APAC Strategy Team
Summary: The U.S. ISM survey and China’s PMI reports are the key data to watch this week. After the hot employment and inflation data from the U.S., investors are searching for additional data to discern the competing scenarios of recession, soft-landing, and no-landing (i.e. strong growth). Investors are also in need of signs of economic recovery from China or additional positive policy signals from the Chinese authorities to sustain the U-turn in sentiment towards Chinese equities since November last year which has started to fade somewhat. Ueda, the new BOJ chief’s rhetoric on policy continuity will be put to test with this week’s Tokyo CPI due on Friday.
The recent data out of the US has shown firm inflation and growth dynamics, prompting an upward repricing of the Fed’s path and bringing yields to critical levels. The 2-year yields in the US have touched their highest levels since 2007, and 10-year yields are in close sight of the key 4% zone which can spell further risk aversion. The ISM surveys this week will be key to watch for further direction, with the manufacturing survey out on Wednesday and services out on Friday. The consensus is for the manufacturing ISM to improve to 48.0 in February from 47.4 in January, but still remain in contraction (below 50). The ISM services index saw a surge to 55.2 in January after a drop to 49.2 in December, partially a reflection of winter weather trends. Gains are likely to moderate, and consensus expects 54.5. Also on watch will be the US durable goods orders for January, as mentioned in the Weekly Watch.
Also Wednesday - China’s PMI surveys are expected to show the recovery is progressing in February. We expect good news - with the services sector driving growth and manufacturing picking up slightly. These will be important signals - as monthly activity data won’t next be available until mid-March. The official NBS Manufacturing PMI, according to survey from Bloomberg, is expected to bounce further into expansion at 50.7 in February from 50.1 in January and the Non-manufacturing PMI is forecasted to climb to 55.0 from 54.4. Despite the sluggishness in exports, Caixin China PMI is expected to return to the expansionary territory at 50.8 in in February, from 49.2 in January. The Emerging Industries PMI jumped to 62.5 in February from 50.9 in January added to the favourable forecasts for the NBS and Caixin PMIs.
After threats from US about making public the information on China supplying weapons to Russia, China came up with a 12-point peace proposal on Friday to be a neutral mediator in the Russia-Ukraine conflict. Reports suggested that China’s proposal took a clear anti-West stance, condemning NATO extension and sanctions against Russia, but Ukrainian President Volodymyr Zelensky has signaled he's open to China's new ceasefire plan and meeting President Xi. How these events turn this week will be key to watch, especially US comments and support to Ukraine if it was to accept China as a mediator.
Australian GDP data on Wednesday will likely show fourth-quarter economic growth slowed down to pace of 2.7% YoY - quashed by higher inflation and interest rates. And monthly CPI should show inflation is cooling. In these instances, that would theoretically pressure the Aussie dollar lower, while the US dollar is continuing to move up - so that’s something to watch.
Broader expectations are for the Eurozone flash CPI to ease to 8.2% YoY in February from 8.6% last month amid lower energy prices. However, the core measure is still expected to be firm at 5.3% YoY, underpinned by higher non-energy industrial goods. This continues to suggest that the underlying price pressures remain firm, and another 50bps rate hike from the ECB remains likely in March. The minutes from the last ECB meeting are also out on Thursday, and the path after the next 50bps rate hike remains on watch. Lagarde previously noted that the ECB will not be at peak rates in March and there will most likely be ground left to cover, which suggested that hopes for a pause in May could be disappointed.
The new Bank of Japan chief Kazuo Ueda’s testimonies in the parliament hinted at an unchanged monetary policy in the near-term, and a steadfast focus on achieving 2% inflation sustainably. Ueda remains in Kuroda’s camp on inflation, saying that the current inflationary pressures are mostly import-driven and inflation is expected to peak soon. This rhetoric will be put to test with this week’s Tokyo CPI due on Friday. Consensus expects the headline CPI to soften to 3.3% YoY from 4.4% YoY last month, perhaps signalling that nationwide numbers could ease as well. However, the core-core measure (ex-fresh food and energy) is likely to be firmer at 3.1% YoY in February from 3.0% previously.
Energy companies have again reported the best earnings growth this US and Australian corporate reporting season - with increased profits and dividends. Occidental Petroleum’s outlook will be a focus on Monday as well as Canadian Natural Resources - when they report later this week. Occidental is expected to report its highest-ever fourth-quarter net income – with the US energy giant to benefit from high energy prices amid tight supplies. The oil and gas giant generated about $2.8 billion in free cash flow in the period after years of austerity and debt reduction, according to Bloomberg consensus. Investors will closely monitor its 2023 spending and capital-returns outlook with adjust EPS of $1.79 expected. Occidental's shares are down 6.6% this year.
For what Australia’s oil and gas giant - Woodside Energy reported on Monday see our daily team note – Markets Today. Also, keep in mind, we expect the oil price to stay around $80 this quarter and move up to $90 next quarter.
Budweiser Brewing Co (1876 HK) which is a distributor is Asia - is due to release results on Wednesday with Q4 revenue to get a lifeline from the FIFA World Cup trading- but income is still expected to dive. However, the world’s largest brewer Anheuser-Busch InBev SA/NV (BUD) may gain more attention when it reports on Thursday, as option volume rose 8% last week in BUD, with the market expecting EPS to grow from 1.94 to 3.01. For more on Brewers click here.
In a note last Friday, Peter Garnry, Saxo’s Head of Equity Strategy draws investors attention to Salesforce (CRM:xnys), Snowflake (SNOW:xnys), and Coupang (CPNG:xnys) announcing this week.
Activist investors have entered Salesforce, a cloud-based enterprise software provider, over the past year and the pressure is going up on management to drastically improve profitability which is already being reflected in analyst estimates. Analysts expect revenue growth of 9.2% y/y down from 26% y/y a year and EBITDA of $2.67bn up from $1.02bn a year ago; Salesforce reports FY23 Q4 earnings (ending 31 Jan) on Thursday after the market close.
Snowflake was one of the hottest IPOs before the interest rate shock cooled the stock to being more ordinary. The cloud infrastructure company is expected to report FY23 Q4 (ending 31 Jan) earnings on Thursday after the US market close with analysts expecting revenue growth of 50% y/y down 102% y/y a year ago and EBITDA of $25mn up from $-146mn a year ago.
The third company to watch is Coupang because of its e-commerce exposure to South Korea which could potentially provide some colour consumer spending patterns in one of Asia’s most cyclical economies. If China’s reopening is progressing well then it should spill over into a more positive outlook for South Korea. Coupang reports earnings on Tuesday after the US market close with analysts expecting revenue growth of 7% y/y down from 34% y/y a year ago and EBITDA of $197mn up from $-248mn a year ago.
The 20th Central Committee of the Chinese Communist Party is holding the second plenum from 26 to 28 February to decide on the recommendation list of candidates for top government posts to be sent to the National People’s Congress to finalize during the latter’s meeting commencing from 5 March. Investors will watch closely the personnel arrangement on the state administration side, especially who will be put in the top positions in various financial policy-setting and regulatory authorities amid market chatter of the Party’s plan to pursue a major shake-up of the financial system.
Monday 27 February
US Durable goods orders (Jan)
Eurozone Consumer confidence/economic confidence/industrial confidence (Feb)
Tuesday 28 February
US Chicago PMI (Feb)
Japan Industrial production (Jan)
Japan Retail sales (Jan)
Japan Housing starts (Jan)
India Real GDP (Q4)
Wednesday 1 March
US ISM manufacturing Index (Feb)
Germany Unemployment (Feb)
Germany CPI (EU harmonized; Feb flash)
Australia Real GDP (Q4)
Australia CPI (Jan)
South Korea Exports (Feb)
Thursday 2 March
US Non-farm productivity (Q4, final)
US Unit labor costs (Q4, final)
Eurozone CPI (harmonized, Feb flash)
Eurozone Unemployment (Jan)
Eurozone ECB Policy Meeting Minutes (Feb)
Japan Consumer confidence (Feb)
South Korea Industrial production (Jan)
Friday 3 March
US ISM Services (Feb)
Eurozone PPI (Jan)
France Industrial production (Jan)
Japan Tokyo-area CPI (Feb)
Japan Unemployment rate (Jan)
Singapore Retail sales (Jan)
Monday 27 Feb: Woodside Energy, Alcon, Occidental Petroleum, Workday, Li Auto, Zoom Video
Tuesday 28 Feb: Bayer, Moncler, ASM International, Target, Monster Beverage, HP, First Solar, Coupang, Rivian Automotive
Wednesday 1 Mar: Royal Bank of Canada, Beiersdorf, Reckitt Benckiser, Kuehne + Nagel, Salesforce, Lowe’s, Snowflake, NIO
Thursday 2 Mar: Anheuser-Busch InBev, Argenx, Yunnan Energy New Material, Toronto-Dominion Bank, Fortum, Veolia Environment, Merck, Hapag-Lloyd, CRH, London Stock Exchange, Haleon, Flutter Entertainment, Universal Music Group, Broadcom, Costco, VMware, Marvell Technology, Dell Technologies
For Saxo’s live economic and news calendar click here.
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.