Summary: The Biden administration is finally releasing its oil reserves, and also announced a production boost for critical minerals, boosting lithium stocks. China’s manufacturing and non-manufacturing PMI disappointed as key cities were locked down, and Emerging Asian PMIs are on a watch now. In the FX markets, EUR rally may need further support, and JPY weakness may return after the year-end today.
Co-written by Market Strategists Jessica Amir in Australia, Redmond Wong in Hong Kong, Charu Chanana in Singapore.
What’s happening in markets?
Mixed Asian markets on Thursday as US equities took a breather; oil price drop should bring broad gains for Asian equities. Focus on oil market today with the OPEC+ meeting scheduled. But more importantly, WTI futures have dropped more than 4% this morning after a report the Biden administration is weighing a plan to release roughly a million barrels of oil a day from U.S. reserves, for several months.
Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) fell 1.3% and 0.7% respectively. Hang Seng TECH Index (HSTECH.I) was more than 2% lower. Overnight, the Chairman of the U.S. SEC said that there was no imminent deal with the Chinese authorities to avoid Chinese ADR delisting. He said that the U.S. would not concede their demand for full access to audit work papers without first being filtered by the Chinese authorities. The U.S. SEC added Baidu (09888), Futu(FUTU), Iqiyi (IQ), and two others to the provisional list of delisting and asked the companies to provide their defense and evidence by April 20, 2022. Baidu fell over 4%. ICBC (01398) and Agricultural Bank of China (01288) reported better than consensus results. Ganfeng Lithium (01772) reported 2021 full-year earnings up 400% and revenue doubled. CNOOC (00883) reported slightly better than expected results but delays in dividends payout due to A-share listing dampened sentiment. It fell 3%. In A Shares, CSI300 was 0.6% lower. Hydraulic engineering stocks did well following the State Council’s policy initiative to increase spending on water projects.
The Australia share market (ASX200) is getting closer to hitting its all time high, led by iron ore and lithium stocks rallying. Today the ASX charged up for the 8th day (up 0.4% on Thursday). This is the longest win streak since 2017. The materials (mining) sector is up the most up 2%, while tech stocks are down 1.4%. What’s fuelling this is a couple of things. It’s end of quarter so professional investors are taking profits of the table, rebalancing portfolios. Secondly, the iron miners are charging like Champion Iron (CIA) which we’ve mentioned many times now, including yesterday, it's one of today’s best performers, up 4.5%, followed by the iron ore heavy weights; Fortescue (FMG), BHP (BHP) and Rio (RIO) after the iron ore price (SCOA) rose 4.5% in two days on optimism Chinese demand will pick up. Thirdly, the market being led higher by lithium stocks after US President Biden announced a production boost for critical minerals. This has fuelled US battery tech company, on the ASX, Novonix (NVX) up 6%, and ASX200 African lithium company AVZ Minerals (AVZ) up 4%.
EURUSD stretched its gains in the Asian morning session, reaching 1.1185 following strong German and Spanish inflation numbers with pushed up European yields. Still, we think it may need further support from energy prices and risk sentiment to drive a return into the higher range toward 1.1500. Upside on EUR is also limited due to sanctions on Russia that will likely stay for now, even if we see a peace deal.
US data and Fed speakers again continued to push for a series of 50bps rate hikes. Some of them have noted the yield curve inversion, but it doesn’t seem to be deterring them from multiple 50bps rate hikes in the months to come. PCE data release today will be key.
Fortescue Metals (FMG), and E.ON agree to supply green hydrogen to Europe. One of the biggest companies in Australia, along with Germany energy giant, E.ON (EOAN) have inked a deal to deliver 5 million tones of green energy per year to Europe, so the region can reduce its dependency on Russian Energy by 2030. 5 million tons of hydrogen will be equal to about a third of the energy Germany imports from Russia. There are still logistical, infrastructure and financing hurdles to overcome, but it highlights the importance of focusing on companies that are pivoting to green energy. Fortescue Metals (FMG) shares jumped 4.2% to AU$20.63.
Thailand’s Covid cases jumped to a record high just before travel restrictions are set to be eased in the region. Given the high dependence of tourism, this will still be unlikely to dampen the move towards endemic Covid in the coming months.
Indonesia’s Grand IPO. GoTo Group (GOTO), a ride-hailing, e-commerce and fintech company, was formed by the merger of Indonesia’s two most valuable startups last year, Gojek and Tokopedia. It is set to raise 15.8 trillion rupiah ($1.1 billion) in one of the world’s largest initial public offerings this year, scheduled for April 11.
What to consider?
Focus still on yen and BoJ. USDJPY saw a bid again this morning with BoJ's bond buying set to come to an end. But gains were reversed as the central bank continued its bond purchases to cap 10-year yields at 0.25%. AUDJPY also started the Asian session moving higher again towards 92 but the move was reversed later. It seems that the BOJ's focus is shifting to the yen weakness, and some tweaks to policy settings may be seen in Q2. There will be no rate increases on the cards, but sticking to a Yield Curve Control policy will continue to get tougher as global central banks tighten. Key focus on BoJ bond-buying plan for April-June, which is scheduled to be published at 5pm Tokyo time today.
US President Biden wants accelerate US production of electric car critical minerals. The White House is discussing adding battery materials to the list of items covered by the 1950 Defence Production Act. What this means is that lithium, nickel, graphite, cobalt and manganese industries in the US could receive Federal funding. So instead of the US taking out loans to buy minerals, it could begin to rely on its own production. A decision by the White House could be made as soon as Thursday. Talks saw global lithium stocks outperform overnight and today in Australia. In the US; American based lithium producers shares charged, like, Lithium Americas shares rising 12%, Livent rose 6%, Albermarle rose 2%. While on the ASX, Allkem (AKE).
The Chinese central bank to step up its support to the real economy. In its quarterly monetary policy meeting, the People’s Bank of China said it was going to increase the magnitude of monetary policy and would address structural issues as well. Its monetary policy will be more forward looking and more targeted. It will be proactive to enhance confidence and to give support to the real economy.
The Chinese State Council to stabilize economic growth. In a State Council meeting led by Premier Li Keqiang, the Chinese Government pledged to prioritize to stabilize growth and was drafting contingency plans to deal with uncertainties arising from geopolitical situations and COVID outbreaks. Premier Li said China would stick to the 5.5% GDP growth target for 2022.
Shanghai may implement city-wide “static management”. Shanghai reported 5,651 Covid cases for yesterday. The municipal government said that it was going to implement whole city static management but details yet to be announced.
Chinese PMI indicated economic contraction. March Manufacturing PMI and Non-manufacturing PMI came at 49.5 and 48.4, both being below the 50 expansion/contraction threshold.
India is feeling the pain of oil price surge; RBI meets next week. The fuel prices were hiked for the ninth consecutive day. Retail inflation has been above the RBI’s target range of 2-6% for the last two months, and respite isn’t on the cards yet. The Reserve Bank of India, much like the Fed, is said to be behind the curve but demand-pull inflationary pressures are still not as prominent.
Trading Ideas
In this cycle for equities, we believe clients should be overweight in logistics, cyber security, commodities, defence, and the green transformation sector (such as hydrogen). Our head of equity strategy says that without commodity exposure, it's a dangerous game for equity investors in 2022.
Electric vehicles and EV minerals: Lithium producers have been the best performers on the ASX this year, with AVZ shares rising 61% and Lake Resources LKE rising 88% after being added to the key benchmarks, ASX200 and ASX300 for example. However if stock picking is not for you, and if you believe, like we do, that the electric vehicle industry and the critical minerals/ commodities will continue to see rising demand, and policy support, and also benefit from the world striving to be carbon neutral by 2050, then you could invest or trade in Global X Lithium & Battery Tech ETF (LIT) or ETFS Battery Tech & Lithium ETF ( (ACDC) that invests in about 30 of the biggest EV and battery technology companies in the world.
Apple is at near all-time highs. Tailwinds seen from the latest iPhone subscription model and also they seem to be making advancements in Fintech. So likely less dependence on its payment partners for Apple Pay, Apple Card or Apple Cash features.
Asia PMIs on the cards tomorrow. We expect general strength for India and Southeast Asian PMIs as restrictions eased and tourism picked up.
Economic Releases This Week
Mar 31: US PCE price index, Japan Tankan Index, OPEC+ meeting, China PMIs, Japan year-end
Apr 1: Asia Markit PMIs, US NFP
Earnings:
Hong Kong & mainland China
Mar 31: China Overseas Land & Dev (00688), China Resources Land (01109), Shimao Services (00873).
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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.
