US debt default warning, Oil surges 6% to $100, NZ lift rates 0.5%. Who's next?

Co-written by Market Strategists Jessica Amir in Australia, Redmond Wong in Hong Kong, Charu Chanana in Singapore.

What’s happening in equites that you need to know?

US stocks fell for the third day. The S&P 500 (US500.I) and the Nasdaq 100 (USNAS100.I) lost 0.3%. As always, there were bright sparks at the stock level. The world’s biggest cybersecurity company, Crowdstrike (CRWD) rose 3.2% to US$223.51 (its highest level since November last year), after Goldman Sachs upgraded the stock to a buy. We’ve previously mentioned Crowdstrike as a stock to watch. It makes 94% of its money from subscriptions, and we like businesses like these, given they are set to benefit from elevated demand to address cyberattack fears. The market also likes Crowdstrike with 93% of analysts rating the stock as a BUY. Goldman Sachs expects Crowdstrike’s shares to rise to $285 in a year. Also in MegaCaps, Apple (AAPL) shares jumped over 1% after whispers that Apple could announce a buyback of US$80-$90 billion (and buy backs support share price growth). 

Hang Seng Index (HSI.I) and CSI300 (000300.I) are little changed. Hang Seng Tech (HSTECH.I) was up 0.6%.  Energy and mining stocks outperformed.  Zijin Mining (02899) surged 7%.  Jiangxi Copper (00358), China Molybdenum (03993), MMG (0128) rose more than 5%.  CNOOC (00883) rallied 4% and China Coal was up from the 6%.  In A shares, logistics names outperformed while real estates, airlines, online entertainment led declines. 

Twitter (TWTR) shareholders sue Elon Musk (TSLA CEO). A Twitter, shareholder sued Elon Musk for allegedly committing fraud by delaying the disclosure of his ownership of more than 5% of Twitter, so Musk could buy more shares at a cheaper price. The investor said Musk should  have disclosed his holding by March 24, instead of April 1. Twitter shares rose 27%, from $39.31 on April 1, to $49.97 on April 4. Twitter shareholder, Marc Bain Rasella is also looking to represent a class of investors who sold Twitter shares from March 24 to April 1.

Crude oil (OILUKJUN22 & OILUSMAY22) jumps 6% to $101, as OPEC said the obvious, that’s it’s impossible to replace supply losses from Russia, while China also hints of restrictions easing. This supports gains in oil stocks in the US overnight and in Australia today. 

The Australia share market more (ASX200) rose 0.2% by 1pm local time with energy and mining stocks fueling the market higher. Also of note, Rio Tinto (RIO) rose 2.2% after the aluminium and iron ore price extended their rebound. Both prices are important to Rio as it makes 58% of its revenue from iron ore and 22% from aluminium . Also consider demand for aluminium  is expected to grow with company’s like Apple and Nestle's Nespresso to use more of the material to reduce CO2 emissions.

USDJPY refuses to drop below 125. USDJPY dropped below 125 following the US CPI release overnight, focusing on the less-than-expected core print. The move was however reversed suggesting sustained weakness in the yen, which will continue until we see stronger action from the Japanese authorities and not just verbal intervention.

Iron ore (SCOA) rebounded yesterday rising 2.5%, but today it’s about 0.9% lower, but holds 8-month highs, at US$154.25. It comes as China again pledged to stabilise its economy and this brightened the outlook for steelmaking ingredient. BHP (BHP) shares are holding at $51.71, and remain in their long term uptrend. So it's worth keeping an eye on BHP. BHP is also touted to annouce a record profit this year and a share buy back, which also supports share price growth. 

What you need to consider

US defaults to double according to S&P Global. S&P Global Rating anticipates the US’s default rate will swell from the current 1.5%, to 3% by year-end, amid financial conditions tightening. In China, the S&P Global Ratings expects more property developer defaults, with $18 billion in maturing debt and the likelihood of home sales falling 15-20%.

Inflation is uncomfortably high. March CPI hit 8.5% year-on-year. The hottest inflation since 1981. Core CPI moderated a bit, mostly due to a cooling of oil prices, and rose 6.5%. This is still the highest rate since 1982. The largest prices rises were in; fuel oil (70%), gas (48%), used cars (35%), hotels (29%), airfares (24%) and utility gas (22%) on a year on year basis. See the full list here (scrolling to pdf page 9). Simply this tells us, the US Federal Reserve is behind in fighting inflation, so expect a 0.5% interest rate hike at the May FOMC meeting, with rates to hit 2.6% at the end the year.

In RMB terms, March China exports rose 12.9% while imports fell 1.7%.  In USD terms, March exports climbed 14.7% from a year ago and imports declined 0.1%. Trade surplus increased to USD47.4 billion (vs consensus $21.7bln, Feb $30.6bln).

NZDUSD reverses post-Reserve Bank of New Zealand (RBNZ) gains. RBNZ delivered its biggest hike in 22 years, citing a need to move the cash rate to a more neutral stance to reduce the risks of rising inflation expectations. NZDUSD rallied to 0.6902 but sustained dollar strength provides limited room for NZD strength. Gains in NZDUSD were completely reversed. AUDNZD also retains an upward bias as mentioned in our note yesterday. The surprise caused the New Zealand stock market to fall 0.4% with their tech stocks falling 1.4%. However, as NZ announced quarantine-free travel, the travel industry got a kick, Auckland International Airport (AIA) shares rose 1.1% higher.

Bank of Canada (BoC) to step up tightening pace. There are expectations of a 50bps rate hike and balance sheet run-off amid high inflation and record-low unemployment in March. USDCAD was seen on an uptrend despite the spike higher in oil prices today, and there may be some room for recovery in the CAD if BoC remains hawkish.

Trading ideas to consider

Aussie dollar and Kiwi ‘up and at em’, amid travel boost. The Australian dollar (AUDUSD) is back in vogue, rising for the second day, after Australian business confidence rose to its highest level in 5 months. While the NZ dollar (NZDUSD) also rallied for the second day, heading toward 0.69 US. It’s worth watching these two currencies as travel takes off as well between the two nations.

Travel stocks. Air stocks like Air New Zealand (AIZ) and Auckland International Airport (AIA), and Qantas (QAN), Singapore Airlines (SIAL), China Eastern Airlines (CEA) could be worth watching as they have not recovered from the covid falls in 2020. If China restrictions ease and tourism reopens, it’s worth keeping these on your radar.

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