Weekly Commodities Update Weekly Commodities Update Weekly Commodities Update

Market Insights Today: More evidence inflation is easing in the US, Hang Seng Index more than 25% higher from its October low - 16 Nov 2022

Equities 5 minutes to read
APAC Research

Summary:  Nasdaq 100 and S&P 500 ended higher, being lifted by softer-than-expected producer inflation. Walmart and Home Depot beat in earnings and topline. Chinese stocks surged on additional financial support to the property sector and a conciliatory tone from the Biden-Xi meeting. Hang Seng Index rose 4% to 18,343, more than 25% higher from its October low.

What’s happening in markets?

The Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) gained on softer-than-expected US PPI

Investors got a lift from the softer-than-expected PPI data which added to the post-CPI optimism that the US inflation may have peaked. S&P 500 gained 0.9% and NASDAQ 100 rose 1.5%. Stocks pared gains in the afternoon when the news of Russian missiles landing in Poland, a NATO member, hit the wires. Stocks nonetheless managed to recover from the missile news and finished the session higher.  Nine out of 11 S&P 500 sectors gained, with communication services, consumer discretionary, information technology and real estate led. On earnings, retail bellwether Walmart (WMT:xnys) surged 6.7% after reporting earnings and revenue beats and raising full-year outlook guidance. Home Depot (HD:xnys) gained 1.7% on earnings beating estimates and reaffirming full-year guidance.

US  treasuries (TLT:xnas, IEF:xnas, SHY:xnas) rallied on PPI prints, with the 10-year yield falling 8bps to 3.77%

US treasuries rallied, with yields falling 5-9 basis points across the curve. The 10-year yield fell 8bps to 3.77%. The market surged in price after the growth in PPI, both in headlines and core measures, slowed more than expected. A stronger Empire State manufacturing index, returning to the expansionary territory and Fedspeak from Bostic, Barr, and Harker reiterating the slower pace but still additional work to do message, did not tame market sentiment. Adding to the fuel was some safe-haven buying of treasuries after Russian missiles hit Poland and killed two people.

Hong Kong’s Hang Seng (HISX2) and China’s CSI300 (03188:xhkg) on fire as risk-on sentiment returned

Hong Kong and China’s equity markets surged for the third day in a row, with Hang Seng Index soaring 4.1 % and CSI 300 climbing 1.9%, as optimism returned to the markets due to favourable policy shifts in China regarding pandemic control and property developers’ access to funding and goodwill gestures shown by China’s President Xi and the US’ President Biden at their first face-to-face meeting after President Biden took office. In addition, the Chinese authorities announced that they will allow developers, after meeting some requirements in their financials and supports from their banks, to tap into some of the presale deposits now placed in escrow accounts. China Internet stocks and semi-conductor names were among the top gainers.

Commodities lift; Crude oil (CLZ2 & LCOF3) rose more than 1% after Russian rockets hit, iron ore (SCOA,SCOZ2) extended its gain and wheat whipped up 1%

Crude oil (CLZ2 & LCOF3) rose more than 1% after the EIA published a report saying inventories in developed nations sunk to an 18-year low of less than 4 billion barrels. The EIA says a potential EU ban on Russian supply will add further pressure, and its output may drop below 10 million b/d next year, from about 10.7 million so far this year. For the next technical indicators and levels to watch in oil, click here. Moving to metals, the Iron ore (SCOA) price rose 1.7%, continuing its rebound and has now risen 25% this month on the back of fresh China stimulus, however the iron ore price is still down 13% from its high. The question is, if China continues to ease restrictions, will the iron ore price continue its rebound, and support affiliated iron ore equities. Meanwhile in crop markets, wheat trades higher on concerns there could be a potential escalation of the war.

What to consider

Fed collects more evidence inflation is easing; US producer prices cool more than expected, clocking smallest gain in a year

Investors got another piece of evidence the inflationary pressures are easing, with US producer price growth rising 8% Y/Y in October (below the 8.3% Bloomberg consensus expected and down from the 8.5% Y/Y in September), with prices rising 0.2% M/M (which was less than the 0.4% expected). Excluding volatile food, energy, and trade services, the core PPI grew 6.7% Y/Y in October- while the market expected the growth remains unchanged from the September level of 7.2%. After peaking in March at 11.7%, producer price growth has moderated from improving supply chains, softer demand, and weakening commodities prices. This means, following the softer-than-expected CPI print last week, the Fed has garnered more catalysts to slow its pace of hikes, which also provides further support to the equity market and bond market rallies. However, the next important data sets the Fed will be watching are due early next month; US jobs, and November CPI, which are ahead of the Fed’s next meeting (in the third week of December).

RBA meeting minutes signal food and energy prices to rise, and property prices to fall

Australia’s central bank sees food price inflation rising, along with energy prices, while the Unemployment rate is expected to rise as well off its lows. The RBA downgraded its outlook for the property market, expecting property prices to continue to fall, as they have in history when the RBA is in a rising cycle. It also sees housing loan commitments further falling. Yet the RBA affirmed it will keep rising rates till inflation is within its targets as the central bank wants underlying inflation to be within 2-3%. The RBA also hinted it may be close to its target, "in underlying terms, inflation was a little over 6% with most components of the CPI rising at annualized rates of more than 3%”. What are the investor takeaways from the RBA minutes? It could be worth looking for potential opportunities in investing in Food stocks, food ETFs, and the as well as wheat and corn. Secondly, it could be worth looking for potential opportunities in energy, like crude oil, or oil stocks such as Woodside Energy and Occidental Petroleum to name a few. And with property prices falling, along with lending, keep an eye on bank shares. Consider looking at CommBank (CBA) as a proxy. Will CBA continue to rally off its low on the back of the RBA's dovish stance, or will CBA and big banks take a haircut as banks’ profits are shrinking?

Walmart and Home Depot earnings beat estimates

Peter Garnry, Head of Equity Strategy wrote in his notes that Walmart showed a positive surprise on its operating margin and an upward revision to the FY results and Home Depot is delivering a decent Q3 result,= as well.  Walmart, the largest US retailer reported FY23 Q3 (ending 31 October) revenue of $152.8bn up 9% y/y beating estimates and adj. EPS of $1.50 vs est. $1.32 while announcing a $20bn buyback programme. The third quarter result is so strong that Walmart is increasing its FY outlook on adj. EPS to -6% to -7% y/y from previously -9% to -11%. The 12-month trailing revenue figure eclipsed $600bn for the first time in its history. As we have seen throughout this Q3 earnings season, retailers and consumer industries have been able to either preserve or expand operating margins. Walmart is valued at a 12-month forward EV/EBITDA of 11.6x compared to 12x for the S&P 500 Index.  The largest US home improvement retailer Home Depot reports FY23 Q3 (ending 31 October) revenue of $38.9bn vs est. $37.9bn up 6% y/y and EPS of $4.24 vs est. $4.13 as the US consumer remains in good shape despite inflation and higher cost of living. Home Depot is confirming its fiscal year guidance.

Tencent (00700) is scheduled to report earnings on Wednesday

Tencent is scheduled to report Q3 results today. Bloomberg survey shows the street is expecting revenues to edge down around 1% Y/Y with both advertisements and gaming down Y/Y. On adjusted EPS, the consensus is calling for an 8% year-on-year decline.

For our look ahead at markets this week - Listen/watch our Saxo Spotlight.

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



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.