Weekly Commodities Update Weekly Commodities Update Weekly Commodities Update

Global Market Quick Take: Asia – June 5, 2023

Macro 7 minutes to read
APAC Research

Summary:  Equity markets surged as robust job gains alleviated recession concerns, propelling the S&P 500 up 1.5% and the Nasdaq 100 by 0.7%. The VIX plummeted to its lowest level since February 2020 at 14.6. Cyclical stocks and regional banks experienced a strong rebound, while Treasury yields climbed on solid non-farm payroll data for May. USDJPY surged above 140. Chinese and Hong Kong stocks rallied on anticipations of housing demand stimulus, driving the Hang Seng Index up 4% and the CSI300 Index gaining 1.4%. President Biden signed the bipartisan debt ceiling bill. Crude oil gapped up in Asia, reaching USD75 at one point after Saudi Arabia announced to cut an extra 1 million barrels a day starting from July.


What’s happening in markets?

US equities (US500.I and USNAS100.I): Strong jobs report boosts market sentiment

Equity investors expressed their enthusiasm over a robust job gain, which alleviated concerns of a recession, while the unemployment rate and weekly earnings data indicated a potential decrease in wage inflation. As a result, the S&P 500 surged by 1.5% and the Nasdaq 100 climbed by 0.7%. The stock market rally was widespread, with all 11 sectors in the S&P 500 experiencing gains, led by materials and industrials. Notably, Celanese (CE:xnys), 3M (MMM:xnys), and DuPont (DD:xnys) registered remarkable surges of over 8%.

The market sentiment has shifted risk-on. The CBOE Volatility Index (VIX) dropped to 14.6, reaching its lowest level since February 2020. Additionally, the previously struggling regional banking sector staged a strong rally, with SPDR S&P Regional Banking ETR soaring by 6% on Friday and surpassing the 50-day moving average.

Treasuries (TLT:xnas, IEF:xnas, SHY:xnas): yields surge on strong payroll data

Yields surged due to an unexpectedly large increase in non-farm payrolls for May, coupled with upward revisions for the preceding two months (see details below). The initial market reactions were volatile as traders deliberated the strong headline payroll figures against the rise in the unemployment rate due to a decline in employment indicated by the household survey, as well as the moderation observed in average hourly earnings and weekly hours. Consequently, selling pressure intensified and extended the losses in Treasuries throughout the afternoon trading session, resulting in yields concluding near their highest levels of the day. The 2-year yield surged 16bps to 4.5% and the 10-year yield added 10bps to 3.69%.

Chinese equities (HK50.I & 02846:xhkg): Hong Kong and mainland Chinese stocks rally on the property, EV, and Internet boom

Hong Kong and mainland Chinese stocks rallied strongly driven by China real estate, Internet, and EV names. The Hang Seng Index surged 4% and the CSI300 Index advanced 1.4%. Market chatters of additional policies from the Chinese authorities to stimulate demand for residential housing and the expectation of a pause in rate hikes in the U.S. were cited as triggers for the upward movement. Given the prevalent underweight allocation to China exposure among institutional investors and the widespread pessimism prevailing in the market toward Chinese and Hong Kong equities, even minor catalysts were sufficient to spark a rush to buy. A close above the 200-day moving average (currently at 19286) in the upcoming sessions could enhance the technical outlook for the Hang Seng Index and potentially trigger further buying.

The advance in both Hong Kong and mainland bourses was foremost led by China real estate stocks, with Longfor (00960:xhkg) soaring 17.2% and Country Garden Services (06098:xhkg) surging 13%. EV stocks also performed well, benefiting from strong May delivery figures. BYD (01211:xhkg) gained 4.5% after doubling its sales to over 240k vehicles in May. Nio (09866:xhkg), Li Auto (02015:xhkg), and XPeng (09868:xhkg) saw gains ranging from 3.8% to 7.9%. China Internet stocks rallied sharply, with Tencent (00700”xhkg), Alibaba (09988:xhkg), JD.COM (09618:xhkg), Baidu (09888:xhkg), and Meituan (03690:xhkg) surging by 6% to 7.8%.

FX: USDJPY above 140 on positive headline US jobs report

The dollar index firmed up following the US jobs report on Friday as the headline job gains and revisions of the last two months were a positive surprise. As yields surged, USDJPY rose above 140 again after some expected intervention brought the pair to 138.50 last week. The move to 140+ was being extended slowly at the Asian open on Monday keeping focus on May highs of 140.93. GBP also extending the downside, and eyes are on 1.24 while EURUSD is testing a break below 1.07. AUDUSD stays above 0.66 after firmer CPI print last week and China’s Caixin manufacturing PMI also supports sentiment. Meanwhile, iron ore futures rallied last week on hopes of fresh policy support for China’s property sector.

Crude oil: gapped higher at Asia open on Saudi output cut

WTI crude oil futures (CLN3) gaps up 4.5% at the Asia open on Monday, touching $75, the highest level since May 2 after Saudi Arabia agrees to an extra 1m barrel per day (bpd) supply cut in July to bring stability to the market. This will be on top of a broader OPEC+ deal to limit supply into 2024 as the group seeks to boost flagging oil prices. OPEC+ has in place cuts of 3.66 million bpd, amounting to 3.6% of global demand, including 2 million bpd agreed last year and voluntary cuts of 1.66 million bpd agreed in April. The group also agreed on Sunday to reduce overall production targets from January 2024 by a further 1.4 million bpd versus current targets to a combined of 40.46 million bpd, but these reflect lower targets for Russia, Nigeria and Angola to bring them into line with actual current production levels. While the cuts once again show OPEC’s commitment to support oil prices, the impact from a similar move in April has been completely erased due to the concerns about the weakness of the global economy and its impact on demand.

Copper and Gold: debt ceiling deal and NFP surge improve macro outlook

Copper recorded its first weekly gain in seven weeks as focus turned back to fundamentals amid a slightly improved macro outlook. The deal to lift the US debt ceiling helped boost sentiment across commodity markets, while the strong NFP headline along with weaker details continued to suggest that Fed will remains on a cautious path. Prospects of housing stimulus in China also lifted industrial metals like Copper and Iron ore. Still, a break above $3.80 is needed in copper to reverse the downtrend. Meanwhile, Gold traded higher last week to challenge resistance above $1980 before another strong US job report helped drive some profit taking ahead of the weekend. Key support has now been confirmed around $1950 while resistance remains at $1984. 

 

What to consider?

Mixed US jobs report: strong headline but weak details

The US nonfarm payroll report released on Friday saw strong headline gains of +339k in May, coming in well above the expected 195k. There were also a net +93k revision to the headline prints of the last two months. Wage data was also firm, coming in at 0.3% MoM and 4.3% YoY. And yet, while the Establishment survey was a blowout beat and the strongest print since January, the Household survey unexpectedly tumbled by the most since April 22 as it plunged by 310K jobs resulting in a 0.3% jump in the Unemployment rate which rose from 3.4% to 3.7%. Odds of a June rate picked up slightly after the release, but still only 30% probability is seen, with a July rate hike priced in fully by the markets now. Several Fed officials such as Jefferson and Harker have also recently hinted that the Fed could skip tightening in June to give themselves more time to assess the effect of their actions so far.

President Biden signs the debt ceiling bill into law; markets await bond market response and banking liquidity impact

 

President Biden successfully enacted the bipartisan legislation on Saturday, effectively halting the $31.4 trillion debt ceiling and mitigating the potential risk of a default by the U.S. federal government. As a result, the focus of the market has shifted towards assessing the bond market's reaction to the influx of Treasury securities and the implications of replenishing the Treasury General Account (TGA) with $500 to $600 billion at the Federal Reserve (Fed), particularly in relation to liquidity within the banking system.

The magnitude of this impact primarily hinges on whether the increase in the TGA arises from a reduction in bank excess reserves, thereby draining liquidity from the banking system, or from a decrease in the Reverse Repo balances of the money market fund at the Fed, which would transfer liabilities on the Fed's balance sheet without affecting banking liquidity.

If money market funds choose to procure the newly issued Treasury bills from the Treasury and finance the transaction by reducing their investments in the Fed's Reverse Repos, while the Treasury deposits the acquired funds into the TGA at the Fed, the liquidity of the banking system would remain unaffected. However, if investors opt to withdraw funds from their bank accounts to purchase the newly issued Treasury bills, and the Treasury subsequently deposits the resulting proceeds into the TGA, it would lead to a depletion of banking liquidity.

Russian defence forces said Ukraine’s offensive failed

The Ukrainian armed forces failed to achieve success in a large-scale offensive on five front sectors in the south Donetsk area, official spokesman of the Russian Defense Ministry Lieutenant General Igor Konashenkov said. In an interview with the Wall Street Journal released on June 3, President Volodymyr Zelensky had said that Ukraine is "ready for counteroffensive."

Amazon explores mobile phone service partnership, Dish Network surges 16.4%

Newswire reports suggest that Amazon is in talks with wireless carriers, including Verizon (VZ:xnys), T-Mobile (TMUS:xnas), and Dish Network (DISH:xnas), to offer low-cost or even free mobile phone service to its Prime subscribers. Following this news, the share price of Dish Network surged by 16.4%, while Verizon slid 3.2% and T-Mobile shed 5.6%. Meanwhile, Amazon registered a gain of 1.2%.

 

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

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

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 Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, 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.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. 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 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.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.