Chief China Strategist
Summary: The S&P 500 and Nasdaq 100 both retreated by 0.3%, while the Nikkei 225 declined 1.2% from its record high to close at 40,414. USDJPY remained above 151, prompting concerns voiced by Masto Kanda, Japan's top currency official, regarding speculative movements in FX markets. Market reactions were subdued, with USDJPY trading around 151.40 in Tokyo. Additionally, USDCNH reversed its gains from last Friday, dropping to approximately 7.2530 after significant USDCNY sales by the People’s Bank of China and fixing the USDCNY at 7.0996. WTI crude oil and Brent crude oil climbed 1.6% to $81.95 and $86.75 respectively as Ukrainian drones hit another Russian oil refinery.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
Equities: The S&P 500 and Nasdaq 100 both pulled back 0.3%, retreating for the second day in a row. Bucking the decline, Super Micro Computer and Micron Technology surged 7.2% and 6.3% respectively. Take-Two Interactive was the worst-performing stock among the S&P 500, falling 4.2% after a reported delay in the latest instalment of a blockbuster game.
Likewise, the Nikkei 225 pulled back from its record high, down 1.2% to close at 40,414. In China and Hong Kong, the Hang Seng Index and CSI300 fluctuated between small gains and losses, finishing the session 0.2% and 0.5% lower despite China’s central bank fixed the renminbi basket on the strong side, and better-than-expected earnings from China Hongqiao, seeing its share price surge 13.4%. BYD, China Telecom, and Anta Sports are reporting results today.
FX: As USDJPY hovered above 151, Masto Kanda, Vice Finance Minister for International Affairs, who is Japan’s top currency official, warned about “clearly seeing speculative movements in FX markets” on Monday. While Kanda’s remarks have increased the probability of the Minister of Finance’s intervention to draw a line to stop the weakening of the Yen, market reactions were muted, with USDJPY trading at around 151,40 in Tokyo Tuesday morning. Meanwhile, USDCNH reversed nearly all its gain from last Friday, plunging to finish Monday at around 7.2530 after the People’s Bank of China fixed the USDCNY rate at 7.0996 and sold USDCNY heavily in the onshore market.
Commodities: WTI crude oil and Brent crude oil front month futures both climbed 1.6% to $81.95 and $86.75 respectively as Ukrainian drones hit another Russian oil refinery, adding to the list of casualties of Russian refining infrastructure, estimated to amount to 7% of Russian capacity that has been knocked out by drone attacks. A decline in oil drilling rig count in the US also added to traders’ concerns about supply.
Fixed income: Treasuries pulled back from their post-FOMC rallies, with yields climbing across the yield curve. The $66 billion 2-year Treasury note auction met with subdue demand. The benchmark 10-year yield finished the session 5bps higher at 4.25%.
Macro:
Macro events: US Durable Goods Orders (Feb), US Conference Board Consumer Confidence (Mar), Germany GfK Consumer Confidence (Apr), Singapore Industrial Production (Feb)
Earnings: BYD, China Telecom, Nongfu Spring, CITIC Securities, PICC Property & Casualty, ANTA Sports, People’s Insurance, SF Holding
In the news:
For all macro, earnings, and dividend events check Saxo’s calendar.
For a global look at markets – go to Inspiration
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
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