Global Market Quick Take: Asia – August 23, 2024

Key points: 

• Equities: Stocks fall ahead of Fed Chair Jerome Powell's speech at Jackson Hole 
• FX: Japanese yen on watch as Ueda and Powell speak 
• Commodities: WTI bounces after four day decline 
• Fixed income: Treasury curve bear flattened 
• Economic data: BOJ’s Ueda, Fed’s Powell 

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The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events. 

Disclaimer: Past performance does not indicate future performance. 

 In the news:

• Stock market today: S&P 500 closes lower as yields rise ahead of Powell (Investing)
• Fed has 'clear path' to achieving goals without recession, Collins says (Yahoo) 
• Quantitative Tightening Goes Global for the First Time, in Test for Markets (Bloomberg) 
• Oil Futures Snap Four-Session Losing Streak (Barron’s) 
• Japan core CPI rises as expected in July, but underlying inflation weak (Investing) 
• Baidu posts flat second-quarter revenue as sluggish economy slowed advertising spending (Yahoo)
• Alibaba swaps its listing status in Hong Kong, clears the way for mainland investments (SCMP)

Macro: 

• US Initial jobless claims for the week that coincides with the BLS’ August payrolls report, rose to 232k from 228k, as expected, with the four week average unchanged at 236k. Meanwhile, continued jobless claims rose to 1.863mln (prev. 1.859mln), but beneath the expected, 1.870mln. Focus turns to Chair Powell speaking at the Jackson Hole Symposium today, and we previewed that in this article. 
• US S&P Global Flash Manufacturing PMI surprisingly declined to 48.0 (exp. 49.5, prev. 49.6), while Services rose to 55.2 (exp. 54.0) from 55.0, leaving the Composite ticking slightly lower to 54.1 (prev. 54.3), but surpassing the forecasted 53.2. 
• Eurozone PMI also exhibited similar trends with manufacturing weaker at 45.6 in August from 45.8 with both Germany and France’s at 42.1, but services PMI boosted by France’s coming in at 55 due to the Olympics boost. Eurozone’s services PMI, as a result, rose to 53.3 from 51.9. 
• UK PMI offered more good news for the economy with growth remaining strong while price pressures are slowing. Composite PMI rose to 53.4 in August from 52.8 prior with services boosted by a BOE rate cut and coming in at 53.3 from 52.5 and manufacturing also in expansion at 52.5 from 52.1 in July. 
• Japan’s July CPI was higher than expected on the headline at 2.8% YoY, matching the June print. The core print rose to 2.7% YoY from 2.6%, as expected while the core-core measure slid back below the 2% target for the first time since September 2022 to come in at 1.9% in July from 2.2% previously. 

Macro events: Powell at Fed's Jackson Hole Economic Policy Symposium, BoJ Governor Ueda’s Testimony, Canada Retail Sales (Jun), ECB Wages 

Earnings: Gold Fields, Hafnia 

Equities: US stocks pulled back on Thursday as rising yields led to caution ahead of Fed Chair Jerome Powell's speech at the Jackson Hole symposium on Friday. The S&P 500 fell 0.9%, the Nasdaq 100 declined 1.7% with a significant drop in tech shares, and the Dow Jones lost 177 points. New data showed that initial jobless claims rose slightly more than expected in mid-August, increasing concerns about a slowing labor market in the US, following an 818,000 downward revision to nonfarm payrolls for the year ending in March. Meanwhile, S&P PMI data indicated that the US private economy grew significantly in August, driven solely by service providers. The tech sector led the declines, with Nvidia shares falling nearly 2% ahead of their earnings report next week. This report is expected to influence the momentum of tech stocks globally and provide new insights into the sustainability of the AI-driven equity rally that has boosted stocks this year. 

Fixed income: Treasuries declined on Thursday after Kansas City Fed President Jeffrey Schmid emphasized the need for more economic data before supporting rate cuts. Contributing factors included a rebound in crude oil prices from their January lows and mixed results from S&P Global US PMIs, with services and composite components exceeding expectations. Strong European PMIs earlier in the day had already pressured Treasuries downward. The Treasury curve bear-flattened, with the two-year yield rising by 7 basis points. Yields had increased by 5 to 7 basis points, flattening the curve; the 2s10s and 5s30s spreads tightened by over 1 basis point. The 10-year yield ended at around 3.855%, up more than 5 basis points, compared to a 7 basis point rise for the UK 10-year yield. Schmid’s comments affected the short end of the curve, initiating the flattening trend. By the session's end, swaps priced in about 29 basis points of easing for September, down from 32 basis points on Wednesday, and 95 basis points for the year, down from 102 basis points. In SOFR options, notable activity included over 100,000 September 2024 call spreads, targeting a half-point Fed rate cut for the September policy meeting. Japan’s 10-year note futures ended down 30 ticks at 144.58, indicating a 3 basis point rise in yields. 

Commodities: WTI crude oil futures up by $1.08 (1.50%) to $73.01 per barrel, and Brent Crude futures up by $1.17 (1.54%) to $77.22 per barrel. NYMEX natural gas prices fell by 5.70%, closing at $2.0530. Gold prices dropped from their record highs, with December gold decreasing by $30.80 (1.2%) to $2,516.70 an ounce. Earlier, gold prices ranged between $2,506.40 and $2,551.40 an ounce, down from this week's high of $2,570.40 an ounce. The drop in precious metals happened after the dollar and Treasury yields bounced back. 

FX: The US dollar snapped four days of losses to reverse higher as US economic data continued to rule out the case for a larger rate cut from the Fed to kickstart the easing cycle in September. Focus is very much on Chair Powell’s speech today at the Jackson Hole but with more data such as August jobs report and CPI due ahead of the Fed’s September meeting, it may remain hard for him to signal rate cuts that match the market’s pricing. The stronger US dollar weighed on other currencies, but British pound remained the most resilient. The euro faltered but held the support at 1.11 against the US dollar. The Japanese yen saw a steady decline before turning sideways and BOJ’s Ueda will be on watch today.  

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