Global Market Quick Take: Asia – February 27, 2024

US Equities: The market consolidated, with the S&P 500 Index shed 0.4% to 5,070 while the Nasdaq 100 Index was steady at 17,933. Alphabet was the worst-performing stock in the Nasdaq 100 as it dropped by 4.5% on criticism by investors about inaccurate and offensive images from its AI-powered generator.

Zoom Video Communications jumped 10% in extended hours after it reported adjusted net income of $1.42 a share, increasing 16% year-over-year and surpassing the consensus forecast of $1.15. For Q1, the videoconferencing company guides adjusted EPS of $1.18 to $1.20, ahead of analyst estimates of $1.13. The company announced a plan to repurchase $1.5 billion of shares.

Workday reported revenue in line with analysts' forecasts and EPS of $1.57, beating expectations. Nonetheless, shares of the human resources software company dropped by over 8% in extended hours due to downbeat full-year revenue guidance missing expectations.

For a preview of the results from Salesforce, Snowflake, and Leonardo, plus a discussion on the European defence sector, read Peter Garnry’s latest article.

In Japan, Warren Buffett’s praises in his letter to shareholders propelled Mitsubishi Corp, Mitsui & Co, and Sumitomo Corp 1% to 3% higher to new record highs. The Nikkei 225 added 0.4%, reaching 39,234, a new high in closing price.

Hong Kong/China Equities: The Hang Seng Index and the CSI300 pulled back 0.5% and 1% respectively, pausing the post-Lunar New Year rally. In a meeting of the Central Financial and Economic Affairs Commission last week, President Xi called for the replacement of home appliances. As a result, stocks in the home appliance sector rose despite the broad market retreat. BYD gained 1.5% after the Chairman proposed to double share buybacks.

Li Auto surged nearly 18.9% in ADR trading (equivalent to 16% above its Hong Kong close on Monday) after the Chinese extended-range EV maker reported Q4 results that revenue, vehicle deliveries, gross margins, and earnings had all grown substantially and ahead of expectations. Li Auto is launching its first fully battery EV this Friday. The slightly lower guidance for Q1 has not impacted optimism and the rise in share price.

Fixed income: Treasury yields climbed, setting up for a record $64 billion five-year auction amid persistent concerns that the core PCE deflator report this Thursday might reinforce the fear of the stickiness of inflation. Yields retraced slightly lower after the auction, producing average results. At the close, the 2-year yield and the 10-year yield both rose by 3bps, reaching 4.72% and 4.28%, respectively.

FX: The dollar was under some pressure to start the week, with gains in SEK and EUR but activity currencies such as NZD and AUD reversing after gains of last week. EURUSD moved above the 200DMA and tested 1.0850 as comments from President Lagarde were more mixed after Friday’s dovishness and German bunds saw steeper losses than the Treasuries, boosting EUR. Losses in Gilts also outpaced, but GBPUSD found resistance at 1.27. USDSEK moved below 50DMA and next level to watch will be 10.23. NZDUSD dropped sharply at Asia open from 0.62 to 0.6170 on Monday and another drop came through this morning as it dropped to 0.6160 ahead of RBNZ meeting on tap tomorrow (see preview below). NZDJPY also reversed from 93 handle as yen strengthened following Japan’s inflation release. USDJPY slid to 150.50 from highs of 150.84 overnight.

Commodities: Crude oil prices gained over 1% at the start of the week as refineries benefiting from strong margins snapped up barrels in both US and China with demand outlook holding up well. Supply side concerns also continue amid geopolitical tensions. Base metals, however, slumped with iron ore down ~4% and copper down over 1.5% with inventories building up. Gold edged lower as bond yields advanced ahead of core PCE and a slew of Fedspeak due this week.

Macro:

• The ECB faces tougher challenges than the Fed, with a fragmented banking system and the debt crisis’s legacy, said Yannis Stournaras, who sees a first rate cut in June. Christine Lagarde said the central bank isn’t there yet on inflation, but noted that the current disinflationary progress is set to continue.
• Japan’s January CPI came in higher-than-expected, although it cooled from last month. Headline was at 2.2% YoY (vs. 1.9% exp, 2.6% prior) while core was at 2.0% (exp 1.9%, prior 2.3%) and the core-core measure (excluding fresh food and energy) rose 3.5% YoY (vs. 3.3% exp, 3.7% prior). While disinflation has continued, the higher-than-expected prints could add fuel to BOJ pivot bets – which remain misplaced in our opinion.
• RBNZ preview: The RBNZ decision is due at 0100 GMT on Wednesday (9am SGT) and some banks are expecting the central bank to raise rates from 5.5% to 5.75%. Consensus however remains one of no change, and the rates market only sees 20% odds of a rate hike. While the central will keep the door open for further tightening, risks for NZD are two-way especially given the very long positioning. If RBNZ hikes rates, NZD could rally hard as it will be the last central bank standing to tighten policy and NZD carry is one of the best in G10. However, if RBNZ under-delivers on hawkish guidance, there is a risk of some weakness in the short-term. For more, read this article.
• In the first week after the Lunar New Year, China’s passenger trip data across roads, railways, airlines, and waterways from the Ministry of Transport fell 5.1% compared to the same after the holiday period last year. Likewise, the Baidu mobility index declined year-on-year.

Macro events: US Democratic Primary; German GfK (Mar), US Durable Goods (Jan), Consumer Confidence (Feb), Richmond Fed (Feb). Speakers: Fed's Barr, BoE's Ramsden, ECB's Elderson

Earnings: Bank of Nova Scotia, Bank of Montreal, Sempra, Constellation Energy, Republic Services, Lowe’s, Munich Re, AutoZone, American Electric Power

In the news:

• Zoom Gains After Sales Top Estimates on Enterprise Customers (Bloomberg)
• Workday beats quarterly profit estimates, expects macro concerns to continue in fiscal 25 (Reuters)
• Domino’s Pizza Jumps as US Same-Store Sales Beat Estimates (Bloomberg)
• China’s top legislature has started a second reading of changes to the state secrets law, with even more restrictions included in the draft (SCMP)
• China real estate crisis: Banks to lend $18bn for 'white list' projects (Nikkei Asia)
• U.S. aims to make 20% of world's leading-edge chips by 2030: Raimondo (Nikkei Asia)
• Fujitsu, Hitachi, others to set up firm for new quantum computer (Nikkei Asia)
• Bitcoin price hits 2-year high of $53,690, bulls take aim at $55k resistance (KITCO)

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

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