Global Market Quick Take: Asia – July 11, 2024

In the news:

• Costco to hike membership fees; shares jump (Investing)
• Nvidia leads Nasdaq and S&P 500 to record highs (Investing)
• US regulators fine Citi $136 million for failing to fix longstanding data issues (Investing)
• Yellen Echoes Powell Saying Labor Market Now Less Inflationary (Bloomberg)
• Oil Futures Gain on Bigger-Than-Expected U.S. Stock Draw (Barron’s)

Macro:

• Fed Chair Powell gave a testimony to the House, and largely echoed what was said to the Senate on Tuesday. He repeated that the Fed does not want to wait until inflation gets all the way to 2% to ease policy, stressing again Fed wants to have greater confidence, which means more good inflation readings. He also noted that labor market has cooled significantly, and he sees risks to both sides of the mandate now, not just on the inflation side. Market interpreted these remarks as dovish, and now prices in two full rate cuts for this year.
• The Reserve Bank of New Zealand’s rate decision yesterday saw rates kept unchanged, as expected. The tone was however less hawkish than what the markets expected, and the risks we had highlighted about a neutral RBNZ in our Weekly FX Chartbook seemed to play out. The central bank was cautious on slowing growth on the back of softening migration and fiscal restraint, suggesting that the RBNZ and the markets had likely over-priced NZ’s economic resilience and higher-for-longer. Market has brought forward the rate cut expectations for RBNZ from November to October and now prices more than two rate cuts for this year.
• US CPI preview: US June CPI is out today at 12:30 GMT (20:30 SGT) and consensus is looking for a 0.2% MoM (3.4% YoY) in the crucial monthly core CPI reading. If the actual print comes in line with these expectations, then the market could increase the bets for a September rate cut to be fully priced in from 78% now. This could lead to a rally in bonds and equities, while the US dollar could face downside pressures. If the core CPI print is however above 0.3% MoM, that could see some USD buying and equity and bond selling as markets pushback on rate cut expectations again. To know more, listen to our Monday Macro podcast.

Macro events: IEA OMR; German Final CPI (June), UK GDP Estimate (May), Swedish Money Market Inflation (July), US CPI (June), US Initial Jobless Claims (6 July)

Earnings: Pepsico, Delta, Conagra, Bank

Equities:  U.S. indexes hit new records, as the S&P 500 rose 1.02% and the Nasdaq 100 climbed 1.09%, propelled by semiconductor gains (SOX index +2.4%) with decent gains from NVDA, AMD, MU, and TSM. Markets reacted positively to Fed Chair Powell's testimony, as he suggested the Fed might not wait for inflation to hit 2% before easing policy, fueling hopes for a potential rate cut as early as September, depending on tonight’s CPI reading. Powell also highlighted the Fed's dual mandate, focusing on inflation and employment. Estimates for June CPI forecast a +0.1% monthly increase and +3.1% annually, with core CPI rising +0.2% monthly and +3.4% annually.

Fixed income: Treasuries remained largely unchanged after a $39 billion 10-year note auction attracted strong demand ahead of U.S. inflation data due on Thursday. The U.S. 10-year yield held steady at 4.28%, trimming a 3bps decline from Wednesday as UK yields pared losses after BOE policymaker Huw Pill indicated additional work is needed on inflation. The U.S. Department of the Treasury is set to auction $22 billion in 30-year bonds. Swaps suggest two Fed rate cuts in 2024, with an increased likelihood of the first in September.  Attention is also on Japan, where the Ministry of Finance will auction ¥1 trillion in June 2044 bonds, which fetched a yield of 1.925% in when-issued trading.

Commodities:  The Biden administration plans to impose new tariffs on steel and aluminum imports rerouted through Mexico, aiming to prevent China from sidestepping existing duties via transshipment. Oil rose for a second day amid growing demand and a positive shift in broader markets. Global crude benchmark Brent climbed above $85 a barrel, following a 0.5% gain on Wednesday, while West Texas Intermediate hovered near $82. U.S. stockpiles dropped by 3.4 million barrels last week, with increased jet fuel and gasoline consumption as the summer travel season persists. Gold edged higher as Federal Reserve Chair Jerome Powell indicated to U.S. lawmakers that he sees inflation trending lower, bolstering hopes for an interest rate pivot this year. The precious metal traded above $2,370 an ounce after posting a modest gain in the previous session. Gold-backed exchange-traded funds saw inflows for a second consecutive month in June, with purchases in European and Asian markets offsetting outflows from North America, according to a report from the World Gold Council.

FX: The US dollar pushed lower on Wednesday amid a marginally dovish tone from Fed Chair Powell’s testimony and as markets positioned for the release of US June inflation print which is expected to confirm disinflationary trends. The British pound continued to show a strong performance on the back of dollar weakness, given a post-election stability as well as Bank of England’s rate cuts not being seen to be too aggressive following hawkish BOE comments lately from members such as Haskel, Huw Pill as well as Catherine Mann. Meanwhile, the euro also remained bid as it recovered from the post-election uncertainty in France, and the German final inflation print will be on watch today ahead of ECB’s meeting next week. Meanwhile, Norwegian krone underperformed as Norway’s inflation came in below expectations. The New Zealand dollar was also in the red as the RBNZ’s hawkishness did not match market expectations.

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