What’s happening in markets?
US equities (US500.I and USNAS100.I): Positive economic data spurs market rally and boosts consumer discretionary stocks
The strong consumer confidence, home sales, and durable goods orders released yesterday lifted the three major equity indices and bolstered consumer discretionary stocks in particular. The S&P500 gained 1.2%, rising to 4,378 while the consumer discretionary sub-index surged 2.1%. The Nasdaq 100 jumped 1.8% to 14,945 and the Russell 2000 added 1.5%.
Tesla (TSLA:xnas) rose 3.8%. Snowflake (SNOW:xnas) advanced 4.2% after announcing an AI partnership with Nvidia (see below for more). Dela Air Lines (DAL:xnys) soared 6.9% after the airline said 2023 earnings would come at the high end of previous guidance on solid demand. American Airlines (AAL:xnys) added 5.5% and United Airlines (UAL:xnys) gained 5.1%.
Treasuries (TLT:xnas, IEF:xnas, SHY:xnas): Sell-off as economic data Points to a resilient economy
US Treasuries sold off, with the 2-year yield rising by 7bps to 4.76% and the 10-year yields climbing 4bps to 3.76% amid strong consumer confidence, durable goods orders, and new home sales data suggesting a resilient US economy and potentially extending the current monetary tightening cycle. The 2024 SOFR interest rate futures contracts slid by around 12bps (higher yield). The losses in Treasuries extended after the soft results from the auction of USD43 billion 5-year notes, which tailed (i.e. awarded at a higher yield than the level at the time of the auction deadline) 0.6bp and a relatively low 2.52x bid-to-cover ratio.
Hong Kong & Chinese equities (HK50.I & 02846:xhkg): rally on stimulus anticipation and growth optimism
Hong Kong and mainland Chinese stocks experienced a notable rally, with the Hang Seng Index surging 1.9% and the CSI300 Index gaining 0.9%. The market received support from renewed expectations of stimulus measures anticipated from the politburo meeting expected to convene in July. China's Premier Li Qiang, speaking at a meeting of the World Economic Forum in Tianjin, conveyed that China's GDP growth for Q2 would surpass the 4.5% growth observed in Q1. Additionally, unverified social media reports in mainland China speculated that the Chinese authorities would soon introduce robust policies to stimulate the property sector. Furthermore, the People's Bank of China's action to fix the onshore yuan on the strong side bolstered market sentiment.
The advance in Hong Kong and mainland stocks was led by China property stocks. Country Garden Services (06098:xhkg) emerged as the top gainer within the Hang Seng Index, jumping 11.3%, while Longfor (00960:xhkg) surged 8.2%. Moreover, the Hang Seng Tech Index experienced a gain of 2.6%. Hardware manufacturers benefited from strong mobile shipments in China, resulting in a 7.5% increase for Sunny Optical. Kingsoft (03888:xhkg) surged 5.9%. Despite news headlines highlighting the Chinese authorities' focus on addressing internet addiction issues, Netease (09999:xhkg), Bilibibli (09626:xhkg), and Kuaishou (01024:xhkg) advanced by approximately 3-5%. In the A-share market, apart from real estate companies, household appliances, tourism, textile, and petrochemical stocks outperformed.
FX: the dollar had a muted reaction to strong economic data
The strong US economic data failed to lift the dollar as the dollar index (DXY) fell by 0.2% and EURUSD gained around 0.5% to 1.0955. However, USDJPY rose 0.2% to 143.85.
Crude oil: WTI crude fell 2.2%
WTI crude slid around 2.2% despite the API reporting a 2.41 million decrease in US crude inventories.
What to consider?
Durable goods orders, consumer confidence, and new home sales indicate a resilient US economy
US data showed positive signs across various sectors. Durable goods orders increased by 1.7% M/M, surpassing the consensus estimate of -0.9%. Excluding transportation, durable goods orders rose by 0.6%, contrary to the expected flat growth. The Conference Board consumer confidence index reached its highest level since January 2022, surging to 109.7, which is 7.2 points higher than the consensus estimate of 104.0. The labor differential rebounded to 34.4 after a decline in May as respondents saying jobs are plentiful increased by 3.5pp to 46.8% and those saying jobs are hard to get fell -0.2pp to 12.4%. New home sales soared by 12.2% M/M in May to 763k, surpassing expectations of -1.2% to 675k.
Additionally, the Richmond Fed rose to -7, beating the consensus of -12, while The Dallas Fed services activity also improved from -17.3 in May to -8.2. These positive figures suggest a resilient US economy.
Australia’s inflation slowed to 5.6%
Australia’s May CPI came in at 5.6% Y/Y, down from 6.8% in April and slower than the consensus estimate of 6.1%.
Snowflake and Nvidia forge partnership for customized generative AI applications within Snowflake data cloud
During the Snowflake Summit 2023, Snowflake (SNOW:xnas) and Nvidia (NVDA:xnas) announced a collaborative effort to empower businesses in creating tailored generative AI applications using their own proprietary data. Operating securely within the Snowflake Data Cloud, customers can utilize NVIDIA's NeMo framework designed for AI developers, which was initially unveiled in September.
ECB President Lagarde warns of persistently high inflation and anticipates further tightening
ECB President Lagarde cautions about the ongoing high and enduring inflation, necessitating additional rate hikes to address the situation. A further interest rate hike is anticipated in July, and she expresses skepticism that the central bank will soon be able to definitively declare that inflation has reached its peak. However, she does acknowledge that the intensity of price pressures is beginning to diminish.
China Premier Li Qiang expects faster Q2 GDP growth, reiterating the 5% annual target
During his address at the 14th Annual Meeting of the New Champions organized by the World Economic Forum in Tianjin, China's Premier Li Qiang expressed optimism about the country's economy. He highlighted that the Chinese economy was moving in a positive direction and anticipated a faster growth rate in Q2 compared to the 4.5% recorded in Q1. Premier Li pledged to roll out more pragmatic and effective policies to boost domestic demand and said that China was on track to achieve its GDP growth target of 5% for the year.
President reiterates commitment to an open economy
During a meeting with New Zealand Prime Minister Chris Hipkins, Chinese President Xi Jinping emphasized the need for their countries to view each other as partners rather than adversaries. Xi also pledges commitment to an open economy, highlighting the importance of self-reliance over isolationism, and stronger connections between domestic and international markets. Xi also ensures the protection of foreign investors' lawful rights and interests.
Treasury Secretary Yellen to visit China in July
US Treasury Secretary Janet Yellen plans to visit China in early July to hold talks with her China counterparts on economic matters.
Berkshire Hathaway further reduces its stake in BYD
BYD (01211:xhkg) slid 1.3% after filings revealed that Buffett’s Berkshire Hathaway sold HKD676 million worth of the electric car and battery maker in mid-June, reducing its stake to 8.98% from 9.21%.
Baidu claims its Ernie 3.5 Outperforms ChatGPT in comprehensive ability tests and Chinese-Language capabilities
Baidu (09888:xhkg) announced on Tuesday that according to a test conducted by the state-owned China Science Daily, their latest chatbot iteration, Ernie 3.5, had surpassed ChatGPT 3.5 in comprehensive ability assessments. Baidu also claimed that Ernie 3.5 demonstrated superior performance in various Chinese-language capabilities compared to the more advanced ChatGPT 4.
Micron faces revenue decline amidst Chinese ban, eyes AI demand for recovery
Analysts are expecting Micron’s (MU:xnas) FY Q3 revenues to fall by 57% to USD3.7 billion from USD8.6 billion a year ago and to slide into a USD1.58 per share loss versus a profit of USD2.59 per share when reporting today. After the Chinese Government’s ban on certain Chinese manufacturers to use DRAM and NAND chips from Micron, the memory chip maker is expected to see their China sales halved, representing an about 12% loss to its total revenue. Investors will pay attention to any updates from the earnings call. Investors will also scrutinize the company’s comments on AI-related demand. It is believed that AI servers use 6 to 8 times more DRAM chips than regular servers and present a promising opportunity for Micron. Updates on Micron’s effort to catch up with SK Hynix in the high bandwidth memory (HBM) products that are used in AI-related GPUs will be another focus.
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