Global Market Quick Take: Asia – March 15, 2024

US Equities: A surge in bond yields, driven by a PPI report that exceeded expectations, caused stocks to face downward pressure, leading to both the S&P 500 and Nasdaq 100 declining by 0.3%. Within the Magnificent Seven, performance varied: Alphabet and Microsoft saw gains of approximately 2.4%, while Apple and Amazon experienced increases of over 1%. Conversely, Tesla and Nvidia dropped by 4.1% and 3.2%, respectively.

Microsoft announced the global availability of its AI chatbot Copilot for Security, starting April 1, applying a consumption-based pricing model. In extended-hours trading, Adobe dropped by 11%, despite reporting slightly better-than-expected quarterly revenue of $5.18 billion and EPS of $4.48. The sell-off was triggered by downbeat guidance for the current quarter, which disappointed investors.

Hong Kong/China Equities: The Hang Seng Index retreated from recent highs, declining by 0.7% to 16,962. This drop was particularly pronounced for WuXi-AppTec, WuXi Biologics, and WuXi XDC, which plummeted by 12.1%, 13.1%, and 18.02% respectively. The decline followed the announcement by the Biotechnology Innovation Organization (BIO) in the U.S., stating its intention to take “steps to reaffirm the organization’s position with regards to national security and the role that the industry plays as a vital strategic asset.” The steps include the removal of WuXi-AppTec’s BIO membership. This, together with the passage of the TikTok bill by the House, reminds investors that the U.S. has extended its scope of restrictions against Chinese companies for national security reasons beyond semiconductors to many more areas. On the mainland, the CSI300 slid 0.3%, with media, electronics, and defence sectors dropping, while non-ferrous metal and energy stocks gained ground.

Fixed income: Hot PPI data caused investors to rethink the pace of the Fed rate cuts this year and the potential adjustments to the FOMC’s rates and inflation estimates in its quarterly summary of economic projections or dot plot. The probability implied in interest rate futures for a rate cut by June fell to 54.5% from 58.2% a day ago. The 10-year Treasury yield jumped 10bps to 4.29% while the 2-year yield added 6bps to 4.69%.

FX:  The US dollar rallied as Treasury yields surged. EURUSD dropped to 1.0880 and USDJPY climbed to 148.50. Despite the anticipation of a BOJ pivot that ends the zero interest rate in Japan, yen strength remains uncertain without a more hawkish BOJ stance and is largely dominated by the strength of the dollar which has recently picked up amid investors expecting a slower pace of rate cuts by the Fed. For further insights, refer to Charu Chanana's article.

Commodities:  WTI crude and Brent crude oil front-month futures rose 1.9% and 1.7% respectively on Thursday, reaching $81.26 and $85.42. This surge followed the International Energy Agency (IEA) revising its global oil demand forecast upwards to 1.7 million barrels a day (mbd) for Q1 and 1.3 mbd for the entire year of 2024, up from its earlier projection of 1.2 mbd.

Macro:

• According to Jiji, a prominent Japanese news agency, the BOJ is preparing to terminate its zero interest rate policy during its meeting scheduled for March 18-19. This decision is pending final confirmation based on the aggregated results of the spring wage negotiations (Shunto), which are set to be released later today by the Japanese Trade Union Confederation (Rengo).
• US PPI surged beyond expectations, rising by 0.6% M/M or 1.6% Y/Y in February, surpassing consensus forecasts of 0.3% M/M and 1.2% Y/Y. January's figure was revised upward to 1.0% Y/Y from 0.9% Y/Y. Excluding food and energy, the core PPI increased by 0.3% M/M and 2.0% Y/Y, also exceeding median forecasts of 0.2% and 1.9%, respectively. Notably, domestic scheduled air passenger transportation services saw a 3.5% M/M price hike. The upward revisions to PPI’s hospital and physician service costs for January could lead to a significant upward revision in January's core PCE inflation, the preferred gauge of the Fed, reducing market expectations regarding the pace of rate cuts this year.
• US retail sales expanded at a slower pace than anticipated, increasing by 0.6% M/M in February, while the January decline was revised downwards to -1.1% M/M from the previously reported -0.8%. Excluding auto sales, retail figures in February rose by 0.3% M/M, falling short of the expected 0.5%, and the January data was revised downward to -0.8% from -0.6%.
• US initial jobless claims declined to 209k, below the 218k projected by economists and the prior week’s 210k (revised down from the previously reported 217k).
• In Singapore, visitor arrivals rebounded to 95.8% of pre-pandemic levels in February, up from January's 88.4%. This increase was primarily driven by a surge in arrivals from China, reaching 96.3% of pre-pandemic levels, compared to 65.9% previously. This surge could be attributed to a combination of factors, including the Lunar New Year effect and the visa exemption for Chinese visitors implemented since February 9.

Macro events: US Empire State Survey (Mar), Industrial Production (Feb), U of Michigan Consumer Sentiment (Mar), Japan spring wage negotiations (Shunto) aggregate results from the Japanese Trade Union Confederation (Rengo).

Earnings: Contemporary Amperex Technology, Vonovia, Jabil

In the news:

• BOJ preparing to end negative interest rate policy at March meeting, Jiji reports (Reuters)
• Fed Gets More Reasons to Delay Interest-Rate Cuts (Bloomberg)
• Adobe Drops on Weak Forecast Fueled by AI Competition Fears (Bloomberg)
• Mnuchin Now Wants to Buy TikTok, Days After Leading NYCB Rescue (Bloomberg)
• China issues draft rules to allow companies to tap foreign debt markets (Reuters)

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

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