Global Market Quick Take: Asia – October 10, 2023

US Equities: Markets continued to rally, driven by energy and defence stocks amid the escalation of the conflicts in the Middle East. The energy sector of the S&P500 surged 3.5%, followed by industrials at 1.6%. Northrop Grumman soared 11.4%, while Lockheed Martin gained 9%. In his latest Macro Digest: Middle East in Focus, Saxo CIO Steen Jakobsen reiterated our equity calls to be overweight in energy, defence stocks, cybersecurity, infrastructure and semiconductors.

Fixed income: The Israel-Hamas conflict stirred a safe-haven bid for Treasury futures as the cash market was closed for the Columbus Day holiday. Fed officials' concerns about recent surges in the risk premium in the bond market also contributed to the buying. The 10-year T-notes futures jumped by a full point on Monday. When the Treasury cash market opened this morning in Tokyo, the 2-year yield and the 10-year yield were 14bps and 16bps lower, at 4.94% and 4.64%, respectively.

China/HK Equities: Major Hong Kong indices edged up modestly in a typhoon-shorted trading day, with the Hang Seng Index bouncing 0.2%. Oil stocks were among the top gainers following a surge in crude oil prices. Materials and healthcare stocks also outperformed. Southbound flows showed net buying of HKD2 billion from mainland investors. The CSI300 slid 0.1% on its first day of trading after the Golden Week.

FX: The safety bid for the dollar remained short-lived, suggesting exhaustion of the upside trend in the USD as Fed speakers also start to turn dovish as they take into account the financial tightening as a result of the higher bond yields. NOK led the gains due to the surge in oil prices, and USDNOK sliding below 10.8. Risk sensitive currencies NZD and AUD also recovered as equities gained. NZDUSD rose back above 0.60 to MTD highs and AUDUSD found support at 0.6350 and rose back above 0.64 handle. Yen found a bid with cash Treasuries closed, and USDJPY slid below 148.50 and risk sensitive EURCHF also below 0.9580 despite EURUSD back higher to test 1.0580.

Commodities: Crude oil prices surges over 4% to start the week amid geopolitical worries in the Middle East region, but Brent remains below $90 with no immediate threat to supplies. But contagion risks are significant, and even threat of disruption in the Suez Canal can bring further upside pressures in oil and energy markets. European gas prices rose 15% as Israel asked Chevron to shut its plant because of safety concerns. Gold prices also gained amid safe haven demand

Macro: Dallas Fed President Logan (voter) – usually a hawk – said that higher long-term rates mean less need for rate hikes. Fed vice-Chair Jefferson said that the Fed is “in a position to proceed carefully in assessing the extent of any additional policy firming that may be necessary”. He said he will remain cognizant of the tightening in financial conditions through higher bond yields and will keep that in mind when assessing the future path of policy.

Macro events: IMF World Economic Outlook; US NFIB survey (Sep) exp 91.0 vs. 91.3 prior. Fed’s Perli, Bostic, Waller, Kashkari, and ECB’s Villeroy speak.

In the news:

• Israel Latest: First Round of US Security Aid Is on the Way (Bloomberg)
• European Gas Up Most Since August as Chevron Shuts Israeli Field (Bloomberg)
• China’s Premier Li highlights need to boost digital economy (China Daily)
• South Korean firms get indefinite waiver on US chip gear supplies to China(Reuters)

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

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