Global Market Quick Take: Asia – October 18, 2023

US Equities: US equities were on the backfoot again amid the sharp rise in Treasury yields, even as the Dow eked out a small gain. NASDAQ 100 ended the day 0.3% lower as Fed rate hike bets picked up following the strong retail sales and industrial production. Bank earnings were mixed, as Goldman Sachs missed expectations on real estate losses while Bank of America beat estimates. J&J and Lockheed Martin also delivered earnings beat but could not eke out gains. Nvidia fell over 4%, leading broader declines in the chip sector, after a Bloomberg report that the U.S. is restricting the sale of semiconductors that the chipmaker designed for the Chinese market.

Fixed income: Treasury yields broke to new cycle peaks at the front and belly after hot US retail sales and industrial production data. 2-year yield rose 11bps to 5.21% and 10-year yield rose nearly 13bps to 4.83%. 20-year auction on tap for today.

China/HK Equities: Diplomatic push to contain the Middle East conflict and expected Biden visit to Israel helped contain the sentiment on Tuesday. HK stocks finished 0.75% higher and CSI 300 closed 0.35% higher. China also held talks with Russia about a humanitarian ceasefire between Israel and Hamas. Focus turns to Q3 GDP data due today, as well as monthly activity data where expectations for a pickup in retail sales will be key to watch.

FX: The dollar spiked higher on the strong retail sales print overnight, but retreated later and finished the day a notch lower. While data was strong, reduced risk aversion may have underpinned with Biden’s scheduled visit to Israel, but the fresh escalation overnight with attack on a Gaza hospital and cancellation of Biden summit with Arab leaders may brew fears again. AUDUSD was the best performer on the G10 board, rising to 0.6380 highs, after hawkish RBA minutes keeps the November meeting live while NZDUSD still struggling at the 0.59 support. Jump in Treasury yields brought USDJPY higher to 149.80+ levels and UK wage data pushed GBPUSD back below 1.22.

Commodities: Tight range seen in crude oil overnight, although gains extended into the Asian open as geopolitical risks escalated following the Gaza hospital explosion. Gains were offset by hints from Russian central bank that OPEC+ may increase output next year, however those claims were rebuked by Dep PM Novak later. Gold remained steady despite the surge in Treasury yields, but Copper fell below the key USD 8,000/t level as signs of tightness eased with LME inventories near a two-year high, while output is rising. HG Copper could challenge the Key $3.55 support and China data due today will be in focus.

Macro:

• US retail sales was strong across the board. Headline retail sales were 0.7% MoM vs. 0.3% expected, and the core control measure which feeds into GDP was 0.6% MoM vs. 0.1% expected. August data was also revised higher. Also beating was industrial production (0.3% MoM vs. 0.0% expected). Atlanta Fed’s GDP Now for Q3 stands at 5.4%, well up on its 5.1% of last week. Higher-for-long holds up as US data remains strong, and odds of another rate hike by year-end are now close to 50%.
• UK weekly average earnings slowed more than expected to 8.1% 3M YoY from 8.5% prior, and September payrolled employees also came in at -11k vs. 3.k expected suggesting BOE may remain on hold.
• RBA October minutes were more hawkish than recent RBA communications. Key was this statement: “The Board has a low tolerance for a slower return of inflation to target than currently expected” which was inserted into the concluding paragraph. Q3 CPI due next week will be key as discussed in yesterday’s FX note.

Macro events: China GDP (Q3) exp 4.5% YoY vs. 6.3% prior, China Industrial Output (Sep) 4.4% YoY vs. 4.5% prior, China Retail Sales (Sep) exp 4.9% YoY vs. 4.6% prior, UK Inflation (Sep) exp 6.6% YoY vs. 6.7% prior, EZ Final HICP (Sep) exp 4.3% YoY vs. 4.3% prior

In the news:

• Hundreds Dead at Gaza Hospital as Israel, Hamas Trade Blame (Bloomberg)
• Jordan cancels Biden summit after deadly explosion at Gaza hospital (FT)
• Biden cuts China off from more Nvidia chips, expands curbs to other countries (Reuters)
• China's Q3 GDP seen slowing as Beijing races to revive growth (Reuters)
• BofA profit beats estimates on interest income, decade high trading revenue (Reuters)
• United Airlines forecasts weaker quarterly profit on higher costs (Reuters)

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