Global Market Quick Take: Asia – July 20, 2023 Global Market Quick Take: Asia – July 20, 2023 Global Market Quick Take: Asia – July 20, 2023

Global Market Quick Take: Asia – July 20, 2023

Macro 7 minutes to read
APAC Research

Summary:  U.S. equities finished mixed. Regional banks extended rallies on better-than-feared Q2 results. Netflix plummeted 8% after dismal revenues and guidance despite blowout subscriber growth. Tesla beat on top and bottom line but margins and free cash flow disappointed. The British pound slumped after the UK’s June core CPI fell unexpectedly. In Hong Kong, turnover recovered to the highest level in a month and net buying from the Southbound flows reached HK16.5 billion, the highest level since early 2021. Wheat futures jumped Wednesday by 8.5% after Russia's threat to all vessels sailing to Ukraine ports.


What’s happening in markets?

US equities (US500.I and USNAS100.I): banks rally on regional bank results; Netflix plunges on downbeat sales guidance

Key benchmark indices pared initial gains and finished mixed, with the S&P500 gaining 0.2% while the Nasdaq 100 ticked down by 0.1%. Real estate, utilities, and consumer staples were the top winning sectors among the S&P500. Banks extended their rally after U.S. Bancorp (USB:xnys), M&T Bank (MTB:xnys), Citizens Financial (CFG:xnys), and Northern Trust (NTRS:xnys) reported largely in line to better than expected pre-provision net revenues and stabilization in deposits. Northern Trust jumped 13.4% while US Bancorp and Citizens surged over 6%. The SPDR S&P Regional Banking ETF (KRE:arcx) extended its recent rally to gain 3.1%%.

Movements in megacap tech stocks were muted in the regular section pending for earnings to be released post-close. In the extended-hours trading, Netflix (NFLX:xnas) tumbled around 8% after Q3 sales guidance missing estimates. Tesla (TSLA:xnas) shed around 4% on lower margins. IBM (IBM:xnys) slid 1% after reporting Q2 revenues below estimates.

Treasuries (TLT:xnas, IEF:xnas, SHY:xnas): the long end gains amid economic data and auction results

US Treasuries gained after a choppy session. The market rallied, and yields fell initially following the rally in UK Gilts after UK inflation slowed more than expected. The softer-than-projected US housing starts and permits data helped extend the rally. Yields started to climb and pair early market gains after the announcement of several large corporate bond insurance. A strong 20-year auction, however, triggered a recovery in the long end of the curve. The 2-year yield finished unchanged while the 10-year yield dropped by 4bps to 3.75%. The 2-10 yield curve flattened by 4bps to -101.

Hong Kong & Chinese equities (HK50.I & 02846:xhkg): ): China property stocks rebound

The Hang Seng Index extended losses, falling over 1% at one point, but it managed to recover most of the losses and finished 0.3% lower. The turnover reached HKD112 billion, the highest level in a month, and net buying from the Southbound flows reached HK16.5 billion, the highest level since early 2021. China property stocks rebounded rebound after several days of losses following a broker report that warned about the risk of a short squeeze in the battered sector. Longfor (00960:xhkg), Country Garden Services (06098:xhkg), Country Garden (02007:xhkg), and China Vanke (02202:xhkg) bounced back more than 2%. This was in contrast to the poor sentiment and selloff in developers’ USD bonds as Greenland defaulted and Shui On Development reportedly might be seeking an extension of its bonds.

Among China Internet stocks, Kuaishou (01024:xhkg) and Alibaba (09988:xhkg) stood out with gains of 1.2% and 0.7% respectively while most others registered moderate losses. Sportswear names traded lower, driven by Anta’s (02020:xhkg) 1.8% decline as Q2 sales growth disappointed. OOIL (00316:xhkg) advanced 5.1% as Asia-Europe container freight rates climbed.

In the A-share market, the CSI300 ticked down by 0.1%, with gains in property, construction materials, media, and industrials offset by telecommunication, electric equipment, electronics, and defense weaknesses.

FX: GBP slumps supported the US dollar

The US dollar found renewed support and was pushed higher due to the slump in sterling following softening UK inflation report. GBPUSD took a look below 1.29 from 1.3050-levels before a slight recovery subsequently. EURGBP jumped sharply higher to test 100dma at 0.87 from 0.862 before settling at 0.866 later. EUR dipped below 1.12 with more ECB commentary turning cautious. Stournaras warned that more tightening could hurt the economy and just one more 25bps hike would be enough, Simkus called on the need for a July hike with debate still over September, while Nagel warned about pulling back from tightening too quickly. USDJPY tested 140 ahead of CPI due tomorrow. AUDUSD paring some of the overnight loss to rise back above 0.6780 as AU employment data is awaited.

Crude Oil: reversed from highs on strong USD

Crude oil prices reached fresh highs yesterday after cooling UK CPI pressured yields, relieving some of the inflation and demand concerns. Supply tightness concerns also underpinned with reports suggesting that Russian oil exports for July have been set at 370k BPD below the quarterly plan initially set out. But gains in crude oil were reversed later as USD strength weighed, and EIA inventory report had little impact. EIA data showed US stockpiles of crude oil fell 708kbbls last week, less than expected. China LPR decision to guide oil traders in the Asian session today.

Wheat: heating geopolitical climate

Wheat futures jumped Wednesday by 8.5% after Russia's defense ministry released a memo on Telegram indicating all vessels sailing to Ukraine ports in the waters of the Black Sea will be "regarded as potential carriers of military cargo" beginning on Thursday. Reports also suggested intense drone and missile attacks from Russia on Ukraine’s critical port infrastructure including grain and oil terminals. This adds to concern after the Black Sea deal was terminated earlier this week.

 

What to consider?

UK June core CPI falls unexpectedly

After the prior two months saw UK core CPI spiking to new multi-decade highs, the June data finally showed some relief, as the core reading dropped to 6.9% vs. 7.1% expected and 7.1% in May, with the headline also lower than expected at +0.1% M/M and 7.9% Y/Y vs. 0.4%/8.1% exp. and 8.7% Y/Y previous. Gilts jumped while sterling tumbled on the news as odds of a 50bps rate hike in August decreased and terminal rate expectations were lowered to 5.8% from over 6% earlier.

Apple finally jumps on to the AI bandwagon

Reports suggested that AppleGPT or Ajax may be the generative AI tool that Apple is working on. The company has been slow to get into the AI chatbot game after the success of OpenAI's ChatGPT. Details in the report were thin and no timeline for the launch was given.

Tesla earnings: Beat on top and bottom line, but margins and free cash flow disappoints

As expected, Tesla’s profit margin slipped in Q2 as price cuts weighed. However, the EV maker beat revenue and EPS forecasts, with Q2 revenue of $24.9bn (vs. $24.46bn expected) reaching a record high. Q2 adjusted EPS came in at 91c vs. 81c expected. Gross margin was however lower than expected at 18.2% (vs. 18.8% exp) and free cash flows also disappointed at $1.01bn (vs. $2.18bn exp). Tesla reaffirmed production guidance of 1.8mn units this year, but this was underwhelming as Musk earlier hinted that capacity is for 2mn units. The company said that Cybertruck remains on track to begin initial production later this year at Gigafactory Texas but delivery details lacked, and commitment to AI was reaffirmed with $1bn spending plan laid out for Tesla’s in-house supercomputer, Dojo. Results may prove to be underwhelming compared to expectations given the recent stock rally.

Netflix earnings: Blowout subscriber growth, but dismal revenues and guidance

Netflix earnings got a fillip from crackdown on password sharing which helped add 6mn subscribers, nearly three times what analysts had forecast. Revenue came in at $8.19bn, +2.7% YoY missing estimates of $8.3bn while EPS of $3.29 beat estimates for $2.85 and was above $3.20 a year ago. Guidance was also on the weak side, with the company predicting that revenue would climb to $8.5bn in the third quarter, missing analyst forecasts for $8.7bn. Stock had gained more than 8% in the five days leading up to the earnings release, and it dropped by more than 8% in post-market trading after earnings report.

BOJ policy expectations: Japan CPI on watch

The expectations of a July tweak in yield curve control from the Bank of Japan are rampant and June inflation due this Friday could be key. If there are signs that inflation is cooling, as was evident in the Tokyo CPI readings for June, that could further take the pressure off the BOJ. Nonetheless, BOJ remains adept at surprising the markets and will likely tweak its YCC policy when the market pressures are possibly not pressing its nerves in order to maintain credibility. Consensus expectations have marked headline CPI for June to remain unchanged at 3.2% YoY while the ex-fresh food measure is expected to be a notch higher at 3.3% YoY from 3.2% previously even as ex-fresh food and energy is seen lower at 4.2% YoY from 4.3% previously.

Greenland defaults; Shui On Development reportedly seeks extension

Chinese developer Greenland failed to repay USD22.5 million or 5% of the outstanding principal of a bond on June 25. Separately, Morrow Socali, the financial advisor also to China Evergrande, is contacting bondholders on behalf of Shui ON Development potentially seeking an extension of a bond due November this year.

China sent out another pledge to support the private sector

On Wednesday evening, the Communist Party of China leadership and the State Council jointly issued a statement to pledge support to private enterprises. The statement reaffirmed the conciliary stance adopted by the Chinese leadership toward the private sector since the Central Economic Work Conference last December.

For a detailed look at what to watch in markets this week – read our Saxo Spotlight.

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

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
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.