Global Market Quick Take: Asia – May 29, 2023

What’s happening in markets?

US equities (US500.I and USNAS100.I): Artificial intelligence-driven surge powers semiconductor stocks and boosts market sentiments

The U.S. stock market experienced a significant rise as the dominance of artificial intelligence in semiconductor stocks and information technology companies continued. This surge in AI-led sectors fueled investor optimism, especially with the promising prospects of an imminent agreement on debt-ceiling negotiations over the weekend. The S&P 500 demonstrated impressive strength by soaring 1.3%, while the Nasdaq 100 experienced a remarkable surge of 2.6%.

The iShares Semiconductor ETF (SOXX:xnas) continued its upward trajectory, leaping an additional 6.5% on Friday. Noteworthy, Nvidia (NVDA:xnas) sustained its exceptional momentum, adding a further 2.5% to its value after an astounding gain of 24.4% the previous day. Furthermore, Marvell Technology (MRVL:xnas) witnessed a remarkable ascent of 32.7% as the microchip manufacturer anticipates explosive revenue growth in the next two years, driven primarily by the soaring demand for generative AI. Broadcom (AVGO:xnas) surged 11.5%.

U.S. equity markets are closed for Memorial Day on Monday.

Treasuries (TLT:xnas, IEF:xnas, SHY:xnas): reaction mixed as inflation concerns and debt-ceiling deal expectations impact yields

On Friday, the performance of U.S. Treasuries was mixed, influenced by various factors shaping market sentiment. The front end of the yield curve reacted to higher-than-expected PCE inflation figures, which included robust core services ex-housing reading, personal spending, and durable goods orders. These data releases heightened the expectations of a rate hike at the upcoming June FOMC meeting, with futures markets currently pricing in a probability of over 60%. Consequently, the 2-year yield climbed by 3 basis points, reaching 4.56%.

In response to the PCE data, Cleveland Fed's Mester (a non-voter) made remarks affirming the existence of a persistently high inflationary environment, further reinforcing market expectations.

Furthermore, the market was influenced by the anticipation of a weekend agreement on debt-ceiling negotiations between President Biden and House Speaker McCarthy. The increasing likelihood of a deal weakened demand for safe-haven Treasuries, particularly at the shorter end of the yield curve. However, the 10-year yield experienced a slight decline of 2 basis points, settling at 3.80%.

It is worth noting that the U.S. Treasury market closed early on Friday and will remain closed on Monday in observance of the Memorial Day holiday.

Chinese equities (HK50.I & 02846:xhkg): CSI300 ends flat, breaking three-day decline; PDD soars 19% on impressive growth

In a volatile and relatively thin-volume trading session, the CSI300 index closed nearly unchanged on Friday, putting an end to a three-day decline. Notably, stocks in the memory chip makers, AI-related industries, media, education, and traditional Chinese medicine sectors performed well. Meanwhile, the Hong Kong stock market was closed due to a public holiday.

Pinduoduo (PDD:xnas) surged 19% in ADR trading on the New York Stock Exchange. This impressive rise followed the company's announcement of a stronger-than-expected 58% year-over-year revenue growth and an outstanding 134% year-over-year rise in non-GAAP EPS. Additionally, the Nasdaq Golden Dragon China Index showed a notable rally of 2.9%.

FX: USDJPY heading into the intervention zone

The hawkish repricing of the Fed following the hot PCE data on Friday has brought fresh pain for the Japanese yen. USDJPY rose above 140.50 into the US close on Friday, and is gaining further to ~140.90 levels in early Asian trading hours. These are levels that should start to make the Japanese authorities uncomfortable, given the last rounds of intervention in September/October 2022 came when USDJPY was in the 140-150 range. Focus this week on US NFP which if hotter-then-expected, can push rate cuts further out the Fed curve. NZDUSD testing a break below 0.6050 while AUDUSD is still above 0.65. EURUSD eying a break below 1.07 amid Germany recession risks, while GBPUSD trades around 1.2350 after hot inflation print last week.

Crude oil: boosted by risk on amid debt ceiling deal progress

Crude oil prices rose on Friday as hopes of a resolution on the debt ceiling developed, and gains extended further in the Monday Asian morning as an in-principle deal was reached. Supply side issues were also supportive. Russia walked back comments that OPEC wouldn’t intervene at next week’s meeting. Russian Deputy Prime Minister Alexander Novak said they will engage in discussions with partners to determine what is best for the market. This suggests crude oil can be expected to stay in a range ahead of the June OPEC meeting. WTI prices heading to $73.50 while Brent was close to $77.50.

Gold: dual pressure from Fed pricing and risk on

Gold prices heading to test the 100DMA support at $1936 amid dual pressures from a hawkish repricing of the Fed path and the debt ceiling deal lifting sentiment which reduced the demand for safe haven asset. The hot PCE data on Friday increased the probability of a June rate hike to ~70% from less than 20% at the start of last week and rate cuts were pushed out into next year with only 1 rate cut now priced in for 2023. US jobs data due at the end of the week will be key but Fedspeak over the week also remains in focus. Meanwhile, initial euphoria around the debt ceiling deal may be temporary as focus shifts to liquidity concerns. Break above $2000 will be needed to improve sentiment. 

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