Summary: US equities were little changed on Monday after Apple turned lower from record highs on “sell the fact” reaction to the launch of its mixed-reality headsets. Meanwhile, a surprise slide in US ISM services print stoked further expectations of a Fed pause in June while concerns of an economic slowdown accelerated. Risk aversion brought CHF and JPY higher against the USD and focus turns to AUD today as RBA decision is eyed. Oil prices reversed lower closed the gap higher seen after Saudi production cut announcement over the weekend.
US equities started the week on a mixed note as Apple’s jump to an intraday day record high faded after the tech giant unveiled its new mixed-reality headset. Other big tech also some modest gains but energy sector struggled to hold gains after oil prices pared initial gains following the weekend announcement from Saudi Arabia to cut production. Meanwhile, recession fears mounted as US ISM services PMI saw a broad-based miss vs. expectations and signalled more upcoming weakness with new orders and employment both turning lower.
S&P 500 still closed above 4,200 despite being down 0.2% for the day while NASDAQ 100 closed with mild gains. Palo Alto Networks (PANW) gained more than 4% as the software company is set to replace Dish Network (DISH) in the S&P 500 from June 20.
US Treasuries rallied (yield lower) as the ISM Services index unexpectedly dropped, accompanied by a decline in the price-paid component. Treasures however closed off their best levels with the 2-year yield falling 3bps to finish at 4.47% and the 10-year yield dropped 1bp to 3.68%.
The Hang Seng Index managed to maintain the momentum of the rally, rising 0.8%, led by semiconductors, tourism, and financials names. SMIC (00981:xhkg), rising 6.3%, was the best performing stock within the Hang Seng Index. TRIP.COM (09961:xhkg) surged 4.4% on strong order growth since March, in particular preorders for the upcoming summer. Financials were among the top gainers, with Hang Seng Bank (00011:xhkg), AIA (01299:xhkg), and LINK REIT rising over 2%. Southbound inflows were the largest since February 2021 with over 85% of the flows into index fund ETFs. The performance of China Internet stocks however was muted on Monday with share prices of the leading names little changed.
On the other hand, the CSI300 retreated 0.5% weighed on by weakness in lithium battery, solar, and household appliance weighing on the market.
The dollar started the week with a steady climb higher but slumped in the US session on a broad-based miss in the US services PMI. Japanese yen gained as a result, with USDJPY falling from highs of 140.45 to sub-139.50 in the wake of the downside surprise in the data. Increasing recession concerns also brought gains to CHF, with USDCHF sliding from 0.9120 to 0.9060-levels. EURUSD still stuck close to 1.07 levels and GBPUSD trades around 1.24. AUDUSD will be in focus today as RBA announcement is due with markets still looking for a pause but the firm April CPI may bring another surprise rate hike. SEK was the weakest on the G10 board amid risks over Sweden’s property sector.
As hinted yesterday, the crude oil production cuts announced over the weekend by Saudi Arabia failed to have a material lasting impact on oil prices. After gapping higher to touch highs of $75, WTI prices steadily closed the gap in the day and slid back below $72 into the close. Likewise, Brent failed to challenge the $80-mark and ended the session at $76.50. Recession concerns mounted on a broad-based miss in US services PMI and firmer signs of Fed rate cuts or China stimulus measures may be needed to turn the sentiment on the energy markets. Still, risks of a tighter market in H2 remain with OPEC focused on ensuring market stability.
ISM Services PMI saw a surprise fall to 50.3 in May from 51.9 in April, against the consensus view for a rise to 52.2, indicating a slower pace of growth for the services sector as well. The index saw declines in both the forward-looking New Orders (52.9 vs prior 56.1) and Employment (which slipped into contractionary territory at 49.2 from the prior 50.8). Prices paid component, which raised some alarm bells last month, also eased to a 3-year low of 56.2 from 59.6. The index sends another signal that demand is cooling and that the cumulative tightening is working through the economy, giving room to the Fed to pause in June to assess conditions further.
Apple’s Worldwide Developers Conference kicked off on Monday and a new mixed-reality headset called the Vision Pro was unveiled. Apple (APPL) shares rose to fresh highs ahead of the announcement but “sell the fact” moment saw stock down to session lows later. Apple said it would sell for $3,499, even more than most analysts had expected and nearly 12 times the price of Meta’s Quest 2, the biggest-selling VR headset. Apple and Disney (DIS) will partner on content for the headset with Disney+ available on the Vision Pro, and it is also working with Unity (U) to bring its apps to the device. In addition, Apple also announced a new M2 Ultra chip, which features in new Mac Studio and Mac Pro, on top of a 15-inch MacBook Air, powered by M2 processor chip, to cost USD 1,299, while 13-inch to cost USD 1,099. Intel (INTC) was down 4.6% on reports that its chips will be replaced in Apple products going forward.
April cash earnings was reported this morning from Japan. Nominal wages rose 1.0% YoY from 1.3% YoY in March, coming in below expectations of +1.8% YoY. Real wages were down for a 13th straight month by 3.0% YoY after a decline of 2.3% YoY in March and expectations of -2.4% YoY. This continues to give Bank of Japan the leeway to avoid any drastic changes to its policy stance for now even as minor tweaks may still be considered to respond to market pressures.
The Reserve Bank of Australia faces a tough meeting today. RBA’s moves have thoroughly confused the markets as it resumed rate hikes in a surprise move last month despite softer inflation. Now, this month has brought inflation edging higher once again to reaffirm price pressures. April CPI rose to 6.8% from 6.3% previously and 6.4% expected. But some would argue that the quarterly CPI prints remain more important than the monthly prints, and next quarterly print is only due in end-July. This gives room to the RBA to hold rates again but continue to keep the door open for further tightening in the months ahead. The other option for the RBA could also be to respond to monthly inflation print with a smaller rate hike – say taking the cash rate to 4% from 3.85% currently.
The US securities market watchdog has sued Binance, the world’s largest crypto exchange, accusing it of sending billions of dollars to a separate trading firm owned by its chief executive. The Securities and Exchange Commission’s 13 civil charges against the company are latest blow to Binance after another US financial agency sued it in March.
For a detailed look at what to watch in markets this week – read or watch our Saxo Spotlight.
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2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
