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Global Market Quick Take: Asia – March 24, 2023

Macro 6 minutes to read
APAC Strategy Team

Summary:  A choppy session for US equities but the NASDAQ outperformed with big tech players getting a nudge from lower yields. Yellen’s comments to the House were more cautious as she said regulators will support banking sector as needed. Bank of England’s 25bps rate hike came with a guidance on more to come but GBP had little upside. EUR was pushed lower due to strength in NOK and JPY. Crude oil prices lower on US not refilling SPR, while Gold and Copper continued to gain.


What’s happening in markets

The S&P 500 managed to eke out a small gain, while the Nasdaq 100 rallied 1.2%, taking its month-to-date gain to 6%

US equities managed to close higher on Thursday, after Treasury Secretary Janet Yellen back-flipped in an attempt to assure markets and said regulators would be prepared to take further steps to protect the banking system if needed. However the futures are not convicted the rally can be sustained. On Thursday the S&P 500 initially rose 1.8% before ending 0.3% higher, being weighed by selling in financials. Communication Services and Information Technology, were the only two sectors in the S&P 500 that managed to close higher

The Nasdaq 100 was propelled higher after Netflix (NFLX:xnas) shares rose 9%, while remaining in a technical channel uptrend. So far this month The Nasdaq 100 has rallied 5.7%, with AMD rising 27%, and Google parent Alphabet, along with Nvidia up 18%. Meanwhile the S&P 500 has lost 0.5% so far this month with First Republic down 89%, leading other financials lower, including Charles Schwab which has lost 32%. In other news, Coinbase (COIN:xnas) shares plunged 14% with the Securities and Exchange Commission planning to sue the crypto exchange.

European markets closed lower on Thursday, reacting to the BOE hike, as well as the Feds

Investors absorbed news that multiple central banks are continuing to hike, in the face of economic uncertainty and bank-lending turmoil. EU investors not only digested the Fed’s hike, and the US central banking ruling out a cut this year, while also grappling with the BOE hiking rates after UK inflation came out hotter than expected, while traders were also concerned the Swiss National Bank hiked rates as well. London’s FTSE fell the most out of the major indices in Europe, and lost 0.9%, while the Stoxx600 lost 0.2%, yet managed to close above its 100-day simple moving average for the third day in a row.

The Treasury curve bull steepens as the market moves towards pricing in a Fed pause

The 2-year yield plummeted to as low as 3.75% before bouncing off the low in yield to finish the Thursday session 10bps richer at 3.83%. The market repriced further to cut the odds for a May rate hike. Yields were off their lows following Treasury Secretary Yellen walked back from her no blanket deposit insurance comment on the previous day and said regulators would take additional steps to protect deposits if necessary.

On the other hand, yields on the 30-year bonds climbed 5bps to 3.70%. The heavy supply of USD14 billion of corporate bond issuance and a USD 15 billion 10-year TIPs auction weighed on the longer end. The Treasury Department announced the auction of USD120 billion 2-year, 5-year, and 7-year Treasury notes in total next week.

Hong Kong equities advance on Thursday, following Tencent’s solid results and upbeat outlook

Hang Seng Index rallied for the third day in a row, led by Tencent (00700:xhkg) and peer internet names. Tencent surged 8.2% after reporting stronger-than-expected online adverting revenues. The tech giant’s upbeat outlook of 2023, citing a broad-based recovery in consumer activities in China added to the market optimism. There was also market chatter, which was subsequently denied, saying new Premier Li Qiang visited Tencent’s headquarters in Shenzhen. A number of Chinese cities, including Shanghai, said they are rolling out policies to boost private investment. The Hang Seng TECH Index advanced 4.7% while the Hang Seng Index climbed 2.3%.

Orient Overseas (00316:xhkg) soared 16.6% after the container shipping liner beat earnings estimates. Lenovo (00992:xhkg) jumped 11.4% on its plan to develop new products based on the Nvidia Drive Thor chip.

In A-shares, CSI300 advanced 1%, led by semiconductors, computing, communication, defense, and financials.

Australia’s share market weighed down by Block’s plummet

Despite the major US indices closing higher on Wall Street, the ASX200 was weighed by the plunge of dual-listed Block (SQ,SQ2) after a short seller accused the company of falsifying information. The ASX200 continued to fall further under its 200-day moving average, in what technical traders would deem as a bearish signal. Meanwhile, ASX investors continued to buy into defensive plays, with Utilities company AGL rising the most, up 3% with gold stock Perseus Mining is also up over 3%.  

FX: EUR pushed lower by gains in NOK and JPY

EURUSD made a few strides above 1.09 on Thursday but could not go much further despite hawkish ECB remarks as concerns over the health of the European banks continued. Pair turned back below 1.085 into the close overnight with the hawkish Norges Bank nudging NOK higher. EURNOK touched lows of 11.200 from 11.300+ levels earlier, although some of this was reversed later. Further strength came through in yen as well, with EURJPY plunging to lows of 141.16 from 143-levels earlier.

Crude oil reverses gains on US not refilling SPR

Crude oil prices rose earlier in the session but gains were reversed later as concerns on the US banking sector continued to underpin. Meanwhile, the US government warned it may not refill its strategic reserve in the short term. US Energy Secretary, Jennifer Granholm, told lawmakers that refilling the SPR would be difficult this year. However, she said they will look for that low price into the future. The Administration has said previously that it would wait until prices fell below USD70/bbl before restocking the reserves. WTI back below $70 and Brent was below $76.

Gold and Copper continue to run higher

Gold is back above $1992/oz, heading straight to $2000 again as markets continue to price in a Fed pause and concerns about the banking sector remain, and inflows in gold-backed ETFs have also started to accelerate in the last few weeks. Meanwhile, Copper is testing the 50DMA at $4.10 and a break above could open the door to February high of $4.21.

What to consider?

Janet Yellen says regulators ready to support banking system if warranted

Treasury Secretary Janet Yellen reportedly told US lawmakers yesterday that regulators remain prepared to take further steps to protect the banking system if warranted, a day after her comments in the Senate that not all bank deposits will be backstopped roiled markets. Bank stocks still remain volatile

Bank of England hikes rates by 25bps, signaling more ahead

As expected, the Bank of England announced another rate hike of 25bps yesterday taking the Base Rate to 4.25% after ECB’s 50 and Fed’s 25, as well as UK inflation re-accelerating in February. The decision to move on rates was via a 7-2 vote split (vs. exp. 6-3) with Dhingra and Tenreyro opting for a hold while there was also one voter on 50bps rate hike. Bigger surprise was that BOE didn’t signal an end of their rate hike cycle, but instead said that more tightening may be required if inflation remains persistent.

Japan’s February CPI comes broadly in line with expectations

Japan’s February CPI was softer than last month’s as expected given base effect and the impact from Kishida’s subsidies. Headline CPI came in at 3.3% YoY from 4.3% previously, while core was 3.1% YoY from 4.2% YoY previously, both coming in as expected. Core-core measure (ex fresh food and energy) was however still a notch higher at 3.5% YoY from 3.2% previously and 3.4% expected. Together with the drop in global yields, this continues to take the pressure off incoming governor Ueda to quickly remove the massive easing, although sustained price pressure may mean he could still consider some tweaks to make market functioning more efficient.

US initial jobless claims come in strong, Chicago Fed National Activity index fell

Initial jobless claims printed 191k in the week of March 18 vs. expectations of 197k and last week’s 192k, still staying comfortably below the 200k mark. Of importance as well is that this week's data corresponds with the BLS survey week suggesting that the job data to be released in early April will potentially remain strong once again.

Meanwhile, one of the extensive coincident indicators of the US economy, the Chicago Fed National Activity Index, came in weaker for February at -0.19 from January’s 0.23. This was another signal that the re-acceleration of the US economy seen at the start of the year was short-lived and economic pressures started to build, and there may be more pressures to come from March as the banking sector concerns roiled markets.

Swiss and Norges central banks continue to tighten

The Swiss National Bank hiked 50 basis points as widely expected hoping to pretend that all systems are normal just after avoiding a systemic melt-down by “aiding” UBS’ takeover of Credit Suisse. The Bank signaled that more tightening “cannot be ruled out”, though SNB is most likely to be a laggard rather than a leader in all monetary policy shifts.

Norges Bank hiked 25 basis points as expected to take the Deposit rate to 3.00% and surprised hawkish with guidance for an increase to 3.50% in the summer, though it did cite “considerable uncertainty about future economic developments”.

Block attacked by a short-seller, accusing the fintech of falsifying customer growth; its shares fall 17% on the ASX, after losing 14% in NY

Fintech Block (SQ, SQ2) who created the Square tap-and-go payment device, and is the owner of Afterpay has been accused of misleading investors and taking advantage of people it claims to help. The accusations, in a short seller report, alleged Block is disguising “predatory” loans and fees as revolutionary technology, while also alleging Block overstated user growth and understated costs for acquiring customers, with the report also saying about 40% to 75% of accounts are likely fake. Block responded to Hindenburg Research, saying the report is designed to deceive and confuse investors, while Block is confident in its products, reporting, compliance programs and controls. Hindenburg previously targeted Indian multinational company Adani Group in January and its founder Gautam Adani, accusing him of fraud, which ultimately caused Adani’s wealth to plunge. Block (SQ,SQ2) fell 14% in New York and opened 17% lower on the ASX.  

Eyes are on Meituan’s competition strategy and forward guidance

Meituan (02690:xhkg), reporting on March 24, is forecasted to see strong demand in its food delivery business despite Covid disruptions, but weaker demand in its in-store, hotel, and travel segments. The company's adj. EBIT loss is expected to narrow. Investors will focus on hearing from the management’s updates on the competition landscape and the company’s strategies in dealing with intense competition. The company’s Q1 guidance will attract much attention as it informs investors not only about the company’s business but only the state of the recovery of consumption in China.


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.

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