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Global Market Quick Take: Asia – April 13, 2023

Macro 4 minutes to read
APAC Strategy Team

Summary:  Equities were wobbly but S&P 500 closed below the key 4,100 levels as it erased the post-CPI rally and tech weakness underpinned. Fed pricing for the May rate hike also ended ultimately unchanged, while the dollar was still lower as EUR and GBP gained. LVMH reported solid results on Asia demand, and focus shifts to bank earnings tomorrow. Today’s watch will be Australia’s employment data and US PPI and jobless claims.


What’s happening in markets?

US equities (US500.I and USNAS100.I) retreat on tech weaknesses

U.S. stocks faded their post-CPI gains and finished Wednesday lower being pulled down by weaknesses in the consumer discretionary, communication services, and information technology sectors. S&P 500 shed 0.4% while the tech-heavy Nasdaq 100 declined 0.9% as investors pondered on the Fed’s rate path and the economy after the release of the FOMC minutes (see below).

China internet ADRs were sold, with JD.COM ADR (JD:xnas) being the worst-performing stock in the Nasdaq 100 on Wednesday. In single stocks, American Airlines (AAL:xnas) plummeted 9.5% after the airlines said Q1 earnings falling short of analyst estimates citing high operating costs.

Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) pare post-CPI gains on a weak 10-year auction

When the softer-than-expected CPI prints (see below) hit the tape, the front-end Treasury yields tumbled, with the 2-year yield falling as much as 18 bps to 3.87% before paring most of it to finish the choppy session 6bps richer at 3.96%. Reactions to the FOMC minutes (see below) were muted. The longer-end underperformed and the results from the 10-year auction were poor with notes being awarded at 2bps cheaper than the when-issue trading level as of the deadline of the auction. The yield on the 10-year notes closed 4bps lower at 3.39%. The 2-10-year yield curve steepened by 4bps to -57.

Chinese equities (HK50.I & 02846:xhkg): tech leads the decline

Majority shareholder divestitures and analyst downgrades dampened the sentiment in the technology space, seeing Hang Seng TECH Index down 1.9% and dragging the Hang Seng Index along to finish the session 0.9% lower.

Tencent (00700:xhkg) tumbled 5.2% as Prosus deposited 96 million shares of Tencent shares to Hong Kong’s central clearing system, believed to be getting ready for disposal. Alibaba (09988:xhlg), Meituan (03690:xhkg), JD.COM (09618:xhkg), Kuashou (01024:xhkg), and Sensetime (00020:xhkg) all dropped by more than 3%. Analysts revised JD.COM’s revenues and earnings downward despite the Company’s business optimization plan. AAC Technology (02018:xhkg) plummeted 14.9% on an analyst downgrade to ‘sell’ citing potential delays in the new design of virtual buttons in upcoming iPhone models is going to impact the Apple supplier negatively.

On the other hand, semiconductors bucked the tech decline. SMIC (00981:xhkg) rallied 5.7% and Hua Hong (01347:xhkg) bounced 3.4%. Chinese property developers continued to advance, this time helped by the strong mortgage loan growth reported for March. Longfor (00960:xhkg) gained 5.4% and Country Garden (02007:xhkg) climbed 3%.

In A-shares, the broad market index CSI300 was nearly unchanged while telecommunication, media, gaming, and computing stocks surged. China United Network (600050:xssc) jumped 7.6% and ZTE (000063:xsec) gained 5.4%. Inspur Electronic (000977:xsec) hit the 10% up-limit before paring gain to finish 5.7% higher.

Overnight in ADR trading, China Internet names continued to retreat, with Alibaba ADR finishing 4% below Hong Kong close.

Australia’s share market awaits employment data, and validation the RBA can keep rates as they are

The ASX200 is flatlining after rising 6% from its low, awaiting validation the RBA can keep rates on hold. Airlines stocks are on watch this week with fuel prices rising and US travel names seeing some of the biggest downgrades this earnings season. Qantas, Webjet, Flight Centre travel are worth watching as well, after American Airlines Group also announced overnight its first-quarter profit will likely fall short of Wall Street’s estimates, amid persistently high costs offsetting gains from steady travel demand.

FX: USD weaker across the board

The US dollar sold off on cooler-than-expected headline CPI report which saw US yields slip while yields in Europe continued to rise higher amid hawkish chatter from ECB members Holzmann and De Guindos. That saw EURUSD rising sharply to test the 1.10 handle, although a break above remains elusive so far in early Asian hours. GBPUSD also headed towards 1.25 again, but the move in USDJPY was somewhat less convincing as 133 provided support. AUDUSD broke above 0.6700 in a knee-jerk but reversed lower later as Australia’s employment data is eyed today.

Crude oil: jumped higher on tighter market

Crude oil prices bounced further on Wednesday as concerns on a tighter supply continue to under pin after reports of weakening Russian shipments, OPEC production cuts and retreating US inventories. Demand side concerns also eased yesterday as the US CPI report further pointed to May rate hike as “one and done” with signs of disinflation continuing to build. Meanwhile, market continued to expect 75bps rate cuts through to the end of the year, and a weaker dollar provided support to the crude oil market. WTI prices toughed highs of $83.50 challenging the 200dma at $83.58 while Brent rose to $87.50/barrel, still below the 200dma at $89.

Gold and Silver: wobbly on CPI but uptrend maintained

Gold shot up above $2025 immediately as headline US CPI came in below expectations, suggesting scope for a Fed pause. But gains reversed later and Gold prices dipped back towards $2000 before resuming their uptrend. Gold prices continue to be supported by a slide in US yields, as well as ETF purchases and central bank buying. Gains in silver were more pronounced and it is last seen trading above $25.50, eyeing the 2022 high at $26.41.

What to consider?

US March CPI print keeps a May Fed rate hike in play

Headline CPI was cooler-than-expected while Core was inline. Headline CPI M/M cooled to 0.1% (exp. 0.2%, prev. 0.4%), while the annual pace slowed to 5.0% (prev. 6.0%, exp. 5.2%); core M/M rose 0.4% (prev. 0.5%, exp. 0.4%) and Y/Y 5.6% (prev. 5.5%, exp. 5.6%). The initial reaction was dovish as equity market futures rallied and Fed pricing for a May rate hike tumbled but the reaction was later reversed. Fed futures are still pricing in a 70% probability of a 25bps rate hike in May with about 75bps rate cuts priced in for the rest of the year.

Most of the softness in the report was driven by declining used car prices and a slower acceleration in shelter. While disinflation trends continue and broadened across headline, core and supercore measures, the CPI report is hardly an all clear on inflation. The core numbers hardly point to inflation consistent with a 2% target.

FOMC minutes suggest concerns of a credit crunch

The FOMC minutes showed the split of the members on outlook, with some emphasizing the need to be flexible as growth risks have increased while others still worried about upside risks to inflation. Still, the committee leaned towards another rate hike after the March meeting, even though concerns of a credit crunch did weigh on the outlook. Given banking sector concerns have cooled further since the meeting, and CPI and jobs data has still remained firm, the minutes support the case for another rate hike from the Fed in May for now. The PPI and jobless claims data will be on watch today before retail sales later in the week followed by PCE data at the end of the month.

China’s exports expected to fall 7.1% Y/Y in USD terms in March

A deepening global industrial cycle downturn, softening in consumer demand in developed economies, and increases in trade restrictions and technology sanctions are likely to have weighed on China’s exports in March. The survey conducted by Bloomberg expects China’s exports in USD terms, scheduled to release today, to fall 7.1% in March from a year ago.

Bank of Canada’s pushback on rate cuts not enough

The Bank of Canada left rates unchanged at 4.5% as expected whilst maintaining language it is prepared to do more on rates if needed to bring inflation back to target. The average GDP forecasts were revised higher for 2023, but down for 2024, while the 2025 growth is seen picking up to 2.5%. On inflation, the 2023 average CPI forecast was revised lower to 3.5% from 3.6%, while 2024 was left unchanged at 2.3% with 2025 inflation seen at 2.1%. Commentary included some pushback on the pricing of rate cuts for this year, but it wasn’t enough to change the market pricing. Growth metrics will remain a key watch for further evolution of these expectations.

Australia employment give reason for the RBA to refrain from hiking

Australian employment is expected to rise 20k in March according to Bloomberg consensus, versus the prior 64.6k addition. Meanwhile the unemployment rate is expected to rise to 3.6% from 3.5%). If this occurs, it will confirm the weakening trend in Australia’s labour market on the back of immigration growth returning to Australia, as well as some businesses being under duress, due to higher interest rates and inflation. The unemployment rate has creep up off its low that it hit last year. The AUD against the US (AUDUSD) is trading below weekly trendline support, off the October low. And weekly momentum is bearish but not oversold. Weekly support is at the 0.6565 level, and intraday support is at 0.6620. Meanwhile the Australian dollar versus the Kiwi is also one to watch, as it could be poised to revisit the 1.08 level again, partially as the Kiwi’s unconvincing gains last week despite RBNZ’s surprise 50-bps rate hike are keeping the AUDNZD downside limited for now.

Singapore’s Monetary Authority may be able to squeeze in some more tightening

The Monetary Authority of Singapore (MAS) will release the monetary policy statement on Friday together with the advance 1Q 2023 GDP estimate by the Ministry of Trade & Industry. As inflation continues to be elevated, and Singapore banks remain shielded from the impact of the collapse of the US banks, there could be an opportunity for the Singapore’s central bank to announce further tightening this week. Economic concerns are likely to ramp up as recession calls in the US move forward due to the credit crunch following the banking sector scare last month, but for now, the MAS could potentially have some room to continue focusing on inflation worries.

As the MAS sets monetary policy through S$NEER (Singapore dollar Nominal Effective Exchange Rate), it is likely that we can see a higher re-centring for the band allowing the SGD to strengthen further against a basket of currencies of its trade partners.

LVMH delivered strong Q1 sales

LVMH (MC:xpar) delivered strong organic sales growth of 17% Y/Y, beating the market consensus. Sales in Europe grew 24% with the fashion and leather division and selective retailing division outperforming. The leading luxury goods company said the China sales growth in its fashion and leather division has been strong and back to double-digit after the reopening and the momentum continues. In the US, despite the slowdown in the economy, the 8% Y/Y Q1 sales growth and modest improvement from last quarter were better than analyst estimates, helped by solid performance in Sephora.

 

For a detailed look at what to watch in markets this week – read or watch our Saxo Spotlight.

For a global look at markets – tune into our Podcast.


 

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