Global Market Quick Take: Asia – October 24, 2024

Key points: 

• Macro: Bank of Canada cut 50bps, dovish Fed’s Beige Book, and PMIs on tap today 
• Equities: Tesla is up 12% in the post market after reporting 9% profit growth
• FX: USDJPY rises above 200DMA, EURGBP in focus  
• Commodities: Precious metals fell due to strong USD; Oil dropped on higher US stockpiles 
• Fixed income: Treasury yields rose to their highest level since July

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Disclaimer: Past performance does not indicate future performance. 

 Macro:

• The Bank of Canada cut rates by 50bps to 3.75% with Governor Tiff Macklem emphasized that core inflation is easing as expected. He noted that further rate cuts are likely if the economy evolves as expected, with a focus on inflation and growth data moving forward. He also mentioned that the BOC is focused on ensuring a smooth economic transition, or "sticking the landing", as they navigate the post-inflationary environment. However, no immediate commitment to more aggressive rate cuts was made, with future decisions being data-dependent.
• US Fed’s Beige Book reinforced expectations of further rate cuts. Several Fed officials, including Chair Powell, referenced the Beige Book as a key reason for the 50 bps rate cut in September. The report highlighted downbeat picture on economic activity across nearly all districts, contrasting with August's report, which showed growth in three districts.Multiple ECB speakers were on the wires. Notably, dove Centeno said downside risks to growth are accumulating and a 50bps cut is on the table. Whereas, hawk Knot noted pretty confident inflation will hit 2% in 2025, and the consumer recovery will take a bit longer. Others like president Lagarde, Lane, Nagel, Panetta also confirmed disinflation trends, and focus now turns to  PMI numbers due today. 

Equities:  

• US – Tesla is up 12% in the post market after reporting Q3 profit that grew 9% yoy and projecting growth for deliveries this year. The Cybertruck has become profitable for the first time. US indexes fell with Nasdaq 100 losing 1.55% and S&P 500 falling 0.92% as big tech sold off. Arm holdings down 6.6% and Nvidia lower by 2.8%.
• Japan - Nikkei 225 dropped 0.8% due to caution before Japan's upcoming general election. Concerns arose as polls indicated the ruling Liberal Democratic Party might lose its majority with Komeito. Tokyo Metro surged 45% on its debut, raising 348.6 billion yen in Japan's largest IPO in six years.
• Europe - European stocks fell as major companies' earnings missed expectations. L’Oreal dropped 2.5% due to weak Chinese demand. Deutsche Boerse led financial losses, falling 2%, while Adidas declined 1.9% after an HSBC downgrade. However, Iberdrola's positive earnings boosted its shares by 1.5%, limiting the Stoxx 50's decline.
• Hong Kong - HSI rose 1.3%, driven by tech and financial gains. Chinese markets climbed on expectations of a CNY 2 trillion market stabilization fund. The PBoC plans to expand its swap facility to boost market liquidity. The IMF forecasts global growth to slow to 3.2% this year. China Resources Beverage jumped nearly 15% on debut.

• Earnings - American Airlines, UPS, Southwest, Western Digital, Nasdaq

FX:  

• The US dollar continued to rally amid higher yields, although the gains slowed later in the session as the Fed’s Beige Book reinforced expectations of rate cuts. Recent themes of geopolitical risks and the increasing odds of another Trump presidency also continue to underpin.
• Japanese yen was a clear laggard again, with USDJPY rising above the 200DMA and taking a brief look above 153 once again. The divergence in safe-haven currencies is also stark with JPY losing its haven appeal and CHFJPY rising back above 175 for the first time since July.
• EURUSD also extended its decline with Trump trade and a dovish ECB underpinning. EURGBP has risen sharply to 0.8350 after being rejected at the 0.83 support, and divergence in Eurozone and UK PMIs will be key to watch today. AUDUSD testing its 200DMA at 0.6629 currently.
• USDCAD shot up to 1.3863 on a 50bps rate cut but lack of certainty around jumbo rate cuts going forward helped pare some of the losses in the Loonie.

Commodities:  

• Silver dropped over 3.3% to $33.70, retreating from a 12-year high, due to rising U.S. Treasury yields and a stronger dollar impacting its appeal.
• Gold fell over 1% to $2,715 after reaching a record $2,750, driven by a stronger U.S. dollar and rising Treasury yields, despite safe-haven demand from the U.S. election and Middle East conflict.
• Oil fell after EIA data showed strong U.S. stockpiles, with crude inventories up 5.5 million barrels and gasoline stocks rising by 900,000 barrels. However, concerns over Middle East conflicts, including Israel's actions and Iran's response, partially offset the impact.

Fixed income: 

• Treasury yields hit their highest since July, even before the 20-year bond auction. The long end outperformed, flattening the curve as Fed rate cut expectations faded. Front-end yields rose 4-5 basis points; 2s10s and 5s30s spreads narrowed by 3 basis points, with the 10-year yield up 3 basis points to 4.24%.
• Canadian bonds outperformed when the Bank of Canada cut interest rates by half a point, which was as expected. The Canadian 10-year yield increased by about 2 basis points that day.

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