Market Strategist, Greater China
Summary: The S&P500 and Nasdaq 100 saw modest gains, with a 0.7% and 0.5% increase respectively, spread across all 11 S&P sectors. The energy sector emerged as the top performer with a 2.5% surge in crude oil. Activision jumped by 10% following a court ruling allowing Microsoft to proceed with its acquisition of the game developer. China's aggregate financing rose to RMB3,220 billion in June, surpassing expectations and driven by a significant increase in new RMB loans. Today, the US CPI inflation data is set to release, with forecasts indicating a slowdown to 3.1% Y/Y from May's 4.0% but a slight pickup to 0.3% M/M from 0.1%.
The S&P500 gained 0.7% and Nasdaq 100 climbed 0.5%. The modest gains spread across all 11 S&P sectors. The energy sector was the top winner as crude oil surged 2.5%. APA Corp (APA:xnys) jumped 6.3%. Activision (ATVI:xnas) soared by 10% after a federal judge ruled that Microsoft (MSFT:xnas) can proceed with its USD75 billion acquisition of the game developer. Microsoft (MSFC:xnas) trimmed initial losses to finish the day 0.2% higher. Meanwhile, the US Federal Trade Commission is reportedly leaning toward appealing the decision.
Treasuries fluctuated between small gains and losses in a thin but choppy trading session on Tuesday ahead of the PI release today. The USD 40 billion 3-year note auction saw strong demand, with a bid-to-cover ratio of 2.88 versus 2.70 in the previous auction. The 2-year yield rose 2bps to 4.87% while the 10-year yield shed 2bps to 3.97%, bringing the 2-10-year yield curve 4bps flatter to -90bps.
Hong Kong and Chinese equities rallied for a second day following the joint announcement by the People's Bank of China and the National Financial Regulatory Administration. The 16-point financial measures to support the property sector were extended by one year until December 2024. Banks were also instructed to extend outstanding loans to developers beyond their original maturities. The Hang Seng Index gained 1.0%, while the CSI300 Index added 0.7%.
EV makers notably outperformed, with Nio (09866:xhkg) soaring by 11.8% and XPeng (09868:xhkg) advancing by 8.9%. as June EV sales in China increased 35.2% Y/Y.
Shares of casino operators surged after Macao International Airport reported passenger volume in June reached a new high for this year and recovered to 55.3% of the level in June 2019. MGM China (02282:xhkg) jumped 5.2% while Melco (00200:xhkg), Wynn Macau (01128:xhkg), and Galaxy (00027:xhkg) advanced over 4%.
In the A-share market, semiconductors, automakers and their supply led the advance of the market. Noteworthy gains were also seen in the electronic, mechanical equipment, and communication space. Northbound flows saw a net buying of over RMB 3 billion.
USDJPY declined 0.7% overnight and an additional 0.4% this morning during early Asian hour trading, dropping below the 140 level to 139.80. Traders are said to be reducing their short Yen positions due to renewed speculation of a potential policy adjustment by the Bank of Japan and in anticipation of a moderation in US inflation, as indicated by the upcoming US CPI report.
USDCNH weakened by approximately 0.4% to 7.2025, as the yuan received support from stronger-than-expected credit data in China for the month of June.
NYMEX WTI crude oil futures (CLQ3) rose by 2.5% to USD74.83 per barrel as vessel tracking data showed signs of decline in Russian oil exports.
US CPI is scheduled to release today. The median forecasts in Bloomberg’s survey of economists point to a slowing of the CPI inflation in June to 3.1% Y/Y from 4.0% in May but a pick-up to 0.3% M/M from 0.1%. As prices of used vehicles, lodging, and airfares have softened in June, the median forecast for core CPI is a fall to 5.0% Y/Y and 0.3% M/M in June from 5.3% and 0.4% respectively in May. This data point probably will not change the Fed’s well-communicated intention to resume hiking at the July FOMC meeting. However, if the core CPI decelerates as anticipated, investors may continue to keep the odds for September and November rate hikes low.
China’s new aggregate financing increased to RMB3,220 billion in June, up from RMB1,556 billion in May and higher than the RMB3,100 billion median forecast. The strong performance was primarily driven by a steep increase in new RMB loans to RMB3,50 billion in June above the median forecast of RMB2,319 billion and RMB 1,363 billion in May. The growth of the outstanding stock of aggregate financing slowed to 9.0% Y/Y in June, down from 9.5% in May mainly due to a high base in government bond issuance last year when local governments were told by the central government to front-load bond issuance. The growth of outstanding RMB loans slid modestly to 11.3% Y/Y from 11.4% in May.
New loans to the corporate sector rose to RMB2,280 billion in June from RMB856 billion in May and slightly above RMB2,212bn last June. New loans to households increased to RMB964 billion in June from RMB367 billion in May and RMB848 billion in June last year. Meanwhile, M2 money supply growth slowed to 11.3% Y/Y in June, compared to 11.6% in May.
In the UK, the unemployment rate unexpectedly rose to 4.0% in May, compared to 3.8% in April and the median forecast of 3.8%. On the other hand, the growth in average weekly earnings increased to 6.9% Y/Y in May, up from 6.7% in April (revised up from 6.7%), surpassing the expected 6.8%.
The Reserve Bank of New Zealand (RBNZ) is holding a policy meeting on Wednesday. Market participants are expecting the RBNZ to stay put, leaving its policy rates unchanged. Back in May when the RBNZ’s Monetary Policy Committee met and raised the policy rate by 25bps to 5.5%, the voting result was 5-2 with two dissenting votes in favor of a pause. The subsequent communication from the RBNZ indicated a terminal rate of 5.5%.
According to the China Association of Automobile Manufacturers, vehicle sales in June reached 2.6 million units, rising 4.8% Y/Y. For the first six months of the year, vehicle sales totaled 13.2 million units, increasing 9.8% Y/Y. In June, the sales of new energy vehicles (NEV) reached 806,000 units, marking a 35.2% Y/Y increase. The market share of NEV relative to the overall passenger vehicle market reached 30.7%. In the first half of this year, cumulative sales of NEV amounted to 3.747 million units, increasing 44.1% Y/Y and reaching a market share of 28.3%. Although the growth rate has slowed down compared to previous periods, it remains significantly higher than the overall growth rate of the passenger vehicle market.
Macao International Airport reported second-quarter passenger volume of 1.197 million, up 58.12% from the previous quarter and reaching 50.2% of the pre-pandemic 2019's second-quarter levels. Despite traditionally being a slower season, monthly passenger volume in June reached a new high for this year, standing at 431,000 individuals and recovering to 55.3% of the corresponding period in 2019.
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