Global Market Quick Take: Asia – October 9, 2023

US Equities: Last Friday, the markets traded higher, shrugging off the hotter-than-expected payrolls report. The S&P500 and the Nasdaq 100 rallied by 1.2% and 1.7%, finishing the week 0.5% and 1.8% higher, respectively. The advance was broad-based, with mega-cap technology stocks leading the way. Today, investors are focused on the energy market's reactions to the tension that erupted in the Middle East over the weekend. In earning Asian hours, the S&P 500 eMini and Nasdaq 100 eMini futures are around 0.7% lower from their Friday closes.

Fixed income: Treasury yields swung violently after a surge in non-farm payrolls. The 10-year yields jumped to as high as 4.885% after the payrolls release and then reversed to as low as 4.75% when investors found comfort in slower wage growth. Large bear-steepening moves also surged and then faded. When the day came to a close, the 2-year yield finished 6bps higher at 5.08%, and the 10-year yield was 8bps higher at 4.80%. The Treasury curve's steepening trend is likely to continue as the short-end benefits from safe-haven bids, and the long-end suffers from the prospect of higher energy prices if the conflicts between Israel and the Palestinian militant groups escalate.

China/HK Equities: The Hang Seng Index rallied by 1.6% bouncing from near the year-to-date lows last Friday, in very light volume, led by healthcare and property stocks. Today, the focus will be on the performance of the mainland A-share market which resumes trading after the 6-trading session holiday and the tension in the Middle East. Due to the typhoon, the morning session in the Stock Exchange of Hong Kong will be cancelled and the afternoon session will begin at 2:00 pm local time.

FX: Risk sensitive trades were in focus early in Asia amid the Middle East tensions. Dollar gapped higher at the open, and gains were also seen in JPY and CHF. USDJPY retreated from Friday’s post-NFP highs of 149.53 while USDCHF stayed below 0.91 and EURCHF dipped below 0.96. NOK was the early outperformer on the G10 board as oil prices jumped 4% higher. USDNOK slid below 10.9 while USDCAD traded around 1.3660. Risk sensitive currencies AUD and NZD plunged.

Commodities: Oil prices surges by over 3% early in Asia on Monday with tensions flaring in Middle East. Focus remains on if and how the instability spreads in the region, particularly with WSJ reporting that Iran was involved. If that invokes a US response, oil prices could face more upside pressures. Saudi Arabia, however, expressed their willingness to increase production by early next year if oil prices remain high. Gold also gapped higher to return back to $1850 on safe-haven demand, and silver rose over 1% to get close to $22.

Macro:

• US nonfarm payrolls surprised on the headline as it blowed past expectations. The economy added 336k jobs in September vs. 227k prior (revised higher from 187k) and 170k expected. Wages and unemployment rate however showed that labor market may be cooling slowly under the hood. Unemployment rate remained at 3.8% while wages rose 0.2% M/M again in September, beneath the 0.3% expectation and 4.2% Y/Y, easing from the 4.3% prior and expectation.
• Canadian labour market data was also strong, with employment up 64k jobs in September (+20k expected). The unemployment rate was unchanged at 5.5% while hourly wages accelerated to 5.3% Y/Y.
• According to estimates by China's Ministry of Culture and Tourism, during the 8-day Golden Week holiday, the number of domestic trips increased by 71.3% Y/Y to 826 million, or 4.1% from the Golden Week in 2019. Domestic tourism revenues grew by 129.5% Y/Y to RMB753.4 billion but only saw a tepid increase of 1.5% from the level in 2019 before the pandemic. Cross-border entries and exits nearly tripled from last year but reached only 85.1% of the level in 2019.

Macro events: China’s new RMB loans (Sep) exp. 2,550bn vs prior 1,358bn & aggregate financing (Sep) exp. 3,800bn vs. 3,124 prior (expected to release between Oct 9-15).

In the news:

• Israel formally declares war against Hamas as more than 1,000 killed on both sides (Washington Post)
• US to send military ships, aircraft closer to Israel (Reuters)
• Russia Lifts Diesel-Export Ban That Battered Global Markets (Bloomberg)
• ECB's Schnabel can't rule out more hikes amid inflation risks (Reuters)
• US Senate leader raises trade and fentanyl at start of 1st congressional visit to China since 2019 (AP)
• White House planning face-to-face meeting with Xi Jinping in California (Washington Post)
• China’s official reserve in gold increased to over 70 million troy ounces (SAFE).
• Tesla's China-made EV sales volume falls 10.9% year-on-year in September (Reuters)

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