Global Market Quick Take: Asia – June 27, 2023

What’s happening in markets?

US equities (US500.I and USNAS100.I): Tesla plunges 6.1% as analyst downgrades, real estate sector surges

The major US stock indices experienced mixed performance yesterday, with the S&P500 declining by 0.5% and the Nasdaq100 dropping by 1.4%. However, the Russell 2000 managed to buck the trend and recorded a slight gain of 0.1%. The decline in the S&P500 was primarily driven by weaknesses in the communication services, consumer discretionary, and information technology sectors. The biggest losing stock in the S&P500 was (CCL:xnys), falling 7.6% after the cruise line operator reported a loss in Q2 due to high costs.

Notably, Tesla (TSLA:xnas) faced a significant setback, plummeting by 6.1% following a downgrade by a leading US investment bank. The bank cited margin pressures in the midst of a challenging pricing environment as the reason for the downgrade.

Within the S&P500, the real estate sector was a standout performer, surging by an impressive 2.2%. The REIT (Real Estate Investment Trust) space exhibited notable strength, buoyed by the successful sale of assets by SL Green Reality (SLG:xnys), which saw a remarkable gain of 19.8%. The positive sentiment towards the industry contributed to the robust performance of the real estate sector in the market.

Treasuries (TLT:xnas, IEF:xnas, SHY:xnas): small gains (lower yields) in a choppy session

Treasuries registered small gains, led by the 5-year notes, in a choppy session. Bids first emerged following a rally in German Bunds, which gained on softer-than-expected German IFO business climate data. Most of the gains waned toward the mid-day as hedging activities from corporate issuance weighed. A strong 2-year auction, however, helped the market to recover and closed with small gains (lower yields) across the belling of the yield curve, with the 5-year yield falling 2bps to 3.97%, while the 2-year yield unchanged at 4.47% and the 10-year yield finished 1bp lower at 3.72%. The USD42 billion 2-year was awarded a 1bp richer than the level at the time of auction and had a strong bid-to-cover ratio of 2.86 times.

Hong Kong & Chinese equities (HK50.I & 02846:xhkg): Electricity utilities gain amidst heatwave

After a 4-day long weekend, mainland Chinese stocks declined, with the CSI300 falling by 1.4%. Although there were year-on-year increases, the recovery of domestic tourist trips during the holiday reached 112.8% and revenues reached only 94.9% of the corresponding period in 2019. This indicates a slower pace of tourism activities compared to the Labor Day holiday in May, where the levels reached 119.1% and 100.7% of the pre-pandemic 2019 levels respectively. The sectors leading the downturn in the A-share market were telecommunication, media, consumers, and construction.

However, as a heatwave spread across Northern China, electricity utilities saw gains in the A-share market. The Hong Kong bourse also saw electricity names as the biggest winners. China Resources Power (00836:xhkg), China Power (02380:xhkg), and China Longuan surged, gaining 5.9%, 4.9%, and 2.7% respectively.

In the technology sector, Xiaomai (01810:xhkg) outperformed, rallying 4.3%. This was supported by another round of buybacks and news of their investment in SPL Electronics Technology, a communication chip company. Additionally, there was a noteworthy 22.6% year-on-year increase in smartphone shipments in May. Meanwhile, the Hang Seng Index slid 0.5%.

FX: Norwegian Krone surges 0.9% against USD on Russia developments

The DXY closed the session slightly lower, down 0.2% at 102.7. It was a relatively calm session with minor fluctuations of around 0.2% against major currencies with USDJPY at 143.40 and EURUSD at 1.0910. However, the Norwegian Krone stood out as it strengthened by 0.9% against the USD. This was primarily driven by the implication on crude oil from the recent developments in Russia.

What to consider?

Putin makes his first public address since the Wagner event

Russian President Putin spoke on television in his first public address to the country, thanking members of the mercenary group Wagner for abandoning the action to avert bloodshed while accusing their leader, Prigozhin betraying the country.

Dallas Fed manufacturing index improves less than anticipated

The Dallas Fed manufacturing index rose to -23.2 in June from -29.1 in May but the improvement was weaker than expectations.

German IFO business climate declines

The German IFO business climate index declined to 88.5 in June from 91.7 in May, a steeper fall than the 90.7 expected.

JD.com and Alibaba announce restructuring initiatives in the grocery business

E-commerce leaders JD.com and Alibaba are making new moves with their restructuring initiatives. JD.com has announced plans to create an independent unit by merging its 7Fresh supermarket chain with other online services. This strategic step aims to enhance JD.com's market presence in fresh food and groceries nationwide. Additionally, Alibaba intends to seek approval for the spinoff and listing of its grocery arm, Freshippo, on the Hong Kong stock exchange.

Pension fund rebalancing spurs market attention with a potential USD 26 billion sell-off

As we approach the end of the second quarter, equity traders are closely monitoring the rebalancing flows in US equities, which have become a key focus. Analysts anticipate significant selling pressure from pension funds, estimating a potential sell-off of stocks amounting to approximately USD 26 billion. The impending rebalancing is expected to have a notable impact on the market dynamics, as traders prepare for potential shifts in stock prices and overall market sentiment. With the month and quarter end coinciding, the magnitude of these rebalancing flows adds an element of anticipation and uncertainty for market participants.

For a detailed look at what to watch in markets this week – read our Saxo Spotlight.

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