Slovenia): Cannot exclude or commit to a rate cut in Oct - press interview.

- (IR) New Iranian president Pezeshkian: Iran does not seek war, but if Israel acts against us we will give a 'stronger response'.

- (EU) ECB's Schnabel (Germany): Return to our 2% inflation target in timely manner is becoming more likely: We can't ignore the headwinds to growth - speech text.

- OPEC refutes WSJ story that said Saudi indicated oil could drop to $50/bbl if OPEC+ disregards production curbs - post on X.

Levels as of 01:20 ET

- Nikkei 225 +2.1%, ASX 200 flat, Hang Seng -2.2%; Shanghai Composite closed; Kospi -1.2%.

- Equity S&P500 Futures: -0.2%; Nasdaq100 -0.3%, Dax -0.6%; FTSE100 -0.1%.

- EUR 1.1028-1.1050; JPY 146.28-147.24; AUD 0.6855-0.6889; NZD 0.6235-0.673.

- Gold +0.2% at $2,675/oz; Crude Oil +1.4% at $71.06/brl; Copper -0.7% at $4.6310/lb.