Global Market Quick Take: Asia – August 21, 2023

What’s happening in markets?

US equities (US500.I and USNAS100.I): Energy sector shines with 0.9% gain, fueled by crude oil rally

In an uneventful session, the S&P concluded nearly unchanged at 4,370. Meanwhile, the Nasdaq 100 registered a slight decline of  0.1%, closing at 14,694. Energy stood out by gaining 0.9% and leading the sectoral performance within the S&P 500 due to a rally in crude oil prices. However, Deere (DE:xnys) had a significant setback, plummeting by 5.3%, despite surpassing quarterly expectations in its financial results. Investor apprehensions regarding the future demand for agricultural machinery lingered, primarily stemming from the recent sharp declines in grain prices.

Treasuries (TLT:xnas, IEF:xnas, SHY:xnas): Treasury Yields Mixed as Traders Await Fed's Jackson Hole Symposium

Treasury yields closed on a mixed note last Friday. The 2-year yield edged up by 1bp to 4.94%, while the 10-year yield dropped by 2bps to 4.25%. The session was characterized by a lack of significant news headlines. The yield curve between the 2-year and 10-year flattened by 3bps to -69 basis points. Traders have now turned their attention to the upcoming Fed's Jackson Hole Monetary Policy Symposium scheduled for this week, starting from Thursday and extending through Saturday.

Hong Kong & Chinese equities (HK50.I & 02846:xhkg): ): Hang Seng Index hits lowest level since November

The Hang Seng Index tumbled 2.1%, diving below the 18,000 handle and reaching 17,951, the lowest level since November last year as worries about China’s property sector and shadow banking sector lingered. China Evergrande sought Chapter 15 protection in a New York court. The Hang Seng Tech Index declined 3.6% as digital health, EV, and e-commerce stocks plunged. JD Health plummeted 13% on a revenue miss. Leading EV names lost around 4%-6%. Consumer stocks were among the laggards. Restaurant chain Jiumaojiu (09922:xhkg) plunged by 7.9% while sportswear maker Li Ning (02331:xhkg) dropped by 4.1%. Southbound flows from mainland investors registered a net sale of HKD4.1 billion.

In the A-share market, the CSI300 declined by 1.2%, with broad-based weakness. Telecommunication, information technology, and consumer discretionary were the worst-performing sectors. Northbound flows were a net sale of RMB8.5 billion in a 10-day streak of net selling of A shares by investors outside of the mainland. The three mainland stock exchanges, Shanghai, Shenzhen, and Beijing, announced fee reductions.

FX: China and Jackson Hole remain in focus

Focus remains on JPY and CNH into the new week amid sustained intervention concerns, less so now for JPY. But the dollar trajectory could be faced with some volatility as Jackson Hole is eyed. China’s rate cuts today could add further weakness to yuan, but measures to support the currency may be ready with USDCNH still above 7.30. USDJPY is now below 145.50, and no reaction was seen to the wage increase report. GBPUSD was the only G10 currency to end in green for the week, and is near 1.2740. EURUSD at 1.0870 and PMIs will be eyed this week.

Crude oil and gas: first weekly close lower for oil since June, gas markets on edge

Crude oil prices were up 1% on Friday but ended the week lower after steady gains for 7 weeks as both China and US concerns underpinned. China’s weak economic data ramped up concerns of a balance sheet recession and calls for a wider stimulus from the authorities, while US inflation concerns delayed any hopes of policy easing to start soon. Still, supply tightness concerns underpin and focus this week turns to PMIs and Powell’s speech at Jackson Hole. Meanwhile, gas markets remain on edge as strikes at Australian operators continue to send jitters.

What to consider?

China set to reduce Loan Prime Rates in stimulus effort

Last week, the People’s Bank of China (PBOC) reduced its policy 1-year Medium-term Lending Facility (MLF) rate by 15bps to 2.50% from 2.65%. Market participants widely anticipate that the National Interbank Funding Centre, under the supervision of the PBOC, will follow suit today by implementing a corresponding 15 basis points reduction in the 1-year Loan Prime Rate and the 5-year Loan Prime Rate, bringing them down to 3.40% from 3.55% and to 4.05% from 4.20% respectively.

Japan looking at the largest wage increase

A subcommittee of Japan's Central Minimum Wages Council (an advisory body to the minister of Health, Labor, and Welfare) has decided to raise Japan’s weighted average minimum hourly wage by ¥41 in fiscal 2023 amid inflation concerns. It is the largest increase since the current method was adopted of indicating wages on an hourly basis, and is well above the ¥31 increase the previous fiscal year, bringing the minimum wage to ¥1,002

Zoom earnings on tap today

Zoom Video reports Q2 results today after the close, and enterprise sales revenue will be key amid concerns of a slowing economy. Total revenue was up 3% in Q1 and expected to come in just 1% higher in Q2. Adjusted EPS is expected to come in at $1.05 from $0.41 Updates on AI investments will also be key.

Focus shifting to Jackson Hole this week

The Federal Reserve’s Economic Policy Symposium in Jackson Hole, Wyoming, is scheduled for August 24-26. This year’s theme is "Structural Shifts in the Global Economy" and Fed Chair Jerome Powell is expected to speak on August 25 at 10am ET. Other central bank heads will also be likely on the agenda. From recent commentaries, it appears that central bankers will keep the flexibility to hike rates further, while clearly avoiding committing to cut rates soon. Still, thoughts on economic momentum could be key and rising credit risks may warrant some dovishness.

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