EQUITIES: Weakness Across The Board, Although Nikkei Outperforms

Regional equities are mostly on the backfoot, with Japan bourses the exception. Headwinds have come from the negative Wall St lead on Friday, along with lower US futures through the first part of the Monday session. Eminis and Nasdaq futures are off by -0.35% to -0.45% at this stage.

• China and Hong Kong markets have again seen decent losses. The HSI is off by 2.3% at this stage, with the tech sub-index down 3.70%. The China Golden Dragon index fell sharply in US trade on Friday (-3.87%).
• The CSI 300 is off 1.67%, the Shanghai Composite -1%. Northbound stock connections flows have been negative for the second straight session. Tensions with US over the downing of an alleged spy balloon have weighed, although China comments don't suggest any further near term escalation.
• The China authorities also disagreed with the IMF on the China housing outlook and called the organization's 5.2% growth forecast this year too conservative.
• Japan stocks are higher, with the Nikkei 225 up 0.75% at this stage. Reports that the government have approached Deputy Governor Amamiya as a potential successor to Kuroda has likely helped, as Amamiya is seen as more on the dovish side relative to other candidates.
• The Kospi & Taiex are lower (-1.25% & -0.95% respectively). The ASX 200 is down -0.25%, with lower commodity prices note helping.

CBA note that they have shifted up their “AUD/JPY forecasts because of the AUD rally fuelled by China’s reopening. We now forecast AUD/JPY will rise to Y95.0 by March 2023 before easing to Y86.0 over the following year.”

• “The prevailing optimism about the Chinese and the global economies can keep supporting risk appetite and in turn AUD/JPY in the near term.”
• “Nevertheless, AUD/JPY upside will likely be limited by ongoing expectations for the BoJ to tighten monetary policy.”
• “Our expectations for the RBA to soon pause its tightening cycle and the BoJ to exit its yield curve control and negative interest rate policy by mid-year suggest Australia-Japan interest rate differentials can narrow and weigh on AUD/JPY. Also pulling AUD/JPY down is the coming recession in the major advanced economies which we consider is not priced by most financial markets.”
• “A key upside risk to our AUD/JPY forecasts is if the Chinese and the global economies are stronger than we expect. On the flip side, an earlier than anticipated BoJ policy tightening can see AUD/JPY weaken more than we forecast.”

Aussie bonds prove fairly unreactive to the latest round of comments pointing to a further thawing of Sino-Aussie relations (see earlier bullet for more colour on that matter), seeing an incremental uptick post-headlines, but they were already moving away from cheapest levels of the day alongside U.S. Tsys. That leaves YM -11.0, while XM is -9.0, with wider cash ACGBs running 6-11bp cheaper across the curve, as the early bear flattening bias is maintained.

• Note that Aussie 10s have outperformed their U.S. counterpart in the time since Friday’s Sydney close, given the impulse derived from U.S. data & Fedspeak (and WSJ Fed report Timiraos’ latest article), with the spread between the two compressing by a little over 8bp.
• Bills are 5-14bp cheaper through the reds.
• EFPs continue to operate around session wides.