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Oil retreats, bonds yields take a breather seeing equities calm before end of HY, while the eco derailment remains the biggest question

Equities 7 minutes to read
APAC Research

Summary:  While the big picture of economic derailment remains the talk of the town, pressuring industrial metals, companies are increasingly experiencing financial strain and cutting staff numbers, while some companies like British Airways are threatening pay cuts. However, APAC equities enjoy a positive end to the week spurred on by the oil prices falling, and bond yields retreating, easing temporary inflation fears. Meanwhile, market bulls in NY and Hong Kong enjoy the lift in China tech stocks, with Alibaba and Tencent soaring up off multiyear lows. We cover the indicators that are flashing recession, and how Saxo clients are position themselves for the week ahead.

What's happening in markets?

APAC markets in the green

Asian equities are in a pleasant sea of green Friday, with most higher today after the tech-heavy South Korean exchange turned positive after a meltdown earlier in the week. The upswing in China markets is also helping to support market sentiment. Japan’s Nikkei (NI225.I) posted gains of 0.8% as the yen recovered, led by defensive sectors healthcare and staples but gains in tech were also seen as expectations built for a Fed rate hike cycle to be interrupted due to recession fears. Singapore’s STI (ES3) was in gains of 0.4% led by REITs and Singtel despite heated inflation print yesterday at 5.6% y/y for May.

Australia’s ASX200 trades 0.3% higher on Friday and up 1.1% on the week...

with the Tech Sector and Property sectors up the most 6.4% and 3.4% this week, ahead of next week’s close of the Australian financial year on June 30. This is a time when the best performers of the financial year usually see profit taking and the worst performers might see a pickup in buying as fund manager bring asset allocations back into alignment.

CSI300 Index (000300) made new high on improved sentiment and quarter-end rebalancing

Sentiment towards Chinese equity markets continued to improve, taking CSI300 to a new high at 4375, last seen in early March. EV battery and makers, home appliance, alcohol and beverage led the charge higher.  With still light positions ahead of quarter end in Chinese equities and the urge to catch up with the Chinese markets’ recent outperformance, investors are bringing up Chinese equity exposure to rebalance.  Analysts also tend to read recent Chinese headlines through favorable lens.  For examples, President’s mentioning of “striving to achieve the full year social and economic targets” in the BRICS Business Forum and remarks in the Central Comprehensively Deepening Reforms Commission meeting that “supporting platform enterprises to service the real economy” are cited by analysts as reasons to cheer for “boosting growth” and “reducing regulation”. However, the “economic targets” are not specified and can be a general rhetoric. Likewise, the bulk of the readout of about the platform economy is about enhancing regulations not reducing but analysts still picked up that one single sentence and interpreted in positive light.  In Hong Kong, Hang Seng Index (HSI.I) was up over 1% with EV makers and tech names took the lead.

Most commodities continue to lower vs coal supported as Australia and Germany ‘band aid’ the energy crisis

  • Copper futures suggest further selling pressure is ahead. Copper has already fallen to a 15-month low and could face further strain as copper supply rises and demand remains weak with China’s lockdown likely to continue.  
  • Iron ore (SCOA) price has lost 20% from its high the technical indicators suggest it could go lower
  • Coal Futures. Amid the push for coal in Australia and Germany, the Newcastle Coal futures price has edge back up into record territory.

What to consider? 

Powell’s message remains the same; but Bowman raises the hawkish bar

The second day of Fed Chair Powell's testimony had little new, reaffirming his commitment to reigning in inflation is 'unconditional'. Perhaps the only points to note were that Powell said the Fed would not raise its inflation target and the end-point for the balance sheet is roughly USD 2.5tln-3.0tln smaller than it is now. More hawkish, however, was Fed's Bowman who is a voter. She said another 75bps rate hike will be appropriate in July – which seemingly is the consensus view now – but she also added that hikes of at least 50bps may be seen at the next few subsequent meetings.

Global PMI plunge raises recession fears

Eurozone PMIs were at 16-month lows in June, falling below expectations. Manufacturing was at 52 from 54.6 in May, while more importantly services plunged to 52.8 in June from 56.1. EURUSD slid below 1.0500 on the report but as noted yesterday, the lows at 1.0350 were not tested because of the focus on US slowdown concerns. Later, US PMIs disappointed as well, with manufacturing at 52.4 from 57 in May. Overall, the PMI releases have shifted focus some more on slowdown/recession from inflation, and more of that is likely to be seen in the coming weeks. What is really worth noting is that services PMI also slowed substantially, so all the demand moving from goods to services also doesn’t have much room to run.

Japan’s inflation doesn’t move the yen

Japan’s May CPI continued to stay above the Bank of Japan’s 2% inflation target. Headline inflation came in at 2.5% y/y, core at 2.1% y/y. USDJPY was marginally higher in a knee-jerk but the move was quickly reversed to resume its decline. Ex-MOF Takehiko Nakao’s comments continue to support the yen as expectations of unilateral intervention continued to rise.

How are Saxo clients positioning themselves?


APAC clients most traded stocks, shares this week

Tesla (TSLA)
69% of trades in Tesla are sells or shorts. Nio (NIO) 63% of trades in NIO are sells or shorts. Alibababa (BABA,9988) 64% of clients in Alibaba are buys/longs with the mood brightening toward Chinese Technology companies.

Saxo Australian clients, most traded stocks, shares this week

Whitehaven Coal (WHC)  97% of trades in WHC were sells or shorts, as people take profits given this has been the star performer on the ASX this year (up 73% YTD). However, with the shift to coal by Australia’s government with the Australian energy minister calling for urgent access to more resources, with the coal futures are pushing back up and are back in record territory. This indicates the coal price is supported. BHP (BHP), 77% of trades are sells or shorts. Why? The industrial commodity super cycle has gone into hibernation; anticipating slower earnings growth

News worthy global currency move at Saxo? 

The most interesting currency move in the AUDUSD – and we’ve increasing been seeing sells/shorts the AUD – when compared to their stance this year – that’s because the iron ore price and copper are likely to see more selling .

News worthy global index positions at Saxo?

We’ve also seen selling/shorting transactions pick up in the US tech index, the Nasdaq 100.

Potential trading and investing ideas to consider?


Panic is building with recession talk picking up

Markets have been battling the double whammy of inflation concerns and recession fears lately. Recession or not, U.S. economic momentum is set to slow into the second half of the year as pent-up demand cools and higher interest rates take a toll. This, along with an earnings recession, means that equity markets may have more room to run on the downside. Bonds may become relevant again as a tool for portfolio diversification but improving the ‘quality’ of a portfolio should be the consistent objective in bear markets.

Metals face more demand and supply pressures

Industrial metals have been suffering from demand destruction fears, but now the supply backdrop has also improved on reports that Chile's Codelco (giant copper mining company) had reached an agreement with workers to end the strike. This suggests more downside for industrial metals, but more so for copper in particular.


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