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

Global Market Quick Take: Asia – June 20, 2023

Macro 7 minutes to read
APAC Research

Summary:  The US equity and bond markets were closed for a public holiday on Monday. Hong Kong and mainland Chinese equity markets retreated after the results from the State Council meeting fell short of investors’ expectations. Chinese President Xi and US Secretary of State met. Jack Ma warned about the difficult business environment ahead. Buffet increased stake in Japanese trading houses. Investors will gauge the state of the global economy from the results and comments from FedEx today.

What’s happening in markets?

US equities (US500.I and USNAS100.I): Market closed for the Juneteenth holiday

Treasuries (TLT:xnas, IEF:xnas, SHY:xnas): Market closed for the Juneteenth holiday

Hong Kong & Chinese equities (HK50.I & 02846:xhkg): retreated on stimulus disappointment

Mulling over stimulus measures was not good enough and investors voted with their money to sell Hong Kong and Chinese stocks returned on Monday after the State Council executive meeting chaired by Premier Li Qiang last Friday suggested that the Chinese Government was still contemplating policies and measures and made no indication of the launch of a comprehensive package as investors had been hoping to hear. A couple of major investment banks cutting China’s GDP forecasts for 2023 also weighed on the market sentiment. The market recovered in the afternoon on the news headlines that President Xi and U.S. Secretary of State would meet in person later in the day. The Hang Seng Index pared its loss to a decline of 0.6% and the CSI300 fell by 0.8%.

JD.COM (09618.xhkg) shed 1.9% despite making record sales on its 6.18 shopping day. Alibaba (09988:xhkg) dropped by 2.1% after Jack Ma reportedly warned the management in May about the difficult time ahead. Sportswear stock plunged, as Anta (02020:xhkg) and Li Ning (02331:xhkg) closed around 4% lower. On the other hand, Meitu (01357:xhkg) soared 21.3% after unveiling new AI tools.

In A shares, food and beverage, retailers, beauty and personal care, and construction stocked declined while computing, telecommunication, electronics, and defense outperformed.

FX: Dollar remained supported in thin overnight markets; USDJPY broke above 142

With US markets closed overnight, volumes were thin and dollar traded sideways. NOK was the underperformer on the G10 board and AUD and NZD also underperformed with China stimulus hopes getting dashed with no announcements out yet. AUDUSD reversed back from 0.69 handle to 0.6850 and RBA’s June meeting minutes will be the focus today. EURUSD also gave up the 1.10 handle and traded at 1.0920 with the ECB split emerging (read below) while GBPUSD fell below 1.28. USDCAD got some bids amid a soft Canadian PPI indicating the Bank of Canada may not need to hike as much and oil prices also softer on Chinese stimulus disappointment. USDJPY finally broke 142 to test key resistance at 142.25 in early Asian hours and will be key to watch as the Treasury market opens today.

Crude oil: China stimulus disappointment weighs

Crude oil prices fell on Monday as investors became pessimistic about China’s stimulus announcement having waited too long. The Chinese government has been debating what additional support it can provide as growth struggles to gain traction. Sentiment was further hit by reports that Iraq and Turkey are set to meet to discuss reopening a nearly 500kb/d pipeline that was shut in March. WTI futures dropped closer to $71 in thin markets while Brent reversed from $77 to close in on $76/barrel. Focus will now turn to Chair Powell’s testimony this week, and oil traders may also be watchful of Tropical Storm Bret that could strengthen to Hurricane just outside US Gulf.


What to consider?

Xi and Blinken meet

Chinese President and US Secretary of State met on Monday during the latter’s visit to China. The statements form both China and the US described the meeting between Xi and Blinken as candid, substantive and constructive.

Chinese banks poised to slash Loan Prime Rates, prompted by PBoC's MLF rate cut

In response to the reduction in the 1-year Medium-term Lend Facility Rate (MLF rate) by the People's Bank of China (PBoC) last week, Chinese banks are expected to recalibrate their 1-year Loan Prime Rates (LPR) and 5-year LPR downward by 10bps to 3.55% and 4.20% respectively. The existing interest rate framework in China entails the central bank adjusting the MLF rate as a guiding benchmark, while commercial banks establish their LPR quotations by incorporating a spread over the MLF rate. In an effort to stimulate housing demand, it is plausible that the 5-year LPR, which mortgage loans are tied to, could witness a more pronounced downward adjustment than the aforementioned market consensus, potentially reaching a reduction of 15 bps.

ECB split beyond July starting to emerge

There was plenty of commentary from ECB yesterday, and a split between doves and hawks is starting to emerge which could spell bond volatility. A July hike remains likely, but the path ahead could get choppier. While Chief Economist Lane said that July hike remains appropriate, his comments from there on were less hawkish as he hinted that September is far away and “we will see.” Meanwhile, Schnabel seemed more inclined towards keep hiking rates, even if “need to err on side of doing too much.” Elsewhere, Greek central bank head Stournaras said that a further decline in inflation is expected.

Warren Buffet increases stake in Japanese trading houses again

Japanese stocks have been on a tear, up nearly 28% this year. Billionaire investor Warren Buffett's Berkshire Hathaway added a spark in April when he traveled to Tokyo and increased his investment in five of Japan's trading houses. A press release from the company Monday detailed that Buffett has further increased his stake in the trading houses, a sign that the billionaire has become more comfortable deploying capital in Japan than in Taiwan or China. Berkshire said its stakes in trading houses Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo were raised to an average of 8.5%. It also hinted that Hathaway may increase its holdings up to a maximum of 9.9% in any of the five investments, depending on the price.

Airbus gets a record 500-plane order from Indian airline

At the Paris air show Indian airline IndiGo made a record order for 500 planes from Airbus, in an indication of the extreme demand coming from the world's most-populous nation. It surpasses the previous record order of 470 planes by Air India previously this year, and is a huge bet from IndiGo on travel demand into the next decade, further reaffirming our upbeat view as discussed in this video. The expected delivery date for the order is between 2030-2035.

FedEx to report results: revenue and EPS decline expected

FedEx (FDX:xnys) is slated to announce its fiscal Q4 2023 earnings, which concluded on May 31 on Tuesday. According to the Bloomberg consensus, the courier giant is expected to report a 7% Y/Y decline in revenues, reaching USD22.657 billion, along with a significant 29% drop in adjusted EPS to USD4.872.

FedEx is a global logistics company and thus will provide a fresh outlook on how global transportation dynamics are evolving given the recent slowdown we have seen in the global economy. Investors will closely monitor the progress of FedEx's cost reduction program. Additionally, attention will be focused on any insights provided by the company regarding its business outlook, given the evolving market dynamics and economic conditions.

Tencent launched a model-as-a-service business

Tencent launched a new AI platform to develop a models-as-a-service business to support customer services in the finance, education, and communication industries. The news did not stir up much excitement and Tencent’s share price fell 1,6%.

Jack Ma warned about a difficult business environment ahead

Jack Ma reportedly told the management of Alibaba in late May that the higher-end T-mail would be facing a more difficult business environment and the company should focus on the mass e-commerce market of Taobao. He cited the examples of Nokia and Kodak and warned the management that a business enterprise could easily fall from an industry-leading position to demise in 6 to 12 months and it could be even faster than in the internet industry.

Meitu soared after unveiling AI products

Meitu jumped 21.3% after the company launched seven new generative AI (AIGC) products including MiracleVision, an AI vision product.

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

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


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