Weekly Commodities Update Weekly Commodities Update Weekly Commodities Update

Market Insights Today: U.S. equities snapped a 5-day losing streak and bond yields bounced ahead of PPI; Hong Kong stocked rallied – 9 December 2022

Equities 6 minutes to read
APAC Strategy Team

Summary:  U.S. equities rallied after declining for five consecutive days as investors took a pause in the growth-fear-triggered selling as treasury yields bounced. Hong Kong stocks surged by 3.4%, completely reversing their loss on Wednesday after profit-taking being out of the way and investors looking at the potential improvement to the economic outlook in China.


What’s happening in markets?

Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) snapped a 5-day losing streak

An interesting recent development in the U.S equity markets was that investors worried about falls in long-term treasury yields and cheered rises of them as their focus shifted from long-term treasury yields’ negative impact on equity valuation to their signaling function of potentially a U.S. recession, especially when the yield curve going more inverted in the process. The bounce of the 10-year treasury yield by 7bps to 3.48% on Thursday was cited as positive for equities by some investors. Optimism about the outlook of an economic recovery in China also contributed to the improvement in sentiment. S&P 500 gained 0.8% and Nasdaq 100 advanced 1.1%. Nine of the 11 S&P500 sectors climbed, with information technology, consumer discretionary, and healthcare leading the gain, while communication services and energy lost by 0.5%. The Federal Trade Commission is seeking to block Microsoft’s (MSFT:xnas) acquisition of Activision Blizzard (ATVI:xnas). Shares of Microsoft rose by 1.2% while Activision dropped by 1.5%.

US treasury yields (TLT:xnas, IEF:xnas, SHY:xnas) bounced on a rise in continuous jobless claims and ahead of PPI and supply

U.S. treasury yields took a little pause in their continuous falls. The 2-year yield rose 5bps to 4.31% and the 10-year yield was 7bps cheaper to 3.48%, after retesting the 3.5% level during the day. Initial jobless claims were in line with expectations but traders took note of the larger-than-expected increase in continuous jobless claims to 1,671K from the prior week’s 1,608K. Trading activities were muted ahead of the PPI on Friday and the CPI next week. The Treasury Department announced USD90 billion in the 3-year, 10-year, and 30-year auctions next week. Treasury Secretary Janet Yellen told reporters that “whether or not we can avoid a recession, I believe the answer is yes.”

Hong Kong’s Hang Seng (HIZ2) and China’s CSI300 (03188:xhkg) rallied after profit-taking subsided

Hang Seng Index rallied strongly, up 3.4% on Thursday and recovered all the loss from “buy the rumor, sell the news” profit-taking selling the day before. The 10 additional fine-tuning measures to ease pandemic containment may be underwhelming relative to the high expectations. However, when reading together with the readout of the Politburo, an overall direction of a gradual and now seemingly determined loosening of restrictions seems to have taken hold. Omitting the language of “housing is for living in, not for speculation” and pledging to “be vigilant of large economic and financial risks and strive to prevent systemic risks” point to conditional support to the property sector when socioeconomic and financial stability are at stake. After the profit-taking selling out of the way, technology stocks led the rally. Hang Seng TECH Index surged 6.6% with Bilibili (09626:xhkg), soaring 22%, being the top gainer within the index. Alibaba (09988:xhkg), Meituan (03690:xhkg), and Tencent (00700:xhkg) advanced 5%-6%. Shares of Macao casino operators soared 12%-22%, following Macao said it will stop requiring negative PCR or RAT test result proof from Chinese visitors. Hong Kong shortened the home isolation period for people infected with Covid-10 to five days from seven days. A newspaper story suggests that the Hong Kong authorities are considering relaxing the outdoor mask rule. Cosmetic chain Sa Sa (00178:xhkg) jumped 19.7%. In A shares, trading was lackluster with CSI300 ending the session flat. Among industries, property, financials, telecom services, and healthcare outperformed.

Australia’s share market rises for the first time in four days, with miners leading the charge

The Australian benchmark index, the ASX200 (ASXSP200.1) opened 0.7% higher on Friday but looks like it could close off the week lower, with the market now down 1.5%, which marks the first weekly drop in three weeks. The ASX200 holds six-month high territory largely buoyed by the mining sector being bought up (bid) on forward looking hopes that China will ramp up economic activity next year and keep accommodative monetary support in place, which will likely support infrastructure and property. As such, this has supported the key steel making ingredient, iron ore (SCOA) raise 3.6% this week and elevated Fortescue Metals (FMG) shares by 8% this week, with Champion Iron (CIA) up 7%, with Rio Tino (RIO) following. Fortescue Metals shares are on watch as they appear in overbought territory, but what support likely further upside is the iron ore price hit a fresh four-month high today, $109.60, which suggests if this uptrend in iron ore continue, Fortescue Metals earnings could pick up. And it could see subsequent share price upgrades from buy and sell side brokers. 

FX: The U.S. dollar index weakened modestly by 0.3% to 104.77

The US dollar weakened modestly against all G10 currencies except for being unchanged versus the Yen. The Aussie dollar gained the most against the U.S. dollar and it rose by 0.7% to 0.6770.

Crude oil (CLF3 & LCOF3) declined nearly 10% so far this week

At USD72, WTI crude was down nearly 10% over the week on worries of a slowing U.S. economy and larger-than-expected buildup in U.S. fuel product inventories. The first five month of the WTI futures contracts are now in contango.

What to consider?

Look for more hints about U.S. inflation from the PPI and the University of Michigan Consumer Survey

Economists surveyed by Bloomberg are expecting the headline PPI growth in the U.S. to slow to 7.2% Y/Y in November from 8.0% in October and PPI ex-Food and Energy to come at 5.9% Y/Y in November versus 6.7% in October as supply chains continue to improve. Investors will dig in the components of PPI to scrutinize the price changes in various services to gauge their impacts on the more important core personal expenditure price (core PCE). Investors will also look for hints about the trend of the U.S. inflation from the inflation expectation numbers in the University of Michigan Consumer Survey.

China’s inflation is expected to have moderated in November

The Bloomberg consensus is expecting China’s PPI to shrink further by -1.5% Y/Y in November (vs Oct: -1.3% Y/Y) and CPI to slow to +1.6% in November from +2.1% in October. Weak industrial demand in the midst of countrywide pandemic control-related restrictions during the month and weakness in energy prices would likely have contributed to the decline in the PPI. November CPI would have been dragged by base effects and weakness in food prices.

China’s new aggregate financing and RMB loans are expected to have bounced in November

Market economists, as surveyed by Bloomberg, are expecting China’s new aggregate financing to bounce to RMB 2,100 billion in November from RMB 907.9 billion in October and new RMB loans to rise to RMB 1,400 billion in November from RMB 615.2 billion as People’s Bank of China urged banks to extend credits to support private enterprises including property developers. Less bond issuance by local governments and corporate and weak loan demand however might have weighed on the pace of credit expansion in November.

 

For our look ahead at markets this week – Read/listen to our Saxo Spotlight.

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

Disclaimer

The Saxo 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 is not intended to and does not change or expand on this. 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 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 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 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 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 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/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.