Global Market Quick Take: Asia – January 19, 2024

US Equities: The Nasdaq 100 rallied 1.5% as optimism about the semiconductor and AI space rose following Taiwan Semiconductor Manufacturing Co beat estimates in its Q4 results and said it expected a return to solid growth and increase in capital spending. Lam Research and Qualcomm surged over 4% while Nvidia gained 1.9%. Apple added 3.3% on an analyst upgrade.

Fixed income: The 10-year Treasury yield extended its rise by 4bps, reaching 4.14% after initial jobless claims unexpectedly fell to 187k, the lowest level since September 2022. The sign of a resilient labour market caused investors to somewhat pare expectations of the size and pace of the Fed’s rate cuts this year. We continue to see the first cut coming this March.

China/HK Equities: The Hang Seng Index rebounded by 0.8% while the mainland CSI 300 reversed sharply to finish 1.4% higher. The rally in A-shares was most notably in brokerage, new energy, electric equipment, and food and beverage names. Large buying of CSI300 ETFs, emerged in the afternoon. Commentators suspected that it was the 'national team,' referred collectively to some state-backed investment funds and securities firms, buying to stabilize the market.

FX: Dollar followed the mixed trajectory of bonds amid the decline in jobless claims prompting a re-think of the Fed path while market remains firm in its expectations. Australian jobs print was downbeat yesterday, but a surged in iron ore prices fueled a recovery in Aussie. AUDUSD rose to highs of 0.6580 and a test of 0.66 may be on the way. GBPUSD broke above 1.27 and retail sales data will be on watch today. USDJPY around 148 while EURUSD found support at 200DMA around 1.0850 and reversed higher to 1.0880. EURCHF rose to over 3-week highs.

Commodities: Crude oil prices rallied with Middle East tensions escalating and a drop in US stockpiles as exports rebounded and harsh winter disrupted production. Base metals also had a strong day with supply concerns in focus, even as expectations of further China stimulus were doused with comments from Chinese Premier, Li Qiang. Gold was mixed as a resilient labor market could curb the Fed’s appetite for cutting interest rates, but a weaker USD supported.

Macro:

• US jobless claims fell to 187k from 203k, coming in the lowest since Sept 2022 despite expectations of a rise to 207k. Continued claims, for the week prior, eased to 1.806mln from 1.832mln, despite expectations for an increase to 1.845mln. These numbers could question the assumption of over five Fed rate cuts priced in for this year.
• Fed’s Bostic urged caution on rate cuts amid geopolitical risks, but Harker said that he expects inflation to continue to slide towards target.
• The Philly Fed Business Index improved to -10.6 in January (prev. -12.8) easing some concerns from the NY Fed survey earlier this week, but was still below expectations at -7.0. Internally, New Orders and Employment printed -17.9 (prev. -22.1) and -1.8 (prev. -2.5), respectively, with Capex Index rising to +7.5 (prev. -7.5) and Shipments lifting 5 points to -6.2.
• ECB minutes generally hinted towards little support among members of the Governing Council for reducing interest rates before June.
• Japan’s inflation cooled in December, but remained above target. Headline CPI rose 2.6% YoY, softer than 2.8% YoY in November but a notch above expectations. Other measures met expectations, with core at 2.3% YoY from 2.5% previously and core-core at 3.7% from 3.8% previously.

Macro events: Germany Producer Prices (Dec), EZ HICP Final (Dec), US Existing Homes (Dec), Uni. of Michigan (Jan), Germany Ifo (Jan), EZ Flash Consumer Confidence (Jan)

Earnings: Schlumberger, Travelers, State Street, Firth Third, Huntington, Regions Financial

In the news:

• TSMC’s Outlook Backs Hopes for Global Tech Recovery in 2024 (Bloomberg)
• China unearths million-tonne lithium deposit, heating up global resource race as Thailand also boasts big find (SCMP)
• Private-equity investors to return to China in search of M&A deals in 2024, Bain & Co says (SCMP)
• Bitcoin Retreats to One-Month Low as ETF-Led Enthusiasm Wanes (Bloomberg)
• Apple gets a big upgrade from Bank of America, which calls for more than 20% upside ahead (CNBC)

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