Global Market Quick Take: Asia – July 24, 2023

What’s happening in markets?

US equities (US500.I and USNAS100.I): S&P500 and Nasdaq 100 flat

The S&P500 made a few failed attempts to rally before finishing at 4,536, near the low of the day and unchanged from the previous close. The Nasdaq 100 slid 0.3% to 15,425. Performance diverged among sectors, with utilities, healthcare, and energy gaining while communication services, industrials, and financials lagging.  Animal medicines and vaccine maker Zoetis, rising 6.9%, was the top winner within the S&P500 Index.

Regional banks pulled back on Friday. Comerica (CMA:xnys) plunged 4.1% after the regional lender guided a decline in net interest income in Q3, while Regions Financials (RF:xnys) dropped by 3.1% after it reported large credit losses and a fall in deposits. The SPDR S&P Regional Bank ETF (KRE:arcx) slid 1.3% on Friday but managed to sustain a weekly gain of 7.5%. American Express (AXP:xnys) fell by 3.9% after the payment card and travel company’s Q2 revenue missed analyst estimates.

Treasuries (TLT:xnas, IEF:xnas, SHY:xnas): gain small as the 10-year yield slides 2bps to 3.83%

Treasuries fluctuated in range-bound trading on Friday, with the 10-year confining to a 4bp range. The 8-9bp decline in JGB yields had no impact on US Treasuries. The 2-year yield finished unchanged at 4.84% while the 10-year yield slid 2bps to 3.83%, flattening the curve by 2bps to -101.

Hong Kong & Chinese equities (HK50.I & 02846:xhkg): Hang Seng Bank and HSBC stand out with gains

The Hang Seng Index gained 0.9% last Friday, ending a three-day losing streak. China's National Development and Reform Commission (NDRC) issued a 10-point directive to encourage auto consumption without rolling out additional government subsidies. It resulted in relatively muted market reactions. Southbound flows were a small net buying of HKD0.5 billion.

Among the constituents of the Hang Seng Index, Hang Seng Bank (00011:xhkg) stood out as the top performer, surging by 4.1%. Meanwhile, HSBC continued its seven-day streak of advances, rising by 0.8% and reaching a new high. In the technology sector, Kuaishou (01024:xhkg) emerged as the top gainer, rising 4.8% while Alibaba (09988:xhkg) climbed 2%. Country Garden (02007:xhkg) fell 5.5% following the developer’s onshore yuan bonds plummeting more than 20% in price.

In the A-share market, the CSI 300 was nearly flat. The gains in food and beverage, retailing, property, and beauty care services were offset by weaknesses in machinery, electric equipment, auto, and non-ferrous metal stocks.

FX: Dollar emerges stronger in the week, JPY weakens

The US dollar broke above 101 on Friday, closing the week with over 1% gains after a 2.3% decline in the preceding week. Japanese yen remains a key focus this week as USDJPY surged again to 142 on Friday on reports that BOJ sees little need to tweak yield curve control at the moment. Bank of Japan meeting decision is scheduled for the coming Friday, and speculations will likely continue to trigger volatility. NZDUSD was the underperformer as it dipped below 0.6170 from highs of 0.63+ earlier in the week amid a softer NZ Q2 CPI. AUDUSD was somewhat supported by efforts from Chinese authorities to support the yuan but retained its downtrend to close below 0.6730 for the week from 0.6850 at open last week. GBPUSD broke below 1.29 on the back of cooler than anticipated UK CPI metrics and the first undershoot against expectations since the start of the year.

Crude Oil: Brent breaks above $80

Crude oil started the week on a weaker footing in Asia after closing last week in gains again as market tightness starts to get priced in with Russia supply concerns and OPEC+ cuts. Expectations of a policy stimulus from China also underpinned. However, week ahead brings several key tests for markets as key central bank decisions will be due from Fed, ECB and BOJ, while big tech earnings will also impact sentiment. Brent has managed to break back above $80 but risk of more tightening could reverse these gains. 

What to consider?

China releases a directive to follow through in urban housing improvement in 21 mega-cities

China’s State Council released a directive on Friday evening to improve the living conditions in some shanty areas of the 21 largest cities in the country. The directive was to follow through on the policy direction laid out in the Politburo meeting in April this year. However, the scale seems to be much smaller than the last round of shantytown redevelopment which was nationwide and aimed at redevelopment not just improvement. Also notably, the last round of shantytown redevelopment was financed by money printing by the People’s Bank of China through policy banks, such as China Development Bank, in the form of pledged supplementary lending. This time, the directive last Friday called for financing from multiple sources including local governments and the private sector.

Sharp worsening in UK consumer confidence

The July UK GfK Consumer Confidence release overnight suggests a material worsening of UK confidence as it came in at –30 v. -25 expected and –24 in June. This confirms the increasing softness in UK labor market data and comes after a string over improving confidence figures since January.

Big week ahead for markets – key central bank meetings and big tech earnings

The recent rally in equities faces several test this week as key central bank decisions are due from Fed, ECB and Bank of Japan. While a data-dependent approach is likely to be the key messages coming out of Fed and ECB meetings, any clear indication of another rate hike from the Fed could spoil the party. Big tech earnings will be key as well with top 7 stocks mostly driving the gains in equities, and expectations are likely running high to justify these strong gains. We discuss the big tech earnings expectations in detail here, and keep an eye out on rotation into cyclicals and other quality stocks.

Chevron earnings beat

Chevron reported Q2 earnings of USD6.01 billion, 9% above the consensus estimate of USD5.5 billion, and record production at the Permian Basin.

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