Global Market Quick Take: Asia – May 24, 2023

Eurozone PMIs signal manufacturing contraction

Prelim manufacturing PMI for the Eurozone slid to 44.6 from 45.8 last month, coming in below expectations of 46 and at its weakest since Covid lockdowns. New orders continue to fall and backlogs of work are becoming smaller, adding to output concerns in the manufacturing sector. Services PMI also weakened to 55.9 in May from 56.2 in April but was a notch better than expectations. The numbers have highlighted the manufacturing drag from Germany for the rest of the region, and casts doubts on the economic momentum that the Eurozone can sustain. May’s PMI release confirms that concerns about elevated core inflation should centre around services, while goods inflation is set to ease markedly from here on.

Meanwhile, the headline S&P Global flash US PMI composite PMI was at 54.5 in May, up from 53.4 in April, to signal a solid and faster expansion in private sector business activity.

Japan imposes new curbs on the export of chip-making technology to China

The Japanese authorities announced that it will add 23 types of semiconductor technology, including advanced chip manufacturing equipment for extreme ultraviolet lithography and etching equipment for stacking memory devices in three dimensions, to the list of regulated exports. The export of items on the regulated list requires prior approval from Japan’s Ministry of Economy, Trade and Industry. China’s Ministry of Commerce issued a statement complaining about the Japanese authorities’ latest move and threatened to take action to defend its interests.

Singapore’s inflation remains firm in April

Singapore reported April CPI yesterday, which came in higher-than-expected at 5.7% YoY on the headline (vs. 5.5% previously) and 5.0% YoY on the core (unchanged). Lower price increases in food, electricity, retail and other goods were offset by higher prices for travel-related services. The MAS and MTI said that upside risks remain, especially due to global pressures and a tight labor market. SGD saw some gains on the report as expectations for MAS tightening increased, but the next central bank meeting is not until October and the report doesn’t suggest at off-cycle move is likely.

Tough decision ahead for New Zealand’s central bank

New Zealand’s inflation expectations for Q2 came in much lighter than Q1, and fell back in the forecast range of 1-3%. This started to build the case for a pause from the Reserve bank of New Zealand, but the latest budget update have again tipped the odds in favour of a rate hike at this Wednesday’s meeting. The budget announcement last week indicated higher fiscal spending on reconstruction to boost growth and the Treasury expecting that the economy can avoid a recession. That means the central bank still has room to tighten policy, although statement may start to indicate that a pause is likely ahead. NZDUSD has been stuck in a range around 0.62 since March and a break below 200DMA at 0.6157 could trigger a deeper pullback.

Softer UK inflation could tilt the next BOE meeting to a pause

UK’s April CPI is due to be released on Wednesday and the headline print is finally expected to bid goodbye to double-digit prints that were seen consecutively for the last seven months. Bloomberg consensus expects headline CPI to cool to 8.2% YoY from 10.1% YoY in March, but the core still remaining firm at 6.2% YoY. A lot of the slowdown will likely be driven by base effects, as massive surge in household energy bills from last year is lapped. But it will be more important to watch the strength of the services inflation print to indicate any clear shift in BOE expectations for the June meeting. For now, a 25bps rate hike is priced in with 76% probability. Retail sales will also be out on Friday and shed further light on the consumer after a depressed March print suggested inflation may be straining the consumers.

Fed Governor Waller and FOMC minutes on tap

The FOMC minutes from the May meeting will be released on Wednesday, and strength of the pause signal for June as well as views around the debt ceiling concerns and banking crisis will be key to watch. However, with Powell having re-confirmed his inclination for a pause on Friday against Logan and Bullard’s hawkish signals last week, the minutes will now look stale. Of particular interest will be Governor Waller, the outspoken hawk to see if he keeps the June rate hike debate alive.

Apple signs a deal with Broadcom

Apple and Broadcom have struck a “multibillion-dollar” agreement for the chip company to provide US-made 5G components to the iPhone maker, as part of Apple’s push to source more parts from American facilities. Apple said the partnership was part of its 2021 commitment to spend $430bn with US suppliers and manufacturers over five years.

Nvidia earnings ahead: AI spend in focus

The most monitored results announcement in the U.S. market will be from Nvidia on Wednesday after the close. The chipmaker’s share price jumped 114% and was the biggest winner within the S&P 500 in 2023 so far. Investors have high expectations of the company’s advantageous position in the rapid development in AI and the resulting demand for computing power. But valuations are also lofty with a P/E of 133.65 compared to industry median of 55. Expectations are high with revenue forecast at $6.5bn from $6bn in the previous quarter and adjusted EPS seen at $0.92/share from $0.64 in Q4. The announcement from Nvidia will be key not just for the stock but for the path of NASDAQ100 as well.

Lowe’s beats in Q1 but lower sales guidance for 2023

US home improvement store chain Lowe’s reported Q1 revenues USD22.35 billion, falling 5.5% Y/Y but 3.2% above the street consensus. Comparable sales fell 4.3% Y/Y, a larger decline than the -3.2& expected by analysts. Adjusted EPS came in at USD3.67, ahead of the USD3.43 consensus estimate. The company lowered its comparable sales guidance to a decline between -4% and 2% from the previous expectation of between -2% and flat.

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