Global Market Quick Take: Asia – January 16, 2024

US Equities: The US equity market was closed on Monday for a holiday. On Tuesday morning in Asia, the S&P 500 eMini futures and the Nasdaq 100 eMini futures were down approximately 0.2% from their Friday close. This dip followed weakness overnight in European markets, attributed to ECB officials pushing back on investors' rate cut expectations. Notably, Morgan Stanley and Goldman Sachs are set to report their results before the US market opens on Tuesday.

Fixed income: Returning from the Martin Luther King Day holiday, Treasuries were sold in early Tokyo trading on Tuesday, with yields approximately 4bps higher than their Friday New York closing levels. The 2-year Treasury notes are trading at 4.18%, and the 10-year Treasury notes are at 3.98%, influenced by the weakness in European government bonds following hawkish comments from ECB Governing Council member Holszman.

China/HK Equities: Defying market expectations, the People's Bank of China (PBoC) kept the 1-year MLF, its policy lending rate unchanged. The Hang Seng Index and the CSI300 Index edged down 0.2% to 16,216. Baidu, falling over 11.5%, emerged as the worst-performing stock in the Hong Kong benchmark. This development followed a report by the South China Morning Post, Hong Kong’s leading local English newspaper, stating that Chinese scientists are utilizing Baidu's Ernie and iflyTek’s Spark, both large language model services, for training military AI systems. EV stocks sold off, with Li Auto dropping by 4.3%, attributed to Tesla's decision to cut prices for some models in China. The CSI 300 slid 0.1% to 3,291. Sentiments remain subdued as investors await China’s Q4 GDP, retail sales, industrial production, and fixed-asset investment data on Wednesday, expected to reflect the persistent weak momentum of the Chinese economy.

FX: The US dollar was broadly higher at the start of the new week, with DXY index rising to 102.60. China’s surprise announcement of no rate cut yesterday and a broader risk averse tone made NZD the underperformer. NZDUSD dropped below 0.62 and the 50DMA at 0.6159 will be the next target. AUDUSD also plunged lower for a test of 50DMA at 0.6640. USDJPY rose to 145.80 and 146 level ahead will be a key test, although pair traded lower to 145.60 on firmer PPI report this morning, and CPI data remains on watch this week. EURNOK also surged higher with natural gas prices continuing to dip despite Mideast risks, and pair traded higher to 11.34. EURUSD still unable to test 1.10 despite ECB officials pushing back on rate cut expectations.

Commodities: Oil ticked higher with the ramp up in geopolitical tensions once again amid Houthis hitting US vessel and Iran targeting US consulate. European gas futures fell to a five-month low amid high inventories despite reports that Qatar could pause LNG shipments through the Red Sea. Demand concerns also underpinning energy markets, and traders will be focusing on comments out of Davos along with geopolitical developments. Gold saw a modest rally, and a break of $2,070 will be in focus.

Macro:

• Geopolitical tensions continue to ramp up in the Red Sea area. Houthi militants hit a US-owned container vessel with a missile in the Gulf of Aden. This morning, there were also reports that Iran has attacked eight sites with ballistic missiles which struck near the US Consulate in Erbil, Iraq.
• At the Davos meetings, ECBs Holzman and Nagel said that rate cuts were still a ways off. Holzman said that the market should not count on rate cuts at all this year. Nagel was a bit more open saying it is too early to talk about rate cuts.
• WSJ's Timiraos wrote Fed officials are to start deliberations on slowing but not ending (QT) as soon as their policy meeting this month.
• Japan’s December PPI came in firm at 0.3% MoM, unchanged from last month but higher than flat expected. YoY was flat vs. +0.3% previous and -0.3% expected. This could fuel some talk of BOJ exit, but any gains in yen could be erased.

Macro events: Germany Final CPI (Dec), Germany ZEW (Jan), US NY Fed Empire State Manufacturing (Jan), Canada CPI (Dec), Fed’s Waller speaks on economic outlook and monetary policy

Earnings: Morgan Stanley, Goldman Sachs, PNC Financial

In the news:

• Fed Tiptoes Toward Dialing Back Key Channel of Monetary Tightening (WSJ)
• Apple to Pull Blood-Oxygen Tool From Watches to Avoid US Ban If Appeal Fails (Bloomberg)
• Microsoft Expands Office AI Copilot to Consumers, Smaller Companies (Bloomberg)Communist Party must ‘win the hearts’ of people in Hong Kong, Macau and Taiwan: Xi (SCMP)
• Alibaba, TikTok woo US with AI and live-streaming e-commerce at CES trade show (SCMP)
• Republicans Battle for Runner-Up as Trump Leads Iowa Caucuses (Bloomberg)
• Taiwan loses ally Nauru, accuses China of post-election ploy (Reuters)

For all macro, earnings, and dividend events check Saxo’s calendar.

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