Global Market Quick Take: Asia – January 8, 2024

US Equities: The S&P 500 Index and the Nasdaq 100 Index edged up by 0.2% on Friday after an initial attempt to move higher in the morning faltered in the afternoon. The top-performing sectors in the S&P 500 were financials, utilities, and communication services. Investors' focus this week will center on the release of CPI data on Thursday, followed by the commencement of the earnings season, starting with leading banks on Friday.

Fixed income: Treasury yields initially surged in response to a hotter-than-expected headline payrolls growth and average hourly earnings. Despite reaching post-job report highs, yields later retreated when traders took notice of downward revisions to the prior two months. These revisions brought the 3-month average job growth to 165K, the slowest since January 2021. Treasuries rallied during mid-day as yields dropped, especially after the ISM Services index fell more than expected. The ISM Services Employment sub-index also plunged to 43.3, deep into contraction. In a volatile session, the 10-year yield rose again in the afternoon, finishing the day 5 bps higher at 4.05%, while the 2-year yield settled little changed at 4.38%. The December job report is unlikely to delay the Fed's first rate cut that may come as early as this March. Historical data compiled by Ned Davis Research indicates that the 10-year yield has fallen in the three months leading up to the first Fed rate cut every time in the last 12 rate-cut cycles since 1970.

China/HK Equities: The Hang Seng Index pulled back, declining by 0.7%. This downturn was attributed to weaknesses in Alibaba and Tencent, along with losses in pharmaceutical and consumer discretionary stocks. Alibaba saw a decrease of 3.2%, while Tencent retreated by 2.2%. Conversely, Chinese oil and gas, natural gas distributors, and telecommunications names defied the overall market decline, registering gains on Friday. On the mainland, the CSI 300 Index dropped by 0.5%. Despite increasingly attractive valuations, prevailing market sentiments remain sluggish, and the absence of catalysts suggests a lack of potential for a near-term rally.

FX: Dollar was higher in the first trading week of 2024 after ending the last three weeks lower as markets re-assessed the pace of easing priced in. Friday’s price action was choppy as NFP beat boosted the greenback, but ISM’s downside surprise pushed it lower only to finish almost unchanged. GBPUSD outperformed, reclaiming 1.27 to push to highs of 1.2771 only to reverse later to sub-1.2720. NZDUSD pushed back again from highs of 0.6278 while AUDUSD was higher at 0.6720 but ended the week lower after failing just above the 0.68 resistance. Yen remains a key focus with US CPI and Tokyo CPI up for release this week, and USDJPY is back below 145.

Commodities: Oil prices rose in the first week of 2024 amid tensions in the Red Sea and supply disruptions in Libya. US Secretary of State Antony Blinken warned the Israel-Hamas war could “easily” spill over into a full-blown regional conflict. Supply risk in the region was highlighted by Maersk announcing it would divert all vessels away from the Red Sea for the foreseeable future. Saudi Arabia announced greater-than-expected price cuts, highlighting demand concerns again and putting the focus back on OPEC+ cuts. Copper was down 3% for the week, and China’s inflation data this week may be the next catalyst to watch, while Gold also ended the week lower and US CPI will be on watch.

Macro:

• US non-farm payrolls came in hot as it added 216k jobs in December, up from the prior 173k (revised down from 199k) and expected 175k. The unemployment rate was unchanged at 3.7% despite expectations for a rise to 3.8% but the labour force participation saw a notable decline to 62.5% from 62.8%. Wage data was also hot, coming in unchanged at 0.4% MoM (exp. 0.3%), while Y/Y earnings rose 4.1%, above the 3.9% forecast and accelerating from the 4.0% prior. But looking under the hood, there were some dovish elements. Private sector job growth averaged just 115k for the last three months, the lowest levels since the reopening in 2020. Probability of a March rate cut reduced to 60% from about 70% earlier, and focus turns to CPI data due this week.
• US ISM Services fell to 50.6 from 52.7 and was way beneath the expected (52.5). Employment plunged into contractionary territory, printing 43.3 from 50.7, its lowest since July 2020, while new orders dropped to 52.8 from 55.5. Prices paid dipped to 57.4 (prev. 58.3), and business activity lifted to 56.6 (prev. 55.1). The data highlighted that the services sector is softening as the lagged effect of higher interest rates passes through, even as the monthly data may be too noisy to draw any conclusions.

Macro events:  US New York Fed survey of consumer expectations (Dec), US consumer credit, US Manheim used vehicles index (Dec, final), Germany factory orders (Nov), Eurozone retail sales (Nov), Eurozone consumer confidence (Dec), Japan markets closed for holiday.

Earnings: Jefferies Financial

In the news:

• U.S. restrictions on China materials cut EV tax credit to 8 models, Tesla Model Y, Chevy Bolt still qualify as Nissan Leaf, Tesla’s new Cybertruck and some configurations of the Model 3 fall off list (Nikkei Asia)
• Logan Says Fed Should Slow Asset Runoff as Reverse Repo Dwindles (Bloomberg)
• US grounds some Boeing MAX planes for safety checks (Reuters)
• Saudi Arabia cuts Feb Arab Light crude price to Asia to 27-month low (Reuters)
• Top US Congress Democrat, Republican reach spending deal, starting race to pass it (Reuters)
• Libya's NOC declares force majeure at Sharara oilfield (Reuters)

For all macro, earnings, and dividend events check Saxo’s calendar.

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