Global Market Quick Take: Asia – July 6, 2023 Global Market Quick Take: Asia – July 6, 2023 Global Market Quick Take: Asia – July 6, 2023

Global Market Quick Take: Asia – July 6, 2023

Macro 6 minutes to read
Charu Chanana

Head of FX Strategy

Summary:  US equities returned from holiday on a weak footing as FOMC minutes showed appetite for further rate hikes. Bond yields climbed with 10-year Treasury yield getting in close sight of 4%. Still, big tech stocks surged with Meta leading the pack on the launch of its Threads app as a rival to Twitter. China services PMI disappointed, while Eurozone PMIs also raised recession alarm. Yellen’s visit to China will be in focus before labor market indicators in the US take the focus.


What’s happening in markets?

US equities (US500.I and USNAS100.I): pressured as bond yields surge

US equities closed in the red after returning from Independence Day holiday as the Federal Reserve’s minutes from its June meeting showed further appetite to resume hikes, which brough further gains in bond yields and 10-year yield rose to highs of 3.95%. Still, big tech was largely higher as Meta surged to a 52-week high ahead of the launch of its rival Twitter app. That helped NASDAQ 100 to close almost unchanged while S&P 500 was down 0.2% while Dow Jones slid by 0.4%. Apple however failed to follow big tech gains and was down 0.6%. Automakers continue to surge with GM and Toyota now adding to positive sentiment with higher unit sales growth in Q2.

Hong Kong & Chinese equities (HK50.I & 02846:xhkg): China’s services PMI weighs

Hang Seng Index fell by 1.6% with Meituan down 2.4%. Hang Seng China Enterprises Index was down 1.9% as China’s June services PMI came in significantly weaker than expected. Geopolitical situation also continues to keep the sentiment fragile as US and China engage further in chip wars and Janet Yellen is starting her visit to Beijing today. CSI 300 closed down by 0.8%.

FX: Dollar rose as FOMC minutes signalled more rate hikes

While the US FOMC minutes had little impact on market expectations of the Fed path, the clarity on some of the members having been inclined for a 25bps rate hike at the June meeting signalled greater conviction that further rate hikes will continue. This saw yields running higher and USD in gains across the G10 board. AUDUSD weakened from the 0.67 handle after China’s disappointing services PMI, and pair was close to 0.6650 in early Asian hours. EURUSD also moved more convincingly below 1.09 while GBPUSD was still close to 1.27 handle. The final EU HCOB Composite PMI in June was revised lower to the contractionary territory of 49.9 from 50.3, despite expectations for it being left unchanged, raising the recessionary alarm.

Crude oil: higher amid supply concerns

Crude oil prices surged on Wednesday as US markets came back from holiday and traders assessed the impact of the production cut announcements from Saudi Arabia and Russia. WTI rallied to $72/barrel as it caught up to the moves in Brent over the US holiday on Tuesday. However, at the OPEC International Seminar, UAE said it won’t be joining voluntary cuts at this time. Meanwhile, geopolitical risks were also heightened following reports of US Navy ships stopping Iranian forces from seizing two oil tankers near the Strait of Hormuz. Demand concerns also eased as API reported crude inventories declining by 4.4mn barrels last week, and focus will turn to the labor market indicators in the rest of the week.

Wheat: crop supply concerns linger

Chicago wheat futures were up over 5% on Wednesday as Monday crop conditions report from the US was assessed by traders after returning from holiday. The USDA reported that just 37% of the winter crop was harvested as of Sunday, versus 52% last year. The agency also unexpectedly cut its spring wheat rating as rains failed to improve conditions. Meanwhile, concerns on Russian supplies also lingered after recent rains suggesting market tightness could continue. The USDA rated 51% of U.S. corn in good-to-excellent condition, up a point from the prior week. Soybean conditions, however, fell by a point.

 

What to consider?

FOMC minutes show a split over the June pause

The tone of the FOMC minutes was somewhat different than what a unanimous pause decision may have hinted. Some members favoured an increase in interest rates at the June meeting, but went along with a pause. Almost all of the members continued to highlight the need for further rate hikes. Many also noted that, after rapidly tightening, the Committee had slowed the pace of tightening and that a further moderation in the pace of policy firming was appropriate in order to provide additional time to observe the effects of cumulative tightening and assess their implications for policy. As expected, no material change was seen to market’s expectations for the Fed from here, with July rate hike still priced in with over 80% probability and terminal rate seen at 5.4% as focus turns to JOLTs, ISM services and NFP data due into the close of the week.

Eurozone PMIs raise recession concerns

The final EU HCOB Composite PMI in June was revised lower to the contractionary territory of 49.9 from 50.3, despite expectations for it being left unchanged. This comes as services PMI was revised lower to 52 from 52.4 and raised the recessionary alarm for the Eurozone. Meanwhile, ECB 12-month consumer inflation expectations seen at 3.9% down from 4.1%

China’s Caixin services PMI disappointed, more rate cuts announced

The Caixin Services PMI for June was out at 53.9 overnight, far below the 56.2 expected and the 57.1 in May. It was the weakest reading since January and dampened hopes that the China economy may be showing some early signs of a recovery after targeted stimulus measures over the last few weeks. China's largest banks cut rates for the nation’s $453b corporate 1y USD deposits for the 2nd time in weeks to 5.09% from 5.7%.

Janet Yellen in China as US-China tensions continue to rise

China’s restrictions on exporting gallium and germanium metals crucial for semiconductors and electric vehicles have further raised concerns about potential curbs on rare earth exports, that could disrupt global supply chains. Chinese officials will meet with major producers of the metals on Thursday to discuss the export restrictions, Reuters reported. Meanwhile, Janet Yellen visits Beijing from Thursday with the goal of finding areas of common economic ground and opening communication channels amid increasingly turbulent US-China relations.

Strong quarterly US sales numbers from automakers Toyota and GM

General Motors Co. and Toyota Motor Corp. both posted strong sales gains in the second quarter, signs of consumer health in the auto market as semiconductor supply improves. Toyota's unit sales in the US rose 7.1% in the second quarter, with 29% jump in June deliveries of EVs. Meanwhile GM's unit sales surged 19% in Q2. Ford’s unit sales numbers are due out on Thursday.

 

 

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.

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.