Global Market Quick Take: Asia – March 4, 2024

US Equities: The optimism and advances in the US stock market, fueled by AI and semiconductors, persisted and reached new highs. Nvidia, AMD, Broadcom, Marvell Technology, and other semiconductor names surged more than 4%, lifting the Nasdaq 100 Index by 1.4% and the S&P 500 Index by 0.8% higher on Friday. Dell jumped a whopping 31.5% after reporting a large backlog for its AI servers.

The strength of the semiconductor sector extended across the Pacific, contributing to the robust performance of the Japanese stock market, which houses a significant number of semiconductor companies. On Friday, Japanese chipmaking equipment manufacturers Tokyo Seimitsu surged 8.8% and Towa jumped 11.9% while  Tokyo Electron, Disco, Advantest, Screen, and Kokusai Electric climbed 3%-4%. Semiconductor materials makers Nomura Micro Science, Shin-Etsu Chemical, and Japan Electronic Materials added +2.8%, 3.1%, and +13.2%, respectively. The Nikkei 225 climbed 1.9%. The Japanese semiconductor space offers diversification opportunities for investors who want to ride on the global trend of AI and the semiconductor industry but seek to reduce concentration in US exposure.

Hong Kong/China Equities: Last Friday the CSI300 surged by 1%, propelled by the sustained outperformance of the TMT sector and the robust performance of AI-related stocks. Investors foresee a spotlight on new economy industries, including AI, 5G, and new energy vehicles, in the government work report set to be delivered by Premier Li Qiang at the National People’s Congress on Tuesday, March 5, anticipating them to be this year's driving forces for economic growth. Despite the Hang Seng Index having only a marginal uptick of 0.2%, EV makers XPeng, Nio, and BYD surged by 4% to 8%. Meituan emerged as the top-performing blue-chip in Hong Kong, surging 10.8% on unconfirmed reports of the company ceasing community group-buying services.

Investors also took note of state-owned media extensively covering President Xi Jinping’s call for the advancement of 'new productive forces,' emphasizing the leverage of science and technological innovation to foster new industries and expedite economic development. New economy stocks are anticipated to remain in focus this week, benefitting from policies potentially unveiled during the Two Sessions.

Fixed income: Weaker-than-expected ISM headline prints, coupled with notable weaknesses in new orders and employment, led to a decline in yields across the curve. The 2-year yield fell by 9bps to 4.53%, while the 10-year yield slid by 7bps to 4.18%. The focus of bond investors this week will be on Fed Chair Powell’s semi-annual testimony to Congress before the House Financial Services Committee on Wednesday and then before the Senate Committee on Banking, Housing, and Urban Affairs on Thursday.

FX: The dollar traded broadly lower in Friday’s US session as ISM manufacturing and the revision to University of Michigan sentiment numbers garnered a dovish reaction. Despite a softer greenback, however, yen underperformed as Governor Ueda retained a dovish narrative saying that inflation is easing at a quick pace and wage negotiations will offer a tailwind, but they are not yet in a situation where sustained achievement of 2% inflation can be foreseen. USDJPY rose to highs of 150.72 before reversing slightly to 150 handle. Activity currencies were the top gainers amid dollar weakness, with NOK outperforming followed by SEK, AUD and NZD. NZDUSD is back above 0.61 after a dovish hold from RBNZ last week. EURUSD also making an attempt towards 1.0850 again after the inflation beat on Friday, and GBPUSD stays above 1.26 with ECB meeting and UK budget on the radar, respectively, this week.

Commodities: oil prices gained on Friday on reports that OPEC+ has agreed to extend output curbs into mid-year amid non-OPEC supply and risk of demand disruptions. Gold also saw a sharp rally to end the week over 2% higher at $2080+ levels as weak US economic data saw yields tumble. Focus early this week will be on metals, as China’s NPC commences and growth target as well as policy direction will be key.

Macro:

• US ISM manufacturing PMI for February unexpectedly fell to 47.8 from 49.1, against the forecasted rise to 49.5. Prices paid remain in expansionary territory but encouragingly dipped to 52.5 (prev. 52.9, exp. 53.0), while new orders fell into contractionary territory to 49.2 from 52.5. Employment and production declined to 45.9 (prev. 47.1) and 48.4 (prev. 50.4), respectively. Focus now turns to services ISM PMI due on Tuesday although markets may be in a wait mode ahead of the NFP jobs numbers due on Friday.
• The Two Sessions, encompassing the National Committee of the Chinese People’s Consultative Conference (CPPCC) from March 4 to March 10 and the National People’s Congress (NPC) starting on March 5 and expected to conclude on March 11, bear substantial implications for China's economic trajectory. Premier Li Qiang's Government Work Report on March 5 is eagerly anticipated for insights into key economic targets, including GDP growth (around 5%), CPI (<3%), and a 5.5% unemployment rate expected. The 2024 fiscal budget will reveal China's fiscal stance. Concurrently, messages on industrial policies, housing policies, and market reforms will be conveyed by ministry chiefs, complemented by President Xi's concluding speech on March 11. President Xi will also engage in discussions with selective provincial and industry group delegates.
• China reported a modest decline in the official NBS manufacturing PMI, slipping from 49.2 in January to 49.1 in February, slightly exceeding the 49.0 consensus estimate. The services sub-index displayed resilience, rising by 0.9 points to 51.0, propelling the non-manufacturing PMI to 51.4, up from 50.7. In contrast, the construction sub-index experienced a marginal dip of 0.4 points, settling at 53.5. The varied momentum observed in activities across manufacturing, construction, and services during the Lunar New Year period might contribute to the nuanced performance. Meanwhile, the private Caixin manufacturing PMI ticked up to 50.9 from 50.8.
• Eurozone disinflation continued in February, even though the headline print came in higher than expected at 2.6% YoY vs. 2.5% exp and 2.8% prior. Core inflation eased to 3.1% YoY from 3.3% in January, coming in above expectations of 2.9%. This could mean that an April ECB rate cut remains off the table for now, but ECB meeting this week will be key to assess the staff projections on GDP and CPI for 2024 and Lagarde’s take on wages and inflation. Read Saxo’s ECB preview here.

Macro events: Swiss CPI (Feb), China NPC

Earnings: Archer-Daniels-Midland, China Tower, Sea, Gitlab.

In the news:

• Fed policy report warns on possible financial sector risks (Reuters)
• OPEC+ members extend oil output cuts to second quarter (Reuters)China’s state media in positive economic spin mode in countdown to ‘two sessions’ (SCMP)
• China to Unveil GDP Target, Avoid ‘Bazooka’ Stimulus at Meeting (Bloomberg)
• China needs 10 times its solar and wind power to be carbon neutral, study finds (SCMP)
• U.S. seeks to revive idled shipyards with help of Japan, South Korea (Nikkei Asia

For all macro, earnings, and dividend events check Saxo’s calendar.

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