Green energy hype, Target misfires, World Bank cuts global growth estimates

Equities 7 minutes to read
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Summary:  US stocks rise for second day, but caution is thick in the air, with selective buying taking place and broad indices staying range bound awaiting global growth to slow, with the World Bank downgrading its forecast following the IMF. Australia joined global banks and started aggressively rising rates, which will likely squeeze Aussies out of the property market and damage banks fragile profits. So now all eyes are on India’s central bank meeting today. China approves 60 new online game monetization licenses. In FX the USDJPY surged to a new 20 year high, what’s next? In Commodities, uranium and hydrogen fly their flags, while heavy weigh iron ore marches up, supporting shares in the world’s biggest miners.


What’s happening in markets that you need to know     


US stocks rise for second day, but caution is thick in the air, with selective buying taking place and broad indices staying range bound awaiting Fridays all important US inflation data.
On Tuesday The Nasdaq managed to rise 0.9%, and the S&P500 gained 1%, despite Target(TGT) falling 2.3% after cutting its profit outlook. Apple (AAPL) drove the gains, rising 1.8% after entering the buy now pay later space which will likely boost its earnings. The market was also buoyed by Microsoft’s (MSFT) gain of 1.4% after the tech giant and DocuSign (DOC) expanded their partnership, integrating DocuSign’s technology across Microsoft’s business offerings. All in all, the key US indices, could be eyeing a pull back with the technical indicators suggesting the S&P500 and the Nasdaq could head lower on Wednesday morning; while green technology stocks and energy giants, could once again remain a bright spark.

Australia’s ASX200 regained back half of yesterday’s loss, pushing up 0.8% with mostly all sectors higher except financials with aggressive rate hikes likely to push Aussies into financial duress, with big banks shares, like Westpac (WBC), NAB (NAB), CBA (CBA) and ANZ (ANZ) all featured in the bottom 10 worst performers down, over 2-5%. However today, the mood on the ASX is mostly elevated buoyed by likely uranium and hydrogen stimulus. In uranium, Paladin (PDN) shares are up 14%, while other uranium companies like BHP (BHP) also trade up 3%.

China approves 60 new online games monetization licenseS (banhao).  The National Press and Publication Administration announced the latest batch of approval of banhao for 60 new online games.  China had stopped issued banhao since July last year in the midst of clamping down on the online gaming industry until the suspension ended in April with the approval 45 banhao.  Chinese gaming stocks surged this morning, with Bilibili (09826) +12%, XD (02400)+6%, CMGE (00302) +5%. IGG (00799) +9%.  While having been excluded from the two batches of approval, the share price of Netease (09999) and Tencent (000700) were up 3%.   Hang Seng Index (HSI.I) gained 1.8% and Hang Seng TECH Index (HSTECH.I) jumped 3.7%. In Shanghai and Shenzhen, CSI300 (000300.I) was 0.5% higher.

USDJPY continues to rise unabated. A fresh new 20-year high of 133.21 was printed in USDJPY in Asian morning as US 10-year yields rose further widening of the monetary policy divergence between the Bank of Japan (BOJ) and the Fed. While the yen weakness may have been overdone, and the move above 133 in USDJPY was promptly reversed, but it still remains tough to reverse the overall bearish trend for the yen.

Iron ore (SCOM2) rallied for the 5th  day with the steel making ingredient back at $144.61 trading at its highest level in 6 weeks, supporting stocks like Rio (RIO), BHP (BHP) and Champion Iron (CIA) rally in the Australian session on Wednesday.

Copper (COPPERUSJUL22) trades lower but holds at its highest level since April, supporting stocks like Sandfire Resources (SFR), and Oz Minerals (OZL) in the Asian Pacific session surge to new three months highs and give off technical indicators signals they may be headed for higher ground still.

What do you need to consider? 


World Bank cuts its global growth forecast.
The World Bank has further downgraded its global growth forecast to 2.9% for 2022 from January’s prediction of 4.1% and April's 3.2%. Along with the cut to forecasts, it was noteworthy that the Bank also gave out a debt distress warnings for the low and middle income countries, something we had been highlighting since the food crisis unfolded well as the Sri Lanka crisis given the high dependence of frontier economies on energy and food imports. A similar warning was also seen from the IMF which called for countries to protect the poor.

China expanded the eligibility for getting VAT rebates to companies in the wholesale and retail industry, agriculture, forestry and fishery industry, hospitality and catering industry, services to household industry, education industry, and sports and entertainment industry.

The RBA surprised the market and increased the cash rate yesterday by 0.5% (vs a hike of 0.25% the market expected) taking the official rate to 0.85%. As we’ve been alluded to for some time now, we think the RBA will continue to get more hawkish than expected, as key inflationary measures in Australia; energy, utility bills, and food prices are likely to increase, giving the RBA more ammunition to rise rates. Excluding that, as we've also alluded to, Australia’s Energy Regulatory themselves said they think utility bills will rise as much as 14% for the rest of the year.  As mentioned last week, with the RBA to get more hawkish, caution remains for 2022 with delinquency rates likely to rise in the second half, according to Bloomberg. Also, as we stand the Australian interest rates futures now suggest interest rates could sit at 3.1% at the end of 2022.  

Japan Q1 GDP revised higher. The final print of Japan’s Q1 GDP was upgraded but still remained in contraction. GDP was down 0.5% q/q sa from -1.0% in the preliminary print. The revised data showed that private consumption increased 0.1% from the previous quarter, compared with a flat reading in the preliminary data. That is a positive sign and we will possibly see more of that in Q2 as pent up demand supports consumption. But a weaker yen and higher price pressures will weigh.

Reserve Bank of India poised to raise rates today. We have the RBI rate decision scheduled today and consensus expects a 40bps rate hike. There is likely room for the central bank to go beyond that if it is serious about capping inflation which has overshot expectations since the start of this year. We have seen a series of hawkish surprises over the past month from RBNZ, Bank of Canada and Reserve Bank of Australia this week. It will also be key to watch the inflation forecasts, especially as a signal for any likelihood of more grain export curbs if domestic price pressures fail to abate. The risk is mainly on rice exports now.

Uranium companies in focus after Biden pushes a $4.2 billion plan to buy enriched uranium direct from domestic producers. Bidens’ nuclear fuel plan is aimed at weaning the US off Russian imports of nuclear-reactor fuel. Stocks to watch in Uranium include;  Energy Fuels and Cameco in North America. Yellow Cake, Kazatomprom, Berkley Energeia in Europe. And Paladin Energy, Deep Yellow, Boss Energy, BHP, and Vimy on the ASX.


Potential trading and investing ideas?

Retailer earnings may see further hits. With Target (TGT) cutting its guidance on operating profit by half within three weeks of reporting earnings, it is clear that inventory issues at retailers are glaring. We wrote about this in our macro note suggesting that retailers will need mark-down prices going forward to clear their inventory, suggesting further earnings pressures. While strong household balance sheets may help retailers sail through with these higher inventory levels, especially after the stock outs of the last two years due to supply disruptions, it is certainly something to watch as a leading indicator of economic momentum. More key to watch will be if other retailers such as Walmart (WMT) also issue further inventory/profit warnings.

For a weekly look at what’s on the radar for investors, and traders this week;  read, watch or listen to our Monday Saxo Spotlight.

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