APAC Daily Digest – July 26, 2022; What's happening in markets and what to consider next
APAC Strategy Team
Summary: In this final pivotal week of trading for July; markets are bracing for the Federal Reserve meeting that will help Wall Street direct its expectations for the rest of the year. Meanwhile, big tech bellwether earnings reports are ahead for Apple, Alphabet and Microsoft, in this this make or break week, which will either validate the S&P500's 8.3% gain off its low, or see selling pressure return if results are weaker than expected. We breakdown what happened in overnight markets, and what to consider now.
What is happening in the markets?
Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)
In this final pivotal week of trading for July; markets are bracing for the Federal Reserve meeting that will help Wall Street direct its expectations for the rest of the year. Meanwhile, big tech bellwether earnings reports are ahead for Apple, Alphabet and Microsoft, in this this make or break week, which will either validate the S&P500's 8.3% gain off its low, or see selling pressure return. Sentiment in consumer spending stocks will dampen further on Tuesday after Walmart dropped its profit forecasts for the second time this year, reflecting the pain the consumer is having from inflation. Meanwhile gold giant Newmont's weaker than expected results, sending its shares 13% lower highlights, gold stocks are not immune to inflation woes. Bright sparks overnight were in energy, after the oil price rose 2.1% to $96.70 as the US dollar continued to weaken. These key themes will likely flow through to the APAC session.
Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I)
...were lower yesterday by 0.2% and 0.6% respectively. Following China’s State Council’s decision to launch a RMB300 billion fund to support the property sector and Premier Li Keqiang’s call for city-level discretionary policies to satisfy demand of home buyers, Chinese property shares led the bounce from deeper losses in the Hong Kong bourse earlier in the day. Longfor (00960:xhkg) led the pack by rising 6.8%. China Resources Land (01109:xhkg) and China Overseas Land & Investment (00688:xhkg) gained 3.3% and 2.3% respectively. Xinyi Solar (00968:xhkg) gained over 2% on news that China was considering to slow the rise in polysilicon prices. Chinese internet names declined 1% to 2% as news reports saying China may divide U.S. listed Chinese companies into three categories based on the level of sensitivity of the data these company possess. Despite strong growth in June EV sales, most EV stocks listed in Hong Kong were down.
USDJPY back below 136.50 following BOJ minutes
USDJPY was largely in range on Monday but a slight downside pressure was noted this morning as Bank of Japan minutes were released. While members of the board continued to underscore the need for an easy policy, they still agreed to carefully watch the impact of financial, forex market moves on economy and prices. Many members spoke about importance of wage hike in achieving price target, which possibly will raise the prospect of a policy tweak from the BOJ.
Crude oil prices remain volatile
Oil prices were slightly higher on Monday amid supply fears and a retreat in the US dollar. Still, expectations of aggressive Fed tightening continues to underpin some demand destruction fears, keeping oil prices capped and a modest decline was seen this morning. WTI futures were seen around $96/barrel while Brent futures rose to $104+. Libya’s National Oil Corporation said it aimed to bring back production to 1.2 million barrels per day (bpd) in two weeks, from around 860,000 bpd but political tensions continue to cap optimism.
What to consider?
Russia’s gas supply to Europe to be curbed again
Russia isn’t giving up on using gas supply as a weapon in the war, and after restoring gas flows to Europe to 40% of the capacity last week after the maintenance was over, it has now announced that gas supplies on Nord Stream 1 pipeline to Germany will drop to 20% of capacity. Gazprom has announced flows would fall to 33 million cubic meters per day from 0400 GMT on Wednesday because it needed to halt the operation of a Siemens gas turbine on instructions from an industry watchdog. Dutch European natural gas futures rose 12% on the news, and this goes to prove that Europe’s gas supply concerns will only increase into the winter and recession risks cannot be ruled out.
Germany’s July IFO business confidence slumps to 2-year lows
Germany’s IFO business confidence index fell to 88.6 in July vs. estimates of 90.1 and a revised 92.2 in June. The higher-than-expected fall in one of the key indicators of the health of the German economy were underpinned by higher energy prices and looming gas shortages which continue to push Europe’s largest economy towards a recession.
Shenzhen told 100 leading companies to operate under “closed loop”
As a measure to tighten pandemic control, Shenzhen asked 100 leading companies in the southern technology hub to implement “closed loop” mode of operations for seven days. Foxconn Technology (2354.TW), Huawei, ZTE (00763:xhkg), CNOOC (00883:xhkg), BYD (01211:xhkg) and DJI Technology are on the list.
Alibaba will seek primary listing in Hong Kong
Alibaba (09988:xhkg) said the company is seeking primary listing in Hong Kong. On the positive side, moving its primary listing from the U.S. to Hong Kong will enable Alibaba to be included into the Stock Connect and facilitate southbound buying from investors in the mainland. On the negative side, Alibaba may be preparing for the material risk of having to be delisted from the U.S. as the company is in possession of huge amount of data that the Chinese government could consider being sensitive.
IMF to further downgrade its global growth estimate
The IMF is set to cut its global GDP outlook 'substantially' in its next update due today. The outlook for the global economy has “darkened significantly” in recent months, the head of the IMF has warned, and the world faces an increasing risk of recession in the next 12 months. Ceyla Pazarbasioglu, the IMF’s director for strategy, policy and review spoke at the G20 meeting in Bali, noting the array of risks faced by the global economy including surging food and energy prices, slowing capital flows to emerging markets, the ongoing pandemic and a slowdown in China. IMF's global GDP growth estimate was cut to 3.6% at the April review from 4.4% earlier.
Singapore’s inflation runs hotter than expected
Singapore’s June inflation jumped to 6.7% y/y from 5.6% y/y in May, while core inflation picked up to 4.4% y/y in June from 3.6% y/y previously. Transport, housing, and food costs are key drivers, though prices for a broader swath of goods are also ticking up. Malaysia’s chicken ban in June has exacerbated food price pressures, while rents are running high due to soaring demand and restrained supplies. Demand-pull pressures from regional reopening and a pick-up in tourism also underpinned. The Monetary Authority of Singapore re-centered its currency band to the prevailing level on July 14, in a surprise tightening move. The rising inflation suggests further scope for the MAS to tighten policy, at or before the next meeting in October.
Walmart slashes its profit outlook; a sign of more pain to come for retailers
Walmart (WMT) kicked off a week of bellwether earnings reports for consumer-goods giants, who report this week including Coca-Cola Co., McDonald’s Corp. and Procter & Gamble Co. The world’s biggest retailer’s shares fell 10% afterhours after it cut its profit outlook again, expecting adjusted earnings per share to fall as much 13% in the current fiscal year; as US shoppers focus on buying less profitable groceries, instead of big ticket more profitable items. This is leading the retailer to slash its clothing prices to clear inventory. This raises new questions about US consumers’ ability to sustain their spending habits, given inflation is at a four-decade high. This will also send shockwaves through the sector, which is why shares in Target, Amazon, and Costco also fell in afterhours trading.
Gold pin-up, Newmont posts steepest decline in more than 13 years, highlighting precious metals aren’t immune to inflation woes
The world’s biggest gold producer, Newmont (NEM) posted a profit miss and quarterly loss, and its biggest drop in profit in 13 years, highlighting the pain in the commodity sector due to inflationary pressures. Its shares fell 13%, and caused a butterfly effect to other gold stocks in APAC. Newmont’s acceleration of costs, dragged down earnings and also pushed up project expenses. On the ASX Newcrest (NCM) and Resolute Mining (RSG) followed Newmont and both fell over 3% each, leading other gold producers lower. While Perseus (PRU) shares declined almost 4% after reporting 4Q gold production missed expectations.
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