Traders become short term bulls in a bear market, but are on edge after oil creeps up Traders become short term bulls in a bear market, but are on edge after oil creeps up Traders become short term bulls in a bear market, but are on edge after oil creeps up

Traders become short term bulls in a bear market, but are on edge after oil creeps up

Equities 7 minutes to read
APAC Strategy Team

Summary:  The Bear market bounce continues, with end of half year in the US, and end of financial year in Australia rebalancing causing a short term secular buying spree, while lower bond yields help to calm market jitters. But don’t get too comfortable, strap in as the big picture remains bearish, with inflation pressures mounting, for example, the oil price jumped back to a 2-month high extending its long term rally up, and Gas prices are at record highs all ahead of another big interest rate decision by the Fed in 3 weeks. We share what APAC clients are buying and trading and why.


What’s happening in markets that you need to know     

Big picture for equities? We have had some short reprieve so markets are rallying from the Fed’s minutes this week, plus its end of month, end of half year in the US approaches, as does Australian EOFY. So portfolio rebalancing may have triggered a selective short-term technical rally in some downbeat names. Meaning fund managers are being forced to bring their assets allocations back into alignment, meaning, they are compulsory buying into tech. As we said on the podcast last night, this will likely continue for now. For clients, some are taking this bull run in a bear market, as a potential opportunity for a short term gains, before locking in profits before the markets resumes its long term bearish downtrend.

At Saxo across the APAC region, we’re seeing clients take on a short term tactical view on markets over the last week: 70% of clients are buying shares - the most bought names this week include Tesla, Apple, Amazon, Microsoft, NVidia, Alphabet (Google). Secondly, options have picked up too, with many clients using option to hedge their long term positions in stocks. And thirdly in Indices, there has been the most trades in the Nasdaq 100, 51% of clients are buying for the short term likely continued rally, while 49% are shorting the Nasdaq amid the long-term bearish tone. In Futures, there’s also been a lot of trading in light crude with buy orders picking up as China looks to continue to ease restrictions, which will likely cause oil to rise in demand and price.

Asia Pacific equities extended Wall Street rally on month end flows and China tech earnings. The risk-on tone from the overnight markets found further legs in the APAC session. After the big drop in US equities this month, portfolio managers are likely to buy into the month-end to bring allocations back in line with their strategy. (side note Monday is a US holiday). Japan’s reopening also spurred gains in Asian airlines while higher oil prices supported Asian energy stocks. Japan’s Nikkei (NI225.I) was up over 0.6% as airlines and consumer stocks got a bid, and Singapore’s STI index (ES3) also gained close to 0.6%. Singtel was down close to 2% after it reported earnings this morning, and missed revenue and profit estimates for the full year.

Australia’s ASX200, is trading up 0.9%, at its highest level in a week, beefed up by commodity companies this week. However todaySquare (SQ, SQ2) is trading up 6%, after the payment giant, who makes over 70% of its money from Bitcoin transaction rallied on the back of bond yields falling. However, the best performer today is arguably being caused by traders exercising their short positions on gambling company PointsBet (PBH). PBH is up the most today 14% after tumbling 66% this year. This reflects that in this climate, volatility will continue, and investors must read between the lines of a rally. That being said, fund managers might also be buying small exposures in down beat tech ahead of end of financial year. In company news, Rio Tinto (RIO) said the iron ore market will likely pick up as China is ‘very determined to meet’ its growth targets and accelerate infrastructure. This is in line with what we've been saying for some time. Also today, lithium companies like Allkem (AKE) hit new highs rising 3% after the lithium sector had a fire cracker put under this week for two reasons, the Labor Govt brought in an EV policy and secondly, the world’s biggest lithium company Albemarle (ALB), upgraded its earnings for the 2nd time this month expecting the lithium price to push higher on rising demand and lack of supply.

China internet stocks boosted by better than expected results from Alibaba (09988) and Baidu 09888). Alibaba’s revenues in the March 2022 quarter grew 9% YoY.  While net profit was down 24% YoY to RMB21.5 billion, it was well above the RMB18.5 billion expected by analysts.  Management refrains from giving forward guidance, citing the outlook for the pandemic situation and the trend of retail demand being uncertain.  Baidu’s Q1 2022 total revenues grew 1% YoY.  Net profit declined 10% YoY to RMB3.8 billion but it was more than double the market expectation.  Baidu’s cloud revenue, up 45% YoY, was notably better than what peers recently reported.  Hang Seng Index (HSI.I) climbed 2.9% and Hang Seng TECH Index (HSTECH.I) surged almost 4%. Alibaba rose 12% and Baidu surged 14%.  The less hawkish than feared speech from U.S. Secretary of State Antony Blinken laying out the Biden’s administration’s policy towards China help improve sentiment. In A shares, CSI300(000300.I) rose 0.8%, being led by computing, oil and gas, ferrous metal, food and beverage, defense and electric equipment.

What to consider?

Pricing out the Fed hikes. As we’ve said previously, we don’t think we have reached peak capitulation in US equities yet, we think inflation probably won’t come down as the Fed expects. Rate hikes have start to being priced out, and we now have the terminal rate at 2.77% compared to 3% on May 3 before the latest Fed meeting. But we think there could be surprise hawkishness. US GDP 2nd estimate came in lower than expected at -1.5% and pending home sales were down 3.9% m/m vs. estimates of -2.0%. Initial jobless claims were better than expected after the spike last week, but continuing claims were worse than expected. PCE prices remain on watch today, and inflation is likely to stay higher for longer.

US consumer back in focus as retailer earnings turn. Retailer earnings turned the table with Macy’s (M), Dollar General (DG) and Dollar Tree (DLTR) not just beating estimates but still remaining upbeat on guidance for the year. (DLTR’s guidance for Q2 was weak but FY guidance was maintained). Despite mixed US eco data, this helps to calm recession fears and continues to show the strength of the US consumer although spending patterns are shifting.

China’s industrial profits fell 8.5% YoY in April and decelerated to a growth of 3.5% YoY in the first four months of the year. In April, profits in the manufacturing sector dropped 22.4% YoY while the mining sector continued to outperform and surged 142% YoY, with the coal mining industry and oil & gas exploration and development industry leading the charge.  Non-ferrous metals and chemicals were among the outperformers in the materials sector. 

First signs of an exit plan from the BOJ. USDJPY saw a pull back on Thursday on the very first hints from BOJ about an exit from the easy monetary policy. Kuroda said the BoJ will likely combine rate hikes and balance sheet reduction through specific means, with timing to be dependent on developments. Meanwhile, Kuroda said FOMC rate hikes may not necessarily result in a weaker JPY or outflows of funds from Japan if it affects US stock prices. Tokyo inflation reported this morning has stayed around the 2% mark – but underlying price pressures still remain restrained. 

Potential trading ideas to consider?

Crude oil resuming its uptrend. Crude oil pumped up to a two-month high, with Brent breaking the key 115 level as the US summer driving season demand underpins, in addition to the broader risk appetite improvement. Also, the UK government announced it will impose a windfall tax on energy firm profits. Oil (and commodities in general) remain in a long term bullish uptrend amid structural supply constraints. The US oil giant, Occidental Petroleum (OXY)is up 136% year to date. Marathon Oil (MRO) is up 74% YTD, Halliburton (HAL) up 75% YTD on the NYSE with companies like these to continue to see momentum as the oil price resumes its uptrend. Japan’s Inpex (1605) has gained over 100% in the last 1 year and is still expected to record solid revenues and earnings growth next year. However, Japan’s power companies like Kyushu Electric (9508) and Tohoku Electric (9506) will continue to see further pressures.

Chinese mining and materials stocks and ETFs (e.g. Global X MSCI China Material ETF, CHIM:arcx) may benefit from the resilience of profitability in the mining and materials sectors despite macroeconomic headwinds as well as the potential rise in demand from infrastructure construction.

For a global look at markets – tune into our Podcast. 

  

Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.