Summary: US equity markets erased their losses overnight, aided by a rise in Nvidia shares boosting chip and tech stocks. Fed’s preferred inflation gauge the PCE is up next and may reaffirm sticky inflation again. The Japanese yen volatility is in focus after softer-than-expected January inflation print, and as policy stance of BOJ nominee Ueda is evaluated from the ongoing parliamentary hearings. Crude oil prices reversed higher but Copper back close to the key $4 area.
US equity markets had a bumpy Thursday, awaiting the Fed’s core inflation gauge –the personal consumption index being released. However, after four days of losses, the S&P500 gained 0.5%, although it’s still down 1.6% Monday to Thursday. The S&P500 managed to move back above 4,000 level after the 10-year US bond yield fell from its fresh high - moving back to December levels of 3.871%. While bullish outlooks supported the market higher as well – with Nvidia shares up 14% on its bullish outlook - with Microsoft and Apple following higher. Despite that, US earnings are still muted YoY - highlighting margin compression- while there is still nervousness in the air- as the FOMC meeting minutes pointed to more tightening on the horizon. While there is also risk if the Fed’s inflation gauge (PCE) rises more than expected, the Fed could gain reason to become more hawkish – and that could see the S&P500 quickly test the 200-day moving average.
Hong Kong’s Hang Seng (HIG3) and China’s CSI300 (03188:xhkg) had a mixed day; Techtronic tumbled 19%.
Hong Kong's Hang Seng Index and China's CSI300 had a mixed day of trading. The Hang Seng Index slid 0.4%, while the CSI300 was flat. Techtronic (00669:xhkg) shares plunged 19% after a forensic research firm accused the power tool maker of inflating profits by capitalizing expenses as assets.
Meanwhile, China internet names, tech hardware, and EV stocks rallied, with Bilibili (09626:xhkg) rising 3.6%, NetEase (0999:xhkg) climbing 4.1%; Lenovo (00992:xhkg) surging 5.5%, and Nio (09866:xhkg) up 4%. Baidu (09888:xhkg) fell 0.5%, despite reporting revenues and earnings that beat market expectations and announcing a share buyback program of up to USD5 billion.
According to Nikkei Asia, Chinese regulators have told Tencent Holdings and Ant Group not to offer ChatGPT services to the public as the regulators are increasingly concerned about uncensored replies given to users.
The Australian share market moved up 0.3%, up slightly above its 50-day moving average today - after a bevy of better than expected company earnings bolstered sentiment.
Global pallet business, Brambles shares rose almost 7% to six month highs after upgrading its profit guidance ~7% to 15-18% growth with pallet demand in the US and UK improving.
Australia’s biggest lithium company, Pilbara Minerals shares are up 2.6% after reporting record results- a A$1.24 billion net profit and declared its first ever dividend – of A$0.11. Just like Albemarle, Pilbara sees a strong lithium market ahead. Pilbara also upgraded its production guidance for the year – expecting to produce 600,000 to 620,000 dmt of spodumene concentrate – up from its prior guidance of 540,000 to 580,000 dmt. This reflects what we have been seeing this Australian reporting season – mining companies are upgrading their output guidance to keep up with expectations for strong demand, plus they are also seeing improved labour conditions.
Block Inc (SQ and SQ2) rallied 7% to $116.44 on the ASX after 4Q net revenue rose more than expected, up 14% to $4.65 billion, beating estimates of $4.57 billion. It comes as Bitcoin revenue rose more than expected, to $1.83 billion vs $1.79 billion expected, while hardware revenue from its Square in store payments rose slightly more than expected. As for the year ahead - Block sees 2023 adjusted EBITDA of $1.3 billion - which is more than $1.28b est - and its margin growing by at least 1 percentage point. So far this year, Afterpay sales are up 19% and credit quality is holding up- despite higher interest rates. Afterpay's loss rate is expected to stay 1% in Q1 this year - which is a slight improvement of its Afterpay loss rate in 2019 and 2018 of 1.1% and 1.5%.
Broadly the Aussie market has been pressured by Australian bond yields moving to their highest levels since January- 3.87%. That’s a better yield/ return than the broad Australia share market’s 3.5% yield. This shift has pressured the ASX200 down 3.8% from its record highs. But some stocks are still rising, with a cohort of companies benefiting from the reopening of the Chinese economy - and on expectations of higher earnings ahead. Such stocks are in the travel sector; shares
The Japanese yen started the Asian session stronger after a weaker-than-expected inflation print for January, but the start of BOJ nominee Ueda’s parliamentary hearings brought a reaffirmation of the loose BOJ monetary policy and that saw USDJPY bidding up to 134.80. Yen volatility will remain in focus today and next week, also parking concerns of volatility in the global bond markets, as Bank of Japan’s renewed policy direction remains in focus.
Crude oil prices rallied on Thursday despite another higher inventory built. US crude stocks built 7.6mn barrels last week, significantly higher than analyst expectations of 2mn. The supply side concerns may have been in focus after Russia announced this week that it will cut exports to the West in March, in addition the previously announced production cuts. However, focus was also on indications of a pickup in gasoline demand along with a decline in US gasoline inventories.
Copper prices were down 3% amid rising concerns of further rate hikes by central banks after a marginally hawkish FOMC minutes this week. The market is also becoming increasingly impatient with the recovery in demand in China. There has been little meaningful sign that demand is rebounding. Copper prices fell to $4.05/lb bring the $4 support in focus.
The second estimate of Q4 GDP was released in the US, and was revised lower to 2.7% from the prelim 2.9%. The Core PCE measure, the Fed’s preferred measure of inflation, was revised to 4.3% from 3.9%, suggesting price pressure in Q4 were higher that previously reported. While slower activity and higher inflation components seem to be making the Fed’s task more difficult, labor market still remained strong which suggests that any slowdown in growth will be likely very slow. Weekly initial jobless claims dropped to the lowest in 4 weeks at 192k from the prior 195k.
January inflation print in Japan came in-line with expectations on the headline at 4.3% YoY from the prior 4.0% YoY but was marginally below expectations on the core measures. Ex fresh food and energy was out at 3.2% YoY, above last month’s 3.0% YoY but below the expected 3.3%. Inflation remains above the Bank of Japan’s 2% target, and price pressures are broad-based. Focus now turns to BOJ nominee Kazuo Ueda’s parliamentary hearings in the lower house today as markets ponder over his policy direction.
Yesterday, inflation was confirmed higher than initially reported in the eurozone in January (headline at 8.6% year-over-year and core at 5.3% - this represents a 0.1 percentage point higher). What is even more worrying is that the EZ CPI basket showed the most broad-based price increase on record. 76 % of the basked experienced a month-over-month increase above 0.2 %. This is up from 52 % in December 2022. There is little doubt that the European Central Bank (ECB) will hike interest rates by 50 basis points in March. But we think the ECB is not done anytime soon with the tightening process. The terminal rate is probably closer to 4% than expected by the market consensus.
Booking Holdings reported higher-than-expected revenue for Q4 at $4.05bn (up 36% YoY), beating analyst forecasts of $3.9bn. Adjusted EPS of $24.74 was also above the expected $21.51. Q1 forecast was also upbeat, suggesting resilient travel demand despite inflation pressures. Booking Holdings is a part of our Asia Pacific Tourism equity theme basket which we launched in anticipation of the recovery in Chinese outbound travel demand.
Alibaba reported better-than-expected results for its fourth quarter. Adjusted EPS of 19.26 yuan (on revenue of 247.76bn yuan) was above consensus of 16.63 reflecting deep cost cutting measures. EBITA grew 16% Y/Y on cost cuts and smaller losses from Taocaicai. The cloud computing revenue was only up 3.3% while the core Chinese commerce business slid 1%. The eCommerce giant’s ADRs closed down 2.9% from the level of Hong Kong closing amid management comments on the need to increase investments to stay competitive in the year ahead.
Oversea-China Banking Corp. reported an increase of 34% in net profits in the fourth quarter to S$ 1.31bn which fell short of estimates of S$ 1.68bn. Net interest income was up 60% YoY but non-interest income slid 42% due to lower wealth management fee. Final dividend of S$0.40 was up from S$0.12 last year, and the lack of a DBS-like special dividend could mean the stock could be beaten up near-term.
For what to watch in the markets this week – read or watch our Saxo Spotlight.
For a global look at markets – tune into our Podcast.
2024: The wasted year
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.
Uncover the shifting focus in 2024's FX markets towards growth resilience and relativity, away from bond yields and inflation stories.
Embrace the metal revolution on the commodity market in the coming year, with a focus on gold, silver, platinum, copper, and aluminum.
The gloominess of geopolitical conflicts and the repetitive nature of political agendas. What else does 2024 hold in store for us?
The disheartening cycle of unresolved geopolitical conflicts, the rise of polarizing political parties, and the stagnation of productivity.
Understand China's political landscape in Q4 2023 and the impact on counter-cyclical initiatives, with a focus on the pivotal Q1 2024.
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.
Uncover the shifting focus in 2024's FX markets towards growth resilience and relativity, away from bond yields and inflation stories.
Embrace the metal revolution on the commodity market in the coming year, with a focus on gold, silver, platinum, copper, and aluminum.
The gloominess of geopolitical conflicts and the repetitive nature of political agendas. What else does 2024 hold in store for us?
The disheartening cycle of unresolved geopolitical conflicts, the rise of polarizing political parties, and the stagnation of productivity.
Understand China's political landscape in Q4 2023 and the impact on counter-cyclical initiatives, with a focus on the pivotal Q1 2024.
