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Global Market Quick Take: Asia – June 1, 2023

Macro 7 minutes to read
Redmond-400x400
Redmond Wong

Market Strategist, Greater China

Summary:  US equities experienced a retreat as China's PMI data intensified concerns over global economic growth. Nvidia retreated as profit-taking took hold. Meanwhile, Treasuries saw gains as yields retreated following signals from Fed officials indicating a preference for a pause in raising rates during June. Hong Kong equities spiraled downward, reflecting mounting concerns over China's economic growth. In April, JOLTS job openings surged, defying projections. Market attention is focused on today's ADP employment change and initial jobless claims data, as well as the outcome of the US debt ceiling House vote.


Market Data 2023-06-01

What’s happening in markets?

US equities (US500.I and USNAS100.I): retreat on growth concerns

US equities opened the day with a weaker tone due to the disappointing PMI data from China and softer prints in the Chicago PMI. The market was further impacted by the hotter JOLTS job openings, which increased the likelihood of a June rate hike. However, stocks rebounded from their lows as Federal Reserve officials signaled a preference for pausing the rate hikes at the upcoming June meeting. The S&P 500 closed the day 0.6% lower, while the Nasdaq 100 dropped 0.7%.

Nvidia (NVDA:xnas) experienced profit-taking selling, leading to a 5.7% decline in the AI powerhouse's stock. On the other hand, Nvidia's competitor, Intel (INTC:xnas), surged 5% after announcing that its Q2 sales were on track to meet the upper end of its previous guidance. HP (HPQ:xnys) saw a 6% drop in its stock price after reporting Q2 revenue that fell short of estimates. Salesforce (CRM:xnys) plummeted 5.5% in extended-hour trading due to cautious guidance for Q2 sales. Weakness was also observed in regional banks, with the SPDR S&P Regional Banking ETF declining by 3.3%.

Treasuries (TLT:xnas, IEF:xnas, SHY:xnas): Yields Retreat amid Fed officials' remarks signaling a preference for a June pause

Treasuries concluded a volatile session with modest gains as yields retreated. Initially, an unexpected surge in JOLTS job openings pushed yields higher, but the weak China PMI data earlier in the day and a larger-than-anticipated decline in Chicago PMI provided support to Treasuries. In the afternoon, yields took a significant dive following remarks from Fed governor Jefferson and Philadelphia Fed President Harker, both voting members of the FOMC. They expressed a preference for a pause at the June FOMC meeting while remaining open to future rate hikes. Jefferson, nominated by President Biden in May for the role of Fed vice-chair, is awaiting confirmation by the Senate. According to Nick Timiraos of the Wall Street Journal, these comments may reflect the Fed's concern over investors' anticipation of a rate increase in June. As a result of Jefferson and Harker's statements, the market-implied probability of a 25-basis-point hike in June decreased from 70% to 35%. The 2-year yield concluded the session 5 basis points lower at 4.40%, while the 10-year yield finished 4 basis points lower at 3.64%.

Chinese equities (HK50.I & 02846:xhkg): in a spiral downward amid disappointing China PMI data

Hong Kong equities continued their downward spiral as the Hang Seng Index suffered a substantial slide of 1.9% on Wednesday after the release of disappointing PMI data in China. Plummeting over 20% from its peak in January, the Hang Seng Index at one point entered bear market territory before recovering slightly to close down 19.7% from its January high. Meanwhile, the Hang Seng China Enterprises Index remained in bear market territory, declining by 20.7% from its January peaks. In contrast, A-shares displayed relative resilience compared to offshore-listed Chinese companies, with the CSI300 Index experiencing a modest 1% decline for the day and an 11% fall from its January peak.

Among the worst-performing sectors in both the Hong Kong and mainland bourses on Wednesday, coal miners faced significant challenges. Yankuang Energy tumbled 9.2%, followed by Yancoal (03668:xhkg) with a decline of 6.6%. China Coal (01898:xhkg) and China Shenhua (01088:xhk) also experienced notable drops of 5.3% and 4.4% respectively. The three Hong Kong-listed Chinese oil majors declined, ranging from 3% to 5%. Within the China Internet sector, Weibo (09898:xhkg) declined by 6.9% and Meituan (03690:xhkg) by 5.3%, leading an overall downward trend.

JD Logistics (02168:xhkg) bucked the market decline and saw a rally of 3.3% following its inclusion in MSCI China. Meanwhile, SMIC (00981:xhkg) emerged as the top gainer within the Hang Seng Index, posting a gain of 1.9%. Notably, semiconductor companies also outperformed in the mainland bourses, with Shenzhen Kinwong Electronic (603228:xssc) surging and hitting the daily price limit of 10%.

FX: mixed dollar performance

The performance of the dollar was mixed, exhibiting various movements against different currencies. The greenback managed to gain approximately 0.5% against the Euro, reaching 1.0690, primarily influenced by softer inflation data from Germany and France. Conversely, the USDJPY declined by around 0.4% to 139.25 as yields on Treasuries dropped and Fed officials indicated a potential pause in the upcoming June rate hike. In relation to the offshore renminbi, the dollar strengthened by 0.4%, with the USDCNH climbing to 7.1160, driven by disappointing PMI data from China.

Crude oil: China PMI data deepens concerns over crude oil demand

Weaker-than-expected PMI data from China has amplified fears surrounding the outlook for crude oil demand from the world's foremost crude oil importer. As a consequence, WTI crude oil declined 2% to USD 68.1 per barrel, while Brent crude recorded a 1.5% drop, reaching USD 72.6.

What to consider?

US debt ceiling: awaiting the result of the House vote

The bill to suspend the debt ceiling until January 2025 to avoid a default of the U.S. federal government has moved toward a House vote.

JOLTS job openings soar by 358K to reach 10,103K in April

Contrary to analysts' projection of a 190,000 decline, JOLTS (Job Openings and Labor Turnover Survey) revealed an unexpected upswing as job openings surged by 358K to 10,103K in April. The increase was particularly notable in the retail trade, health care, and transportation sectors. The hiring rate remained steady at 3.9%, while the layoff rate declined by 0.2pp to 1.0%.

Investors will have another gauge into the status of the US labor market from today’s ADP employment change, expected to slow to 170K from 296K, and initial jobless claims, expected to rise to 235K from 229K, scheduled to release today, before the most watched non-farm payrolls, average hourly earnings, and unemployment rate this Friday.

Chicago PMI Plummets to 40.4 in May, signaling sluggish business activity

While the labor market demonstrated resilience, the Chicago PMI delivered a disappointing figure of 40.4 in May. This reading fell significantly short of the anticipated 47.3, further indicating a substantial weakening from April's PMI of 48.6. The underwhelming performance of the Chicago PMI suggests a steeper contraction in business activity within the region, raising concerns about the overall economic trajectory.

Disappointing official PMI data deepens concerns over China's economic recovery

China's official NBS manufacturing PMI fell below expectations in May, registering a disappointing 48.8, down from both the anticipated 49.5 and April's figure of 49.2. This downward trend indicates a deeper descent into contractionary territory for the manufacturing sector. Notably, the output sub-index contracted for the first time since January, reaching 49.6. Simultaneously, the Non-manufacturing PMI slipped to 54.5 in May from the previous month's 56.4. The construction sub-index declined sharply from 63.9 to 58.2.

However, amid these troubling signs, certain industries continued to exhibit robust expansion. Railway transportation, water transportation, aviation transportation, internet and IT services, as well as telecommunications, all boast business activity indices above 60, suggesting ongoing expansion.

The upcoming private Caixin China Manufacturing PMI scheduled to release today, will provide further insights into the Chinese economy. According to the Bloomberg survey, analysts maintain a consensus forecast of 49.5 for May, unchanged from the April reading.

Australia’s CPI accelerated to 6.8% Y/Y

The April monthly CPI in Australia accelerated to 6.8% Y/Y, well above the 6.4% expected and the 6.3% in March. The upside surprise is attributed to higher holiday travel prices, new housing, and durable goods.

Softer inflation prints in Germany and France, slightly hotter in Italy

German EU harmonized CPI inflation was 6.3% Y/Y in May (consensus: 6.7%; April 7.6%), France’s EU harmonized CPI growth also slowed to 6.0% Y/Y in May (consensus: 6.4%; April 6.9%). Italy’s EU harmonized CPI inflation declined to 8.1% Y/Y in May from 8.7% Y/Y in April but it was above the consensus forecast of 7.5%. Today, we will have the first estimate of the Eurozone CPI and core CPI, which are forecasted to slow to 6.3% Y/Y from 7.0% and to 5.5% from Y/Y from 5.6% respectively.

President Xi urges party officials to prepare for a national security tempest

China’s President Xi warned party officials at a national security meeting to “get ready for a tempest” on the national security front, highlighting the challenges ahead.

 

For a detailed look at what to watch in markets this week – read or watch our Saxo Spotlight.

For a global look at markets – tune into our Podcast.

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