Global Market Quick Take: Asia – October 19, 2023

US Equities: The S&P 500 fell 1.3% and the Nasdaq 100 declined 1.4% as Treasury yields continued to surge. The heightened geopolitical tension in the Middle East and the declines in the share prices of Tesla ahead of earnings also weighed on the indices.

Fixed income: The 10-year Treasury yield rose 8bps to finish the session at 4.91%, reaching a new high since 2007 while the 2-year yield ended 1bp higher at 5.22%. The rise in US yields started early in the day following the post-UK inflation data selloff in Gilts. The 20-year Treasury bond auction results showed decent demand investor demand. It briefly halted the selloff before yields climbed again to close near day highs.

China/HK Equities: The stronger-than-expected Chinese economic data failed to excite investors who were instead troubled by the tightening of US export restrictions on advanced AI chips, including Nvidia’s A800, H800 and L40S, and semiconductor manufacturing items to China. Additionally, market sentiment worsened on Country Garden’s first default as the second-largest Chinese developer failed to pay interest on a USD bond as the grace period lapsed. Country Garden said in a statement that it “is incapable of meeting all the repayment obligations of its external debt items in time”. Technology names sold off, seeing the Hang Seng Tech Index falling 1.7%, underperforming the Hang Seng Index’s modest decline of 0.2%. The CSI300 lost 0.8%, driven by weakness in TMT stocks.

FX: DXY was stronger overnight, but the strength is failing to reflect the strong gains in Treasury yields with 10-year yields at new highs of over 4.9%. Chair Powell’s comments today will be key to assess whether he follows other board members’ views on financial tightening or stays neutral on geopolitical concerns. AUDUSD reversed from highs of 0.6393 printed after China’s data beat as risk sentiment remained weak and jobs data today will be on watch. Other activity currencies also fell, NOK and CAD both falling despite higher oil prices. AUDNZD broke above 1.08 but still far from 1.10 to confirm an uptrend. GBPUSD wobbled but ended lower around 1.2140 amid BOE dovish repricing risks.

Commodities: Oil jumped higher again on Wednesday amid geopolitical concerns ramping up following the hospital bombing in Gaza and official inventory data showing largest US hub stocks at 9-year lows. Recovery in China’s economic data also supported crude prices. Risk remains with Iran also announcing an oil embargo against Israel which continues to threaten escalations. Copper held up the $3.55 support while Gold rose to fresh three-month highs amid safe-haven buying despite the surge in Treasury yields.

Macro:

• Fed’s Waller said it is too soon to tell if more policy rate action is needed and they can wait, watch, and see before making definitive moves on the policy path
• UK inflation data came in slightly hot. September CPI was above expectations at 6.7% YoY vs. 6.6% expected. Core inflation was also marginally ahead of expectations at 6.1% YoY from the 6.0% estimate. Read more in our FX note from yesterday.
• China’s Q3 GDP grew 4.9% Y/Y. For the first three quarters of the year, GDP grew 5.2% Y/Y, driven by consumption. The National Bureau of Statistics said they are confident that the full-year GDP growth target will be met since it will only take a 4.4% growth in Q4 for the Chinese economy to get there.
• China’s retail sales increased by 5.5% Y/Y, surpassing the 4.9% expected and 4.6% of the prior quarter. Excluding autos, the growth in retail sales came in at 5.9% Y/Y in September, rising from 5.1% in August. However, sales of property-related merchandise, such as electronic appliances and furniture remained weak.
• China’s growth of industrial production stayed at 4.5% Y/Y in September, the same as in August but modestly above the street forecast of 4.4%. Auto production grew 9.0% Y/Y in output value and 3.4% Y/Y in the number of vehicles manufactured.
• China’s Fixed Asset Investment increased 2.5% Y/Y in September (vs 2.0% in August) driven by accelerated growth in infrastructure and manufacturing investment while property investment decelerated and registered a deeper year-on-year decline.

Earnings:

• Tesla: Q3 EPS came in at $0.66, missing the Bloomberg consensus estimate of $0.74. Revenue of $23.35 billion was slightly below expectations. Its share price fell 4.8% during the regular session and dropped by another 3.9% in the extended hour trading after the release of Q3 results.
• Procter & Gamble: FY24 Q1 EPS of $1.83 beats consensus of $1.72 primarily as a result of a 460bp increase in gross margin t 52%. Organic sales growth was 6.2% in the quarter, ahead of estimates. For the full year FY24, the management affirms prior guidance of +4-5% for organic sales growth and $6.25-6.43 for EPS.
• Netflix: Q3 revenue of $8.53 billion was in line with expectations while EPS of $3.73 beat the consensus forecast of $3.49. The net addition of 8.76 million subscribers surpassed the Bloomberg consensus estimate of 6.2 million. The streaming company’s share price slid 2.7% during the regular session but surged as much as 13% after the release of Q3 results in extended trading.
• Morgan Stanley: Q3 EPS of $1.38 surpasses the consensus estimate of $1.30 due to higher-than-expected trading revenues. However, wealth management and debt capital market businesses came in below expectations.
• BYD: The Chinese automaker surged 6.9% after pre-announcing a jump of 67%-103% in Q3 net profits, attributed to strong sales of new energy vehicles in Q3.

Macro events: Australian Jobs Report (Sep) exp 20k vs. 64.9k prior, US Philly Fed (Oct), Canada PPI (Sep)

Earnings events: TSMC, CATL, Nestle, Roche, L’Oreal

In the news:

• Biden’s Whirlwind Israel Trip Fails to Calm Fears of Wider Middle East Conflict (Bloomberg)
• US airline investors worry the travel boom may be coming in for a landing (Reuters)
• China's Xi warns against decoupling, lauds Belt and Road at forum (Reuters)
• Netflix to Raise Prices After Best Subscriber Gain in Years (Bloomberg)

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

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