Weekly Commodities Update

Global Market Quick Take: Asia – April 25, 2023

Macro 6 minutes to read
Saxo Be Invested
APAC Research

Summary:  US equities remained in range trading ahead of key megacap earnings announcements. Treasury yields fell on eco concerns from Dallas survey as well as deposit flight from First Republic, but EU yields rose on hawkish ECB commentary and the yield divergence saw EURUSD rising back above 1.10. Coca Cola beat estimates, and focus shifts to Alphabet and Microsoft today. However, concerns are rising on whether we have seen peak liquidity in the system and could be in for withdrawal symptoms.


What’s happening in markets?

US equities (US500.I and USNAS100.I): nearly unchanged again

Ahead of earnings from mega-cap technology companies this week, major equity indices once again finished the session in low volumes and little changed. Nasdaq 100 ticked lower by 0.2% while S&P 500 edged up 0.1% in mixed trading. Six of the S&P 500 sectors gained, led by an 1.5% rise in energy while five sectors declined moderately. Coca-Cola rallied initially on earnings beat but pared all the gain to finish nearly unchanged.

After the regular session close, First Republic Bank (FRC:xnys) reported a larger-than-expected loss in deposit in Q1 and offered litter clarity in the future of the regional lender while depending heavily on the life-line loans from the Fed and the Federal Home Loan Bank. The shares of the regional lender plummeted over 20% in extended hour trading.

Treasuries (TLT:xnasIEF:xnasSHY:xnas): stage a late rally

Yields fell first on a weaker than expected Dallas Fed manufacturing index in low volume trading and they took a decisive dive in late trading after First Republic Bank reported worse-than-expected deposit losses in Q1. The yield on the 2-year dropped by 9bps to 4.09% and the 10-year yield declined 8bps to 3.49%.

Chinese equities (HK50.I & 02846:xhkg): Hang Seng Index dropped below 20000

Hang Seng Index traded weak across the board, once falling as much as 1.7% before clawing back to finish 0.6% lower, a touch below the 20000 level. Heightened geopolitical tension stemming from China’s ambassador to France’s questioning of the sovereignty of former Soviet states which angered European countries.

Further, renewed worries about potentially another wave of Covid outbreaks weighed on the overall market sentiment but raised the share prices of pharmaceutical and digital healthcare platform stocks. The search for and reviewing of Covid related topic have surged on the Internet in mainland China. CSPC Pharmaceutical (01093:xhkg) gained 3.4% and Alibaba Health (00241:xhkg) jumped nearly 5%.

Consumer, property, and China internet names led the charge lower. Li Ning (02331:xhkg) and Haier Smart Home (06690:xhkg) slid 3.6% and 3% respectively, being the two top losers in the Hang Seng Index. Longfor (00960:xhkg) and Country Garden (02007:xhkg) lost more than 2%.

EV stocks bucked the decline to advance in share prices, led by BYD (01211:xhkg) which rose 3.6% after releasing a new electric hatchback model at the Shanghai auto show and expressing optimism in potentially introducing its ShyShuttle electric elevated rail transit system to Hong Kong.

In A shares, CSI300 retreated 1.2% as the weakness in semiconductors, electronics, tourism, lodging, and ferrous metal names more than offset the gains in media, online gaming, and autos.

FX: Dollar in downturn on lower yields; EUR back above 1.10

Markets continue to trade sideways with little catalysts ahead of the meagcap earnings due this week. US yields took a plunge as Dallas Fed manufacturing survey further confirmed the weakness from the Philly Fed survey last week, and deposit flight at First Republic Bank also underpinned concerns. EURUSD rose back above 1.10 as hawkish ECB commentary continued pushing EU yields higher. Schnabel noted 50bps next week is not off the table, and it is clear further hikes are required, even as Villeroy was slightly more dovish. GBPUSD also rose to test 1.25 again. AUDUSD was more subdued, still around 0.67 ahead of Q1 CPI due tomorrow but NZDUSD was up at 0.6170. JPY rangebound ahead of BOJ meeting this week.

Crude oil: gains return but short-term focus still on demand

Supply issues came into focus as shipments from Iraqi Kurdistan remain paused and supply risks in Sudan also underpinned, while economic data and earnings side remained muted. But focus for the rest of the week is likely to shift back to growth and inflation worries and how far the Fed will go, especially after megacap earnings announcements come due. Refinery margins also remain under pressure across all the major trading hubs sending a warning sign about demand ahead of the peak consumption season. WTI rose to $79 after a dip below $77 earlier while Brent surged to $83.

 

What to consider?

First Republic Bank reports a USD100 billion flight in deposits

The troubled regional bank, First Republic Bank reported results yesterday after the close of the regular session. The flight in deposits was worse than the market feared. Excluding the USD30 billion deposits from large U.S. banks in support of the regional lender, deposits fell by around USD100 billion from USD176.4 billion to USD74.5 billion. Deposits were down another 1.7% in Q2. Despite the bank attributing the quarter-to-date withdrawals in deposits to seasonal tax outflows, investors are concerned about the situation at the bank. With the deposit flight, the bank is relying on USD105 billion in loans from the Fed and the Federal Home Loan Bank which charge interests between 3% and 4.9% while the average yield of the bank’s loan book is 3.73%. The management said the regional lender is exploring strategic actions but gives no details in a 10-minute earnings call the management did not take questions.

Coca-Cola beats estimates

Coca-Cola (KO:xnys) reported Q1 earnings with adjusted organic revenue growth of 12% vs est. 9.6% and comparable EPS of $0.68 vs est. $0.65 as the soft drinks and snacks company continues to be able to pass on costs to consumers. The company is also reporting good expected growth for Q2 and the fiscal year despite ongoing currency headwinds.

More weakness from US survey data

The headline Dallas Fed manufacturing index fell to -23.4 in April from -15.7 in March, while the outlook index moved further into negative at -15.6, further confirming the weakness seen in Philly Fed survey, defying the strength of the NY Empire State survey. New orders index rose slightly to -9.6 from -14.3, although that marks the 11th month in a row in negative territory. Employment nudged lower to 8 from 10.4, reflective of moderate employment growth but a decline in work hours. Respondents were concerned about credit, funding and recession. Richmond Fed survey due on Wednesday, followed by US GDP and PCE data on Thursday.

Liquidity concerns are piling up

Reports suggest that a sudden boost in liquidity has supported the markets so far this year, with central banks injecting about $1tn. There has also been a liquidity boost for the banking sector after Silicon Valley Bank failed in March. However, there are risks of a pullback as debt ceiling concerns rise, ECB ramps up quantitative tightening and China easing measures cool off. Megacap earnings is a big factor to watch, following which this withdrawal of peak liquidity could mean higher yields, softer equity multiples and wider credit spreads.

Alphabet and Microsoft report today

Alphabet (GOOGL:xnas) and Microsoft reporting after the close as the two companies are locked into a fierce battle over new AI systems as they may unlock great commercial value for the companies. Alphabet is expected to report EBITDA of $26.4bn up from $24.8bn a year ago and significantly up from Q4 as layoffs should begin to lift expectations. The key risk for Alphabet is the slowing revenue growth in Q3 and Q4 and whether it extended into Q1 because that could jeopardize the EBITDA expectation.

Microsoft (MSFT:xnas) saw a sharp reduction in its revenue growth in Q4 to just 2% y/y but in Q1 analysts expect it to climb again to 4% y/y with flat earnings compared to a year ago. In both cases of Alphabet and Microsoft there will be a lot of focus on their comments related to the arms race in AI systems and whether it will impact cost trajectories going forward.

 

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.

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

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
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

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.