Global Market Quick Take: Asia – July 22, 2024

In the news:

• Joe Biden drops out of race, endorses Kamala Harris (Investing)
• Investors react to Biden pulling out of presidential race (Investing)
• Delta Air Lines faces widespread flight cancelations after IT outage (Investing)
• Microsoft says about 8.5 million of its devices affected by CrowdStrike-related outage (Yahoo)

Macro:

• US President Biden abandoned his re-election bid after relentless pressure from the Democratic party since his miserable first debate performance. Biden endorsed vice-president Kamala Harris to take his place as the Democratic nominee, and reports suggest that all 50 Democratic US State Chairs have backed Harris. Official nomination confirmation will come at the Democratic National Convention which is scheduled from August 19-22. In the meantime, focus turns to whether markets start to erase the Trump Trade that has been in place and whether volatility jumps higher.
• China’s PBoC announced a reduction in 7-day reverse repo rate to 1.7% from 1.8% previously to support the economy. This comes after the Third Plenum concluded last week without any major policy announcements.
• UK retail sales for June came in weaker-than-expected, denting the demand outlook for Q2 GDP. This has questioned whether the Bank of England can delay rate cuts further after CPI last week came in sticky. Retail sales volume for three months to June was down 0.1% compared to the previous three months.

Macro events: China PBoC Loan Prime Rate

Earnings: Verizon, SAP, NXP Semiconductors, Nucor, IQVIA, Cadence Design Systems, Truist Financial, Alexandria Real Estate Equities, Crown Holdings, AGNC Investment Corp.

Equities: U.S. stocks extended their losses for the second consecutive session on Friday. The S&P 500 and Nasdaq fell by 0.7% and 0.8%, respectively. Investors continued to take profits following recent record highs in major indices. Additionally, a global IT outage, allegedly caused by an update from CrowdStrike, which fell 11.1%, affecting Microsoft’s Windows, which declined 0.7%, added to the unease. On the earnings front, Netflix fell 1.5% despite positive earnings and revenue, and American Express dropped 2.7% even after reporting better-than-expected second-quarter profits. For the week, the S&P 500 slipped 2.3%, marking its worst week since April, and the Nasdaq fell 4.2%, ending a six-week winning streak due to a shift towards small caps amid expectations of Fed interest rate cuts and concerns about U.S. trade restrictions on China.

Fixed income: Treasury yields closed out Friday near their weekly highs, capping a session marked by low trading volumes and sparse market catalysts amid a global IT outage that hampered financial and economic activities. European bond markets, particularly gilts, saw steeper declines, putting early pressure on Treasuries. This was further exacerbated by a sizeable block trade in 2-year note futures. The 10-year US Treasury yield settled around 4.24%, climbing 3.5 basis points for the day and standing near its weekly peak. Treasury debt futures indicate a bull-flattening of the US yield curve at the open, spurred by President Joe Biden’s announcement to forgo a reelection campaign. Futures of 2-year notes remained steady at 102 15/32, while 10-year debt edged 1/32 higher to 110 7/8. In China, one- and five-year loan prime rates are expected to stay unchanged later Monday as the central bank overlooks tepid second-quarter growth.

Commodities: Brent crude futures declined by 2.9% to $82.63, while WTI crude futures dropped by 3.2% to $80.13 on Friday, marking the second consecutive week of losses. Market sentiment was swayed by renewed optimism for a ceasefire in Gaza, as U.S. Secretary of State Antony Blinken suggested that a long-sought truce between Israel and Hamas was nearing fruition. Gold prices fell 1.8% to $2,400, and silver prices dropped 2% to $29.22. The decline was due to a stronger dollar and profit-taking after gold's recent all-time high, driven by expectations of U.S. interest rate cuts in September.

FX: The US dollar started the week on a weaker footing after President Biden stepped away from the US presidential race, erasing some of the gains from the last week that came on the back of Trump’s re-election odds gaining traction. Mexican peso led the gains against the US dollar in early Asian trading hours, while the Korean won also gained. Chinese yuan, another currency that has been attentive to US political developments, erased some of the early gains as China’s central bank announced a surprise rate cut to its short-term interest rate in order to add economic stimulus. Risk-on currencies such as kiwi dollar and sterling outperformed the safe-havens such as Swiss franc and Japanese yen.

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