Global Market Quick Take: Asia – February 2, 2024

US Equities: Both the S&P 500 and the Nasdaq 100 rallied 1.3% as the 10-year Treasury yields declined to 3.88% as investors picked up the underlying dovish message from Powell who is ready to cut rates without demanding a further deterioration in the labour market. Apple, Amazon and Meta reported December quarter results followed by mixed share price performance in the extended hours. 

Apple’s revenue beat estimates, growing 2% Y/Y to $119.6 billion amid better-than-expected iPhone sales. The iPhone segment brought in $69.7 billion in revenue, surpassing the consensus of $67.6 billion. The gross margin of 45.9% was better than the 45.5% projected by analysts. Apple’s December quarter net income of $33.9 billion or $2.18 a share, representing a 13% and 16% growth respectively from a year ago and beating analyst estimates of $32.3 billion and $2.11. However, Apple’s revenue from the Greater China region came in below expectations at $20.8 billion, below the $23.5 billion projected by analysts. The company’s share price dropped by over 3% in the extended hours. 

Amazon reported Q4 revenue of $170 billion, a 13.9% increase from a year ago and surpassing the consensus forecast of $166.2 billion. Reported net income grew to $10.6 billion or $1 a share ($17 billion or $1.6 a share on a comparable basis) surpassing estimates of $0.80 (or $1.04 on a comparable basis). Share price surged over 7% in the extended hours. 

Meta soared more than 14% in the extended hours after reporting a 25% Y/Y growth in quarterly revenue, an earnings beat, addition to share buyback, and a first-ever dividend. The social media giant reported revenue of $40.1 billion, surpassing the consensus forecast of $39 billion. Net income came in at $15.8 billion as reported or $14.0 billion on a comparable basis, a 200% growth from a year ago and beating the $12.8 billion projected by analysts. The EPS was $5.33, beating the consensus estimate of $5.0.   

Fixed income:  Treasury yields fell across the yield curve, led by the long end, following an unexpected increase in the initial jobless claims to 224,000. The 10-year yield dropped by 3bps to 3.88% while the 2-year ticked down half a basis point to 4.20%. Despite the media labelled Powell’s post-FOMC comments as ‘hawkish’, there seems to be a shift to a dovish stance in his underlying message. Back in August last year at Jackson Hole, Powell said "the central bank could raise interest rates further if the economy and job market don’t weaken more substantially, suggesting that additional hikes may lie ahead even if inflation continues to ease."  On Wednesday he said, “We don’t know with great confidence where the neutral rate of interest is at any given time,” but that it “also doesn’t mean that we wait around to see the economy turn down, because that will be too late.”  So now he does not think that the economy and the labour market must slow to contain inflation. Job growth will not deter the Fed from cutting rates.

China/HK Equities: The Hang Seng Index rebounded by 0.5%, while the CSI300 remained nearly unchanged, following the as-expected performance of the Caixin China Manufacturing PMI, which stayed in the expansionary territory at 50.8. Macao casino operators emerged as top performers on the Hong Kong bourse, driven by a 67% year-on-year growth in Macao’s gaming revenue in January. Sands China gained 4.2%, while Melco surged by 6.9%.

FX: Dollar initially rose higher amid additional support factors coming from a wave of risk-off in markets yesterday, and the DXY index tested recent highs at 103.80 before turning sharply lower on the back of an increase in jobless claims. The index dropped all the way to 103 support and pressure could continue ahead of NFP today if equity sentiment improves with strong set of technology earnings after-hours. EURUSD broke below 1.08 but was short-lived and rose back above 1.0870 amid dollar weakness and Eurozone CPI not cooling as much as expected. GBPUSD also touched 1.2750, its first key resistance as indicated in our weekly G10 views, but a break of 1.28 may be needed to confirm upside trend. AUD was the underperformer, even as it bounced higher from 0.6520 support. AUDNZD continues to test 1.07 support.

Commodities: Gold is back to testing its key $2,055 resistance with the drop in dollar yesterday, and jobless claims again raising the odds of a March Fed rate cut. Crude oil was choppy and ended the day in sharp losses with unconfirmed reports of a ceasefire from Israel which were later denied. The OPEC+ meeting made no recommendation on oil output policy, as expected. However, according to Reuters, OPEC+ is to review extending the 2.2mn BPD voluntary cuts due to expire end of Q1 24 early March. Read this article to know more about commodity ETF flows for the month of January.

Macro:

• US jobless claims for the week of 27th Jan rose to 224k (prev. 215k), the highest level since early November and above the expected 212k. Continued claims were also higher than expected while the Challenger job cuts came in at -82K which was the most announced layoffs going back to March 2023. That triggered concerns around the health of the labor market and best for a March rate cut were increased again to over 40%. This article highlights the considerations for a Fed rate cut and how you can position for it in equities and SOFR contracts.
• ISM manufacturing, however, came in stronger at 49.1 vs. estimate of 47.0 but still remained in contraction. Focus shifts to non-farm payrolls today, and market will likely remain very sensitive to any downside surprise. Read this article to know more.
• In the study session after the first Politburo meeting this year, President Xi urged the enhancement of the total factor productivity of the Chinese economy by accelerating the development of new productive forces through innovation. He called for applying scientific and technological innovations to transform and upgrade traditional industries, foster emerging industries and promote new forms of industrialization.
• In January, the Caixin China manufacturing PMI remained at 50.8, meeting expectations and unchanged from December. The production, new orders, raw material procurement prices, and finished goods inventory sub-indices stayed in the expansionary territory but decelerated. The factory output price sub-index dropped back into the contractionary territory.  Meanwhile, the new export orders sub-index rose above 50 for the first time in seven months.
• In January, the People’s Bank of China increased pledged supplementary lending (PSL) by RMB150 billion. The PSL was part of the RMB500 billion approved in early January to fund urban village renovation, social welfare housing, and dual-use urban infrastructure projects.
• The Bank of England kept rates unchanged with a vote split representing two members voting for a hike, one voting for a cut and the rest voting to keep rates unchanged. There was a slight hawkish bent even though the prior guidance that “further tightening could be required” was removed. The Bank now expects inflation to reach its 2% target in Q2 2024 vs. previous view of Q4 2025, but Governor Bailey did not shed any light on the timing of the first rate cut and a data-dependent approach was emphasized.
• Eurozone CPI for January came in slightly above expectations at 2.8% YoY for the headline and 3.3% on the core vs. 2.9% and 3.4% previously respectively and 2.7% and 3.2% expected respectively.

   

  Macro events: US Non-farm Payrolls, Unemployment Rate, Average Weekly Hours, & Average Hourly Earnings (Jan), U of Michigan Sentiment Survey (Jan, final)

  Earnings:  ExxonMobil, AbbVie, Chevron, Regeneron Pharmaceuticals, Bristol-Myers Squibb, Cigna, Keyence.

  In the news:

• Gaza Cease-Fire Negotiations Advance as Israel-Hamas War Grinds On (Bloomberg)
• Peloton Tumbles After Predicting Another Sales Decline (Bloomberg)
• Bank losses revive fears over US commercial property market (FT)
• Powell Navigates ‘Toxic’ Politics of Rate Cuts as Election Nears (WSJ)
• US replacement of Chinese IT equipment will cost billions of dollars more (SCMP)

For all macro, earnings, and dividend events check Saxo’s calendar.

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