Global Market Quick Take: Asia – September 25, 2024

Key points:

• Equities: Hang Seng futures surged 8% in 2 days.
• FX: USDCNH falls below 7 for the first time in 16 months
• Commodities: Gold hit an all-time high; Silver surged over 4%
• Fixed income: 2-year Treasury yield near 2024 low
• Economic data: Australia CPI, Riksbank decision

------------------------------------------------------------------

The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.

Disclaimer: Past performance does not indicate future performance.

In the news:

• Australia's Fortescue signs $2.8 bln green equipment partnership with Liebherr (Reuters)
• Country Garden Services to sell stake in Zhuhai Wanda for $446 mln (Reuters)
• Nvidia shares pop as CEO may be done selling shares after hitting preset plan limit (CNBC)
• China Mulls Stock Stability Fund, Unlocks $113 Billion From PBOC (Bloomberg)
• OPEC is highly bullish on long-term oil demand growth. Not everyone agrees (CNBC)
• Visa stock plunges 5% as feds sue over alleged debit card monopoly (Yahoo Finance)

Macro:

• China’s central bank, the People’s Bank of China, unleashed an unprecedented stimulus blitz of policy support for the economy. In a rare press conference, Governor Pan Gongsheng announced a flood of support measures, including cutting the amount of cash banks need to have on hand, known as the reserve requirement ratio (RRR), by 50 basis points in the near term, and the 7-day repo rate by 0.2%. A 0.2–0.25% cut in the loan prime rate could follow. In addition, the PBOC lowered borrowing costs on up to USD 5.3 trillion in mortgages while easing rules for second-home purchases. China also announced at least 800 billion yuan ($114 billion) of liquidity support for stocks and will allow brokerages and funds to tap the central bank’s funding to buy equities after the benchmark CSI 300 Index fell to more than a five-year low earlier this month.
• US consumer confidence sent some worries especially about the labour market which is the key Fed focus now. The headline saw its largest drop since August 2021 as it fell to 98.7 from 105.6 (revised up from 103.3) in September, below the anticipated 104. The surprising downturn primarily stemmed from the 10.3 drop in the Present Situation Index to 124.3, although the fall in the Expectations Index weighed on Confidence (fell by 4.6 points to 81.7). 30.9% of consumers said jobs were “plentiful,” (prev. 32.7%) whereas 18.3% of consumers said jobs were “hard to get,” up from 16.8% seen in August. The labour market differential between consumers saying jobs are plentiful versus hard to get fell to 12.6 (prev. 15.9).
• Fed Governor Bowman (hawk, dissented to the FOMC's 50bp rate cut) echoed a lot of the arguments she made in her speech explaining her dissent on Friday, where she said she did not want a 50bps cut to send a message the Fed has declared victory on inflation. She repeated core inflation is still uncomfortably above the 2% target with upside risks, taking an opposite view to Governor Waller who voted for a 50bps rate cut noting inflation has fallen faster than anticipated and on a four-month annualized basis, Core PCE is tracking beneath the Fed's target at 1.8%.
• The Reserve Bank of Australia kept its cash rate unchanged as expected and the statement offered some pushback to market expectations of a rate cut this year. However, Governor Bullock’s comments at the press conference were less hawkish as she said that a hike was not considered and the central bank cannot guarantee economy will avoid recession.

Macro events: Riksbank Policy Announcement; Australia CPI (Aug), US Building Permits Revision (Aug), New Home Sales (Aug),

Earnings: Micron, Cintas and Jefferies

Equities: On Tuesday, the S&P 500 gained 0.2%, reaching a new record high, while the Nasdaq 100 rose by 0.5%, largely driven by a 4% surge in Nvidia shares. The Dow Jones also climbed, finishing 83 points higher. This uptick in the market followed disappointing consumer confidence data, which fell to a three-year low, prompting traders to bet on additional interest-rate cuts this year. Fed officials, including Austan Goolsbee, suggested that further rate cuts might be necessary, particularly with a focus on the labor market. Nvidia's share price jumped about 4% due to reports that its CEO had ceased selling shares. Estee Lauder saw a 6.11% rise, and Chinese stocks such as Alibaba (up 7.9%) and JD.com (up 13.9%) rallied following China's announcement of aggressive growth-stimulating measures, with Hang Seng Index closing higher by 4.1%. Conversely, Visa shares dropped by 5.5% amid rumors of a potential DOJ lawsuit over its debit card practices. Despite the positive market movements, concerns about geopolitical risks persisted, with JPMorgan CEO Jamie Dimon issuing cautionary warnings about the global economy.

Fixed income: Treasuries surged in a bull steepening move following the release of consumer confidence data. Fed swaps for the November meeting turned more dovish, now indicating a 50% chance of a half-point rate cut compared to a quarter-point cut. Yields closed near their daily lows, with the front end of the curve outperforming the long end, supported by a strong 2-year note auction. This has heightened expectations for the upcoming 5- and 7-year note auctions on Wednesday and Thursday. The Treasury's $69 billion auction of 2-year notes was awarded at a yield of 3.520%, the lowest since August 2022, bringing the 2-year yield close to its 2024 lows. Treasury yields improved by up to 5 basis points on the front end of the curve and showed slight gains across the long end. Both the 2s10s and 5s30s spreads ended near their session highs, steepening by 3.2 basis points and 3 basis points respectively. The 10-year yield was approximately 2 basis points lower compared to Monday's close, trading around 3.73%.

Commodities: WTI crude oil futures increased by 1.69% to $71.56, and Brent Crude futures rose by 1.72% to $75.17, driven by China's extensive economic stimulus measures and rising geopolitical tensions in the Middle East. China's central bank announced its largest stimulus package since the pandemic, including increased funding and significant rate cuts, to counter fears of a prolonged economic slowdown. Gold reached new record highs, climbing 1.08% to $2,657, as commodities benefited from China's stimulus efforts. Silver surged 4.6% to $32.1 on Tuesday, its highest level since late May, as Middle East tensions led investors to seek safe-haven assets.

FX: The risk-on environment got another leg of support after Fed’s 50bps rate cut last week as China authorities announced a slew of stimulus measures to support the ailing economy and markets. The US dollar, as a result, traded lower across the board and Chinese yuan led the gains. Offshore yuan broke past the 7 per dollar level for the first time in 16 months. The Australian dollar was choppy following a hawkish statement from the Reserve Bank of Australia but a less hawkish speech from the Governor, but eventually the Chinese bazooka stimulus helped pushed the commodity currency higher. The Japanese yen was the underperformer in the risk-on environment, also as BOJ’s Ueda continued to sound caution on the pace of further rate hikes.

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

For a global look at markets – go to Inspiration.