Market Strategist, Greater China
Summary: US equities had a mixed performance, with the S&P500 struggling to hold gains and the Nasdaq 100 showing strength as Nvidia reached a $1 trillion market cap. Treasuries rebounded, snapping a 3-day losing streak, with yields falling across the curve due to a 4% drop in WTI crude oil prices. USDJPY retreated as US Treasury yields declined. Oil prices tumbled as Russia defied Saudi Arabia's production cut request, casting doubt on OPEC's meeting. In China, the decline in equities took a pause. Other factors to consider include Australia's CPI, JOLTS job openings, and China's manufacturing PMI.
The S&P500 initially opened on a positive note but struggled to sustain the gains, ending the day nearly unchanged compared to the closing level before the Memorial Day holiday. Meanwhile, the Nasdaq 100 experienced a stronger start, with an increase of up to 1.6% in the opening hour, eventually settling 0.4% higher for the session. Institutional buying waned, but retail flows remained robust. The market spotlight was on Nvidia (NVDA:xnas), which continued its remarkable ascent, surging by 7.7% at one point and surpassing the significant USD 1 trillion market cap milestone. However, it later trimmed some gains and closed 3% higher. Other chipmaker companies also performed well, with Intel (INTC:xnas) climbing 3.4% and Qualcomm (QCOM:xnas) surging 5.1%. Tesla (TSLA:xnas) witnessed a 4.1% rise, while Netflix (NFLX:xhas) added 3.7%.
Consumer staples and energy were among the sectors that underperformed. Apache (APA:xnas) witnessed a decline of 3.5% on the back of a 4% decline in crude oil prices. However, Equitrans Midstream (ETRN:xnas) stood out as an exception in the energy space, soaring by an impressive 34%. This surge was driven by a provision in the draft debt-ceiling bill that expedites the completion of one of the company's natural gas pipeline projects.
After a recent slump, Treasuries made a comeback, ending a three-day losing streak as yields had a notable decline of 7-12 bps across the yield curve. This resurgence was supported by a 4% drop in the WTI crude oil price, which reached USD 69.5 per barrel. Meanwhile, investors expect the draft debt-ceiling bill to be approved in the House on Wednesday and set for a vote in the Senate on Friday. Yields on the 2-year and the 10-year Treasury notes both saw significant drops, declining by 11bps to 4.45% and 3.69% respectively.
Chinese equities endured a morning session marked by a continued downward spiral, with waning confidence in China's economic recovery plaguing investor sentiment. However, an impressive turnaround took place in the afternoon, as stocks across both Hong Kong and mainland bourses staged a robust rally, erasing earlier losses and then some. The Hang Seng Index registered a 0.2% gain, while the Hang Seng TECH Index surged 1.5%, propelled by notable performances from China Internet, digital health platform, EV, and China property developer stocks.
Kuaishou (01024:xhkg) spearheaded the charge in the China Internet segment, soaring 6.5% to lead the advance. Digital health platforms also experienced notable gains, with JD Health (06618:xhkg) climbing 6.2% and Ping An Healthcare (01833:xhkg) rising 3.6%. Baidu (09888:xhkg) gained 3.3%, alongside A-share AI theme stocks, bolstered by Beijing municipal's commitment to enhancing AI development.
Overcoming initial setbacks, the CSI300 index rebounded and closed 0.1% higher, primarily driven by resurgent momentum in media, high-speed railways, AI, education, and communication industries.
The dollar weakened modestly versus the Euro and the Sterling but strengthened against the Japanese Yen. USDJPY followed the U.S. Treasury yields lower, coupled with an unscheduled meeting between Japan’s Ministry of Finance, the Bank of Japan, and the Financial Services Agency. After the meeting, Vice Minister of Finance Kanda said that it is desirable for foreign exchanges to reflect economic fundamentals. USDJPY fell to 139.80 from 140.45 a day ago.
July WTI crude oil prices plunged by 4.4% to reach USD 69.5 per barrel. The decline was triggered by a Wall Street Journal article that highlighted Russia's disregard for Saudi Arabia's request to adhere to the agreed-upon production cuts. The news comes ahead of an upcoming OPEC meeting scheduled for this weekend. The lack of cooperation from Russia raises concerns about the feasibility of implementing further production cuts. The situation casts doubt on the outcome of the OPEC meeting and adds uncertainty to the future trajectory of oil prices.
Speaking to the Parliamentary Senate Committee this morning, the Reserve Bank of Australia Governor Lowe said the Australian central bank is in “data-dependent mode” while reiterating the commitment to fight inflation.
The monthly CPI for Australia is due this morning, with expectations pointing towards an uptick in April's inflation to 6.4% Y/Y, surpassing the 6.3% Y/Y increase in March, largely attributed to notable gains in petrol prices and the annual reset in private health insurance premiums.
The Bloomberg consensus forecast anticipates a decline of 190K job openings in the JOLTS report for April, settling at 9,400K compared to the previous month's figure of 9,590K. Should this projection materialize, it has the potential to bolster the Federal Reserve's confidence in the belief that the labor market's tightness could ease by means of a sustained reduction in job openings, without significant spikes in the unemployment rate.
China's manufacturing sector is expected to remain in contraction in May, with both the official NBS manufacturing PMI and the private Caixin manufacturing PMI forecasted to be at 49.5, slightly below the pivotal 50 mark. The decline in the Emerging Industries PMI and a contraction of 23.4% YoY in South Korea's exports to China during the initial 20-day period of May raise concerns. Non-manufacturing activities are projected to continue expanding, albeit at a slower pace, with the NBS non-manufacturing PMI anticipated to decline from 56.4 to 55.2 and the Caixin services PMI expected to dip from 56.4 to 55.1 in May.
Salesforce's FY24 Q1 earnings report (ending 30 Apr) is scheduled for Wednesday after market close. Analysts anticipate revenue of USD 8.2 billion, marking a 10.3% Y/Y increase, along with an EBITDA of USD 3 billion compared to USD 1.2 billion from the previous year. This surge in profitability is attributed to cost-cutting initiatives implemented by the business software application maker. Despite a slowdown in technology spending observed across the industry, including Snowflake and others, Salesforce's revenue growth remains robust. However, the focus for both investors and management has shifted from achieving 20% revenue growth to generating free cash flow. Consequently, we expect Salesforce to experience significant improvements in profitability over the next five years. As a result of management's emphasis on profitability, Salesforce shares have surged by 58% this year.
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