Global Market Quick Take: Asia – August 16, 2024

Key points:

• Equities: US markets extended their winning streak to six days 
• FX: US dollar rose on higher yields, but upbeat risk sentiment capped gains 
• Commodities: Copper rises to highest close since 31 July 
• Fixed income: Yield curve bear flattening 
• Economic data: UK retail sales, US UoM sentiment 

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The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.

Disclaimer: Past performance does not indicate future performance.

In the news:

• Stock Market Today: S&P 500 extends winning streak on signs of economic strength (Investing) 
• Applied Materials delivers upbeat earnings guidance as Q3 results beat estimates (Investing) 
• Walmart beats sales, raises outlook as higher-income consumers continue to turn to the retail giant (Yahoo) 
• Indexes end higher as retail sales soothe slowdown fears (Investing) 
• Alibaba revenue edges up to US$33.5 billion but misses estimates in June quarter (Yahoo) 
• Political uncertainty may prod BOJ to pause, but not end, rate hike path(Reuters) 

Macro:

• US retail sales surprised on the upside, easing fears about a recession that had prompted markets to expect a 50bps rate cut from the Fed at the September meeting. Headline retail sales for July rose by 1.0%, well above the expected 0.4%. The core metric, ex autos, rose by 0.4%, above the 0.1% forecast while the prior was revised up to 0.5% from 0.4%. Super core, ex gas and autos, rose by 0.4%, easing from the prior 0.8%. The Retail Control, which feeds into the GDP, rose by 0.3%, above the 0.1% forecast and but slowing from 0.9% in June.
• US weekly jobless claims also quelled fears about a rapid cooling in the labor market. Jobless claims for the week of August 10 slowed to 227k from 234k in the previous week and 235k expected. Still, claims data can be choppy around the summer months and focus remains on non-farm payrolls for August due on September 6.  
• Fed’ Bostic (voter) said he is open to a September rate cut as inflation cools and said as price pressures ease officials also need to be conscious of their mandate of maintaining full employment. Fed’s Musalem (2025 voter) added the recent data have bolstered his confidence on inflation, and the time may be nearing for a change in policy rate. 
• UK’s Q2 GDP came in as expected at 0.6% QoQ (vs. 0.7% prior) and 0.9% YoY (vs. 0.3% prior) signalling resilience in the UK economy. Private consumption was weak at 0.2% QoQ vs. 0.5% expected but that July retail sales out today could shed more light on the state of the consumer.  
• Australia’s July jobs numbers were upbeat with total employment at 58.2k for July coming in better than 20k expected, and full-time employment very healthy. Participation rate, however, jumped higher to 67.1% from 66.9%, pushing the unemployment rate higher to 4.2% from 4.1%.  
• China’s industrial output and retail sales broadly in line with forecast as a prolonged housing slump remains a drag on consumer spending. Fixed-asset investment meanwhile unexpectedly slowed to 3.6% from 3.9% expected in the first seven months of the year, highlighting an economy that continues to operate at two-speeds with manufacturing driving growth. Capital spending by state-owned enterprises slowed to 6.3% in the first seven months from 6.8% in the first half, while that of private firms stagnated from a year ago. 

Macro events: UK Retail Sales (Jul), US University of Michigan Prelim (Aug)

Earnings: Flowers Foods, CINT, OneConnec

Equities: US stocks surged on Thursday as Wall Street responded positively to signs of strength in the US consumer and labor markets, easing recession worries. The S&P 500 and the Nasdaq extended their winning streak to six days, gaining 1.6% and 2.4%, respectively, while the Dow Jones rose by 555 points. The rally was driven by strong economic data, including retail sales that increased by 1% in July, far exceeding the expected 0.3% rise. Additionally, weekly jobless claims fell to their lowest level since early July, further boosting sentiment. All sectors closed in the green, with consumer discretionary leading, followed by tech and materials. On the earnings front, Cisco's optimistic revenue forecast pushed its shares up 6.8%, while Walmart advanced 6.6% after beating earnings and revenue expectations. In extended hours, Applied materials fell 3% despite beating earnings estimates and forecasting this quarter’s sales in line with its guidance.

Fixed income: Treasury futures dropped sharply, and the yield curve aggressively flattened after retail sales exceeded estimates and jobless claims came in below expectations. This bear-flattening trend persisted into a quiet afternoon, though yields later eased from their lowest levels. US yields were cheaper by up to 14 basis points on the front end, while 30-year yields rose by around 5 basis points. The 10-year yield ended the day at 3.92%, peaking at 3.95%. Futures volumes were 4% above the 20-day average, with the 5-year note contract seeing 10% higher activity. Following the data, Fed swaps reduced the likelihood of a half-point rate cut at the September meeting, with 29 basis points of easing priced in, down from 32. For December, 92 basis points of easing were priced in, down from 102. Money-market fund assets hit a record high as $28.4 billion flowed in, reaching $6.22 trillion. China's US Treasuries holdings rose to the highest level since the start of the year, while Japanese investors sold the most Treasuries since September 2022.

Commodities: Oil prices fell as the market weighed strong US economic data and the potential threat of an attack by Iran or its proxies on Israel against weak demand in China. West Texas Intermediate dropped below $78 a barrel after a 1.5% rise on Thursday, while Brent crude closed just above $81. Robust US retail sales and employment figures mitigated concerns about sluggish investment and industrial activity in China. Global benchmark Brent is set for a second weekly gain, rebounding from a seven-month low. The market remains on alert for developments in the Middle East, as Israel entered talks about pausing the conflict in Gaza. Gold prices fluctuated as traders processed US retail spending data, considering the outlook for the Federal Reserve’s expected interest-rate cuts next month. Copper prices rose for the second day, balancing weak Chinese economic data against labor disruptions at the world’s largest mine. London prices increased by roughly 2%, building on Wednesday’s gains. China’s economic downturn extended into the third quarter, while efforts to resolve a labor dispute at BHP Group’s Escondida mine in Chile stalled.

FX: The US dollar faced two opposing forces, with rising Treasury yields pushing it higher but offset by reduced recession concerns supporting a risk-on sentiment and pushing the US dollar lower. The Japanese yen, however, suffered on both accounts and has retraced all its gains since recession concerns first picked up with the July US jobs report on August 2. Activity currencies, however, saw a sharp rebound after the initial US retail sales-driven decline. UK’s pound as well as Australian dollar were eventually higher against the US dollar, while others like the euro stayed weak. 

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

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