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Global Market Quick Take: Asia – April 28, 2023

Macro
APAC Strategy Team

Summary:  S&P500 had its best session since January on strong tech earnings. Meta surged nearly 14%. Adding to the positive sentiments was a rally in regional bank shares and better-than-expected earnings from European banks. Equity investors managed to shrug away from higher U.S. Treasury yields following stronger inflation and consumption data for Q1. The higher-than-expected Tokyo CPI figures bring more pressure on the BOJ when it concluded its 2-day monetary policy meeting today. The US releases monthly PCE data today.


What’s happening in markets?

US equities (US500.I and USNAS100.I): S&P 500 jumped the most in 3 months on strong tech earnings

The better-than-expected earnings from Meta overnight saw the communication services sector in the S&P500 surging 5.5%, leading the charge higher of higher stock prices across the board. Meta (META:xnas) soared 13.9%. The S&P 500 Index rose the most in one day since January, gaining 2%, while the NASDAQ 100 Index advanced 2.8%. All 11 sectors in the S&P 500 gained on Thursday.

The market sentiment improved further as banking stocks rallied on better-than-expected earnings across the pond from European heavyweights Deutsche Bank (DBK:xetr) and Barclays Bank (BARC:xlon) as well as an 8.8% bounce in the battered Frist Republic Bank (FRC:xnys). The KWB Bank Index climbed 1.5% and the SPDR S&P Regional Banking ETF (KRE:arcx) advanced 1.9%.

After the market closed, Amazon (AMZN:xnas) reported earnings beating estimates and strong performance in the cloud-computing division. Share jumped as much as 12% at one point before paring all the gains and more following downbeat outlook on cloud-computing at the conference call.

Treasuries (TLT:xnasIEF:xnasSHY:xnas): yields jump on higher inflation, strong consumption and rally in equities

U.S. Treasury yields climbed most in the front end with 2-year yield finishing 12bps higher at 4.07% while the 10-year yield rising 7bps to 3.52%. A combination in a 3.7% growth in consumption and an acceleration to 4.9% Y/Y increase in the quarterly core PCE in the Q1 GDP report (see below for details) started the selloff in Treasuries (rise in yields). The strong gains in equities and rallies in regional bank share prices added fuel to the selling in Treasuries. The USD35 billion 7-year auction was weak, awarded at 1.3bps higher than level at the time of auction and a below average participation from non-primary dealers. The SOFR interest rate futures repriced to trim implied rate cuts, seeing the March 2024 (SR3H4) contracts falling most (interest rate higher) by 20bps.

Chinese equities (HK50.I & 02846:xhkg): Insurance stocks led the advance

Hong Kong and mainland Chinese benchmark indices rose on the back of surging insurance company share prices, driven by strong Q1 results from Ping An Insurance Group (02318:xhkg), which gained 7.5%. Other insurers also saw gains, including China Life (02628:xhkg) up 5.1%, New China Life Insurance (01336:xhkg) up 5.3%, Prudential (02378:xhkg), up 2.8% and AIA (01299:xhkg) up 1.6%.

The Hang Seng Index climbed 0.4% and the CSI300 gained 0.7%, while the Hang Seng Tech Index fell by 0.3% due to lackluster interest in China Internet names despite strong performance in U.S. technology stocks. Alibaba (09988:xhkg) fell by 1.8%. ZJLD's (06979:xhkg), the largest IPO this year in Hong Kong, dropped by 17.9% on its debut.  

In A-shares, the non-bank financial sector led the gains, with insurance stocks performing particularly well. In light of the upcoming labour-day holiday, the beauty and healthcare, food and beverage, and other consumer industries advanced. Defense and pharmaceuticals experienced an uptick while technology, media, and telco names retreated.

FX: JPY gains on Tokyo CPI beat, BOJ chief Ueda up next

The US GDP report showed a mixed growth picture but price pressures continued to signal strength with Q1 core PCE coming in stronger than expected. That brought Treasury yields higher, especially at the front end, weighing on Japanese yen. USDJPY slid to rose to 134.20, jumping by nearly 1 big figure. But the higher-than-expected April Tokyo CPI figures this morning brings more pressure on Ueda to signal scope for policy tweaks today, bringing USDJPY to sub-134 levels. EURUSD saw a momentary drop below 1.10 on the Q1 PCE report but rose back to 1.1030+ levels this morning in Asia. GBPUSD also taking another dig at key 1.25 levels.

Crude oil: rebound after closing price gap, but technical downward pressure remains

Small gains were seen in crude oil prices on Thursday despite a stronger dollar and rising probability of the May Fed rate hike, as well as continued signal of demand weakness from declining refinery margins. Gains returned following two days of heavy selling amid mixed economic signals, and after the sharp decline in oil prices closed the gap seen after the surprise OPEC announcement to cut production. Focus today will be on company earnings from oil major such as Exxon Mobil and Chevron, which could add inputs on the outlook for the oil markets. WTI prices still below $75/barrel while Brent was close to $78.50. The technical break below $80 in Brent may attract additional short selling from momentum focused traders, with weak risk sentiment spreading from the banking sector. On top of this the recovery in China remains underwhelming, while falling refinery margins may lead to runs being cut thereby reducing demand for crude oil further. WTI resistance at $76.50 and Brent at $80.50.

Gold (XAUUSD): another bounce off support

Gold prices plunged again yesterday amid higher Treasury yields and a stronger dollar, dipping to lows of 1974.22 but rebounded later in the session to again close above key $1981 support. This support level continues to hold up in the wake of banking sector concerns, with the Fed’s emergency lending rising again for the week ending April 26. Focus today will be on March PCE data in the US and if that makes any change to the 75bps of rate cuts from the Fed priced in by the markets. If Gold closes below 1,981 it could fuel a sell-off down to strong support at $1950.

 

What to consider?

US GDP report brings the probability of May rate hike to 90%

Advanced GDP in the US missed expectations at 1.1% (exp. 2.0%) and reflected a stark slowdown from growth of 2.6% in Q4. While the headline may have reflected concerns of a recession, the details were patchy with consumer spending holding up strong for both goods and services. Personal consumption was up a strong 3.7% led by durable goods consumption coming in at a solid 16.9% growth. Business activity seems to be getting hurt by high interest rates, with declines seen in private inventory investment and residential fixed investment.

While growth side remained mixed, price data was still hot with core Q1 PCE coming in above expectations at 4.9% from 4.4% previously. This brought the possibility of a 25bps rate hike from the Fed in May higher to 90% from sub-80% previously. The March PCE indicator will be on tap today and it is expected to stay steady at 4.6% YoY. If a higher print is seen, that will mean the Q1 print could be revised further higher in the subsequent prints, keeping the pressure on Fed to hike rates further. Meanwhile, initial jobless claims also sent out a hawkish signal, rising to 230k in the latest week, not as much as the expected 248k and a move back lower from the prior week's 246k increase.

Amazon Q1 earnings beat but warns of slower growth in cloud-computing in Q2

Amazon reported a 9% Y/Y growth in revenues in Q1 to USD127.36 billion, more than 2% above consensus estimates. EBIT was USD 4.77 billion versus the consensus USD3.18 billion and earnings per share came in at 31 cents, much higher than the 21 cents forecasted. Amazon Web Services registered a 16% Y/Y sales growth, in line with previous guidance but better than the feared 11-13% among analysts before the results. The initial price reaction to the results was jumping 12% but it reversed to a decline of around 2% following warnings from the management at the post earnings conference call that the cloud-computing business at Amazon Web Services are at a running rate 5 percentage points below the pace of growth in Q1.

China's industrial enterprises see narrowing profit decline in March

Revenues of China’s industrial enterprise improved from a decline of 1.3% Y/Y in January-February to a growth of 0.6% Y/Y in March, reversing a continuous decline since November 2022. Industrial profits fell 21.4% Y/Y in the first three months of 2023, with March's decline of 19.2% Y/Y narrowing by 3.7 percentage points compared to the previous two months.

While electricity, heat, gas and water production and supply industries saw an increase in profits, the mining industry saw a decline of 5.8% in the first three months. The manufacturing sector saw a decrease of 29.4%, narrowing by 3.2 percentage points, mainly contributed by the equipment manufacturing industry.  The auto industry saw a significant rebound in profits, with an increase of 9.1% Y/Y. As a result of continued efforts to boost domestic consumption, profits in the consumer goods manufacturing sector also showed signs of improvement, with seven out of 13 industries in the sector seeing improved profitability in March.

Ping An Insurance reports 49% YoY increase in Q1 net income, driven by robust growth in life insurance

Ping An Insurance Group (02318:XHKG) reported a net income of RMB38.35 billion, representing a 49% increase compared to the same period last year. The 104% growth in life insurance net income was driven by a strong demand for savings products, as well as noteworthy gains in agent productivity and bancassurance sales. Additionally, Ping An Insurance Group reported a positive 9% year-on-year increase in life insurance new business value, which reached RMB13.7 billion.

China's NBS PMI figures set to slow in April

China's National Bureau of Statistics (NBS) is set to unveil its highly anticipated manufacturing and non-manufacturing Purchasing Managers' Index (PMI) on Sunday. Against a backdrop of signs of waning economic recovery in April, economist surveyed by Bloomberg projects that the NBS manufacturing PMI will contract to 51.4 in April from 51.9 in March, while the NBS non-manufacturing PMI is expected to drop to 56.9 in April from 58.2 in the previous month.

Tokyo CPI gains further in April, BOJ meeting eyed

The Bank of Japan (BOJ) is concluding its two-day monetary policy meeting, the first under the reign of Mr. Ueda, today. Tokyo CPI for April was reported this morning and it reflected sustained price pressures, coming in stronger than expectations at 3.5% YoY from 3.3% YoY previously in March. The core-core measure, ex-fresh food and energy, increased to 3.8% YoY printing fresh over 40-year highs and increasing the pressure on new BOJ chief Ueda today.

The majority of investors expect no big-bang changes to policies from Ueda today. At a press conference earlier this month, Ueda reiterated his stance that the YCC policy is appropriate in view of the current economic, price and financial situation. Investors are expecting some sort of changes to the YCC policy later this year but are divided in the forms of policy changes ranging from widening the current +/- 50bps band, shortening the tenor of the Japanese Government bond (JGB) yield that is targeted from currently 10-year to the 5-year or even the 2-year JGB, or even completely abolishing it. A change to the YCC policy is likely to make the Yen stronger. Today’s announcement will be all about gauging the tone and intent, and aligning market expectations accordingly, which could spark a reaction from the yen.

 

 

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.

 

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