WSJ : Bank of Japan Hints It Will Accept Higher Rates, Hitting Stock Prices

Bank of Japan Hints It Will Accept Higher Rates, Hitting Stock Prices
Nikkei falls and yen rises after central bank calls cap on government bond yields a reference point, not rigid limit

TOKYO—Japanese government bond yields surged and Tokyo stocks fell sharply after the Bank of Japan indicated it would tolerate higher interest rates as inflation picks up.

The BOJ said Friday it would consider its 0.5% cap on the 10-year government bond yield as a suggestion, not a rigid limit.

The yield on the 10-year bond rose Friday as high as 0.575%, the highest level since September 2014, after the central bank’s announcement. It stood at 0.44% late Thursday.

The yen rose and the Nikkei Stock Average fell about 2% as investors treated the move as a de-facto interest-rate increase.

Officially the Bank of Japan didn’t change any rates. It kept short-term interest rates unchanged at minus 0.1%.

However, it added new language about the 0.5% cap on the 10-year government bond. The central bank said it would regard the cap and a corresponding lower bound of minus 0.5% “as references, not as rigid limits, in its market operations.”

The bank also said it would purchase Japanese government bonds at a 1% yield every business day, which effectively sets a new hard cap for the 10-year yield at 1%.

“It is virtually the same as raising the cap for the 10-year JGB yield target to 1%,” said Naomi Muguruma, a strategist at Mitsubishi UFJ Morgan Stanley Securities. She said the market was now closely watching at what level the Bank of Japan would intervene to stop yield rises.

Muguruma said the fall in stocks was a temporary reaction. “There is no reason for stocks to keep falling as long as the Japanese economy and corporate profits improve,” she said. “Interest rates are still very low in Japan among advanced economies.”

The Federal Reserve and the European Central Bank both further raised their benchmark interest rates this week.

Many investors had expected the Bank of Japan to formally lift its 10-year bond yield cap or scrap it altogether. Commercial banks have said it is hard to make profits when both short-term and long-term rates are kept near zero.

Consumer-price growth has stayed above the bank’s 2% target for more than a year owing mainly to the higher cost of imported energy and food.

The Bank of Japan said inflation expectations were rising and the inflation rate was higher than projected in April. It suggested that this allowed for more flexibility in setting the government-bond yield cap.

However, BOJ Gov. Kazuo Ueda has said the bank would refrain from making any premature rate increases in hopes of ensuring that Japan doesn’t return to the near-zero inflation or deflation it has experienced for most of the past quarter-century.

Friday’s decision wasn’t unanimous. Policy board member Toyoaki Nakamura dissented, suggesting he was uneasy about taking a step that could hit corporate earnings until more data were available.

Higher interest rates tend to lift the yen, and a higher yen tends to reduce the profits of Japanese exporters. Nakamura previously worked at electronics maker Hitachi.

The yen was trading at around 138.70 to the dollar on Friday afternoon in Tokyo, stronger than around 140-141 yen to the dollar earlier in the week.

In its quarterly outlook released Friday, the bank’s policy board said core consumer prices excluding fresh food would likely increase 2.5% in the current fiscal year ending March 2024 and 1.9% the following year. It said core consumer prices would rise 1.6% in the year ending March 2026, falling back below the bank’s 2% target.

WSJ : Volkswagen Seeks to Reclaim China Crown in Deal With EV-Maker XPeng

Volkswagen Seeks to Reclaim China Crown in Deal With EV-Maker XPeng
German auto giant buys stake in a Chinese rival after praising the dynamism and innovation of local automakers

SINGAPORE—Volkswagen VOW -1.64%decrease; red down pointing triangle has heaped praise on China’s homegrown electric-vehicle makers for their speed and innovation. Now it is taking a stake in one of them as it seeks to reclaim its position as the bestselling automaker in the world’s largest car market.

The German carmaker is investing $700 million for about 5% in Chinese electric-vehicle maker XPeng. They will jointly develop two new electric vehicles for the Chinese market under the Volkswagen brand, with a rollout expected in 2026, Volkswagen said Wednesday.

Investors piled into Xpeng’s XPEV 3.91%increase; green up pointing triangle shares following the news, with its Hong Kong-listed stock soaring 34% on Thursday. The investment is a boost for U.S.-listed XPeng, which saw months of falling sales earlier this year despite offering more than 10% discounts as a price war raged in China’s slowing EV market.

Volkswagen also said in the statement it would be working with its existing Chinese partner, Shanghai-based SAIC Motor, to develop premium EV models.

Volkswagen’s hold on China, its largest single market, has eroded in recent years, as consumers increasingly shift their purchases to electric vehicles and plug-in hybrids from conventional gasoline sedans. Nimble Chinese electric-vehicle startups have capitalized on the rapid adoption of such vehicles, introducing new models packed with the latest technology and features to attract Chinese buyers.

Ralf Brandstätter, Volkswagen’s China chief who was brought over in August to head the company in China, has previously praised China’s swift speed of innovation in a memo to staff.

In China, “the dynamics and speed of innovation are now many times higher than in Europe or the U.S.A.,” Brandstätter wrote in a message to staff, which was reviewed by The Wall Street Journal. “No other market offers anywhere near this growth potential and this speed of innovation.”

Chinese companies were able to introduce a new product to the market in a little more than 2½ years, he wrote, compared with Volkswagen, which takes about four years.

Volkswagen’s move is a recognition by the German auto giant that the company was unlikely to catch up with local peers without the help of Chinese know-how, said Tu Le, the managing director of industry researcher Sino Auto Insights. It is also a validation that China’s electric-car industry is now globally competitive, said the Shanghai-based Le.

Local automakers outsold their foreign rivals in the first half of the year as sales of so-called new-energy vehicles rose, according to data from industry body the China Passenger Car Association. Domestic brands made up 54% of China’s wholesale car market during the period.

Not all have found it easygoing. XPeng saw sales dip despite offering discounts on several vehicle models since January and launching a new model with more advanced self-driving capabilities.

With growth in the global automobile industry tapering, keeping a strong foothold in China’s electric-vehicle market will be crucial to the success of Western brands, said Eunice Lee, an analyst at research group Bernstein.

Chinese carmaker BYD, which only sells plug-in hybrid and electric vehicles, sold more cars than Volkswagen in the world’s largest automotive market during the first half of the year. Lee said the Volkswagen brand’s share in China’s passenger-vehicle market fell from 14% in 2019 to 10% in the first half of this year, behind BYD’s 11% in the same period.

Volkswagen cut its annual global delivery forecast on Thursday, telling investors that it would deliver between 9 million and 9.5 million vehicles this year, down from a previous estimate of 9.5 million. Last year, the auto maker’s China operation contributed almost 40% of its deliveries.

To address faltering Chinese sales, the Wolfsburg, Germany-based car giant has sought to bolster alliances and expand its operations in the country.

In April, Volkswagen announced it would invest more than $1 billion to build a research and procurement center for electric vehicles in east China. The center would reduce development times for its new products and technologies by about 30%, the maker of Audi and Skoda-branded sedans said then.

Last year, VW invested more than $2 billion in Horizon Robotics, a Chinese software company, in a bid to close the software gap with its local rivals.

Volkswagen is deepening its ties to China even as other foreign marquees have been reducing their exposure to its market.

>>> Stoxx 600 Pre-Market Indications

  • GTT (9TG TH) +2.3%
    • GTT 1H Revenue Beats Estimates
  • AMS-Osram (DQW1 TH) +1.9%
    • AMS-Osram Sees 3Q Rev. EU840M to EU940M; to Exit Non-Core Units
  • Euronext (ENXB TH) +1.6%
    • Euronext 2Q Revenue Beats Estimates
  • E.On (EOAN TH) +0.9%
    • E.On Boosts FY Adjusted Ebitda Forecast, Beats Estimates
  • BAT (BMT TH) +0.8%
  • BP (BPE5 TH) +0.7%
  • Tele2 (NCYD TH) +0.6%
  • Nibe (NJB TH) +0.5%
    • Nibe Raised to Buy at Pareto Securities; PT 125 kronor
  • Sanofi (SNW TH) +0.5%
    • Sanofi Raises FY Business EPS Growth Ex-FX Forecast
  • Aixtron (AIXA TH) -0.9%
  • Deutsche Telekom (DTE TH) -1%
    • At 11x, German Market’s Middling Valuation Wants Catalysts
  • ASMI (AVS TH) -1.1%
  • Carrefour (CAR TH) -1.2%
  • Delivery Hero (DHER TH) -1.4%
  • Forvia (FAU TH) -1.6%
  • STMicroelectronics (SGM TH) -1.7%
  • HelloFresh (HFG TH) -1.7%
  • Signify (G14 TH) -3%
    • Signify Cuts FY Adjusted Ebita Margin Forecast
  • Evotec SE (EVT TH) -10%
    • Evotec SE Cuts FY Revenue Forecast, Citing Cyberattack

>>> TradeGate Pre-Market Indications

DAX:
  • EON (EOAN TH) +0.9%
    • EON Raises Earnings Goals as Energy Market Stabilizes
  • BASF (BAS TH) -0.8%
    • BASF 2Q Chemicals Adjusted Ebit Misses Estimates
  • Deutsche Telekom (DTE TH) -0.8%
    • T-Mobile Tops Profit Estimates, Raises Subscriber Outlook
MDAX:
  • Delivery Hero (DHER TH) -0.6%
  • Puma (PUM TH) -0.8%
  • HelloFresh (HFG TH) -0.9%
  • SMA Solar (S92 TH) -0.9%
  • Evotec SE (EVT TH) -10%
    • Evotec SE Cuts FY Revenue Forecast, Citing Cyberattack
SDAX:
  • Hamborner REIT (HABA TH) +0.9%
  • Grand City Properties (GYC TH) +0.6%
    • Bloomberg Europe Corporate Index Up, OAS Unchanged
  • Aroundtown (AT1 TH) +0.6%
  • Ceconomy (CEC TH) -1%
  • Traton (8TRA TH) -1.1%
  • flatexDEGIRO (FTK TH) -1.2%
  • Heidelberger Druck (HDD TH) -1.4%
  • Adtran Holdings (QH9 TH) -1.8%

>>> What to look at today - 28th of July 2023

The yen pared its advance as investors geared up for a Bank of Japan decision that may see officials discuss an adjustment in monetary policy. Japan’s currency remained on track for a fifth day of gains as traders weighed a Nikkei report which said the BOJ may consider tweaking the yield curve control policy at its meeting on Friday. The nation’s 10-year bond yield climbed above the central bank’s cap for the first time since March.  The Topix and Nikkei 225 equity indexes both slid 1%, leading declines in Asia. Stocks in Hong Kong erased losses as investors assessed a report that said the government was considering promoting investments in the consumer, media and telecom sectors. China Evergrande New Energy Vehicle plunged 68% as it resumed trading following a yearlong suspension. Banking shares in Tokyo were among a small group of Japanese stocks that gained on the YCC tweak report.  While most economists predict the BOJ will stand pat Friday, Nikkei said the central bank will consider letting 10-year yields rise to some degree beyond its 0.5% cap. The news, which came out in Thursday’s New York session, pushed up Treasury yields, and saw US equities swing to a loss.  A BOJ shift would have significant implications for global fund flows. Japanese investors are the biggest foreign holders of US government debt, and also own sizable amounts of European and Australian bonds, among other assets. Some investors are concerned that higher yields at home may lead Japanese institutions to sell overseas holdings and bring that cash home. The dollar was steady in Asia, while Treasury 10-year yields were little changed at 3.98% after jumping 13 basis points Thursday. Yields on 10-year bonds in Australia rose 13 basis points, while those in New Zealand advanced eight basis points.   Traders also ramped up protection against a surge in the yen, with a gauge of how much more traders are paying to hedge gains in Japan’s currency, rather than a fall, reaching the highest level in over three years. Meanwhile, inflation in Tokyo ran slightly faster than economists were expecting in July, a government report showed Friday, an outcome that casts some doubt on the BOJ view that price growth will slow below its target in the coming months. October is the more likely timing for any BOJ policy tweak, according to Win Thin, global head of currency strategy at Brown Brothers Harriman & Co. “Updated macro forecasts will be released and other reports suggest upward revisions to the FY23 core inflation forecast followed by a possible cut in the FY24 forecast,” he wrote in a note.  US equities had gained earlier Thursday as domestic gross domestic product picked up steam in the second quarter, while pending home sales unexpectedly climbed in June. Gold slid after the data, but has since bounced back slightly. Oil fell Friday, but still headed for the longest run of weekly gains in more than a year on an improving macroeconomic outlook and signs of a tighter market. US After Hours SAM +10%, ROKU +8.7%, INTC +7.8%, FSLR +7.4%, KLAC +2.9% higher on earnings; SNBR -27.2%, ENPH -12.6%, SG -12.6%, JNPR -7.4%, UCTT -6.5%, VRSN -5%, DECK -3.5% lower on earnings.

Nikkei -1,17% Hang Seng +1,24% CSI +2,25% Shanghai +1,74% Shenzen +1,20%

Eur$ 1,0975 CNH 7,1605 CNY 7,1603 JPY 139,90 GBP 1,2789 CHF 0,8698 RUB 90,6899 TRY 26,9615 WTI$ 79,77 Gold 1,952 BTC 29,225 ETH 1861

S&P +0,34% Nasdaq +0,47% EuroStoxx -0,07% FTSE -0,28% Dax -0,07% SMI

Macro :
- Traders Are Super Sensitive to the BOJ But It’s Not Yet Time
- Fed’s New Network Will Provide Boon to Fintechs, Plaid CEO Says
- US Hedge Funds Sell Chinese ADRs on Rally, Morgan Stanley Says
- Spain’s curbs on Uber-style apps face probe over breach of EU law

Keep an eye on :
- ANA SM : Acciona 1H Ebitda Beats Estimates
- ADP FP : ADP 1H Ebitda Misses Estimates
- AF FP : Air France, Apollo in Talks on EU1.5b Loyalty Program Financing
- AF FP : Air France-KLM 2Q Operating Income Beats Estimates
- AF FP : KLM Dealing With Higher Fuel, Labor Costs and Airport Fees: CEO
- ALTR PL : Altri 1H Net Income EU28M Vs. EU69.6M Y/y
- ALLFG NA : Allfunds 1H Adjusted Ebitda EU171.8M Vs. EU188M Y/y
- ALTN FP : Alten 1H Organic Revenue +11.4%
- AMS SW : AMS-Osram Sees 3Q Rev. EU840M to EU940M; to Exit Non-Core Units
- AMUN FP : Amundi 2Q Net Inflows Beats Estimates
- ATO FP : Atos Losses Mount in First Half as Spinoff Plan Moves Forward
- AKE FP : Arkema 2Q Ebitda Margin Beats Estimates
- BAS GY : BASF 2Q Industrial Solutions Adjusted Ebit Misses Estimates
- BBVA SM : BBVA to Buy Back Up to €1 Billion of Shares as Profit Jumps
- BCP PL : BCP 1H Net Income EU423.2M Vs. EU62.2M Y/y
- BEKB BB : Bekaert 1H Revenue Misses Estimates
- EN FP : Bouygues 1H Current Operating Income EU681M Vs. EU492M Y/y
- BRNL NA : Brunel 2Q Revenue EU327.8M Vs. EU289.1M Y/y
- CABK SM : CaixaBank Plans to Carry Out New Share Buyback for €500 Million
- CAP FP : Capgemini 1H Net Income Beats Estimates (1)
- CO FP : Casino Reaches Debt Restructuring Agreement With Kretinsky Group
- CLNX SM : Cellnex CEO Seeks Partner With ‘Big Pockets’ For Denmark, Sweden
- CFN PL : Cofina 1H Net Income EU2.24M Vs. EU3.26M Y/y
- COFB BB : Cofinimmo 1H Operating Profit EU134.8M Vs. EU125.4M Y/y
- COTN SW : Comet Sees FY Sales Low End of CHF440M to CHF480M
- CGG FP : CGG 2Q Segment Revenue Meets Estimates
- DARK LN : Darktrace Holder Summit Partners Offers 17m Shares via Jefferies
- DTE GY : T-Mobile Delivers Another Quarter of Strong User Growth: React
- DUFN SW : Dufry Wins All Spain Bids, Expanding Floorspace More Than 30%
- EDP PL : EDP 1H Ebitda EU2.45B Vs. EU1.99B Y/y
- EDPR PL : EDPR Agrees to Sell Portfolio of Wind, Solar Projects in Poland
- ENGI FP : Engie 1H Ebitda EU9.4B Vs. EU7.5B Y/y
- ENI IM : Eni Profit Falls on Lower Energy Prices, Beating Estimates
- EOA GY : E.On Boosts FY Adjusted Ebitda Forecast, Beats Estimates
- EVT GY : Evotec SE Cuts FY Revenue Forecast, Citing Cyberattack
- EL FP : EssilorLuxottica and Kodak Announce Brand License Pact
- ETL FP : Eutelsat FY Ebitda Beats Estimates
- FDJ FP : FDJ to Buy Premier Lotteries Ireland for €350m Enterprise Value
- FLOW NA : Flow Traders 2Q Normalized Net Trading Income EU49.5M
- FNAC FP : Fnac Darty 1H Revenue Misses Estimates
- FER SM : Ferrovial 1H Ebitda EU401M Vs. EU313M Y/y
- FDR SM : Fluidra 1H Sales Misses Estimates (1)
- FORN SW : Forbo 1H Sales Misses Estimates
- FPE GY : FUCHS SE 1H Ebit +11%; 2023 FCF Before Acquisitions View Raised
- GAM SW : GAM Brings Forward EGM to Aug 18; Liontrust Extends Offer Period
- GMAB DC : Genmab Boosts FY Revenue Forecast
- HAG GY : Hensoldt 1H Adjusted Ebitda Margin 11.3%
- RMS FP : Hermes 2Q Americas Rev. at Constant FX Beats Estimates
- HOFI SS : Hoist Finance 2Q Operating Income SEK903M Vs. SEK734M Y/y
- NK FP : Imerys 2Q Revenue Misses Estimates
- IAG LN : IAG 2Q Revenue Beats Estimates
- IPR PL : Impresa 1H Net Loss EU4M Vs. Loss EU2.16M Y/y
- INTC US : Intel Sees 3Q Adj. Rev. $12.9B to $13.9B, Est. $13.28B: Snapshot
- KER FP : Kering's Valentino Swoop Is a Great Fit at a Decent Price: React
- LIN GY : Linde Shares Stall as 3Q Guidance Beats Estimates: Street Wrap
- MRL SM : Merlin Properties 1H Net Loss EU47.5M
- ENX FP : Euronext 2Q Revenue Beats Estimates
- MDLZ US : Mondelez 2Q Adjusted EPS Beats Estimates
- NEOEN FP : Neoen Sees FY Ebitda Margin Above 80%
- OR FP : L’Oreal ADRs Gain as 2Q Like-for-Like Sales Beat Estimates
- OR FP : L'Oreal Bags Luxury Pace of Growth, Even in Mass Makeup: React
- PAT GY : Patrizia Cuts Assets Under Management Forecast
- PHAM SM : Pharma Mar 1H Net Income EU6.44M Vs. EU34.9M Y/y
- PIRC IM :Pirelli 1H Revenue Beats Estimates
- PROX BB : Proximus 2Q Adjusted Ebitda Meets Estimates
- RAL FP : Rallye: Could Face Liquidation if Casino Rescue Implemented
- RTN LN : Restaurant Group Should Sell Non-Core Assets, TMR Capital Says
- RWE GY : Chile’s Enap Signs Deal to Develop Green Hydrogen Infrastructure
- SAN FP : Sanofi Raises FY Business EPS Growth Ex-FX Forecast
- SESL FP : SES-Imagotag 2Q Sales EU220.8M Vs. EU165.6M Y/y
- LIGHT NA : Signify Cuts FY Adjusted Ebita Margin Forecast
- SON PL : Sonae 1H Net Income EU69M Vs. EU118M Y/y
- STAN LN : Standard Chartered 1H Adjusted Pretax Profit Beats Estimates
- STAN LN : *STANCHART TO START $1B SHARE BUYBACK IMMINENTLY
- SMHN GY : Suess MicroTec Cuts FY Ebit Margin Forecast
- TTE FP : Chile’s Enap Signs Deal to Develop Green Hydrogen Infrastructure
- TFI FP : TF1 2Q Revenue Meets Estimates
- TKH FP : Tikehau AuM Reach €41.1B at End-June, Up 12% Y/Y
- UMIB BB : Umicore 1H Adjusted Ebit Meets Estimates
- UNA NA : Unilever Names Rexel’s Ian Meakins as Chair From Dec. 1
- FR FP : Valeo 1H Ebitda Beats Estimates
- VK FP : Vallourec 2Q Ebitda Beats Estimates
- DG FP : Vinci 1H Ebit Beats Estimates
- VIS SM : Viscofan 2Q Ebitda Meets Estimates
- VPK NA : Vopak 2Q Adjusted Ebitda EU245.2M Vs. EU219.4M Y/y
- WBD IM : Webuild, RFI Sign EU1.82B Contract for Railway Works in Italy
- WBD IM : Webuild 1H Adjusted Ebitda EU288.6M Vs. EU251.3M Y/y
- WDP BB : WDP 1H Adjusted EPS Beats Estimates

>>> Europe : Brokers Upgrades & Downgrades - 28th of July 2023

>>> Up
* Alphabet PT Raised to $153 from $125 at Argus
* Alpha Services Raised to Buy at Citi; PT 2 euros
* Block Inc Raised to Outperform at BNPP Exane; PT $95
* Demant Raised to Neutral at Credit Suisse; PT 275 kroner
* Eurobank Raised to Buy at Citi; PT 2 euros
* Meta Platforms Raised to Buy at China Renaissance; PT $380

>>> Down
* Basic-Fit Cut to Underperform at Jefferies; PT 29 euros
* Paradox Interactive Cut to Hold at SEB Equities; PT 295 kronork$*op
* Snap Cut to Sell at China Renaissance; PT $7

>>> Initiation
* Bridgepoint Rated New Buy at Investec; PT 224 pence
* Intermediate Capital Rated New Buy at Investec; PT 1,993 pence
* Petershill Rated New Buy at Investec; PT 244 pence
* Pollen Street PLC Rated New Buy at Investec; PT 1,063 pence
* Wavestone Reinstated Strong Buy at Portzamparc; PT 57.20 euros

>>> Call