Global Market Quick Take: Asia – February 1, 2024

US Equities: The S&P 500 Index pulled back 1.6% and the Nasdaq 100 plunged 1.9%, driven by weakness in the Magnificent Seven. Alphabet tumbled by 7.5% after missing expectations on advertising sales while the other six fell by 1.9% to 2.5%. A Q4 loss and a resulting 37.5% collapse in share price in New York Community Bancorp triggered concerns among investors about a potential return of stress to the US regional banking sector. The SPDR S&P Reginal Banking ETF sank 5.9%. Powell’s downplaying of the possibility of a March rate cut also weighed modestly on sentiment but investors continue to anticipate that the Fed’s put is here if stress reemerges in the US financial system and the resilience of the labor market will not deter the Fed from cutting rates. 

Fixed income:  Treasury yields fell in New York morning on an unexpectedly small increase in ADP employment in January, coupled with renewed concerns about the health of regional banks, pushing the 10-year yield back below 4% to trade around 3.96%. After the FOMC statement and Powell’s hints at the presser suggested that a March cut was not yet on the table, the 10-year yield bounced but capped at 4% at multiple attempts. Investors took note of Powell’s optimism about the disinflationary trend and his confirmation of a discussion of tapering quantitative easing at the meeting. The 10-year yield dropped by 12bps to 3.91%, closing at the low, signaling strong buying towards the market close.

China/HK Equities:The Hang Seng Index declined 1.4%, while the CSI300 dipped 0.9% after China’s NBS manufacturing PMI increased less than expected. Despite numerous piecemeal supporting measures, manufacturing activities remain a drag. Apple supply chain stocks fell, dragged down by warnings of a 50%-55% Y/Y drop in net income from Sunny Optical. Coal miners bucked the market decline with China Shenhua gaining 2.1%. L’Occitane surged 7.8% on robust Q3 sales beating estimates.

FX: Powell’s pushback to March rate cut expectations, may not have pushed yields higher, but the dollar ended marginally higher after a choppy session as we expected. Some haven demand was also at play after a disappointing start to big tech earnings, and regional banking risks highlighted by a dismal New York Community Bancorp (NYCB) report. Japanese yen gained amid a sharp slide in Treasury yields and hawkish hints in BOJ summary of opinions yesterday, but USDJPY reversed from 146 support back to 147. AUDUSD attempted to move back above 0.66 after yesterday’s decline following a miss in Q4 CPI which opened up the scope for dovish RBA pricing, but pushed lower again to sub-0.6570. AUDJPY pierced through 96.90 support and 100DMA at 96.32 now coming in view. GBPUSD still wobbling around 1.27 and a hawkish BOE bent today may be likely, but 1.28 could continue to cap gains.

Commodities: Crude oil priced plunged sharply amid signs of rising US production with US inventories gaining. EIA data showed that commercial stockpiles in the US rose 1.23mbbl last week, the first build in three weeks, although Cushing hub saw a drawdown. Powell’s pushback to March rate cut also dimmed demand outlook. Still, oil closed higher for the month, given geopolitical escalation. Gold gained on lower Treasury yields, but a stronger dollar brought it back to $2,040.

Macro:

• The Fed left rates unchanged at 5.25-5.5%, and the statement tilted hawkish with a line added that said they won't ease until they have more confidence on inflation. Powell’s presser started on a less hawkish note as he said that data doesn't need to turn down for cuts but just needs to keep on doing what it's doing. However, he said that it's unlikely they will have enough confidence on inflation to cut in March, pushing back the market that was still expecting a March rate cut with about 40% odds.
• US ADP disappointed as it saw 107k jobs added in January, beneath the 145k forecast and prior 158k. This puts the focus on Friday’s NFP report, and although may not be a good gauge for NFP, weak data could bring the market back to increasing the odds of a March rate cut. The Q4 Employment Costs index also eased to 0.9% from 1.1%, beneath the 1.0% forecast, indicative of slowing wages.
• China’s NBS manufacturing PMI increased to 49.2 in January from 49.0 in December, a smaller improvement than the consensus forecast of 49.3. The non-manufacturing PMI increased to 50.7 from 50.4. The construction sub-index fell to 53.9 from 56.9. Meanwhile, the service sub-index rebounded to 50.1 in January, after falling below the 50-mark in the previous two months. The Caixin manufacturing PMI, scheduled to be released on Thursday, is expected to stay unchanged at 50.8 according to the survey by Bloomberg. Nonetheless, whisper numbers suggest the potential for a downside surprise of coming below 50.
• According to the China Real Estate Information Corp., the contract sales volumes of the top 100 and top 30 developers decreased by 36% Y/Y and 35% Y/Y respectively.
• The Politburo of the Chinese Communist Party held its first meeting in 2024 reiterating a continuation of the prevailing economic policies and without mentioning any timeline for the much anticipated Third Plenum meeting.
• Hong Kong GDP growth increased to 4.3% in Q4, picking up from Q3’s 4.1% but below the consensus forecast of 4.7%. The modest bounce was driven by inventory build-up and a smaller decrease in net exports.

Macro events: China Caixin Manufacturing PMI (Jan), EZ/UK/US Manufacturing PMI (Jan F), EZ Flash CPI (Jan), BoE Announcement, US ISM Manufacturing PMI (Jan).

Earnings: Apple, Amazon, Meta, Merck, Shell, Honeywell, Roche, Sanofi

• Apple is anticipated to report a 1% Y/Y revenue growth, reaching $42.3 billion in EBITDA, up from $38.9 billion. The Services segment is expected to mitigate challenges in the hardware business, particularly iPhones. Investor attention will be focused on any updates regarding the Vision Pro AR/VR headset outlook.
• Amazon seems to have stabilized post-pandemic growth at around 11%, aligning with analysts' projections. EBITDA is forecasted to rise to $29.1 billion from $17.8 billion, driven by cost-cutting and increased demand for AWS computing power fueled by generative AI. The advertising business is poised for approximately 20% growth.
• Meta's revenue growth has improved for three consecutive quarters, with a projected 21.5% year-on-year increase in Q4, reaching $22.4 billion in EBITDA, up from $16.7 billion. Layoffs and a rebound in global advertising contribute to this growth. However, potential advertising challenges from Chinese entities Shein and Temu, along with US-China tensions, could impact Meta. Declining engagement on the Facebook platform may also present a negative narrative.

In the news:

• US bank stocks sink after New York Community Bancorp cuts dividend (Reuters)
• Fed plans 'in-depth' talks on balance sheet run-off in March: Powell (Reuters)
• Qualcomm profit forecast beats estimates amid AI push, shares gyrate (Reuters)
• Novo Nordisk expects double-digit growth as it boosts Wegovy supplies (Reuters)
• India's pre-election budget: What to expect on Thursday (Reuters)
• Chinese leaders hint at increased focus on politics and Communist Party discipline for coming year (SCMP)
• China gold purchases soar 30% on economic anxiety (Nikkei Asia)
• U.S. deploys three carriers in Asia, maintaining China focus (Nikkei Asia)
• The EV future takes a hybrid detour (Politico)

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

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