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Weekly Commodities Update Weekly Commodities Update Weekly Commodities Update

Global Market Quick Take: Asia – April 27, 2023

Macro 4 minutes to read
APAC Strategy Team

Summary:  U.S. equities pared gains on renewed concerns about the fate of First Republic Bank. S&P500 slid 0.4% while the tech-heavy Nasdaq finished Wednesday 0.6% higher, driven by Microsoft. Meta reported revenues and earnings beating estimates after the market close. Hong Kong equities snapped a three-day losing streak. U.S. reports Q1 GDP today.


What’s happening in markets?

US equities (US500.I and USNAS100.I): pared gains as First Republic Bank may face a curb on borrowing from the Fed

U.S. equities pared early gains from solid results from Microsoft (MSFT:xnas) and Alphabet (GOOGL:xnas) on concerns that regional banking turmoil may persist, weighing on the economy. S&P500 reversed a 0.4% gain to finish Wednesday 0.4% lower. Information technology, up 1.7%, was the only sector in the S&P 500 advanced, driven by a 7.2% gain in Microsoft. The tech-heavy Nasdaq 100 rose 0.6%.

Newswire headlines suggesting that the regulators may be losing patience on the regional lender’s abilities to find buyers for its assets and is consider to downgrade the assessment of the bank. If it happens, it will means that First Republic’s abilities to borrow from the Fed could be reduced.

Meta Platform (META:xnas) jumped as much as 12.8% in the extended hours following reporting Q1 results beating estimates.

Treasuries (TLT:xnasIEF:xnasSHY:xnas): yield climbed higher in a choppy session

Yields from the belly to the long end climbed about 5bps with the 10-year closed at 3.45%. Yield climbed ahead of the auction of USD43 billion 5-year notes before retreating somewhat after the decent auction result. Meanwhile, the 2-year caught a stronger bid in the late afternoon with yields coming off its intraday high to finish unchanged, following reports that the Federal Deposit Insurance Corp (FDIC) is considering to lower the assessment grading of First Republic Bank and the action can limit the troubled regional lender’s use of the emergency funding form the Federal Reserve.

Chinese equities (HK50.I & 02846:xhkg): Hang Seng Index rallied driven by Internet stocks

Hong Kong equities snapped a three-day losing streak, with Hang Seng Index gaining 0.7% and Hang Seng Tech Index adding 1.3%, driven by solar, EV, China Internet, brewers, and pharmaceutical names. Xinyi Solar(00968:xhkg), advancing 5.1%, was the best-performing stock in the Hang Seng Index. BYD (01211:xhkg) advanced 4.4% as the EV maker became the best-selling auto brand in China in Q1. Hong Kong Exchanges climbed 1.2% after Q1 earnings beating estimates on strong investment income.

Kingdee (00268:xhkg) topped the gains in the Hang Seng Tech Index, rising 5.8% on analyst upgrades. Among Internet names, Kuaichou (01024:xhkg) up 5.5%, Bilibili (09626:xhkg) up 3.8%, and Tencent (00700) up 2.9% led the charge higher. Tencent is reportedl stepping up its share buyback. JD.COM (009618:xhkg) bounced 2.6% after yesterday hitting the level last seen in October 2022. Alibaba (09988:xhkg) down 1% and NetEase (09999:xhkg) shedding 1.9% lagged other Internet stocks as both the U.S and the European Union are tightening regulation over Chinese cloud computing companies.

In A-shares, CSI300 finished Wednesday nearly flat as gains in new energy vehicles, solar, electric equipment and utility names were offset by weaknesses in computing, telecommunication, electronics, and construction stocks.

FX: EUR stays strong despite coming off the highs

EURUSD flew through the roof on Wednesday as concerns on the debt ceiling brought pressures to the US dollar while Germany lifted 2023 growth expectations with the rebound in manufacturing. Pair printed fresh 2023 highs of 1.1095 before sliding back to the 1.1040-levels, but a hawkish ECB stance continues to suggest more room on the upside. EURAUD rose above 1.67, its highest levels since late 2020, with AUD under pressure due to softer Q1 CPI adding to a slow-moving China reopening story. USDJPY remains quiet ahead of tomorrow’s Bank of Japan meeting – the first for the new Governor Ueda.

Crude oil: erasing all gains since the surprise OPEC cut

Il prices slumped further by 3% yesterday with risk sentiment remaining weak after it was reported that advisors for First Republic Bank were lining up buyers for new shares. On top of this the recovery in China remains underwhelming, thereby reducing what was expected to be a major pillar of support for the market. These demand concerns continued to offset the bullish EIA inventory report which indicated that US crude inventories fell by greater than expected 5.1mn barrels last week. WTI prices slid to lows of $74 and Brent plummeted below $78, closing the gap up seen after the surprise production cut by OPEC+ at the start of the month.

Copper: down but not out

A shallow recovery yesterday but Copper prices reversed lower again. However, the weakness so far remains restrained as the key support levels at $3.82 and $3.75 remain intact. Our Head of Commodity Strategy, Ole Hansen, takes a look at the short-term outlook and argues why our long-held bullish view has not changed despite the current dark clouds here.

Lithium: small gains after heavy losses

After falling to their lowest level in 18 months in April and shedding some 70% from peak prices in November last year, lithium prices in China gained for the first time this year on signs demand growth may be finally gathering pace as battery demand picks up. A report released Wednesday by the International Energy Agency (IEA) shows electric cars sales up 55% in 2022 compared to 2021. Lithium carbonate rose nearly 1.5% amid thinning inventories across the supply chain. Destocking was the main cause of the 70% fall in prices since mid-November.

What to consider?

Meta Q1 revenues and profits beat

Meta Platform (META:xnas) reported Q1 revenues growing by 3% Y/Y to USD28.65 billion ahead of the USD27.67 consensus estimate. Advertising revenues came in stronger than expected at USD28.1 billion, a 4% increase Y/Y. The reported EPS of USD2.2 was nearly 10% ahead of consensus forecast. Guidance for Q2 revenues was USD29.5-32 billion, above USD29.4 billion street estimate. The company guided total expenses of USD86-90 billion with a lower upper band from the prior guidance USD86-92 billion and capex of USD30-33 billion unchanged from prior guidance for the full year 2023.

US GDP growth is expected to slow modestly to 2%

The advance reading of the US real GDP growth, scheduled to release on Thursday, is expected, according to Bloomberg’s survey of economists, to slow to 2% Q/Q annualized in Q1, down from 2.6% in Q4 last year. Despite inventory drawdown is potentially dragging GDP growth, personal consumption is expected to come in strong at 4% Q/Q annualized and be the key driving force to sustain GDP growth in Q1.

House passes debt ceiling bill, more risks ahead

The House of Representatives, led by speaker Kevin McCarthy, narrowly passed a bill that would raise the debt ceiling, slash federal spending and repeal President Biden's programs to combat climate change and reduce student debt, defying Democratic objections. Democrat-led Senate and President Biden signalled they remain unwilling to yield to GOP demands, and the ensuing negotiations are likely to keep the markets jittery in the next six or so weeks until the deadline.

Australia’s Q1 inflation leaves little scope for AUD rebound

Australia reported Q1 inflation print at 7.0% YoY, still elevated and higher than expected but softer than last quarter’s 7.8%. More importantly, the trimmed mean measure came in below expectations at 6.6% YoY vs. 6.9% in Q4. While this certainly doesn’t spell much of a sigh of relief for the RBA, there is also not enough impetus for the central bank to restart its tightening moves after a pause at the last meeting. This spells further trouble for AUD along with a slow-moving China reopening story and the recent slump in iron ore prices.

Amazon key to watch among today’s earnings announcements

Amazon is another company that had a tough 2022 as overinvestment during the pandemic had led to too much fulfilment centre capacity and too many employees. The retailing and cloud infrastructure giant is expected to report Q1 revenue growth of 7% y/y and EBITDA of $18.9bn up from $14.8bn as cost cutting is expected to improve earnings.

BYD took the reign as the best-selling auto brand in China from Volkswagen

Selling 440,000 vehicles in Q1, BYD overtook Volkswagen as the best-selling auto brand in China, three quarters earlier than what the EV maker’s chairman recently aimed for.

Kweichow Moutai reports 20% rise in Q1 revenue and net profit

Kweichow Moutai (600519:xssc), the Chinese baijiu (white liquor) giant, has kicked off the new year with a bang, as reflected in its latest quarterly report. The company achieved a Y/Y increase of 20% in operating revenue, reaching RMB38.8bn, and a 20.59% rise in net profit, totalling RMB20.8bn. Moutai had previously forecasted 18% growth in revenue and a 19% increase in net profit for Q1. The direct sales channel revenue increased by 63.6%, accounting for 46% of the total revenue.

Samsung missed Q1 earnings, expects H2 rebound

Samsung Electronics reported its worst quarterly profit in 14 years, as global economic woes dented demand for consumer electronics and a chip glut battered its core business. Q1 operating profit was down 95% from a year ago with sales down 18%. Earlier this month, Samsung said it was cutting memory production "to a meaningful level," in a sharp departure from its previous position that it would not artificially reduce output as part of efforts to gain a bigger market share. However, it guided for a rebound in H2 pinning hopes on a China recovery and an expected uptick in order as prices are cut. These could be somewhat risky bets, but a greater reliance on the mobile business may help to offset some of the pressures.

Singapore unveils house price cooling measures

Singapore raised taxes on private property purchases in a surprise move late on Wednesday. Measures included increased stamp duty for second-home buyers and foreigners purchasing private property. The additional buyer’s stamp duty (ABSD) on Singaporeans’ second and subsequent home purchases will rise to 20% from 17%, and 30% from 25%, respectively. Meanwhile, those for permanent residents will rise to 30% and 35%, respectively, for their second and subsequent properties purchases. For foreigners buying any home, the rate jumped to 60% from 30%.

 

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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