What’s happening in markets?
US equities (US500.I and USNAS100.I): closing for fifth consecutive months of gains
Equity markets closed in gains to end the month on a positive note again for a fifth consecutive month. However, a cyclical rotation seems to have started in July with 6% gains in Russel 2000 outperforming 3+% gains in S&P 500 and NASDAQ 100. Energy stocks gained on rising oil prices and as Chevron was upgraded at an investment bank and jumped 3% higher. Meanwhile, Adobe was upgraded at another investment bank for its AI capabilities and rose 3.3%. In post-market, Zoom plunged 20% after reducing its full-year revenue guidance and missing estimates. Key earnings on watch today include Pfizer, AMD, Starbucks and Uber.
Hong Kong & Chinese equities (HK50.I & 02846:xhkg): Extending gains on stimulus
China and Hong Kong stocks closed higher on Monday amid hopes of stimulus announcement. Consumer stocks in China were supported as measures focused on home and car sales. Automakers like BYD, Xpeng remain in focus along with tech and internet names such as Alibaba and Meituan. Haidilao rose as much as 13% on strong earnings. HSBC earnings today will also be in focus with JK-listed shares near a 4-year high n improving margins and share buybacks.
FX: JPY weakens as BOJ puzzle lingers
The yen started the week weaker as Bank of Japan’s flexibility continuing to puzzle markets. The BOJ also, in an unscheduled announcement, offered to buy an unlimited amount of JGBs at 0.6% yield, so the move above 0.5% is seemingly gradual. USDJPY rose back to highs of 142.7. Meanwhile, AUDUSD was the strongest on the G10 board, followed by NZD, as China stimulus hopes supported the commodity currencies. RBA meeting today could bring volatility to AUDUSD which is now above 0.67. NZDUSD also returned back above 0.62.
Crude oil: prices touch 6-month highs
Rally in crude oil prices extended on signs of tightening in the market together with China stimulus hopes offering some upside to the demand outlook. There were speculations that Saudi Arabia may extend production cuts into September, and Russia’s energy minister, Nikolai Shulginov, said his country intends to reduce exports again in August. Hot weather in the US is also curbing refining, with the dwindling supplies leading to rising gasoline prices in the US. But the rally took a breather in early Asian hours as Brent rose above $85/barrel.
What to consider?
Fed’s SLOOS survey hints at tighter lending standards
Fed's Q2 Senior Loan Officer Opinion Survey saw tighter standards reported across businesses and households with weakening loan demand. Banks also said they expect to further tighten standards in the second half of the year. On loans to businesses, respondents reported tighter standards and weaker demand for C&I loans to firms of all sizes over Q2. On loans to households, banks reported that lending standards tightened across all categories of residential real estate (RRE) loans with demand also weakening. Other eco data was also dovish. Chicago PMI rose by less than expected to 42.8 in July from 41.5 in June. The Dallas Fed's manufacturing index improved to -20.0 from -23.2. JOLTs job openings will be the next key focus.
China PMIs disappoint, stimulus stepped up
China’s official PMIs were out yesterday with manufacturing seeing only a slight pickup to 49.3 in July from 49 previously despite several targeted stimulus measures to boost activity. Non-manufacturing PMI was softer than expected at 51.5 from 53.2 in June, getting closer to stagnation. Caixin manufacturing PMI will be on watch today, a more export-focused measure, and further economic pressure may be evident. Chinese authorities on Monday issued 20 measures to boost domestic consumption, including support for expanding real estate and auto sales, underscoring the country's intensifying efforts to ensure steady economic recovery and meet annual economic development goals amid internal and external downward pressures.
Eurozone data suggests ECB could hike again
Euro-area preliminary GDP and inflation data was released yesterday. Q2 GDP came in better-than-expected at 0.3% QoQ and 0.6% YoY (vs. 0.2% QoQ and 0.5% YoY exp) after the economy stagnated in Q1. Inflation also continued to cool with the MoM figure now in negative territory for the headline, as it came in at -0.1% for July from 0.3% in June. But core inflation topped estimates to come in firm at 5.5% YoY. Despite growth holding up for now, there are concerns that activity levels in Italy and Germany are shrinking. Bank lending is also starting to tighten, but for now ECB may have room to pass on one last rate hike to tackle inflation.
Reserve Bank of Australia faces a complex setup at today’s meeting
The complexity on Tuesday’s RBA meeting is clear with consensus and market expectations diverging. While the consensus expects another 25bps rate hike from Australia’s central bank, market is not pricing in another rate hike. The decision will be a close call even as inflation is cooling, because labor market conditions are still tight. Australia’s Q2 CPI came in softer-than-expected at 6.0% YoY from 7.0% YoY in Q1 and unemployment rate is at record lows of 3.5%.
Foxconn to invest $500 million in India factories
As the global fragmentation game continues to play out, India continues to benefit. Apple’s main supplier, Foxconn Technology Group, is planning to invest close to $500 million to build two component factories in India as part of a steady diversification from China. To uncover potential opportunities for investing in India, read our article or tune in to the discussion on The Curious Investor.
For a detailed look at what to watch in markets this week – read our Saxo Spotlight.
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