HK equities continue surge even as CN on holiday

Asia market update: HK equities continue surge even as CN on holiday; Mid-East heightened tensions remain; Fast Retailing Sept Sales due.

General trend

- Even with increased geopolitical tensions and China still on holiday from yesterday, overnight FXI +4.2% during NY session and EWH +2.3%. Hong Kong cash equities then surged for a 6th day, +7%, with Mainland property indices +15% (+48% in past 5 days); China Vanke H Shares +37%, Longfor +28%, Shimao +85%. Hang Seng Tech index also gained 9%, with Alibaba +6% and JD +12%.

- SCMP produced some interesting numbers on the stunning China rally, reporting that short-sellers have lost $6.9B in mark-to-market losses over the past week. Approx $1.8T of value has been restored on the three main China and HK exchanges over the course of the rally. Overall, allocation to Chinese equities among global mutual funds shrank to 5.2% in August, compared with a peak of 15% back in July 2021.

- It was a completely different story in the rest of Asia. Korean equities reopened down more than 1% after yesterday’s holiday amid renewed mid-East tensions, with Bank of Korea saying it was monitoring markets. Won -0.4%.

- South Korea headline and core CPI for September came in at the lowest levels since 2021, while Sept PMI Manufacturing also moved back into contraction with a 15 month low that saw the sharpest deterioration in manufacturing operating conditions since June 2023.

- Nikkei also down -1.7%. Nvidia fell >3% overnight, and Japan chip companies fell in tandem, with market heavyweight Fast Retailing also down >3% ahead of its Sept Rev release at 01:30ET/05:30GMT.

- ASX in Australia down slightly, with Consumer Discretionary and IT the main losers.

- Oracle followed on from other large US tech companies Microsoft, Amazon and Google investments in SE Asia earlier this year with a multi-billion dollar AI and Cloud investment in Malaysia.

- More banks now expect New Zealand's RBNZ to cut OCR by 50bps next week, Oct 9th.

- Mid-East tensions continued to boil after Iran’s missile attack last night, with Israel striking Hezbollah targets in Lebanon's capital Beirut today, as oil remained at its elevated levels of last night. Then shortly before this update was released, Israel was reported to be ready to launch a "significant retaliation" within days that could include strikes on Iran's nuclear facilities.

- The US Vice-Presidential debate came and went without appearing to produce any game-changing moments.

- US equity FUTs -0.1% during the Asia session.

Looking ahead (Asian time zone)

- Thu Oct 3rd AU Aug Trade Balance (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 8,213.

- Australia sells A$800M vs. A$800M indicated in 2.75% Jun 2035 bonds; Avg Yield: 3.9849% v 4.1218% prior; bid-to-cover: 3.76x v 3.38x prior.

- Fonterra Global Dairy Trade Auction Dairy Trade price index: +1.2% v +0.8% prior.

China/Hong Kong

- Hang Seng reopens +0.7% at 21,289 after one-day holiday; Shanghai Composite closed for holiday Oct 1st to Oct 4th.

- Hong Kong Dollar 1-month HIBOR rises to the highest since Aug 1st– financial press.

- China MOFCOM: Reiterates opposition to Canada's increase in EV tariffs.

- China President Xi: Prepared to expand ‘all-round pragmatic’ cooperation with Russia – Xinhua [overnight update].

Japan

- Nikkei 225 opens -1.3% at 38,136.

- Japan Sept Consumer Confidence: 36.9 v 37.0e.

- Japan Sept Monetary Base Y/Y: -0.1% v 0.6% prior (first annual contraction since July, 2023).

- Bank of Japan (BOJ) announcement related to outright bond buying operations: For <1 Year; 1-3 Years, 3-5 Years and >25 Years (reduced purchases as per new Oct schedule) purchases).

- Japan PM Ishiba confirms new Cabinet.

- New Econ Min Yoji Muto: Instructed by PM Ishida to raise wages faster than price rises – press.

- Japan new Economic Revitalization Min Akazawa: Reiterates defeating inflation is the top priority.

- Japan new PM Ishiba: Spoke with US Pres Biden; Said wants to continue US-Japan alliance.

- Japan PM Ishiba: Won't comment on specific rate policy; Hope BoJ maintains easy money policy as a trend - news conf comments after cabinet appointment.

- Japan new Economic Revitalization Min Akazawa: Rate hikes should be mulled with caution [overnight update].

- Japan new Fin Min Kato: PM Ishiba instructed me to push toward wage hikes [overnight update].

Korea

- Kospi reopens -1.2% at 2,562 after one-day holiday.

- SOUTH KOREA SEPT CPI M/M: 0.1% V 0.4%E; Y/Y: 1.6% V 1.9%E (slowest since Feb 2021).

- South Korea Sept PMI Manufacturing: 48.3 v 51.9 prior (moves back into contraction first time in 5 months with a 15 month low).

- Follow up: South Korea opposition party considering to scrap financial income tax - financial press.

- Bank of Korea (BOK): Financial markets may become volatile on Iran attack [overnight].

- South Korea Fin Min Choi: Inflation shows downward stabilization - press.

Other Asia

- Thailand Sept Business Sentiment Index: 45.7 v 47.1 prior.

North America

- Nike -6% A/H on lowered Q2 guidance and withdrawal of FY guidance.

- (US) Vice Presidential Candidates J.D. Vance (R-OH), Tim Walz (D-MN) hold debate on CBS.

- US Defense Sec: Calls on Iran to halt any further attacks.

- (US) Dept of Agriculture: Do not expect significant changes to food prices or availability in near term (following US dockworker strike).

- (US) SEPT FINAL S&P MANUFACTURING PMI: 47.3 V 47.0E; Sharpest fall in new orders since June 2023.

- (US) SEPT ISM MANUFACTURING: 47.2 V 47.5E; New Orders: 46.1 v 44.6 prior.

- (US) AUG JOLTS JOB OPENINGS: 8.04M V 7.660ME; Quits rate 1.9% v 2.1% prior (lowest since mid-year 2020).

- (US) Sept Dallas Fed Services Activity: -2.6 v -7.7 prior.

- (US) US Pres Biden: Time for USMX to negotiate a fair contract with Longshoremen.

- (MX) Mexico President Sheinbaum: Current economic model is best and austerity should continue.

Europe

- *(IL) Reportedly Israel to launch a "significant retaliation" to Oct 1st's massive missile attack within days that could target oil production facilities inside Iran and other strategic sites; If Iran attacks again, Israeli officials say all options will be on the table, including strikes on Iran's nuclear facilities - Axios.

- (IL) Israeli military: Currently striking Hezbollah targets in Lebanon's capital Beirut - Telegram post.

- (IL) Israel Aug Chain Store Sales M/M: -4.9% v +0.7% prior.

- (DE) German Chancellor Scholz Advisor: Country struggling to achieve positive GDP growth.

- (FR) France PM Barnier: Delays 3% deficit goal by 2 years to 2029; Expect to reduce deficit to 5% in 2025 - first parliamentary address.

- Reportedly OPEC+ Unlikely to change output policy at Oct. technical panel meeting.

- (CH) SNB Incoming Pres Schlegel: Swiss inflation only driven by services; Reason for last week's rate cut was reduced inflationary pressure.

- (IL) Mass shooting is ongoing in central Israel's Jaffa with at least 10 casualties - local media.

- (EU) ECB's Kazaks (Latvia): Very much agree with market pricing for ECB's Oct interest rate decision - press interview.

- (IR) Israel military confirms the launch of over 100 ballistic missiles by Iran towards Israel; Sounds of explosions heard in Jerusalem and Tel Aviv.

- (IL) Israel military spokesperson: Not aware of any injuries caused by the Iran missile attack; Says citizens can exit their shelters with no additional threat seen at this time.

Levels as of 01:20 ET

- Nikkei 225 -1.9%, ASX 200 -0.1%, Hang Seng +7.1%; Shanghai Composite closed; Kospi -0.6%.

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

- EUR 1.1058-1.1075; JPY 143.43-144.18; AUD 0.6878-0.6916; NZD 0.6277-0.6313.

- Gold -0.9% at $2,669/oz; Crude Oil +1.7% at $71.06/brl; Copper +0.4% at $4.5982/lb.