Weekly Commodities Update Weekly Commodities Update Weekly Commodities Update

Market Insights Today: China reopening relief; OPEC+ cut hopes slashed; all eyes on Powell – 30 November 2022

Equities 6 minutes to read
APAC Strategy Team

Summary:  A dash of optimism on Tuesday with Chinese officials continuing their commitment to ease the Zero Covid policies, but US economic data continued to disappoint and focus remains on how hawkish Fed Chair Powell can get today. Along with that, a slew of pivotal US data in the week ahead kept the US dollar range-bound. Crude oil market however continued to see volatility despite easing China demand concerns, as OPEC+ production cut hopes were shattered with the weekend meeting moving online. Eurozone CPI on watch today while the softer Australia CPI for October paves the way for RBA to maintain its slower rate hike path next week.


What’s happening in markets?

The major US indices, the Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) continue to retreat

The major US indices ended weaker, with NASDAQ100 sliding 0.7% and the S&P500 edging down 0.2% as investors are awaiting Fed Chair Powell’s speech later Wednesday. Powell will likely underscore the Fed’s desire to keep interest rates at elevated levels until inflation eases. The latest US consumer confidence reading (released Tuesday) for November showed US consumer confidence fell to a four-month low. The biggest drag on US markets on Tuesday, were information technology, utilities, and consumer discretionary. Apple (AAPL) shares fell 2.1% after the company said that it would deliver 6 million fewer iPhone Pro units in Q4 due to production disruption in Zhengzhou, China. The real estate, energy, financials, industrials sectors outperformed. United Parcel Services (UPS:xnys) gained 2.8% after the Biden Administration called on Congress to prevent a U.S. rail strike.

Apple (AAPL) shares fell 2.1%, continuing their three-day pull back, which totals almost 5%

..on the back of the covid lockdown fallout in China. Apple relies heavily on the key manufacturing hub of Zhengzhou, which is now in lockdown. And as a result Apple’s production shortfall could be close to 6 million iPhone Pro units this year (this is according to people who know about Apple’s assembly operations). These reports are swirling at a time when Apple previously dropped its overall production target to about 87 million units (down from the prior 90 million estimate) on the back of demand slowing. However, Apple and the Foxconn facility are allegedly planning to make up the shortfall in lost output in 2023. But, looking at Apple shares from a technical perspective, its trading 8% lower than its 200 day moving average and the indicators suggest Apple shares could see further downward pressure - as suggested by the weekly and monthly charts.

US treasuries (TLT:xnas, IEF:xnas, SHY:xnas) rose in yields ahead of Fed Chair Powell’s speech

Yields edged up across the yield curve with those in the long-end rising the most. The 2-year yield rose 4bps to 4.47% while the 10-year was 6bps cheaper at 3.74%. Large supply from corporate issuance put some upward pressure on yields. There were about 11 deals with a total amount of about USD18 billion, including USD8.25 billion from Amazon, on Tuesday. Fed Chair Powell is scheduled to speak on the economy and labor market at a Brookings Institution event today on Wednesday at 1:30 U.S. eastern time (2:30am SG/HK). Investors are concerned if Powell would give hints of a terminal Fed Fund rate higher than the 5% being priced in by the market.

Hong Kong’s Hang Seng (HISX2) and China’s CSI300 (03188:xhkg) surged on renewed optimism about reopening and additional support to the property sector

Hang Seng Index surged 5.2% and Hang Seng TECH Index jumped 7.7%. All sectors gained, with information technology, consumer discretionary, and properties leading the charge higher. The CSI 300 gained 3.1%. The market sentiment was first buoyed by new measures from the Chinese securities regulator to relax its restriction on property developers from equity financing. Then the renewed optimism about China reopening from stringent pandemic control added to the market rally. Leading Chinese developers listed in Hong Kong jumped by 3-14%. In the mainland’s A-share markets, real estate, financials, and food and beverage led the charge higher. The strong revenue and margin beat of Pinduoduo (PDD:xnas) aided the surge of Alibaba (09988:xhkg) by 9.1% and JD.COM (09618:xhkg) by 10.9%. The ADR of Bilibili (BILI:xnas) jumped 22% overnight after reporting results beating market expectations.

FX: Dollar range-bound ahead of Powell’s speech

While the commodity currencies gained on Tuesday after a relief that China officials maintained their commitment to ease the Zero covid policies despite the protests and a recent rise in cases, cyclical currencies like CAD weakened as crude oil futures traded lower. Overall the dollar was range-bound with expectations around a hawkish Powell today picking up given the substantial easing in financial conditions. EURUSD remained stuck below 1.0400 while USDJPY has gains above 139 getting limited.

Crude oil (CLZ2 & LCOF3)volatile with large inventory drawdown ahead of OPEC

The relief from continued commitment of China officials to ease zero covid restrictions helped crude oil prices gather some momentum early on Tuesday, but the cheer was short-lived as other concerns still clouded the outlook. US economic data showed economic momentum is weakening, while Fed Chair Powell’s speech today will be key for the dollar and the markets. On the supply side, API survey reported a larger than expected crude draw, with inventories down 7.80mm b/d (exp -2.49mm b/d) but production cut expectations from OPEC (read below) this weekend eased as the meeting moved online. WTI futures traded around $79/barrel, while Brent traded lower after touching $86/barrel earlier. Technical update on Brent crude oil from Kim Cramer, our Technical Analyst. The update also takes a closer look at WTI crude oil, Dutch TTF gas and Henry Hub natural gas.

 

What to consider?

US data disappoints, all eyes on Powell

Consumer confidence pared back in November to 100.2 from 102.5 (exp. 100.00); the Present Situation Index decreased to 137.4 from 138.7 last month, while the Expectations Index declined to 75.4 from 77.9. Meanwhile, home prices in 20 large cities slipped 1.2% in September, according to the S&P CoreLogic Case-Shiller gauge. More critical data from ISM to PCE to NFP is lined up for the second half of the week, but before we get there, Fed Chair Powell’s speech will be the one to watch. Easing financial conditions raise concerns about inflation shooting back higher, but pushback from Fed officials so far hasn’t been enough for the markets yet. It remains to be seen what more Fed Chair Powell can deliver today.

Reopening optimism returned in China

While the daily new cases continued to surge and anti-restriction protests sprang up across major cities, investors took comfort from the light-touch reactions from the Chinese authorities and hints of preparing to ease the pandemic control measures further. A Party-controlled newspaper in Beijing published a long article reporting the stories of people having recovered from Covid, which seemingly aimed at easing people’s worries about the disease. The National Health Commission issued a memo pledging to increase the vaccination rate of the country’s senior population. In a press conference later in the afternoon, health officers again emphasized increasing the senior population’s vaccination rate as a priority and highlighted the Omicron variants as being less severe than the original virus. Officials and the state-controlled media have taken a light-touch approach to the recent protests and have not put any political stigma on the incidents. Putting these together, investors are taking the development as hints of the Chinese authorities to prepare for further easing in its Covid policy.

China relaxes its restrictions on developers from attaining equity financing

The China Securities Regulatory Commission (CSRC) fired the so-called “third arrow” to ease some of the restrictions previously imposed on property developers from attaining equity financing. While property developers are still barred from doing IPO in the domestic equity market, they are now domestically listed A-share developers and some Hong Kong-listed H-share developers to issue new shares to raise capital as long as the proceeds are used for restricting, M&A activities, refinancing, buying existing property projects, repaying debts, and project construction. However, proceeds are not allowed to be used in land acquisition.

Softer Australia CPI paves the way for a dovish RBA next week

Australian inflation data for October showed inflation is continuing to fall, and far more than expected which supports the RBA’s dovish tone and only hiking rates by 0.25% next week (December 6). Trimmed mean CPI which excludes volatile items, rose 5.3% year-on-year in October, which marks a fall in price rises, compared to the prior read, 5.4% YoY. This also shows prices for consumer goods and services in Australia are falling less than the market expects as Trimmed CPI was expected to rise 5.7%. Meanwhile, headline inflation also rose less than expected, showing consumer prices rose 6.9% YoY, which was cooler than prior 7.3% read, and less than the 7.6% expected. This follows a suite of Australian economic data that supports the RBA remaining more conservative with rate hikes. Earlier in the week, Australian retail trade data unexpectedly fell, showing consumers are feeling the strain of inflation and rising interest rates. As a house, we think spending will likely continue to slow into 2023, with the full impact of rate hikes passing through households under financial duress giving deb to income ratios are some of the highest in the world.

China PMIs likely to show demand weakness

China’s NBS manufacturing PMI is expected to decline to 49.0 in November, further into the contractionary territory, from 49.2 October, according to the survey of economists conducted by Bloomberg. The imposition of movement restrictions in many large cities has incurred disruption to economic activities. High-frequency data such as steel rebar output, cement plants’ capacity utilization rates, and container throughputs have weakened in November versus October. Economists surveyed by Bloomberg expect the NBS Non-manufacturing to slow to 48.0. in November from 48.7 in October, on the enlargement of pandemic containment measures.

OPEC+ weekend meeting goes virtual

Instead of meeting in Vienna as planned earlier, OPEC+ has now moved its December 4 meeting online which is downplaying expectations of any significant policy change after production cut expectations gathered hopes this week with crude oil prices falling to test key support levels. Some delegates also suggested that the cartel is leaning towards approving the same production levels agreed in October, when a 2mb/d cut in output was announced.

Bilibili (BILI:xnas/09626:xhkg) Q3 beat expectations

Bilibili reported 11% Y/Y revenue growth in Q3 and net loss came in at a smaller amount of RMB1.7 billion. User growth was solid, with average daily active users growing 25% Y/Y to 90.3 million, average monthly active users growing 25% to 332.6 million, and average monthly paying users increasing 19% to 28.5 million. Operating margin improved to -31.9% in Q3 from -44.63 in Q2 and -51.1% in Q3 last year. The company guides for a 4-7% Y/Y increase in Q4 revenue, below the consensus estimate of 8% Y/Y.

EUR may be watching the flash Eurozone CPI release

Eurozone inflation touched double digits for October, and the flash release for November is due this week. The headline rate of the harmonized index of consumer prices (HICP) is expected to ease slightly to 10.4% YoY from 10.7% YoY last month. The core rate that excludes food and energy prices is forecast to however remain unchanged at 5% YoY. This print will be key for markets as the magnitude of the ECB’s next rate hike at the December meeting is still uncertain, and about 60bps is priced in for now. But even with a slight cooling in inflation, which will most likely be driven by lower energy costs, there is a possibility that inflation will likely remain high in the coming months as winter months progress and cost of living gets worse.

Crowdstrike (CRWD:xnas) tumbled on guidance miss

The shares of Crowdstrike plunged 18.7% in the extended-hour trading after the cybersecurity provider issued Q4 revenue guidance below market expectations.



For our look ahead at markets this week – Read/listen to our Saxo Spotlight.

For a global look at markets – tune into our Podcast.

Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.