Market Insights Today: Sluggish US economic data; P&G and Netflix earnings ahead - 19 January 2023

What’s happening in markets?

Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) reversed and fell over 1% on recession fears

U.S. equities opened higher initially as bond yields tumbled on a dovish Bank of Japan and much weaker than expected prints on U.S. retail sales, industrial production, and producer prices. Comments from the Fed’s Bullard in a Wall Street Journal interview about his preference of keeping the pace of rate hike at 50bps at the February FOMC triggered a reversal around mid-day and saw U.S. stocks plunge in the New York afternoon session. The weak economic data and the risk of the Fed overdoing it in rate hikes troubled equity investors. At the close of Wednesday, Nasdaq 100 fell 1.3% and S&P 500 slipped 1.6%. All 11 sectors of the S&P 500 declined, with the consumer staples sector falling the most to finish the session 2.7% lower. In the Fed’s Beige Book released on Wednesday, U.S. retailers said they were having difficulties in passing through costs increases to consumers. On individual stocks, PNC Financial Services (PNC:xnys) fell 6% on a larger-than-expected credit losses provision. Moderna (MRNA:xnas) gained 3.3% following release of positive trial results for a RSV virus vaccine.

US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) surged on dovish BoJ and weak economic data; the 10-year yield slid to 3.37%

Treasuries surged in price and yields collapsed on dovish outcomes from the Bank of Japan’s monetary policy meeting. The BoJ doubled down on monetary easing with an adjustment to its Funds-Supplying Operations against Pooled Collateral which enables it to lend cheaply to banks up to 10 years in maturity from only up to two years previously. Apparently, the BoJ aims at bringing down the elevated swap rates closer to the yields of JGBs. Treasury yields took a further dive in New York morning hours following the release of larger-than-expected declines in retail sales and industrial production as well as a bigger-than-expected 0.5% month-on-month fall in the Producer Price Index in December. The hawkish comments from Fed’s Bullard about keeping the February hike at 50bps did not have much of an impact on Treasuries despite being picked up as a reason to fade the rally in equities by traders. The result from the USD12 billion 20-year Treasury bond auction was strong. Treasury yields finished the Wednesday session with the 2-year 12bps richer at 4.08% and the 10-year 18bps richer at 3.37%, bringing the 2-10 curve more invested to -71bps.

Hong Kong’s Hang Seng (HIF3) ticked up and China’s CSI300 (03188:xhkg) traded sideways

Hang Seng Index ticked up by 0.5% and CSI300 edged down by 0.2%. Online and mobile gaming names led in both the Hong Kong and mainland bourses. China released 88 new licenses of online/mobile games, including one title from Tencent (00700:xhkg), up 1.7%. and one title from NetEase (09999:xhkg), up 6.5%. Trading in other internet names, however, was mixed. Auto dealers were led lower by an 8.3% decline in Zhongseng (00881:xhkg). EV makers traded weakly, XPeng (09868”:xhkg) down 2.9%. In A-shares, food and beverage, beauty care, and construction materials led the decline while online gaming, computing, media, communication, and non-ferrous metal gained. Northbound net buying was over RMB4 billion, bringing the net buying in January to over RMB90 billion.

FX: Choppy dollar after BOJ

ECB’s Villeroy dismissed dovish ECB talks and says Lagarde guidance still valid, bumping up EUR higher but the gains were reversed later and EURUSD ended below 1.0800 again. EURGBP meanwhile testing a break below 0.8740 to near 1-month lows as UK core CPI came in hotter-than-expected. AUD and NZD were divergent with AUDNZD falling from highs of 1.0873 to lows of 1.0783. AUDUSD was slightly lower on weaker-than-expected employment data which saw unemployment rate rising to 3.5% while overall employment fell 14.6k compared to expectations of +25k, while last month’s employment gains were revised lower to 58.3k. NZDUSD however saw little reaction to reports of PM Arden’s resignation. USDJPY back below 129 after the BOJ-related volatility yesterday.

Crude oil (CLG3 & LCOH3) tumbled on sluggish US data and weak API build

Crude oil prices rose to fresh highs earlier on Wednesday before sliding in the NY hours. US data flow turned out to be grim with both retail sales and industrial production disappointing, sending recession concerns soaring. The International Energy Agency was also circumspect. It said the market faces immediate headwinds, with supply exceeding demand by about 1mb/d in Q1. Meanwhile, API reported that US crude stockpiles rose 7.6mn barrels for last week. WTI futures retreated from highs of $82+ to $79, while Brent was back below $85/barrel from highs of ~$88.

What to consider?