Global Market Quick Take: Asia – February 21, 2024

Equities: Big tech dragged US equities lower ahead of earnings results from AI giant Nvidia due today. Nvidia was down over 4% as investors turned cautious on whether it can continue to meet sky-high earnings expectations. For more on Nvidia earnings, read this article or tune in to our podcast. Retailer earnings were also in focus, and Walmart rose more than 3% as its Q4 earnings beat estimates but home improvement firm Home Depot underwhelmed. China and HK stocks ended the day higher on the back of a 25bps rate cut that could support the troubled property market, but could be looking for more follow-up measures from the authorities. Japan stocks opened lower with tech stocks in focus, but Nikkei 225 remains within striking distance of its highest levels since 1989.

Fixed income: Soft Canadian CPI and Eurozone negotiated wages provided some relief on the global inflation front ahead of FOMC minutes and a 20-year auction due today. Overall, we continue to see scope for duration extension up to 10 years but remain wary of ultra-long maturities.

FX: The dollar came under pressure ahead of FOMC minutes and Nvidia earnings in the day ahead. CAD however underperformed on the back of softer than expected inflation print, and USDCAD rose to 1.3520+ and 100DMA is seen at 1.3546. EURUSD had a strong run higher to 1.0840 before easing back to 1.0810, and GBPUSD also eased from the 1.2660 highs to settle around 1.2620. Yen strength also reversed, and USDJPY stays around 150. NZDUSD jumped to highs of 0.6191 but 50DMA capped for now, while AUDUSD moved above 100DMA after a larger-than-expected cut in 5-year LPR in China.

Commodities: Iron ore prices were down another 5% to three-month lows amid demand concerns in China despite the LPR cut. Crude oil prices also slipped amid a broader risk-off tone across markets, and focus today will be on FOMC minutes and any further measures from Chinese authorities. Dollar weakness however underpinned gains in Gold, but 50DMA around $2,030 capped.

Macro:

• Banks in China cut their 5-year loan prime rate (LPR) by 25bps to 3.95% from 4.20% while keeping the 1-year LPR unchanged at 3.45%. The cut was larger than the 10bps expected by market economists. The cut is a positive to the economy and the market as well but it is not going to change the big picture of the economy. First, interest rates for the RMB38 trillion existing mortgages, which use the 5-year LPR as a reference, have already been reset in January and will only be adjusted in January 2025. It would have a bigger stimulus impact if the cut came in last month. Second, we need to see a strong demand for loans, both from households and the corporate sector. Nevertheless, the move sent a constructive signal, indicating the inclination of policies to boost growth even at the expense of some potential downward pressure on the renminbi as a result of the cut.
• US leading index fell 0.4% MoM in January to the lowest level since April 2020 when the U.S. was in a brief recession after the onset of the COVID-19 pandemic and related shutdowns.
• Euro are negotiated wages came in softer than expected could spell relief for ECB. However, the easing from 4.7% YoY to 4.5% in Q4 is still just a continuation of trend of wages slowing from their highs, and is unlikely to spell any urgent need for the ECB to cut rates.
• Canada’s January CPI surprised to the downside, coming in at 2.9% YoY from 3.4% prior and 3.3% expected. Trimmed core measure as well as services inflation – all cooled signaling Bank of Canada could look to a pivot. However, most G10 central banks are waiting for Fed’s signal, and may need to wait until Q2 to consider cutting rates.

Macro events: FOMC Minutes (Jan), EZ Flash Consumer Confidence (Feb). Speakers: Fed’s Bostic, Bowman; BoE’s Dhingra

Earnings: HSBC, Rio Tinto, Glencore, Analog Devices, Nvidia, Synopsys, BAE Systems, Nutrien, Rivian

In the news:

• Amazon to replace Walgreens in Dow Jones Industrial Average (Reuters)
• Palo Alto Networks shares plunge after company cuts full-year billings, revenue guidance (CNBC)
• Home Depot sees muted 2024 as demand recovery takes longer (Reuters)
• Walmart beats Wall Street’s holiday expectations as e-commerce sales soar (CNBC)

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

For a global look at markets – go to Inspiration