Global Market Quick Take: Asia – August 22, 2024

In the news:

• Wall St ends higher as Fed minutes, jobs data firm rate-cut hopes (Investing)
• US employment falls by 818,000 in latest government revision (Yahoo)
• Zoom lifts revenue forecast on growing demand for AI tools used in hybrid work (Yahoo)
• Oil prices fall after downward revision to annual job gains spark economic jitters (Yahoo)
• Ford Is Pulling Back on EV Spending. The Stock Is Rising. (Barron’s)
• Target cut prices on 5,000 products. Now it's back with a big earnings beat. (Yahoo)
• AIA Group's new business value rises 25% in first half (CNA)

Macro:

• The FOMC’s July minutes showed that a vast majority of Fed officials see the case for a rate cut in September if data continued to come in as expected. Several participants said recent progress on inflation and increases in the unemployment rate provided a 'plausible case' for a 25bps cut or that they could have supported such a move.
• The BLS payrolls were revised lower by 818k, suggesting job growth was not as strong as previously thought between April 2023 and March 2024. This means that monthly job growth of 178k instead of 246k initially reported. While this is a signal that labor market has been weaker than previously thought, the revision number was better than the 1 million number some saw coming. However, this will mean markets remain sensitive to any incoming labour market data such as the initial jobless claims today.

Macro events: US Democratic National Convention (Aug 19-22), Fed's Jackson Hole Economic Policy Symposium (Aug 22- 24), ECB Minutes, EZ Negotiated Wage Rates (Q2), EZ/UK/US Flash PMIs (Aug), US Jobless Claims

Earnings: Baidu, Peloton, NetEase, Weibo, TD Bank, Cava, Workday, Intuit

Equities:  U.S. stocks ended Wednesday on a positive note as investors evaluated the latest data for insights into the U.S. economy's health and the Federal Reserve's monetary policy outlook. The S&P 500 and Nasdaq 100 rose by 0.4% and 0.5%, respectively, while the Dow increased by 55 points. According to the Bureau of Labor Statistics' preliminary benchmark revision, payrolls are expected to be revised downward by 818,000 for the year ending in March, equating to about 68,000 fewer jobs each month, heightening concerns about a weaker labor market. This revision coincided with signals from FOMC members about forthcoming rate cuts, with the latest minutes indicating a likely September cut, reinforcing expectations of 100bps or more in rate cuts this year. On the corporate front, Target jumped 11.2% on strong Q2 earnings, while Macy's fell 12.9% after lowering its guidance. In extended trading, Snowflake plunged 8% despite robust quarterly results, and Zoom gained 3% after beating earnings estimates and raising full-year outlook.

Fixed income: Treasuries rose, driven by a significant block purchase in five-year note futures and the integration of the BLS payroll revisions. Gains were maintained throughout the day, supported by a strong 20-year bond auction and the afternoon release of the Fed’s July meeting minutes, which indicated that officials see a plausible case for cutting interest rates. Declining oil prices during the session also added support. Treasury yields fell by up to 6 basis points across the front end of the curve in a bull steepening move, with the 2s10s and 5s30s spreads ending the session wider and steeper by 4 basis points and 4.5 basis points, respectively, compared to Tuesday's close. Despite some volatile price action following the delayed release of the BLS payroll revision, Treasuries absorbed the data. By the end of the day, Fed-dated OIS was pricing in approximately 103 basis points of rate cuts for the year, up from 97 basis points priced at Tuesday's close.

Commodities: Gold dipped but recovered after payroll revision data showed no surprises, settling down 0.12% at $2,547.50. Silver climbed to $29.70 per ounce, reaching a two-month high. The Gold Fear and Greed Index remains in Greed territory due to recent all-time highs. WTI crude futures fell 1.69% to $71.93 after the EIA inventory report showed a larger-than-expected draw, heightening demand fears. Brent crude also dropped 1.49% to $76.05. Market sensitivity to demand issues and geopolitical uncertainties suggests continued volatility. Wheat prices fell below $5.50 per bushel in August due to concerns over potential transportation disruptions in Canada and an optimistic production outlook from Ukraine.

FX: The weakness in the US dollar remains a key theme in the forex markets, with the dollar index now touching lows of 101 against a basket of currencies as the FOMC minutes made the case for a September rate cut stronger and markets are positioning for Chair Powell to highlight the same at the Jackson Hole conference when he speaks on Friday. We discussed whether this recent US dollar weakness has more to come or is running out of steam in this article. As a result of USD weakness, fresh over one-year highs were seen in the British pound as well as the euro. The drop in Treasury yields also helped the haven currencies strengthen, although Swiss franc outperformed the Japanese yen.

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