Global Market Quick Take – May 2, 2023 Global Market Quick Take – May 2, 2023 Global Market Quick Take – May 2, 2023

Global Market Quick Take – May 2, 2023

Macro 9 minutes to read
Saxo Strategy Team

Summary:  Markets are sideways as we await whether the Fed confirms a pivot to a neutral stance on further tightening at the FOMC tomorrow. US Secretary Treasury Yellen warned of an early June time frame for US debt default risk. US treasury yields rose sharply and took the JPY sharply lower once again. This morning, the Reserve Bank of Australia surprised the market by raising rates 25 basis points, sparking a steep rally in the Australian dollar this morning.


What is our trading focus?

US equities (US500.I and USNAS100.I): can S&P 500 push above 4,200?

Despite the failure of First Republic Bank, a bank with $233bn in assets sold to JPMorgan Chase, US equities managed to hold on to the gains from last week in yesterday’s session. S&P 500 futures are bouncing a bit this morning trading around the 4,186 level with a close above 4,200 being a significant milestone for the US equity market recovery and not seen since August last year. While First Republic Bank’s failure turned out not to create the beginning of a new banking crisis, Charlie Munger, the vice chairman of Berkshire Hathaway, did warn in an interview that many smaller banks in the US had too many commercial real estate loans and that those loans would become a problem.

FX: AUD shocked stronger by RBA surprise hike. JPY meltdown continues

A sharp rise in US treasuries yesterday sent the Japanese yen lower still, with USDJPY slicing up through its 200-day moving average near 137.00 and trading nearly to the highs of the year from early March just shy of 138.00. But the big move overnight was the Australian dollar, which rose over a percent versus the US dollar and more so elsewhere after the RBA surprised expectations with a 25 basis point rate hike (more below). EURUSD remains sticky near 1.1000 as the market awaits both the FOMC and ECB meetings on Wednesday and Thursday, respectively.

Crude oil: continuing lower amid demand concerns

Crude oil prices chopped around on Monday ending the day a dollar lower and below $80 in Brent as the weekend data from China showed a slump in manufacturing activity, even as travel demand showed signs of a recovery at the start of the Golden Week holiday (read below). WTI traded near $75.50/barrel after a decline of 1.5%. The Fed meeting a key focus ahead but the market will also be watching the impact of the new production cuts from OPEC announced at the start of April. The agreement to cut output by 1.6mb/d officially begins this week.

Gold (XAUUSD): fighting inflation vs. banking concerns but Fed meeting ahead

Gold prices surged higher on Monday together with especially silver and copper prices in a strange move, given its timing (thin due to many markets out on holiday in Asia and Europe). Alas, the move quickly faded, especially as US treasury yields rose on the day and the metals complex ended the day lower, with gold still below $2,000/ounce.  What happens next could set the short-term direction for gold as the market seeks confirmation that rates indeed will start to come down from June and onwards. A 60bps reduction is priced in before year-end, down from 75bps last week and any further lowering of expectations may trigger a move towards the key $1955-60 support area. Silver meanwhile holds above the key support at $24.50 area.

US Treasury yields (TLT:xnas, IEF:xnas, SHY:xnas) higher post-ISM

US Treasury yields rose sharply yesterday, with much of the rise coming in the wake of the April ISM Manufacturing survey release, where the Prices Paid component was higher than expected and the highest in nine months. The US 2-year treasury yield backed up to near 4.15% this morning, almost 15 basis points higher from the Friday close, while the 10-year benchmark rose a similar amount, trading this morning near 3.56% and needing to rise above 3.64% to break above the range established since the Silicon Valley Bank collapse.

What is going on?

Australia RBA surprises with hike, guidance for more tightening

The RBA surprised the market with a 25-basis point rate hike, taking the cash rate target to 3.85%, a move that was almost entirely un-priced into market expectations (though a minority of surveyed economists predicted the move). This sent AUDUSD sharply higher, trading above 0.6700 this morning, while a EURAUD sell-off and surge in AUDJPY continued significant recent moves in those crosses. The guidance in the statement also left room for additional hikes: “some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.”

US Treasury Secretary Yellen warns of US default risks as early as June 1

Although many have argued recently that larger than expected tax revenues could push the crunch time for the US debt ceiling issue (which would entail a default on US debt if the debt limit is not raised) into July or even August, US Treasury Secretary Yellen and the Congressional Budget Office warned yesterday that the limit must be raised by early June or the US risks defaulting. This has sent some congressional members scrambling, with a meeting next week scheduled with President Biden and the top four congressional leaders. Democrats and the president have called for a clean increase, but a disciplined slim Republican majority in the House is likely to hold its ground and Senate Republicans said they would block a “clean” (no strings attached) increase of the debt limit with a filibuster.

US ISM manufacturing improves, but still in contraction

ISM Manufacturing PMI rose to 47.1 in April, above the expected 46.8 and prior 46.3, but remained in contractionary territory, while the prices paid component jumped to 53.2 (exp. 49.0, prev. 49.2). New orders and employment lifted to 45.7 (prev. 44.3) and 50.2 (prev. 46.9), respectively. While the data showed that US manufacturing sector is still seeing slowing activity, there are some hints of a stabilization. Still, inflation concerns remain apparent. Meanwhile, US S&P Global PMI rose to 50.2 in April from 49.2 previously, jumping into expansion territory.

NXP Semiconductor earnings outlook indicating strong outlook for cars

NXP Semiconductor, of the largest suppliers of semiconductors to the global car industry, beat on both Q1 revenue and earnings yesterday while posting a Q2 guidance comfortably above consensus estimates driven by strong outlook for its customers in the car industry and the industrial sector.

HSBC shares rally 2% in Hong Kong on Q1 results

HSBC reports Q1 pre-tax profit $12.9bn vs est. $8.6bn driven by strong net interest income. The bank is also announcing a $2bn buyback and special dividend of $0.21 per share. The CEO says that SBV acquisition in UK was a great opportunity and maintain that issues at banks are not a global systemic problem.

Tesla raises its prices on Model 3 and Model Y

The important benchmark price on lithium carbonate out of China has risen 8% over the past week suggesting that the market might have reached a turning point. Tesla is raising prices on its Model 3 and Model Y suggesting the carmaker is constantly fine-tuning its price points relative to demand and profitability.

What are we watching next?

Today provides keys for ECB’s Thursday meeting

Coming into this week the ECB is priced to hike 25-basis points on Thursday and the forward curve almost fully pricing two additional rate hikes through the September meeting this year. A couple of important data points are up today that could help shape the size of the ECB hike as well as how much further tightening is flagged in the ECB’s guidance at its meeting on Thursday. First, the ECB will release its quarterly survey of bank lending and second, the Eurozone reports April flash inflation figures after the German flash April CPI report on Friday came in slightly softer than expected. The market is looking for the Eurozone to report core inflation of 5.6% YoY after 5.7% in March, which was also the cycle high.

Big week ahead for US as FOMC up Wednesday, jobs data Friday

The Fed is expected to hike 25 basis points at the FOMC meeting on Wednesday, with the suspense for the market centering on how willing the Fed is to confirm market expectations that this will be the last rate hike for the cycle, or at least for now. Indeed, despite Fed pushback, the market continues to price that the economy will weaken sufficiently in the coming six months to see the Fed cutting rates as soon as September, with more than 50 basis points of easing priced through the December FOMC meeting. This week also brings the usual flurry of first-week-of-the-month US data, including the April ISM Manufacturing survey Monday and ISM Services survey Wednesday, with the April jobs report up on Friday.

Earnings to watch

Today’s US earnings focus is on AMD (aft-mkt), Starbucks (aft-mkt), and Uber Technologies (bef-mkt). We wrote a earnings preview yesterday highlighting AMD earnings outlook which must deliver tonight against high expectations that have come about due to the recent AI hype over ChatGPT. Analysts expect Uber Technologies to report Q1 revenue of $8.7bn up 27% y/y and EBITDA of $679mn compared to a loss of $192mn a year ago indicating that Uber has finally reached a size when profitability is improving.

  • Tuesday: Thomson Reuters, HSBC, BP, DBS Group, Geberit, Pfizer, AMD, Starbucks, Uber Technologies, Marathon Petroleum, Ford Motor

  • Wednesday: Barrick Gold, Orsted, Airbus, BNP Paribas, Deutsche Post, Enel, UniCredit, Lloyds Banking Group, Qualcomm, CVS Health, Estee Lauder, MercadoLibre, Kraft Heinz

  • Thursday: National Australia Bank, Anheuser-Busch InBev, Shopify, Novo Nordisk, Maersk, Volkswagen, BMW, Infineon Technologies, Uniper, Rheinmetall, Zalando, Shell, ArcelorMittal, Equinor, Apple, ConocoPhillips, Booking, Regeneron Pharmaceuticals, Zoetis, Becton Dickinson, EOG Resources, Ferrari, Fortinet

  • Friday: ANZ, Macquire Group, Enbridge, Canadian Natural Resources, Adidas, Intesa Sanpaolo, CaixaBank, Cigna Group

Economic calendar highlights for today (times GMT)

0715-0800 – Eurozone Apr. Final Manufacturing PMI

0800 – Euro Area Bank Lending Survey

0900 – Eurozone Apr. CPI estimate

1120 – Australia RBA Governor Lowe to speak

1400 – US Mar. JOLTS Job Openings

1400 – US Mar. Factory Orders

2245 – New Zealand Q1 Employment/Wage data

0130 – Australia Mar. Retail Sales

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.