APAC Daily Digest: What is happening in markets & what to consider next – August 5

What is happening in markets?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) are in bull markets, but warning signs of a pullback remain

Tesla shareholders approve a stock spilt to attract more investors 

Tesla (TSLA) shares extended their bullish run and now trade up 50% from the May low. Tesla nudged up in the regular session and after the market close, after shareholders approved a 3-for-1 stock split, in a bid to attract more retail investors. The split will bring down Tesla’s spun-off new shares, down to the $300 range. This is compared to Tesla’s shares which are trading at  $925.00. Stock splits don’t impact the business model of a company, but are aimed at bringing a sense of affordability to mum-and-dad investors. Overnight at the Tesla AGM Musk assured investors that inflation is not affecting the business as much as it did six months ago, as commodity prices have come down. Meanwhile Musk is also pushing ahead with making in-house battery cells, to control costs where possible. And in terms of new revenue streams, Musk affirmed the Cybertruck is on track to kicking off production mid-next year. From a technical point of view, Tesla shares are in oversold territory, meaning they could be due for a pull back.

Trading in U.S. treasuries was mixed

On Thursday, the yields for tenors ranging from 2-year to 10-year declined 2 basis points to 5 basis points, with the 5-year segment rising the most (+5bps to 2.78%), after the continuing jobless claims having risen to an eight-month high and the U.K. gilts and German bunds rallying (falls in yields) after the Bank of England emphasizing a recession in the U.K. The yield of 30-year bonds, however, climbed 1bp to 2.96%. The 5-30 year segment of the steepened by 6bps.  The reiteration from Cleveland Fed President Loretta Mester of the Fed’s commitment to “getting inflation down” and her “pencil[ling] in going slightly above 4% on rates” comment had little market impact. 10-year notes are trading at 2.67% this morning in Asia.  

Selling emerged overnight on the dollar ahead of today’s employment report

GBPUSD reversed its slide

GBPUSD saw a knee-jerk move higher with the BOE’s 50bps rate hike, but downside pressures strengthened following a gloomy growth picture. A weaker dollar, however, in the US session saw cable recovering back to 1.2160-levels. EURGBP however remained above 0.8400 handle throughout, despite the ECB survey also pointing to shrinking economic growth and higher inflation. 

Gold (XAUUSD) broke above the resistance level

With rising geopolitical tensions following Pelosi’s visit to Taiwan, the demand for safe haven Gold has picked up. While some military response has been seen, it still remains measured for now. Strategic response will be key to watch on a medium-term basis. Gold has cleared the key $1780 resistance and the next test will be at the psychologically important 1800 level. A softer USD and lower yields this week have also helped support investor appetite.

What to consider?

Will markets pull back from here? And what sector could outperform?

From a technical analysis perspective, the Nasdaq 100 in overbought territory with the technical indicator, the RSI at a level of 70. The last time that read was that high was in October 2021. And then the market rallied 15% but then fell into a bear market. Backing this up, our technical analyst thinks the market could rally into next week before hitting a key level. We will be watching to see if the Nasdaq 100 can hit and push above the next key level of resistance, 14,249. We think if the market hits that level of resistance, it will likely pull back given the Fed is rising rates, and earnings have been declining (excluding energy). That means, the rally off the June low could be unwound. The stocks that will likely continue to move up though will likely be those energy companies that are able to sustain higher interest rates while growing free cash flow. A sector to look at would be coal, which is benefiting from record demand and prices.

US July nonfarm payrolls to re-confirm a tight labor market

The China Securities Journal reported that the State Grid Corporation of China has a total of RMB 1.3 trillion projects under construction in the areas of high-voltage AC, grid interconnection, power transmission, and ultra-high voltage. The company expects that their projects will bring about additional RMB2.6 trillion of related upstream and downstream investments.  

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