Weekly Commodities Update Weekly Commodities Update Weekly Commodities Update

APAC Daily Digest: What is happening in markets and what to consider next – September 7, 2022

Equities 7 minutes to read
APAC Research

Summary:  Good news to the US economy spells bad news to the bond markets and equities. Crude oil prices stumble on restricted movements in the city of Guiyang in China, while the Newcastle Coal price moves to its own beat roaring to a brand new record high. With this in light, Australian GDP data will be a focus today with Australian coal exports hitting $100 billion. USDJPY at record highs again, so what's next for that FX pair, plus why to watch the AUDUSD. Plus what to expect from the Bank of Canada today, and NIO earnings.

What is happening in markets?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) 

Good news to the economy is bad news to the bond markets and the stock market.  The solid ISM Services data removed the little remaining hope of a soft landing from the mind of bond traders and pushed up yields and the higher bond yield in turn dragged down the stock markets.  After the end of the reporting season and companies headed for the blackout period, stock traders spent their days mulling over what the Fed is going to do next and turned deeper into the belief that the summer rally might end up being a bear market rally and decided to trim long positions amid low liquidity and lack of retail participation. The unfolding of an energy crisis across the pond in Europe added to the negative sentiment.    S&P500 was down 0.4% and Nasdaq100 declined 0.7% on Tuesday. Bed Bath & Beyond (BBBY:xnas) tumbled 18.4% following the news that the company’s CFO committed suicide, the announcement of firing 20% of its workforce and selling 12 million of new shares.  

U.S. treasuries (TLT:xnas, IEF:xnas, SHY:xnas)

After the much strong than expected ISM Services prints, treasuries were sold off, 2-year yields +12bps to 3.5%, 10-year yields +16bps to 3.35%; 30-year yields +16bps to 3.50%. The money market curve is pricing in over a 70% chance of a 75bp hike at the September FOMC and a terminal rate of about 3.90%. The long-end of the curve was also pressured by the announcement of 19 investment grade new issues with a total amount over USD35 billion.  

Hong Kong’s Hang Seng (HSIU2) and China’s CSI300 (03188:xhkg)

A-Shares in the mainland markets noticeably outperformed shares traded in the Hong Kong bourse.  CSI300 surged almost 1% but Hang Seng Index was flat. The escalated natural gas price in Europe cast doubts on the resilience of the European chemical industry to maintain its output level of basic chemicals and encouraged expectations of Chinese basic chemical makers to export more to Europe. The A-share basic chemical space gained over 3%.  Increases in lithium carbonate prices caused a rise in the share prices of lithium miners.  The National Energy Administration released a consultative paper that encourages the development of the national electric grid to enable the taking up of more solar power onto it.  The non-ferrous metal names gained after the Ministry of Industry and Information Technology issued draft guidelines on reaching the stage of intelligent manufacturing for the non-ferrous metal industry by 2025.  Intelligent manufacturing is solve optimization problems in production by utilizing real-time data analysis, artificial intelligence, and machine learning.  

Shares of Chinese property developers listed in Hong Kong surged after Guangzhou R&F (02777:xhkg) sold a hotel for RMB550 million and CIFI (00884:xhkg) sold a Hong Kong site.  These asset disposals stirred up optimism about improving the balance sheet and liquidity of Chinese developers, Country Garden (02007:xhkg) +9.3%, Longfor (00960:xhkg)+5.8%, and China Resources Land (01109)+4.5%. Electric vehicle manufacturers rebounded from 1% to 3%, bringing the industry’s week-long meltdown in share prices to a halt.

Newcastle Coal
prices hit new record highs
As Europe is facing an energy crisis this winter, it will need to increase energy imports. So, in anticipation of such a scenario, this might explain why the Australian coal price trades at a record, along with the futures price. We already know the UK importing is Australian LNG, so consider Australian coal could be heading to Europe more broadly next. Australian energy supply is already likely to run low in 2023, which also supports coal prices running higher. But for coal companies, their earnings and free cash flow will likely increase. Coal companies have been the best performers in global equities this year, after delivering the most earnings growth, with some companies like Whitehaven Coal (WHC) seeing 1,500% earnings growth YoY. Coal loaded at Australia’s Newcastle port hit $436.71, an all-time high. And triple the price this time last year. Coal futures prices are $463, implying the coal price will move up.

USDJPY at record highs again
A run higher in US yields, with 30-year yields touching 3.5%, underpinned a further move lower in the Japanese yen. USDJPY inched higher to 143.55 this morning in Asia, printing a fresh 24-year high. The market is challenging the Bank of Japan’s yield-cap policy yet again, and with no resistance in sight, the move and volatility is set to rise further. While the FX weakness alone may not be enough for the BOJ to pivot in order to maintain its credibility, higher oil prices and weakness in yen is spelling immense trouble on the inflation story as well. That could feed some pressure from the government on the BOJ policy

The offshore yuan weakened to 6.98

At the back of the spreading of pandemic lockdowns and the strong U.S. dollar, USDCNH rose to 6.9800 and is set to challenge the 7 handle. USDCNY fixing will be on watch today, as a sharp depreciation of the currency is unlikely to be accepted just ahead of the 20th party congress that starts on October 16. 

oil prices (CLU2 & LCOV2)

Demand concerns seemed to take over the supply issues yet again with China’s lockdowns extending further. The city of Guiyang joined Chengdu in restricting movement by the public amid renewed outbreaks of COVID-19. WTI futures slumped below $87/barrel while Brent dropped below $93. Global demand slowdown concerns also picked up after rate hikes this week. The Reserve Bank of Australia announced a 50bps rate hike on Tuesday, with Bank of Canada expected to go today and European Central Bank on the cards for tomorrow. A fresh surge in dollar also weighed on commodity prices. 

What to consider?

US ISM services in further expansion

While the S&P services index continued to signal weakness with a 43.7 revised print for August, the ISM services on the other hand expanded further to 56.9 from 56.7 in July and came in above expectations. Business activity accelerated to 60.9 from 59.9, while the prices paid component remained elevated at 71.5, in contrast to the decline we saw to 52.5 for the manufacturing sector. New orders rose to 61.8 from 59.9 and employment rose into expansionary territory at 50.2 from 49.1. 

China’s exports in August are expected to have slowed

China’s exports in August would probably come in weaker (Bloomberg consensus: 13% YoY vs 18.0% YoY in July) as container throughput data suggested. The resurgence of pandemic control restrictions, production disruptions due to power rationing, and a high base last year could have contributed to the deceleration.  Economists are expecting China’s imports in August to slow (Bloomberg consensus: 1.1% vs 2.3% in July). South Korea’s August export data released last week showed a 5.4% YoY decline in total exports and a 3.4% YoY decline in chip exports to China.  Slower commodity inflation could have depressed China’s import growth as well in August.

Australian economic growth data is a big focus today down under. If weaker than expected AUD could weaken

Australian economic growth is expected to show 1% growth q/q in the second quarter and 3.5% y/y. GDP will likely get a boost from record commodity exports (which will likely account for 1% of GPD YoY), record retail sales, and a pickup in overseas travel. However, construction costs and hampered residential construction activity could weigh on the headline GDP figure. AUDUSD is on watch with the currency pair trading at its lowest level since June 2020. If the figures today are better than expected, we could see a knee-jerk short-term rally up. However, over the medium to longer term, the fundamentals support the USD moving up and the AUD potentially continuing to lose out with the favored FX currency, the USD gaining momentum and strength amid the energy crisis and Fed hawkishness. The technical indicators suggest the AUDUSD could also retest the March 2020 low of 0.61380, which is the currency pairs lowest level in 19 years.

Australia’s Reserve Bank rose rates 0.5% to 2.35%, but it will do little to slow inflation

The RBA hiked rates by 0.5% as expected yesterday, in a bid to stave off inflation, taking Australia’s official cash rate to 2.35%. The only thing that the RBA has slowed after hiking rates 1.75% so far since May is the property market. Property prices have seen their biggest drop since the 80’s and construction made its biggest decline since 2016. This is a credit concern as Australia has one of the highest debt levels in the world (debt to GPD is 126%). If the RBA keeps rising rates as they suggest, debt-to-income levels could hit GFC highs. The RBA’s rate hikes have done nothing to slow inflation, and coal prices, which are the biggest contribution to Australian CPI. What you need to consider, is how can the RBA's hikes fix the commodities supply/demand imbalance. We also think coal momentum is likely to rise in anticipation of demand picking up with peak energy season around the world, and Europe is likely to tap on Australia's shoulder for energy.  

Australia’s trade surplus surged up for the 13th month, propelled by coal exports 

Australia’s trade surplus rocked up to A$18.3bn in the June quarter, bolstering Australia’s balance on goods and services to A$43.1bn, which is the highest level on record. This was fueled by commodity exports and Australia’s trade balance (exports less imports) rising to a record after commodity exports hit a record high, with coal exports exceeding A$100bn annually for the first time.

Bank of Canada to hike rates today

After a July rate hike of 100bps, Bank of Canada meets again today. The consensus is calling for a 75bps rate hike to bring rates to a restrictive territory, given that inflation continues to run well above target and economic demand is holding up well. The pace of tightening is however likely to slow down in October, and so the messaging will be key to watch at today’s meeting. 

NIO earnings ahead

While the earnings release date for NIO has been moved around multiple times it should be final now so tomorrow one of China’s largest EV-makers will report Q2 earnings. Investors will focus on the Q3 outlook for revenue growth and margins in order to gauge when NIO can break even on its operations.

California’s blackout threat worsens, and the state keeps nuclear power on standby 

Amid a massive heatwave and wildfires sweeping the state, power use in California has hit an all-time high and officials have again warned residents to prepare for rolling blackouts. We first wrote about this on Monday but now the state’s grid operator issued another round of warnings, calling on consumers to limit energy demand while the state issued a level-2 energy emergency alert. Officials expect to ratchet the emergency warning up to level 3, which would mean blackouts are imminent. The prospect of outages underscores how grids are becoming vulnerable amid extreme weather as they transition from fossil fuels to renewable energy.


For a week-ahead look at markets – tune into 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


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38

Contact Saxo

Select region


All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.