Global Market Quick Take: Asia – July 4, 2023 Global Market Quick Take: Asia – July 4, 2023 Global Market Quick Take: Asia – July 4, 2023

Global Market Quick Take: Asia – July 4, 2023

Macro 7 minutes to read
Charu Chanana

Head of FX Strategy

Summary:  US equities traded higher in a shortened trading session on Monday ahead of today’s Independence Day holiday, mostly lifted by gains in Tesla and Rivian which together lifted the EV sentiment. ISM manufacturing PMI dipped further into contraction but focus shifts to other labor market indicators in the week, along with Yellen’s visit to China. The threat of intervention in Japanese yen remains and decision from the Reserve Bank Australia will remain a close call. Crude oil prices reversed the gains spurred by Saudi and Russia’s production cuts.


What’s happening in markets?

US equities (US500.I and USNAS100.I): slight gains in a shortened trading session

US stocks eked slight gains with price action kept rangebound and the upside capped in a shortened trading session ahead of the Independence Day holiday, while participants also digested weak US ISM manufacturing PMI data. NASDAQ 100 closed higher by 0.2% while the S&P 500 rose by 0.1%. Tesla surged 6.9% following higher than expected delivery and production numbers for Q2, while Rivian surged 17.4%. Apple was down 0.8% after announcing production cuts to its Vision Pro headset. US equity markets will remain closed today for Independence Day holiday.

Treasuries (TLT:xnas, IEF:xnas, SHY:xnas): yields approaching critical levels

US Treasuries settled lower (yields were higher) in a choppy session which saw the front-end lead the curve back towards its most inverted levels since 1989. 2-year yields rose 4bps with 10-year up close to 2bps. Treasuries failed to sustain the knee-jerk reaction to the weak ISM data.

Hong Kong & Chinese equities (HK50.I & 02846:xhkg): sentiment lifted by EVs and Yellen’s visit

Asia Pacific stocks started the third quarter with a green with Hang Seng Index up 2% and CSI 300 up 1.3%. China’s Caixin manufacturing for June expanded at a slower pace as it came in at 50.5 from 50.9 in May, but proved to be better than the official PMI which has now been in contraction for three months. Still, the low valuation of Chinese equities continues to attract some interest, especially in key sectors such as EVs which have government support. PBoC’s verbal support also continues to add to optimism, while Yellen’s upcoming visit in the week ahead is also putting a floor on geopolitical concerns despite the announcement of China curbing exports of some chipmaking metals.

FX: Dollar range-bound in thin markets

The US dollar initially rose but gains were reversed as US ISM manufacturing data slumped further into contraction in June. Still, the slowdown wasn’t enough to change expectations for Fed hike in July (85% chance), which keeps the focus on labor market data from JOLTs and NFP this week. USDJPY stayed above 144 with threat of a coordinated intervention, while NZDUSD outperformed as it inched higher to 0.6160. AUDUSD also remained above 0.6640 with RBA meeting eyed today and rate hike expectations picking up. EURUSD recovered from an initial slump after revised PMIs for June came in lower and traded above 1.09 subsequently.

Crude oil: reverses the post Saudi-cut gains on ISM disappointment

Saudi Arabia and Russia announced further cuts to oil production in an attempt to bolster prices. We hinted this in our Spotlight article yesterday, noting that Saudi Arabia may extend its cut to August, and also apply intense pressure on other producers to make additional cuts. The OPEC leader announced it will extend its unilateral 1mb/d production into August and could extend it further depending on market fundamentals. This will bring its output down to around 9mb/d, the lowest in several years. The effort will be assisted by Russia, which will reduce oil exports and production by 500kb/d in August, according to its deputy prime minister, Alexander Novak. Oil prices jumped higher but gains were later reversed as demand concerns continued to underpin after US ISM manufacturing dropped further into contraction.

 

What to consider?

US ISM manufacturing brings inflation relief

The headline US ISM index came in below expectations and a 3-year low at 46.0, weakening from May’s 46.9 further and recording an eighth straight month of contraction. The prices paid component brought good news on inflation as it dipped to YTD lows of 41.8 from 44.8 in May. New orders index picked up slightly to 45.6 from 42.6 in May while the production index dipped into contraction as it came in at 46.7 in June from 51.1 previously. Employment index was also in contraction at 48.1 in June from May’s 51.4. While these numbers continue to suggest that manufacturing part of the economy is weakening, it doesn’t spell immediate trouble and the markets continue to price in a July rate hike from the Fed with 85% probability.

Japan’s intervention threat

Japan's Finance Ministry's Vice Finance Minister for International Affairs Kanda said that he is in communication with various countries, including the US, over currencies. This is sending signals that a coordinated intervention may be coming as USDJPY continues to hover above 144. A coordinated intervention usually has a longer lasting impact on the yen than a unilateral intervention would have.

China announces limits on exports of chipmaking metal

China imposed restrictions on exporting two metals crucial to the semiconductor, telecom and EV industries, escalating its tech trade war with the US and Europe. Gallium and germanium will be subject to controls starting Aug. 1. Exporters will need to apply for commerce ministry licenses and will be required to report details of the overseas buyers and their applications.

Apple is cutting production target of its new Vision Pro AR/VR headset

The new Vision Pro has proved to be more complex to manufacture for its supplier Luxshare than initially thought forcing Apple to cut production target to just 400,000 units in 2024 down from expectations of 1mn units in the first 12 months.

Reserve Bank of Australia: rate hike bets gathering pace

After two back-to-back surprises from the Reserve Bank of Australia (RBA), the stage is set for another close decision. While the May inflation print of 5.6% YoY came in significantly below April’s 6.8% YoY and the RBA’s minutes from the June meeting indicated that the call to hike rates was a fairly balanced one, but that has not completely erased all calls for another rate hike by the central bank at the July 4 meeting. As per Bloomberg economic forecasts, 13 of the 27 economists polled expect rates to be raised to 4.35% from 4.10% currently, while the market pricing is still complacent at ~20% chance of a rate hike this week. Even if the RBA held rates unchanged this week, the hawkish commentary is likely to continue.

Rivian adds to positive EV sentiment

US electric vehicle start-up Rivian Automotive revealed stronger-than-expected production numbers a day after larger rivals Tesla and BYD reported robust deliveries. Rivian said that it built 13,992 trucks and vans in the second quarter, well above Wall Street expectations of about 11,000, and the company reaffirmed guidance for manufacturing 50,000 vehicles this year. The company delivered 12,640 vehicles to customers during Q2, compared with 4,401 in the same quarter of 2022. Rivian will release its Q2 earnings on August 8.

 

For a detailed look at what to watch in markets this week – read our Saxo Spotlight.

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

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 07

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
  • The rise of populism: Far-right parties will influence the future

    The disheartening cycle of unresolved geopolitical conflicts, the rise of polarizing political parties, and the stagnation of productivity.

    Read article
  • Investing in China: Navigating Q1 amid economic challenges

    Understand China's political landscape in Q4 2023 and the impact on counter-cyclical initiatives, with a focus on the pivotal Q1 2024.

    Read article
Disclaimer

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.