Global Market Quick Take: Asia – March 25, 2024

Equities: Last week, the FOMC took a relatively dovish stance, maintaining the projection of three rate cuts in 2024, and Chair Powell downplayed the recent uptick in inflation data, hinting at a potential slowdown in the balance-sheet run-off. These developments were bullish for US equities, leading to a rally in the S&P500 on Wednesday. However, the momentum somewhat stalled on Thursday and Friday, with the S&P 500 modestly pulling back by 0.1% on Friday. This decline was driven by Nike's 6.9% fall and Lululemon's 15% decline, as both retailers released a downbeat outlook. In contrast, the Nasdaq 100 added 0.1%, buoyed by Nvidia's 3.1% gain and Alphabet's 2.2% increase.

In Japan, the Nikkei 225 reached another record high, closing at 40,888 after the Bank of Japan delivered expected policy shifts during the week, removing one of the key uncertainties. Investors turned their focus towards the regaining of corporate pricing power amid the return of inflation, corporate governance reform, and reshoring, particularly in the technology sector from China, which may benefit Japan. The Nikkei 225 index gained 0.2% on Friday and 3.7% for the week.

In China and Hong Kong, the Hang Seng Index and CSI300 dropped by 2.2% and 1.0% respectively due to earnings downgrades, coupled with the renminbi's weakness. Li Auto's stock plunged by 10.9% on Friday and 18.3% for the week after lowering its delivery forecast. Bilibili fell by 9.4% amid Alibaba's decreased holdings. After the Hong Kong market closed on Friday, Meituan reported Q4 earnings that beat expectations, with revenue in line. Its ADS closed in New York 4.2% higher than the Hong Kong closing level. Investors turned cautious ahead of upcoming earnings reports from BYD, China Telecom and Anta Sports on Tuesday and major state-owned banks during the week.

The renminbi's sharp depreciation added to weakness in Chinese and Hong Kong equities, with USDCNH rising by 0.8% to 7.2761. Investors expect China's tolerance for a weaker renminbi amid a slow economic recovery, potentially testing September's high of 7.3682. The possibility of a "Trump presidency 2.0" boosted medium-term prospects for USDCNH. For further discussion on the implications of the US election on Chinese equities and USDCNH, see this Saxo article from last week.

FX: The dollar strength extended further on Friday, with the DXY index back above 104.30 to its highest levels in over a month. The Chinese yuan saw notable weakness and USDCNH rose sharply above 7.27 to its highest levels since November, with PBoC setting a weak fix and signaling that authorities are wiling to tolerate some yuan depreciation. AUDUSD dropped 40pips as well, slipping from 0.6570 and now trades below 0.6520. EURUSD also testing the 1.08 handle with the SNB surprise rate cut prompting wagers to increase bets for ECB easing for June. EURCHF eased from highs of 0.9788 to settle around the 0.967 handle although USDCHF settled just below the 0.90 handle. GBPUSD back below 1.2650 after BoE governor Bailey said rate cuts are in play at future BoE meetings amid signs that tighter policy quelled the risk of a wage-price spiral.

Commodities: Commodities came under pressure with dollar strength extending, and China optimism also coming back under the radar. Copper was down nearly 3% for the week, although Iron ore’s Friday decline could not reverse the weekly gains completely. China’s property earnings this week will be the focus for industrial metals to extend gains. Gold also reversed from the all-time highs of $2,220 to test the $2,160 support with Fed’s Bostic moving his expectations to expect only one rate cut this year. Crude oil prices were largely unchanged last week as signs of tightness in the global crude market offset the impact of a stronger USD, but focus remains on sanction and geopolitical risks.

Fixed income: A dovish FOMC led to the 10-year Treasury yield trimming 11 bps last week and 7 bps on Friday alone, closing at a low point of 4.20%, precisely on its 200-day moving average. A break below appears probable before the release of PCE inflation data this Friday, which will likely determine the yield's direction entering Q2.

Macro:

• At the China Development Forum, Premier Li Keqiang stressed boosting domestic demand, unifying the national market, advancing urbanization, and upgrading equipment and consumer goods. He also emphasized modernizing industries, driving innovation, upgrading traditional sectors, nurturing emerging ones, and fostering future industries to accelerate the development of new productive forces.
• Atlanta Fed Chief Bostic said on Friday that he now only expects one interest rate cut this year, adding that the reduction will likely happen later in the year than he previously expected. He said he had less confidence about the trajectory of inflation than in December, and focus this week turns to the Fed’s preferred inflation gauge, the PCE, due out on Friday.

   

  Macro events: US New Home Sales (Feb), US Chicago Fed National Activity Index (Feb)

  Earnings: China Resources Land, Weichai Power

  In the news:

• Apple CEO extols Chinese suppliers at Beijing forum as iPhone sales dip while Huawei gains (SCMP)
• Japan stocks could grow more volatile with end of BOJ ETF purchases (Nikkei Asia)
• Japan overtook China as the biggest private equity market in Asia-Pacific last year (SCMP)
• China plans new rules on market access, data flows (Reuters)
• Singapore Dollar’s Stellar Run Seen Ending on Monetary Easing (Bloomberg)
• Chocolate Panic Escalates as Cocoa Crunch Sparks Scramble to Buy (Bloomberg)
• China blocks use of Intel and AMD chips in government computers (FT)

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

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