Global banks under the radar, China vows more support for economy, Gold centre stage
APAC Strategy Team
Summary: A bad cocktail for broad equites has been concocted; with US 10-year bond yields hitting 2.8%, lockdowns linger in China, and ongoing commodity supply constraints persist amid the war in Ukraine. China pledges more support for its economy, institutional investors buy into US banks ahead of earnings being released, plus why to consider investing or trading gold stocks or ETFs, and look at Asian gaming shares and EV players.
Co-written by Market Strategists Jessica Amir in Australia, Redmond Wong in Hong Kong, Charu Chanana in Singapore.
What’s happening in equites that you need to know?
US stocks nosedived on Monday amid rising yields. The S&P 500 (US500.I) fell 1.7%, and the Nasdaq 100 (USNAS100.I) fell over 2% on Monday, and is now down 8% in two weeks, falling below key support levels. Looking ahead, the technical indicators suggest the downtrends have more juice and those who are shorting the market might be making profits ahead. BUT, a note of caution, if inflation data due out Tuesday, is weaker than expected (as in less than 8.5% forecast YOY for inflation), then, equites could rally. If inflation is higher, than 8.5% YOY, then you will likely see a pull back in equites. However, if positive news is released, from Q1 earnings results, from big US financials, equities could also break their downtrend and head higher.
HK & China equities found support. Hang Seng Index (HSI.I) and CSI300 (000300.I) were flat. Online gaming stocks rose on the news that China approved 45 new online/mobile game titles after a long halt since July last year. Bililibi (09626) jumped 12%; XD (02440) +9%; IGG (00799) +11%, CMGE (00302) +10%. Tencent (00700) and Netease (00999) rose more than 3%. China Coal Energy (01898) rose 13% after reporting strong preliminary Q1 earnings. Market sentiment overall have improved slightly on relaxation of lockdown in Shanghai and stronger than expected credit growth in China. However, the sharp rise in U.S. bond yields and the overall weakened economic growth in China continued to keep the Hong Kong and China equity markets under pressure
Broad Asian stocks under pressure following the overnight drop in equities and the surge in yields. MSCI Asia Pacific ex-Japan (FMASM2) is down nearly 2% and Nikkei (NI225.I) down 1.5%, while one of the best regional performer on a YTD basis, STI is also seen in loss of 0.8% with expectations of easing from the Monetary Authority of Singapore (MAS) picking up.
The Australian stock market (ASX200) is trading lower, for the first time in three days, following the pull back in US equities, but the ASX200 is also under short term pressure as Australia’s 10-year bond yield holds 3%, its highest level in seven years.. This has caused Australian tech stocks to fall for the 5th day and enter another technical downtrend, suggesting further falls in Australian tech stocks are likely ahead. However, today, Gold stocks on the ASX filled the leader board with; Ramelius Resources (RMS) and Regis Resources (RRL) up almost 3%, with Perseus Mining (PRU), St Barbara (SBM), and Evolution Mining (EVN) up over 1.8%. Meanwhile agribusiness and real estate firm Elders (ELD) is also in the mix as a best performer up, 1.6%. We think these themes will continue to dominate this year, with gold stocks, utilities, and agribusiness companies thriving and seeing higher earnings and share price growth.
Gold (XAUUSD) edged up 0.4%, rising for the fourth day, and now trades at US$1955. It appears Gold could be about to kick off a bull trend supported by higher borrowing costs (yields), Russian tension lingering, and lockdown concerns. Gold has historically outperformed equities every time the Fed rose interest rates, with a suite of hikes.
Crude oil (OILUKJUN22 & OILUSMAY22) remains under pressure in the short term, given covid lockdowns in China and the ramp up in OPEC supply. Oil holds 6 weeks lows at $96.58, and remains in a technical short term downtrend.USDJPY continues its upward climb, and US CPI release may create more upside pressures. Jawboning by Finance Minister Suzuki has had limited impact, and 125.86 is the resistance level to watch. Japan producers prices continued to surge in March, rose by 9.5% y/y, above consensus of 9.3%, reinforced by a weaker JPY that pushed up prices of fuel & raw materials.
What you need to consider
US banks to watch. As we mentioned yesterday, and last week, six of biggest banks globally and in US report results this week with JPMorgan reporting Wednesday April 13th , Goldman Sachs, Morgan Stanley, Citigroup reporting on Thursday 14th and Bank of America reporting Monday 18th. What’s interesting is, institutional holdings have increased in Morgan Stanley, ahead of their results, with First Trust Advisors and Credit Suisse increasing their positions in Morgan Stanley. While Bank of America has also seen an increase in institutional buying over the last week, with First Trust, Legg Mason and a smaller investment group, Fuh Hwa Investment Trust increasing their positions in Bank of America. Across the market, out of the banks mentioned, most analysts are bullish on Goldman Sachs earnings.
S&P500 could get a boost. With first quarter earnings underway, over the last two decades its important to note, amid earnings season, when over 50 of the S&P500 companies report results, the S&P500 has produced stronger than expected weekly returns.
Wheat (WHEATMAY22) and aluminum are the new commodities to watch as oil volatility continues. Wheat continues to gain interest because of the weather concerns and the supply from Ukraine is stuck. Aluminum, on the other hand, has been in a decline because of China demand drop while the output is rising. Aluminum was down 3.75% to 2-month lows, overall down 6.75% in the last 1 month. Important stocks to watch in Asia will be Alumina (AWC) and South32 (S32) in Australia, Nippon Light Metal (5703) in Japan, Yunnan Aluminum (000807) as well.
Shanghai finetuned its lockdown measures. Shanghai announced that the city is putting residential compounds into three categories and are relaxing residents’ mobility in the lower risks categories. Residential compounds that have had no virus infections for two weeks will have their lockdowns lifted. Lockdowns will be reimposed if a new case is found. For residential compounds that have had no new cases in the past week but had reported infections within 14 days, residents will be allowed to leave their homes but must stay within their compounds. For residential compounds that have reported infections in the past week, residents will remain being restricted to their homes for another seven days.
China’ State Council orders local governments not to over restrict the transportation of essential goods, especially for cargo that is important to healthcare, daily necessities, government goods and services, postal and courier services, farming, energy, materials critical to production and so on. In response to this, some local government relaxed the restriction for trucks to get access to toll roads and highways.
US-India summit reaffirms continued relations between the two despite Russia’s involvement. US-India was held yesterday and Biden has pushed India to reconsider oil imports from Russia. While there wasn’t much concrete from the summit, it is worth noting that US-India relations remain healthy. It appears India wouldn’t back off from buying Russian oil,
Reserve Bank of New Zealand (RBNZ) tightening may not support the NZD. RBNZ is set to raise rates for a fourth straight meeting on Wednesday. Inflation is at 30-year highs, means tightening is set to continue. Still, upward bias in AUDNZD remains given the demand in resource-rich Australian assets. Australia’s business data also continues to hold up for now, while New Zealand is facing deteriorating business sentiment and chronic labor shortage. Costs of an aggressive tightening cycle may also weigh on NZD.
March credit data in China came in above market expectations, with outstanding aggregate financing increasing 10.6% YoY in March vs +10.2% in February. Outstanding RMB loans rose 11.4% YoY. The loan growth was mainly driven by short-term corporate loans and bill financing. New loans to households came at positive RMB754bn in March from negative RMB337bn in February, but were still well below their level a year earlier. The medium- to long-term component (mostly mortgage loans) improved to positive RMB374bn from negative RMB46bn, but still far below March 2021’s level of RMB624bn. While the number overall is positive news to the economy and the market, the still-weak mortgage loan growth suggests continued sluggishness in the property sector despite the roll-out of supportive policies from local governments.
China approved new online games the first time since last July. China’s National Press and Publication Administration (NPPA) released the approval of 45 new online games. This was the first time that the NPPA approved new online games since it was suspended from July last year. Among the 45 titles, 37 of the are mobile games, including games from Baidu, Jiangsu Phoenix and so on, but those from Tencent and Netease are not on the list. The online entertainment industry and security analysts cheer the action as it might a signal that the Chinese authority is moving towards moderating its crackdown on the industry.
Trading ideas to consider
If you believe gold will continue to rally, given what we highlighted above; this is how you can invest/trade gold. You could buy gold futures, use options, or invest in gold stocks, or buy gold CFDs, or buy gold ETFs. The biggest gold company in the world, is arguably Newmont Gold (NEM) which makes 86% of its money from Gold, and 5% from Silver. Newmont shares are trading 33% up this year, and given its 2022 earnings are expected to rise (Q1 earnings due 22 April), Newmont is one to watch. You’d also expect the company to upgrade its outlook for 2022 for gold, supporting its income rising and earnings (EBITDA). Remember rising earnings generally supports share price growth. Alternatively, if ETFs strike your interest, it could be worth looking at the biggest gold ETFs globally; which are SPDR Gold Trust (GLD), which is already trading 8% higher this year. The second biggest gold ETF is iShares Gold Trust (IAU), which is trading 8.4% higher this year.
China’s approval of new gaming license lifts overall sentiment and Asian gaming shares. Japan’s Koei Tecmo (3635) was up over 3%, Gree (3632) up 2% and Nexon (3659) was up 1.3% on the news. Nexon's Dungeon & Fighter Mobile may debut in China finally.
Honda (7267) plans to spend $40 billion on developing EVs. Honda plans to launch 30 EV models globally by 2030 with production volume of more than 2 million vehicles a year. The China market will remain a key target, where 2 models are set to go on sale this year. Honda also pledged that all models it introduces in China after 2030 will be electric and announced plans for several dedicated EV production plants in the country.
Key economic news this week
- Tue, Apr 12: US March CPI, India March CPI, OPEC monthly oil market report
- Wed, Apr 13: US March PPI, Reserve Bank of New Zealand rate decision
- Thu, Apr 14: Singapore Q1 GDP and MAS policy decision
Company earnings releases to watch
- Wednesday: Tesco (TSCO), JPMorgan Chase & Co (JPM), BlackRock (BLK), Fastenal (FAST)
- Thursday: China Northern Rare Earth Group (600111), Fast Retailing (9983), Ericsson (ERICB), UnitedHealth (UNH), Wells Fargo (WFC), Morgan Stanley (MS), Goldman Sachs (GS), Citigroup (C), US Bancorp (USB), PNC Financial Services (PNC), Coinbase (COIN), State Street (STT)
- Friday: Hangzhou Hikvision Digital (002415)
For a global look at markets – tune into our Podcast
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.