Global Market Quick Take: Asia – October 3, 2023

US Equities: The strength in the mega-cap tech stocks lifted the equity market. The tech-heavy Nasdaq 100 gained 0.8% to reach 14,837, led by Nvidia, Alphabet, Meta, Microsoft, Amazon, and Apple, all of which rose between 1.5% and 3%. Meanwhile, the S&P500 remained flat as the broader benchmark was dragged down by the interest rate-sensitive utilities and real estate sectors, as well as the energy sector, which fell due to a sharp drop in crude oil prices. The narrow concentration of market performance on the "magnificent seven" stocks pointed to the fragility of the broader equity market.

Fixed income: Treasuries started in a soft tone, with yields rising, after the weekend accord to keep the federal government funded through November 17. The market extended losses through the day on hawkish Fedspeak and the ISM Manufacturing Index and the S&P Manufacturing PMI, both rising more than expected. The 10-year bond yield reached as high 4.70%, level last seen in nearly 16 years ago. The 10-year yield finished the session 10bps higher at 4.68% and the 2-year ended 6bps higher at 5.10%. Upcoming supply of new issuance and the higher-for-longer rhetoric of the Fed continued to weigh on the Treasury market in the near term.

China/HK Equities: The Hong Kong market returns from a holiday-lengthened weekend today, while the mainland bourses remain closed for Golden Week. At the halfway point of the 8-day-long national holiday, running from September 29 to October, the Ministry of Culture and Tourism estimated domestic tourism revenue to grow by 140% Y/Y from 2022 or 5% Y/Y from the Golden Week in 2019. Data released over the weekend was mixed, with the NBS PMI prints better than expected, but the Caixin PMI came in softer.

FX: The surge in Treasury yields brought another bid to the US dollar, and the DXY index rose to 107. Risk sentiment waned with US data remaining strong and AUDUSD plunged below 0.6360 with RBA meeting on tap today and last week’s lows of 0.6331 may be the next target. NZDUSD also plunged below 0.5940. USDJPY rose above 149.80 and 10-year auction will be in focus today. EURUSD extended overnight slide to sub-1.05 further to fresh YTD lows of 1.0465 in early Asian hours and GBPUSD also failed to get a boost from Mann’s hawkish comments and slid to sub-1.21.

Commodities: Oil prices slid further with WTI below $90/barrel and Brent just above it, with risk off and higher dollar underpinning. Supply concerns also got a pushback with Turkey resuming a key pipeline flow from Iraq. Gold plunged further to lows of $1820 and the big $1800 figure remains in focus. Silver was down over 5% to plunge below $21 and gold/silver ratio climbed above 86. Next support seen at $20. Wheat and corn futures jumped after a plunge lower following Friday’s USDA report that showed significant supplies.

Macro:

• Headline US ISM manufacturing rose to 49.0 vs. 47.9 expected and 47.6 previously. The key new orders (49.2 from 46.8) and employment (51.2 from 48.5) indexes rose strongly. Interestingly the prices paid index fell to 43.8 from 48.4, despite the recent rise in energy prices.
• US Fed speakers remained mixed. Michelle Bowman re-iterated it will likely be appropriate to raise rates further and hold them at restrictive level for some time. Meanwhile, Michael Barr said the US central bank is “likely at or very near” a level of interest rates that is sufficiently restrictive and that the bigger question is how long rates will need to stay high, adding that the full effects of past increases on the economy “are yet to come in the months ahead.” Chair Powell stressed price stability while Mester said that rates may need to be raised once again in 2023.
• BOE’s Catherine Mann warned against letting up in the fight against inflation and talked about “permanently” higher interest rates. Her hawkish comments drove UK yields higher.

  Macro events: RBA Cash Target Rate exp 4.10% vs. 4.10% prior (1130 SGT)

   

  In the news:

• US warned China to expect updated export curbs in October-US official (Reuters)
• Republican US Rep. Matt Gaetz moves to oust McCarthy as speaker (Reuters)
• Tesla’s EV deliveries fall short of lowered expectations (FT)

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