Global Market Quick Take: Asia – October 20, 2023

US Equities: Stocks had a choppy ride around Powell’s speech, initially higher but sinking to close 0.9% down for both the S&P 500 and the Nasdaq 100.  This came after the Fed Chair stated that monetary policy wasn't causing a recession, and the 10-year Treasury yield surged toward 5%. In the realm of individual stocks, Tesla tumbled 9.3% due to disappointing Q3 results, while Netflix soared by 16.1% on the back of strong subscriber gains. AT&T also surged by 6.4% after reporting Q3 results that surpassed estimates and raising its free cash flow guidance.

Fixed income: The yield curve steepened by 14bps with the 2-year yield falling 6bps to 5.16% while the 10-year yield surged 8bps to 4.99%. The short end of the Treasury curve was supported by the reduced probability of a rate hike, but the long end of the curve was pressured as investors sought higher term premiums to compensate for the risks of longer-dated bonds. The 30-year long bond closed at 5.11%, marking a 12bps increase in yield on Thursday.

China/HK Equities: The Hang Seng Index plummeted by 2.5%, and the CSI300 fell 2.1% as market sentiment deteriorated following Country Garden's failure to pay interest on a USD bond after the grace period had elapsed. Chinese bank shares tumbled after Chinese authorities instructed them to refinance local government debts. Investors also paid attention to S&P Global research, which indicated that Chinese regional banks could face a RMB2.2 trillion (USD300 billion) capital impact due to their substantial exposures to local government financing vehicles (LGFVs). In contrast, tech hardware stocks outperformed, with Sunny Optical gaining 8.7% and Xiaomi rising by 3%.

FX: Dollar pushed lower on Thursday ahead of Powell’s speech, and his cautious message caused some wobbles before focus shifted back to geopolitical worries with Israeli defense chief warning of an invasion and reports of  drone attacks in Iran and Syria. Safe haven CHF was the biggest gainer on the G10 board, with USDCHF below 0.8920 and EURCHF below 0.9440. EURUSD attempted another break above 1.06 but failed, and AUDUSD also still getting supported at 0.63 while NZDUSD has broken below 0.59. USDJPY very close to 150.

Commodities: Oil prices were back higher to rise by 1% as Middle East tensions ratchet higher and that offset the relief from more Venezuela oil. Meanwhile, demand concerns also eased as Chair Powell did not clearly signal any more rate hikes. Gold’s safe-haven bid also came further in focus as it was up to July highs of $1980, continuing to leave silver and platinum behind. US agri futures rose across the board, led by corn and wheat both up over 2%.

Macro:

• Fed Chair Powell spoke at the Economic Club of New York last night. The key message was the FOMC is ‘proceeding carefully.’ His comments were supportive of the recent sentiments from other Fed members that the FOMC is likely to be on hold in November. Powell said policy was restrictive and there may still be tightening in the pipeline. Market is now pricing in a very slim chance of 25% of a rate hike by end of the year.
• US initial jobless claims were hot falling to 198k, their lowest level since January, from a revised 211k (from 209k) despite expectations of a rise to 212k. Continuing claims rose to 1.73m, the highest level since July. That pattern is consistent with more difficulty finding employment and so longer spells out of work, but still low layoffs.
• Australia’s headline employment growth came in below expectations at 6.7k vs. 20k expected and 63.3k prior. Unemployment rate dipped to 3.6% from 3.7% in August. CPI due next week could be key, and traders are looking at about a 50% chance of a rate hike by end of the year.
• Japan’s September CPI was as expected on the headline, coming in at 3.0% YoY from 3.2% previously, but core and supercore measures beat estimates. Core inflation was at 2.8% YoY in September, softer then August’s 3.1% but a notch higher than 2.7% expected, while core-core measure was at 4.2% YoY vs. 4.1% expected and 4.3% prior.

Macro events: PBoC LPR, UK Retail Sales (Sep) ex-auto fuel exp -0.3% YoY vs. -1.4% prior, Canada Retail Sales (Aug) ex-auto exp -0.1% MoM vs. 1.0% prior.

Earnings events: American Express, Shlumberger, China Telecom, China Mobile, HKEX

In the news:

• Nick Timiraos: Jerome Powell Signals Fed Will Extend Interest-Rate Pause (WSJ)
• Israeli defense chief says troops will soon see Gaza 'from inside' (Reuters)
• US warship shoots down missiles fired by Iranian-backed rebels (FT)
• Israel at Risk of Moody’s Debt Rating Downgrade (Bloomberg)
• China’s Home Prices Drop at Faster Pace in Blow to Sentiment (Bloomberg)
• American Airlines beats profit estimates, sees steady holiday bookings (Reuters)
• OpenAI Is in Talks to Sell Shares at $86 Billion Valuation (Bloomberg)

For all macro, earnings, and dividend events check Saxo’s calendar.

For a global look at markets – go to Inspiration.