Global Market Quick Take: Asia – December 4, 2023

US Equities: As Powell did not use the speaking opportunity before the pre-FOMC blackout period to push back on the rise in easing expectations, investors turned increasingly risk-on. Most notably, the Russell 2000 surged 3%, substantially surpassing the 0.6% increase in the S&P 500 and the 0.3% gain in the Nasdaq 100. This week, investors will focus on the JOTS job openings release on Wednesday and the job report on Friday.

Fixed income: Yields started sliding after softer ISM manufacturing prints. Treasuries extended the rally, with yields falling throughout the day, to 10bps to 14bps lower across the yield curve after Fed Chair Powell gave a cautiously balanced remark which did not push back on the prevailing market construct that the Fed is done for this hiking cycle and poised to cut rates in the first half of 2024. The 2-year yield fell 14bps to 4.54% and the 10-year yield dropped by 13bps to 4.20%.

China/HK Equities: China and Hong Kong stocks traded lower in a lacklustre session. Technology, auto, and consumer stocks caught selling. The unexpected return of the Caixin manufacturing PMI to above 50 at 50.7 did not stir up much excitement among investors. The Hang Seng Index sank 1.3% to 16,830, a level last seen in November 2022.

The CSI300 pared some of its early losses but still finished the Friday session 0.4% lower, following the China Reform Holdings (Guoxin), an investment arm of the State-owned Assets Supervision and Administration Commission of the State Council, increased its stake in an ETF that invests in central state-owned technology companies.

The ADR prices of Chinese EV producers declined in New York trading as the November shipment data showed flattish growth month-on-month. Changes in EV shipments were +0.1% to 301.4k at BYD, +1.5% to 41.0k at Li Auto, +0.2% to 20.0k at Xpeng, and -0.7% to 16.0k at NIO.

FX: Dollar slipped after markets interpreted Powell’s comments as dovish, and the slide was extended at the Asia open today especially with Gold racing to all-time highs of $2,100+ an yen rallying on the back of lower Treasury yields. USDJPY slid below 146.50 to test the 23.6% fibo retracement at 146.09. AUDUSD rose above 0.6680 with RBA expected to follow the RBNZ to deliver a hawkish hold tomorrow, and NZDUSD spiked to 0.6220. EUR has broken below 1.09 on Friday, and sees room for decline especially on the crosses. EURJPY is below 159.50 and EURGBP testing 0.8560.

Commodities: Gold rose to record highs of over $2100 as markets saw a dovish repricing of the Fed with Powell’s pushback to rate cut pricing remaining modest, and the rally could get extended into 2024 as we discussed here. Crude oil also recovered in Asia after slipping another over 2% on Friday despite softer dollar and increased Fed rate cut bets as market remain comfortable that supply will be ample and still sees risks of OPEC discord. Copper rose further as weaker dollar underpinned and supply concerns linger.

Macro:

• Fed Chair Powell tried to push back on rate cut expectations after Waller’s dovish comments earlier last week, saying that Fed is still prepared to tighten further if it becomes appropriate to do so. However, he mentioned policy is in restrictive territory, and markets interpreted Powell’s comments as tilting dovish and Q1 rate cut pricing ha snow shot up to over 70%.
• US ISM manufacturing was unchanged at 46.7 in November, against expectations for a recovery to 47.6. New orders and prices paid rose to 48.3 (prev. 45.5) and 49.9 (prev. 45.1), respectively, while employment fell to 45.8 from 46.8.
• China's Caixin manufacturing PMI unexpectedly jumped to 50.7 in November from 49.5, much better than the 49.6 median forecast. The output sub-index increased to 51.7 from 49.4 and the new order sub-index improved to 51.5 from 50.7. The employment sub-index also improved to 49.2 from 48.2. The improvements in manufacturing activities were primarily driven by domestic demand as the new export orders sub-index slid to 49.0 from 49.3.

Macro events: US Factory Orders (Oct), US Durable Goods Orders (Oct, final), Australian Final PMIs (Nov)

In the news:

• Washington is aiming to halve Russia’s oil and gas revenues by the end of this decade, a senior US diplomat has said (FT)
• New strikes hit Gaza as Israel-Hamas fighting resumes (CNN)
• Bitcoin Hits $40,000 Level for the First Time Since May 2022 (Bloomberg)
• China Evergrande Faces Final Chance to Avoid Liquidation by Hong Kong Court (Bloomberg)

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

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