Weekly Commodities Update

Global Market Quick Take: Asia – May 9, 2023

Macro
Saxo Be Invested
APAC Research

Summary:  Fed’s survey on lending standards brought little surprise but Treasuries extended their post-NFP selloff amid a heavy corporate supply. Equities wobbled with US CPI in focus this week to justify the market’s rate cut pricing for the year. China banks and SOEs advanced and trade data will be on the radar today. USDJPY rallied amid thin trading in early Asian hours after slump in Japan’s real wages and spending and BOJ’s Ueda spoke in parliament. Tyson Foods tumbled on earnings miss, and focus today turns to Airbnb.


What’s happening in markets?

US equities (US500.I and USNAS100.I): nearly unchanged as banks tighten lending less than feared

Key equity benchmarks oscillated between small gains and losses, with the S&P500 finishing Monday nearly unchanged and Nasdaq 100 ticking up 0.3%. Among the 11 S&P500 sectors, communication services gained the most while real estate was the biggest losing sector. The sentiment was calm as the headline measures in the much anticipated Senior Loan Officer Opinion Survey showed the tightening in lending standards was less than feared. Shares of regional banks, however, failed to sustain the initial rally, and the SPDR S&P Regional Banking ETF (KRE:arcx) shed 2% for the day.

Treasuries (TLT:xnasIEF:xnasSHY:xnas): weighed by corporate bond issuance

US Treasury yields rose by 7bps to 9bps across the curve as corporate flooded the market with over USD20 billion in new issuance, taking advantage of the recent decline in yield and front-loading ahead of the CPI data on Wednesday. Among the supply on Monday was USD5.25 billion from Apple and USD6 billion from Merck. The selloff in Treasuries extended after the release of the Fed’s April Senior Loan Officer Opinion Survey at 2 p.m. New York, which showed only a small tick-up in the percentage of banks tightening lending standards from the previous quarter though on substantially wider spreads over the cost of funds (see details below). The 2-year yield rose 9bps to 4% and the 10-year yield climbed 7bps to 3.51%.

Chinese equities (HK50.I & 02846:xhkg): gains driven by banks and SOEs

Chinese banks and central state-owned enterprises led rallies in both the Hong Kong and mainland bourses. Central SOE energy giants Sinopec (00386:xhkg), CNOOC (00883:xhkg), PetroChina (00857:xhkg), and China Shenhua Energy (01088:xhkg), together with state-owned lenders Bank of China 03988:xhkg) and China Construction Bank (00939:xhkg) were the top gainers in the Hang Seng Index, rising by 3.7% to 5.9%. The investor sentiment towards SOEs has been relatively buoyed as the Chinese authorities told investors to “discover value” in SOEs. Also driving the 1.2% increase of the Hang Seng Index was AIA (01299:xhkg) which advanced 3%.

The Hang Seng TECH Index added 0.5%, aided by gains in EV names while the performance in the internet space was muted. In the mainland, the CSI300 Index advanced 1.1% with banks, oil and gas, coal mining, and defence leading the charge higher.

FX: USDJPY spiked higher as BOJ’s Ueda talked about policy review in parliament

USDJPY popped higher with Bank of Japan Governor Ueda making a speech in the parliament today when liquidity is still thin with most Asian markets yet to come online. USDJPY rose from 135 to 135.30 even as his comments were nothing new, saying that the scheduled review won't have any pre-set idea in mind on specific monetary policy moves. He also said that BOJ will take necessary policy action at each meeting, with eye on financial and price developments, even while conducting review – a repeat of what was hinted at the April BOJ meeting. Earlier, Japan’s March labor data signalled that easy monetary policy could continue. NZDUSD hit a high of 0.6359 while AUDUSD made an attempt at 0.68. EURUSD back below 1.10 and GBPUSD heading lower to 1.26 with BOE meeting eyed this week.

Crude oil: firmer prices amid supply disruption concerns

Crude oil gained more than 2% on Monday as traders continued to find entry points after last week’s selloff. Demand concerns have somewhat eased with China’s increased travel demand over the Golden Week holiday underpinning some recovery in sentiment, while supply concerns were raised due to the wildfires in Alberta having prompted the evacuation of residents and shut down the oil pipeline system which has halted at least 145kb/d of oil production. WTI prices however reversed back below $73/barrel in early Asian hours after bidding above $73.50 overnight while Brent was just below $77. US CPI out on Wednesday may provide further signals on whether the market pricing of rate cuts this year can be realized, and focus is also on the OPEC monthly report due this week.

 

What to consider?

Fed survey shows tighter lending standards in Q1, demand slumped

The Federal Reserve released the April 2023 Senior Loan Officer Opinion Survey on Bank Lending Practices, which showed that credit standards tightened further and credit demand tumbled in the first quarter to levels not seen since 2009. Lending standards tightened across commercial and industrial sectors, both for large/middle market firms (up to 46% from 44.8% in Q4) as well as for small firms (46.7% from 43.8%), and more so for households except government sponsored enterprises. More banks charged borrowers with widened loan spreads over the cost of funds (62% for large/mid-sized firms vs 45% prior; 58% for small firms vs 33% prior). Meanwhile, demand was weak across all sectors, also including commercial real estate as high interest rates bite. Comments on question suggested that banks expect to tighten standards further across all categories.

US debt ceiling impasse brings short-term yield opportunity

The impasse over the US debt ceiling continues to threaten further pressure on the US financial markets this week. President Biden is scheduled to meet with Congressional leaders today to discuss raising the current USD 31.4tn limit, with Congress typically tying approval of a higher debt ceiling to budget and spending measures. Treasury Secretary Janet Yellen has warned that there are “no good options” for solving the debt limit stalemate other than Congress lifting the cap.

Further concerns on credit tightening or delays in debt ceiling solution could continue to drive up short-term Treasury yields, potentially in 3months, as investors hedge against a possible default. The yield on a T-bill maturing at the end of this month is ~4.5%, but there’s a 60-90 basis-point premium for bills maturing in June and July, reflecting the tension in markets. Our Senior Fixed Income Strategist Althea Spinozzi explains what are T-bills and how to get exposure in this article.

Japan’s March wages remain underwhelming

Wage data remains a key focus in Japan with BoJ’s new governor Ueda having hinted at his first policy meeting that he will be watching next year’s wage negotiation to be convinced that price pressures in Japan are wage-driven. March wage data released this morning however showed that nominal wage growth softened to 0.8% YoY and February’s figure was also revised lower to 0.8% from 1.1% previously. Real wage growth remains in negative territory, coming in firm at -2.9% YoY. Household spending also came in below expectations, sliding into negative territory at -1.9% YoY from +1.6% previously, suggesting weakening private consumption may continue to support the case for easy monetary policies.

Google adds AI chat and more videos and social-media posts to search results

Google (GOOGL:xnas) is reportedly planning to add more AI chat, more videos and more social-media posts to this search result with the preference of young people in mind. The share price of Google climbed 2% on Monday.

Tyson Foods tumbles on earnings miss

Tyson Foods (TSN:xnys) tumbled 16.4% after reporting a Q2FY23 adjusted loss of 4 cents per share, much worse than the consensus estimate for a profit of 79 cents per share. The poor performance was mainly the result of large declines in margins for its chicken and beef products.

 

For a detailed look at what to watch in markets this week – read or watch our Saxo Spotlight.

For a global look at markets – tune into our Podcast.

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.