Market Insights Today: – Apple and Tesla plunged; ISM, JOLTS, and Fed minutes the focus on Wednesday - 4 January 2023

What’s happening in markets?

Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) slid with significant weakness in Apple and Tesla

U.S. equities started the year weaker on Tuesday. S&P 500 slid 0.4% and Nasdaq 100 lost 0.8%. Energy, plunging 3.6% on a 4% decline in crude oil, was the worst-performing sector within the S&P 500 Index. Communication Services, up 1.4%, advanced the most, with Meta (META:xnas) up 3.7% and Alphabet (GOOGL:xnas) up 1.1%. Nasdaq 100 was dragged down particularly hard by the declines in the share prices of Apple (AAPL:xnas) which accounts for 13% index weighting and Tesla (TSLA:xnas) which accounts for 2.5% index weighting. Tesla fell by 12.3% after releasing weak December delivery data. Apple slid 3.4% on a Nikkei report suggesting potential weak demand for the company’s products, taking the company’s market value down below USD2 trillion, the first time since March 2021. Apple accounted for 13% in Nasdaq 100 weighting.

Tesla plunged 12.3% on weak December deliveries

Tesla announced Q4 deliveries of 405.3K coming short of the estimate at 420.8K and significantly below the 439.7K units produced in Q4. In this article, Peter Garnry suggests that Telsa is facing problems of elevated battery costs that forced the EV maker to raise prices and excessive electricity costs in Europe that weighs on demand. Some demand in the U.S. in Q4 might have been pushed into Q1 2023 by the EV purchase tax credit in the Inflation Reduction Act. The share price of Tesla plunged 12.3% on Tuesday, its largest decline by percentage since September 2020.

Apple fell by 3.4% on reportedly weakening demand for its MacBooks, the Apple Watch and Airpods

A Nikkei article reported that “Apple has notified several suppliers to build fewer components for Airpods, the Apple Watch and MacBooks for the first quarter, citing weakening demand”. The article stirred up concerns among investors about the demand outlook for the products of the consumer electronics giant.

US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) rallied with yields on the 10-year 14bps richer to 3.74%

Bids returned to Treasuries as German Bunds jumped in price following German CPI coming in softer than expectations.  Yields on 10-year German bunds fell by 6bps on Tuesday and by 18 bps since the New Year. On the tape, former Fed Chair Aland Greenspan and former New York Fed President Bill Dudley said a not-too-severe U.S. recession was the most likely outcome. The 10-year segment led the rally, with yields 14bps richer to 3.74%. Yields on the 2-year fell by 6bps to 4.37%. The corporate issuance calendar was busy with 19 investment grade bonds for a total of over 30 billion issued on Tuesday.

Hong Kong’s Hang Seng (HIZ2) and China’s CSI300 (03188:xhkg)

On its first day of trading in 2023, Hang Seng Index opened lower but rallied to post a 1.8% gain. Hang Seng TECH Index (HSTECH.I) climbed 1.9%. Chinese telco, consumer, electricity utilities, pharmaceuticals, autos, and Macao casino operators led the charge higher. It is widely expected that the border between the mainland and Hong Kong will be reopened as soon as January 8, 2023. In addition, a rebound in mobility data in some large Chinese cities, such as Guangzhou, Chongqing, Shanghai, and Beijing helped market sentiment. Investors brushed off the weak December NBS PMI reports released during the holiday and the Caixin PMI on Tuesday and the seemingly inevitable surge and spread of Covid inflections during the initial stage of relaxation of pandemic containment in China to focus on the improved economic outlook in mainland China and Hong Kong for 2023. Southbound flows into Hong Kong amounted to a decent HKD4.25 billion, of which buying in Tencent (00700:xhkg) accounted for HKD1.58 billion. Following the release of strong December sales, BYD rose by 4.7%, Li Auto by 10.5%, and Xpeng by 7.8%.  China’s CSI 300 Index gained 0.4%, with computing, communication, media, and defense names gaining the most.

FX: the dollar gained 1% versus EUR and GBP

As Saxo’s Head of FX Strategy, John Hardy, put it in his note, USD wakes up with a bang ass US market come back on line. Softer CPI prints from Germany triggered selling in the Euro and saw EURUSD down 1%. The pound sterling also slid 1% versus the dollar. The Yen held on relatively well, after briefly strengthening to 129.52, finished the day little changed at around 131.

Crude oil fell nearly 4% on higher OPEC production

WTI crude fell 3.9% on Tuesday following production by OPEC countries increased by 150,000 barrels to 29.14 million barrels a day, partly due to higher output from Nigeria. The warmer-than-normal weather in the U.S. and Europe also weighed on the market sentiment.

What to consider?

German December CPI softer than expectations

Germany released headline CPI at 8.6% Y/Y below the street estimate of 9.0%Y/Y and November’s 10.0%. Germany’s EU Harmonized CPI came in at 9.6% Y/Y, falling from the 10.2% expected and 11.3% in November.

U.S. ISM Manufacturing Index, JOLTS Job openings, and the December FOMC minutes to focus on Wednesday

We have a busy economic calendar in the U.S. on Wednesday. The ISM Manufacturing Index is generally considered by investors as one of the key indicators in the recession question. The Bloomberg consensus estimate is calling for a further decline into the contractionary territory to 48.5 in December from 49.0 in November. JOTLS job openings (consensus 10.05 million; Nov 10.33 million) will also be closely monitored as the data series was highlighted by Fed Chair Powell almost every time in his assessment of the state of the labor market and monetary policies. Finally, at 2pm US EST, we will have the minutes from the Fed’s December FOMC meeting.

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