Chief China Strategist
Summary: USDJPY initially declined to 140.25 before recovering to close at 141.41 in New York and trading around 141.20 this morning in Asia. The renminbi strengthened as USDCNH dropped by 0.5% to 7.1183, boosted by Chinese exporters repatriating revenues and increased northbound flows into A shares. Both Hong Kong and mainland stocks had a widespread rally, with the Hang Seng Index surging 2.5% to settle at 17,044, and the CSI300 gaining 2.3% to reach 3,415. Meanwhile, key US indices had minimal movements, with the S&P 500 ticking up by less than 2 points to 4,783, and the Nasdaq 100 sliding 0.1% to 16,898.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: Key US indices had minimal movements on Thursday. The S&P 500 ticked up by less than 2 points to 4,783, while the Nasdaq 100 slid 0.1% to 16,898—both just shy of their highest closes in history. AMD extended its streak of gains, rising by 1.8%. Apple edged up 0.2% after a US federal appeal court suspended the import ban on Apple Watches.
Fixed income: Treasuries retraced in prices, with yields rising approximately 4-5 basis points across the yield curve. The market's reaction to a slightly larger-than-expected rise in initial jobless claims released in the morning was muted. Yields began to climb as the auction time for $40 billion 7-year notes at 1p.m. approached. The auction went poorly, with notes awarded at 3.859%, higher than the 3.84% observed around the auction deadline. As a result, the 10-year yield finished 5 basis points higher at 3.84%. The cash Treasury market will close early at 2 pm Eastern Time on Friday.
China/HK Equities: On Thursday, stocks on both Hong Kong and mainland exchanges staged a broad-based rally. The Hang Seng Index surged 2.5% to settle at 17,044, with notable outperformance in EV, digital health, solar, beverage, China developers and property management, as well as insurance names. Geely jumped 6.7% on the back of strong pre-orders for its newly launched EV model, Zeekr 007. In the mainland, the CSI300 gained 2.3% to reach 3,415, with northbound investment into A shares reaching RMB13.5 billion—marking the largest daily inflow since July.
FX: The renminbi rallied, with USDCNH dropping by 0.5% to 7.1183, driven by Chinese exporters repatriating revenues as the year-end approached and increased northbound flows into A shares. USDJPY extended its decline, reaching 140.25 at one point before rebounding to finish at 141.41 in New York and trading around 141.20 in the Asian morning on Friday. On the other hand, the euro and sterling retreated by 0.4% and 0.5%, respectively, against the dollar, settling at 1.1061 and 1.2733. AUDUSD consolidated, edging down 0.3% to 0.6825 after reaching a recent high at 0.6871.
Commodities: WTI and Brent crude oil fell 3.2% and 2.5% to $71.77 and $77.56, respectively, as shipping companies planned to resume transit through the Red Sea after a temporary suspension. Despite the US Energy Information Administration (EIA) reporting a significant 7.11 million barrel decline in US crude inventories from the previous week, this news did not provide substantial support to crude oil prices. Spot gold reached a recent high at $2088.5 but failed to sustain the momentum, retracing to trade around $2,067 in the Asian morning on Friday.
Macro:
Macro events: US Chicago PMI (Dec)
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
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