Wednesday, June 7, 2023

Asia markets largely lower as investors weigh more Wall Street earnings

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Spinning off Asian business ‘would result in material loss of value for HSBC shareholders’: HSBC

HSBC has recommended that shareholders vote against spinning off its Asian business, which was proposed by its largest investor Ping An Asset Management.

In a note released Wednesday, the bank highlighted four reasons behind its recommendation.

First, “separation is not consistent with HSBC’s business model,” which is an integrated bank. Second, there would be “meaningful revenue dis-synergies,” such as less coordinated customer service.

Next, splitting up the bank would also incur “material one-off and ongoing running costs,” such as tax leakage and the need for increased capital. Last, any separation would involve “execution risks,” creating a “multi-year period of uncertainty.”

Ping An has been pushing for HSBC to split up its Asian business to boost the bank’s returns. “HSBC Group has drained HSBC Asia of dividends and growth capital to support its relatively low return non-Asia businesses,” Ping An said in a statement Tuesday.

— Yeo Boon Ping

Japan trade deficit hits 21.7 trillion yen for full year ended March 2023

Japan’s trade deficit reached a record high of 21.7 trillion yen ($161.14 billion) for the twelve months ending March, a sharp spike from the 5.59 trillion yen recorded in the same period a month ago.

Exports from April 2022 to March saw a 15.5% increase year on year to reach 99.2 trillion yen, while imports increased to 120.95 trillion yen.

For March alone, Japan’s exports rose 4.3% year on year, lower than the 6.5% recorded in February, while imports rose 7.3% in the same period, lower than February’s 8.3% gain.

Japan’s trade deficit in March narrowed to 754.5 billion yen, down from a deficit of 897 billion yen in February.

— Lim Hui Jie

New Zealand’s first quarter inflation lower than expected at 6.7%

New Zealand’s inflation rate for the first quarter slowed to 6.7% on a year on year basis, lower than economists expectations of 7.1% and the previous quarter’s figure of 7.2%.

The country’s statistics department revealed that food costs were the largest contributor to inflation in the first quarter, increasing 11.3% compared to the same period last year.

Earlier this month, the Reserve Bank of New Zealand raised rates by 50 basis points in a surprise move, bringing its benchmark interest rate to 5.25%.

— Lim Hui Jie

So far, first-quarter earnings are beating market fears

Earnings season has kicked off on a positive note, with 10% of the broader index reporting better-than-expected earnings. Of the 53 companies in the S&P 500 reporting so far, 83% have beat Wall Street’s expectations by 6%. Both of those rates are above average.

The broad-based index has seen a modest uptrend in the last few weeks, gaining 7% since it reached a bottom at the height of the banking crisis in mid-March.

— Pia Singh

Fed’s ‘Beige Book’ notes stresses from banking troubles

The banking crisis in March took its toll on financial activity, particularly in the New York and San Francisco regions, according to the Federal Reserve’s periodic economic review released Wednesday.

Since the last release, on Jan. 18, of the Fed’s “Beige Book,” banking and in some cases commercial real estate saw a substantial pullback of activity.” That followed the collapse of Silicon Valley Bank and two other institutions due to a run on deposits.

“Lending volumes and loan demand generally declined across consumer and business loan types” nationally, the report noted.

In the San Francisco area, “Residential and commercial real estate activity fell, and lending activity declined substantially,” while “Lending activity decreased substantially. Communities across the Twelfth District faced heightened challenges in their ability to provide food, shelter, and services due to credit constraints and reduced philanthropic giving.”

In New York, “Conditions in the broad finance sector deteriorated sharply coinciding with recent stress in the banking sector.”

Fed lending facilities put into place have helped stem some of the damage from the failure of SVB and ensuing bank stress.

The report otherwise noted only that overall economic activity was little changed since the last filing.

—Jeff Cox

Technology stocks fall

Technology stocks showed signs of early weakness Wednesday, with the S&P 500’s information technology and communication services sectors housing many popular names last down 0.8% and 1.1%, respectively.

Netflix led some of the sector’s losses, last down 4% as the streaming giant posted mixed results and pushed out plans to mitigate password sharing. The streaming giant was the biggest drag on communications services, followed by Fox and Walt Disney, falling more than 2% each.

Microsoft and Alphabet each declined 1%, while Meta Platforms moved 1.7% lower. Tesla, slated to report earnings after the bell, lost 2.7%.

Amazon was the only major big technology player in the green, last up about 0.6% amid news of job cuts in its advertising unit.

— Samantha Subin

Morgan Stanley shares fall despite better-than-expected results

Morgan Stanley posted earnings per share of $1.70 for the first quarter, greater than the $1.62 estimate from analysts polled by Refinitiv. Overall revenue came in at $14.52 billion, above the $13.92 billion consensus estimate from Refinitiv as equities and fixed income trading units performed better than expected.

One growth area was wealth management, where revenue increased by 11% from a year ago.

The shares, which are outperforming most other banks this year, eased by 2% in early trading despite the positive results.

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Morgan Stanley shares, 1 day

“The investments we have made in our wealth management business continue to bear fruit as we added a robust $110 billion in net new assets this quarter,” said Chairman and CEO James Gorman in the earnings release. “Equity and fixed income revenues were strong, although investment banking activity continued to be constrained.”

-John Melloy

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