Weekly Commodities Update Weekly Commodities Update Weekly Commodities Update

Global Market Quick Take: Asia – April 21, 2023

Macro 5 minutes to read
APAC Research

Summary:  The S&P500 appears on track for its worst weekly performance since March weighed by investors digesting more Fed Reserve official commentary backing another interest-rate hike, despite softer labor and housing market data, on top of the economic fallout from banks. Tesla shares shed about 10% on operating margin concerns. Oil and copper retreat on recessionary concerns and technical selling, despite longer term fundamentals pointing to shorter supply. Rio cut its copper guidance, BHP kept its full year copper guidance unchanged. While the VIX index trades at its lowest level since January 2022.

What’s happening in markets?

The US equity benchmarks the (US500.I and USNAS100.I) end lower, being weighed by Tesla's 10% pull back  

With investors digesting more Fed Reserve official commentary backing another interest-rate hike, despite softer labor and housing market data, on top of the economic fallout from banks, the S&P500 appears on track for its worst weekly performance since March. The S&P500 slipped 0.6% on Thursday, marking its second straight day of losses, with the biggest weight coming from Tesla shares shedding 9.8%, and AT&T losing 10.4%. AT&T sold off after missing estimates in Postpaid phone net adds and cash flows.

On Friday, earnings releases from Procter & Gamble, Freeport-McMoRan and HCA Healthcare will be on watch, while investors will also get another economic pulse check, with the Purchasing Managers’ Index for the manufacturing and services sectors to be released.

Treasuries (TLT:xnasIEF:xnasSHY:xnas): yields dropped, led by the front end on weaker data

The 2-year yield dropped by 10bps to 4.14% following a larger-than-expected rise in initial jobless claims and a big decline in the Philadelphia Fed Business Outlook headline. The 10-year yield finished 6bps lower. The 2-10-year yield curve steepened around 5bps to -61bps. The USD21 billion 5-year TIPS auction went all right.

Muted responses to Fedspeak from Mester, Logan and Bowman which did not add much new information to the Fed’s rate path. The sell-off in the SOFR 3-month interest rate futures, in particular, the 13 to 15bp move (lower futures price, higher rates) in the red months, i.e. 2024 contracts, were largely in response to the weaker economic data. The SOFR Jun-Dec 2023 spread widened 7bps to -61bps, adding back some rate cut expectations for 2H 2023.

Chinese equities (HK50.I & 02846:xhkg): semiconductor, consumer and Macao gaming outperformed

Hang Seng Index edged up 0.2% while CSI300 slid 0.3% on muted trading. In Hong Kong, semiconductors, consumers, and Macao casino operator names advanced while China developers, pharmaceutical, and automaker stocks declined. Yuexiu Property (00123:xhkg) plummeted 11.6% after announcing a right issue at a discount of 28.3%. Leading Chinese developers declined by around 2-3%. In the China Internet space, Kuaishou (01024:xhkg) plunged 5.2% as an investment arm of Tencent (00700:xhkg) reduced its stake. Meituan (03690:xhkg) outperformed with a 3.5% gain. XPeng (09868:xhkg) down 8.8% led a decline in automaker stocks.

In A-shares, media, telecommunication, and home appliance stocks advanced.  

The Australian equity benchmark, the S&P/ASX 200 trades lower for the first time in five weeks

The Australian share market’s gains this week have been capped after heavy weight resources companies shares, including BHP and Rio Tinto have shed 3% and this is adding weight to the market, while the market seems to also be pricing in another potential RBA rate hike in May.

As for major mining companies shares pulling back, the market contending with iron ore companies such as Rio Tinto exporting a record amount of iron ore, and ramping up production. This is despite a steel research report from Mysteel saying China’s steel mills are struggling to remain profitable, with some curbing output. Steel producers in China have been grappling with volatile steel prices, while paying more to buy iron ore. Steel prices, as measured by hot-rolled coil are up 58% this year, but the iron ore price is up 50% from October last year. This has contributed to China’s steel mills facing a profit squeeze, at the time when China wants the nation to cut steel production for the third year in a row, to reduce emissions. All in all, the latest developments may suggest price pressures for iron ore could potentially continue. It seems the iron ore price in a downward pattern after also moving further below its 100-day moving average. The iron ore price this week, as fallen over 5% and taken its pull back from its March high to 15%, with iron ore trading at $111.80.

Crude oil: continues to fall, but the fundamentals have not changed for 2023

Crude oil has continued to fall entering a technical downside break on fears of a possible recession. Both oil benchmarks Brent and WTI are lower, with WTI, settling around $77, which is its lowest level since last March and wipes out most of the gains following on from OPEC+’s cut. A technical sell off, known as gap fill also accelerated the price drop. But, as mentioned on our Podcast on Thursday, the selloff in oil does not really reflect the 2023 fundaments. Meaning, in 2023 we see there being a lack of oil supply. Also consider the US could begin to refill its Strategic Petroleum Reserve as soon as the third quarter.

Copper continues to pull back on recessionary fears; while Rio drops copper guidance. BHP and Codelco also report 

Mining companies’ quarterly results are continuing to come in thick and fast, and highlight that global tightness in the copper market will continue at a time when copper consumption continues to rise. BHP reported Copper production rose 12% for its nine month reporting period, but BHP kept its production guidance for the year unchanged. Rio’s cut its outlook for copper production due to technical problems at two mines. And Chilean copper company, Codelco reported first-quarter output being at the lower end of annual guidance, and expects output to stay at similar levels through next year. That said, the copper price has fallen for the third day on fears of a possible recession. This is despite the fundamentals showing supply won’t be able to keep pace with demand, with Rio seeing China’s post-Covid outlook “improving”.

What to consider?

US initial claims increased to 245K as the Philly Fed index slid to -31.3

Initial jobless claims in the U.S. rose by 5K to 245K, above the consensus estimate of 240K. Continuous claims increased by 61K to 1,865K, higher than the 1,825K expected. The Philadelphia Fed Business Outlook index came in weaker at -31.3 in April, sliding 8.1 points from -23.2 in March while the consensus forecast, according to Bloomberg, is expecting an improvement to -19.2. The price-paid sub-index decreased by over 15 points to 8.2. Nonetheless some of the components were stronger than the headline suggests as the new orders, shipments, and employment sub-indices have improved.

Fedspeak added little new information about the Fed rate path

Fedspeak on Thursday basically toed the line of reiterating the Fed’s resolve to fight inflation. Fed Governor Bowman (voter) emphasised the importance of lowering inflation. Likewise, Dallas Fed Logan (voter) reiterated inflation still being too high and Atlanta Fed Bostic (non-voter) said the Fed must get inflation down to 2%. Cleveland Fed Mester (non-voter) said the Fed funds rate would need to move above 5% and staying higher than inflation for some time but precisely how much higher will “depend on economic and financial developments”. Governor Cook (voter) is scheduled to speak today and it will conclude this busy week in Fedspeak before the Fed goes into the pre-FMOC blackout period. 

The ECB governing council is divided about the scope of the next hike

We are only two weeks away from the ECB meeting. Yesterday, the minutes of the ECB’s March meeting suggested there is a growing divide within the governing council about the scope of the next hike. We believe a 50-basis point hike is still on the table next month. But a minority of members pointed out that the lag of the transmission of monetary policy is perhaps longer and therefore they seemed to worry about tightening too much. This minority will be inclined to vote in favor of a 25-basis point hike. We consider the debate about the short-term pace of monetary policy in the eurozone will certainly intensify in June. For now, there are not enough reasons to slow the pace of tightening.

RBA shake up; RBA to likely create a new board, and meet less frequently

Following an independent review of the RBA, ordered by the Australian government, 51 sweeping recommendations were handed down yesterday. Among these are that the RBA should create a new monetary policy board and meet less frequently (eight meetings per year, down from eleven), in better alignment with international counterparts. These were just some of the recommendations and were welcomed by the RBA. Australia’s Treasurer, Jim Chalmers ordered the review in July 2022 after the RBA’s inflation forecasts failed to detect a surge in price pressures. The report criticized the RBA’s board composition, that includes one economist and six independent directors who are mainly from business. All in all, this means, the powers of the Governor could likely be diluted, with more economist expertise being brought onto the board. The changes could start from July 2024 and see the RBA governor speaking at a press conference after policy meetings. Governor Lowe’s term expires in September.

Separately, Bloomberg economists expect the RBA to end its tightening cycle with a final 25bp hike in May, which will take the cash rate to 3.85%. Economic growth is expected to taper off after that, with the RBA expecting inflation to cool, and that may allow the RBA to cut rates in Q4 potentially.

Japan national CPI core core hotter than expected

The March national headline CPI released this morning in Japan was 3.2% Y/Y, in line with consensus forecast and slightly lower from 3.3% in February. The ex-fresh food as well as the ex-fresh food and energy measures, however, came in hotter at 3.1% (vs consensus 3.0%; February 3.1%) and 3.8% (vs. consensus 3.6%; February 3.5%) respectively.

For a detailed look at what to watch in markets this week – read or 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.