Summary: Surges in U.S. treasury yields by 8bps to 11bps across the curve and taking the 10-year yield north of 3% dampened sentiments in the equity markets. Oil and gold falls, copper rallies to its highest level in April, while iron ore continues to march up trading higher for the 4th day with the steel making ingredient back at $143.85, trading at its highest level in month. In equities; commodity stocks roar up. Apple moves into the BNPL finance sector. US-listed China stocks rise their highest level since April on speculation the year-long government crackdown on China tech is easing. In FX: AUDUSD and AUDEUR are on watch with RBA to rise rates today and why we think the RBA could hike more than the market expects.
The Nasdaq and the S&P500 met with the wobble stick on Monday with mixed signals keeping gains in check. On one hand keeping gains capped, bond yields rose and the 10-year yield was back over 3% on treasury supply and corporate issuance this week. On the positive side, the Nasdaq rose 0.4%, and the S&P500 ended up 0.3%, Chinese-fuelled-reopening-optimism affected sectors rose the most; for example, the S&P500 Copper Sector rose 3.5% after Freeport-McMoRan (FCX) continued to rise off its low, up 25% from May 12 in anticipation of earnings growing after the Copper price darted for a fresh new high after Shanghai kicked off production again. Other US reopening economy sectors also did well; Auto parts, Hotels, Oil & Gas sectors all rose 2% each.
Amazon (AMZN) contributed the most the gains overnight after announcing a 20-for-1 stock split, in an attempt to make their shares more alluring to individual investors. Amazon shares rose 2% after the split, but their shares are still down 10% since reporting in March. Remember Google parent Alphabet (GOOGL) announced a similar proposal in Feb, and its shares are down 17% since then. It’s a tough time for tech after all, as we’ve been saying.
Apple (APPL) debuted buy-now-pay later service (BNPL) diversifying the tech giant into finance. Apple Pay Later splits up the cost of Apple pay purchase over four payments across six weeks and includes no interest or fees.
The Chinese authorities was said to be completing its cybersecurity investigation into Didi Global Inc (DIDI), Full Truck Alliance Co (YMM), and Kanzhun Ltd.(BZ) and preparing to lift bans on adding new users and allowing their mobile apps back on domestic app stores as soon as this week. According to the Wall Street Journal, these companies are said to be subject to fines and have to give 1% equity stake to the Chinese Government. Didi jumped as much 68% in pre-open trading and finished the day 24% higher. Kanzhum up 20%. Full Truck Alliance up only 3%. This morning, Hang Seng Index(HS.I), Heng Sang TECH Index(HSTECH.I) and CSI300(000300.I) were little changed.
Australia’s ASX200 is trading lower for the second day and now 6% away from its high dragged down by stocks that are hampered by higher rates ahead of the RBA’s rate decision at 2.30pm Sydney time (12.30pm Hong Kong/Singapore time). The sectors that traditionally suffer in higher rates; Industrial, Tech, Communications, Real Estate are all lower. While just the Mining sector trades higher, after iron ore, copper prices moved up. Miners like Sandfire (SFR) are up 3%, while car dealership giant Eagers (APE) trades 1.3% higher and lithium stocks like Allkem (AKE) shine again up 1.2%, on hopes that China’s easing of restriction will cause commodities demand and car purchasing to rise off its low.
Yen weakness extended further. USDJPY rose to fresh 20-year highs of 132+ in the Asian morning as US 10-year Treasury yields broke the 3% barrier and rose to 3.04%. The level to watch here is the May 9 high of 3.22%. EURJPY also rose to fresh 7-year highs of 141.33 while GBPJPY barged above 165.50. It remains hard to oppose the yen weakness with the risk sentiment remaining upbeat for now, and either a strong risk negative behavior or a credible response from the Bank of Japan remains important to reverse this trend.
RBA tipped rise rates for the second time in a decade today. The market expects rates to rise by 0.25% from 0.35% to 0.6% after stronger than expected economic news has been released in way of; GPD data, record Australia’s export income, and Labor’s childcare policy. Today we think the RBA will rise rates more than 0.25% which will likely see the AUDUSD and AUDEUR rise. Why do we think the RBA will be more aggressive? Well since the last RBA meeting the oil price has risen 15%, gas prices have risen 28%, and the Australian dollar has risen 4%, the wheat price has risen 5%. This means the RBA will likely be more aggressive. Excluding that, as it stands, the interest rates futures expect rates in Australia to be 2.8% at the end of 2022, but we think as the oil price and food prices are likely to get higher, and so too are utility bills, so the RBA will need to be more aggressive and rise rates to 3%.
Lithium stocks rally up; despite some investments banks saying the lithium price would correct later this year and heavily next year, the world’s biggest lithium companies shares are rallying up in anticipation of the lithium price moving up as China attempts to reopen slowly. Lithium stocks like Albemarle (ALB) and SQM (SQM), are up 10% and 6% from their lows (respectively), wiping out most of the past weeks falls.
Key earnings release this week:
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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.
