US Equities: Technology stocks pulled down the market. Adobe shares dropped by 4.2% after earnings, while Nvidia, Amazon, and Microsoft each declined by 3%, 3%, and 2.5%, respectively, putting pressure on the indices. The Nasdaq 100 decreased by 1.8% to 15,202, and the S&P500 lost 1.2%, settling at 4,450. We believe that the hype around generative AI has led to a rush of interest in the technology sector, but it will take much longer than current stock prices suggest for commercialization to fully materialize. The VIX rebounded to 13.79, rising from its year-low point due to a significant volume of options expiring.
Fixed income: Treasuries sold off during London hours, following the sharp increases in yields of German Bunds and UK Gilts amid hawkish ECB comments and higher Bank of England inflation expectations. Selling continued after a strong 20-point rebound in the Empire State manufacturing index, indicating a return to expansion. The 2-year yield rose by 2 bps to 5.03%, while the 10-year yield increased by 5 bps to 4.33%.
China/HK Equities: Reactions to the 25bp reduction in the reserve requirement ratio, a net injection of RMB 191 billion in 1-year medium-term lending to banks, and stronger industrial production and retail sales were subdued. Investors remained unconvinced and considered the incremental positive news in both policies and economic data insufficient. The 24% Y/Y decline in 30-city new home sales so far in September and the suspension of offshore debt payments by developer Sino Ocean poured some cold water on the initial excitement about regulatory easing in the property market. The Hang Seng Index edged up 0.8%, while the CSI300 slid 0.7%. Amid a light economic data calendar, investors may focus on the high-frequency data on property transactions and closely watch for any spillover effect from Zhongrong International Trust.
FX: Dollar closed in a ninth straight week of gains even as AUD and CAD tried to make a comeback last week. Heavy central bank week ahead with Fed, PBoC, BOE and BOJ on the radar along with other major central banks. USDJPY rose back towards 148 as US yields surged. EURUSD slid below 1.07 last week on ECB’s dovish hike but a small rebound to 1.0660+ levels was seen on Friday. GBPUSD still below 1.24 with the path for BOE is also extremely complicated. USDCAD testing 1.35 as oil prices continue to rise. USDCNH back at 7.2750 from lows of 7.2596 after PBOC’s liquidity enhancing measures on Friday.
Commodities: US data resilience and step higher in China’s stimulus measures boosted oil prices further on Friday with Brent attempting to move towards $95/barrel. With supply outlook remaining tight into the end of the year, demand outlook becomes key for months ahead. Meanwhile, diesel supply is also running short, risking another uptick in inflation. A host of central bank meetings ahead in the week will be key to whether oil breaks above $95 barrier. Gold surged on Friday to test $1930 support showing resilience in the face of higher US yields, and Denver Gold Forum this week will be key along with central bank commentaries.
- China’s Industrial production grew 4.5% Y/Y and retail sales increased 4.6% Y/Y in August, both surpassing the levels in July as well as expectations.
- US industrial production remained strong with headline up 0.4% MoM vs. 0.1% expected, but slowing from 0.7% last month (revised down from 1.0%) and confirming that manufacturing is slowing as hinted by ISM surveys as well. UoM sentiment survey showed some weakening conditions as headline dipped to 67.7 from 69.5 (below 69 expected) with current conditions at 69.8 (exp 74.8) and expectations 66.3 (exp 65).
- Zhongrong International Trust confirmed that it was unable to make payments of some trust products and it entered service agreements to engage Citic Trust and CCB Trust to manage its operations. It highlights the risk in the China shadow banking sector.
Macro events: Japan holiday, Canada August PPI exp 0.2% MoM (prev 0.4%)
In the news:
- UAW strike against automakers enters third day, no resolution seen (Reuters)
- US and China officials meet in Malta ahead of possible Biden-Xi summit (FT)
- Uranium prices hit 12-year high as governments warm to nuclear power (FT)
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