Global Market Quick Take: Asia – September 21, 2023

US Equities: Stocks plummeted due to the "higher-for-longer" message from the FOMC. The S&P500 fell by 0.9%, and the Nasdaq 100 dropped 1.5%, mainly because of mega-cap tech stocks like Alphabet, Nvidia, Microsoft, and Apple, which saw declines of 2% to 3%. The S&P500 and Nasdaq 100 technical indicators suggest a tentative “sell”, pending confirmation of a lower closing price today.

Fixed income: The short end of the Treasury yield curve experienced a sell-off after the FOMC increased its projected Fed Fund Rate for the end of 2024 to 5%-5.25%, a 50bps rise from its previous projection. The 2-year yield surged by 9bps to 5.18%, while the 10-year yield climbed by 5bps to 4.41%. The 2-10 yield curve flattened by 4bps to -77bps.

China/HK Equities: Cautious sentiment prevailed in the markets, causing the Hang Seng Index to decline by 0.6% and the CSI300 to fall by 0.4%, as they traded within a narrow range near their yearly lows. Technology, healthcare, and consumer stocks were the poorest performers, with the Hang Seng Tech Index declining by 1.6%.

FX: Dollar got a fresh leg higher with the hawkish surprise from the FOMC on the 2024 projections. The biggest downside was seen in GBP which slid to near 4-month lows on dual shocks of softer CPI and hawkish Fed. EURUSD also moved back below 1.07 and may target support at 1.0635. Higher yields brought USDJPY back above 148 to highs of 148.36 and with Yellen opening the doors for more jawboning from Japanese officials, speculators may be turning cautious ahead of the BOJ meeting.

Commodities: Crude oil rally remained on pause with inventory drawdown for the last week coming in smaller than expected. EIA data showed US stockpiles fell 2.14mbbl last week, well short of the 5.25mbbl drop reported by the API. General risk off tone from Fed’s higher-for-longer message also underpinned. However, the reaction of Gold to Fed’s hawkish message and higher yields was more modest. Having risen to $1947 ahead of the decision, the yellow metal ended the session near-$1930 continuing to show resilience and raising questions about potential China buying.

Macro:

• The Fed left rates unchanged at 5.25-5.50% as expected in a unanimous decision, while upgrading its language on economic growth. The forecasts saw upward revisions to 2023 and 2024 real GDP, while the unemployment rate was revised lower for 2023, 2024 and 2025. Headline PCE inflation saw a slight revision higher for 2023 to 3.3% while 2024 was unchanged at 2.5%, but 2025 was revised marginally up to 2.2% from 2.1%. Core inflation saw a revision lower for 2023, was unchanged for 2024 at 2.6% but 2025 was revised slightly up to 2.3% from 2.2%. Meanwhile, hawkish vibes came from the dot plot which slashed 50bps of rate cuts from next year to emphasise ‘higher-for-longer’. The 2023 dot was maintained at 5.6% to keep the flexibility to hike again if needed, while the 2024 dot moved higher to 5.1% from 4.6% in June and 2025 dot correspondingly up to 3.9% from 3.4% previously.
• UK CPI surprised on the downside with headline CPI falling to 6.7% YoY from 6.8% (vs. exp. 7.0%), core CPI slipping to 6.2% YoY from 6.9% (vs. exp. 6.8%) and the all-services print declining to 6.8% YoY from 7.4% (vs. MPC exp. 7.2%). Expectations for a BOE hike today have fallen to less than 50% from 80% before the release.
• NZ 2Q GDP rose 1.8% YoY above estimate 1.2% and +0.9% Q0Q higher than estimate +0.4%. With prior also revised higher to flat from -0.1% earlier, New Zealand has escaped a recession for now.

In the news:

• PBoC says its policy room is ample (Bloomberg)
• The European Union is “very far” from imposing new tariffs on Chinese electric cars (CNBC)
• UAW, Detroit Three automakers in standoff as wider strike looms (Reuters)
• FedEx posts profits topping estimates, raises forecasts (Bloomberg)

Macro events:

• Bank of England rate decision has now become a close call – read full preview here.
• Other central bank decisions include SNB, Riksbank, Norges Bank, SARB & CBRT
• EZ Flash Consumer Confidence (Sep)

Key company events: Darden Restaurants (DRI), FactSet Research (FDS), Manchester United (MANU)

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

For a detailed look at what to watch in markets this week – read our Saxo Spotlight.

For a global look at markets – go to Inspiration.