Global Market Quick Take: Asia – October 26, 2023

US Equities: Megacap tech stocks plunged on Wednesday, with the Nasdaq 100 falling 2.5% to 14,382, marking the most substantial one-day decline of the tech-heavy benchmark in 2023. Alphabet plummeted 9.5%, as investors were disappointed in the tech giant’s cloud business results. On the other hand, Microsoft, rising 3.1%, outperformed the Nasdaq 100 after reporting an acceleration of its Azure AI-driven cloud system. Amazon lost 5.6% ahead of its reporting of earnings today. The S&P500 slid 1.4%. After the market closed, Meta initially rallied on Q3 results, showing a 167% Y/Y rise in EPS to $4.39, but quickly reversed to decline more than 3% in the extended hours after warning about an uncertain revenue outlook for 2024 due to the volatile economic environment ahead.

Fixed income: Treasuries started the New York session on Wednesday in a weak tone following the hotter-than-expected US new home sales data. Losses widened in the afternoon after a poor $52 billion 5-year auction that heightened investors’ concerns about next week’s quarterly refunding (3-year notes, 10-year notes, and 30-year bonds) announcement. The yield of the current 2-year notes increased 5bps (generic 2-year yield rose only 1bp as there was a shift of benchmark to the new 2-year) to 5.12%. The 10-year yield increased 13bps to 4.95%.

China/HK Equities: Markets opened sharply higher on the announcement of an additional RMB1 trillion in central government bonds for Q4, which increased the deficit from 3% to 3.8%. This move signalled China's commitment to restoring confidence in the economy and alleviating the financial stress faced by local governments. However, stocks later pared most of the gains throughout the day. The CSI300 and the Hang Seng Index finished the session only 0.5% and 0.6% higher respectively, nearly the day's lows. Chinese telecom stocks were among the major laggards weighing on the indices. On the other hand, as the proceeds from the additional bond issuance are earmarked for local governments to spend on water conservancy, heavy machinery and materials shares outperformed. The stamp duty cuts on foreign property buyers and local second-home buyers as well as the cut on stock trading stamp duty in Hong Kong did not generate much enthusiasm in the stock market. Investors are eyeing the National Financial Work Conference next week which is expected to address pressing issues such as the debt overhang of property developers, local governments, and the shadow banking sector.

FX: Dollar extended gains with the run higher again in Treasury yields and a pick up in geopolitical worries as well. DXY still remains below 107 and US GDP data today could still bring further upside even as the positioning is stretched. AUD reversed sharply from the post-CPI and China stimulus driven gains, as we had cautioned yesterday, and dipped back below the 0.63 handle with RBA Gov Bullock turning less hawkish saying that CPI was where it was expected, shifting stance from the hawkishness seen pre-CPI. NZD followed and was below 0.58 with AUDNZD cross also giving up the 1.09 handle as it slid to 1.0870. USDCAD made its way above 1.38 despite higher oil prices and BOC keeping a hawkish bias. EURUSD testing 1.0560 and US GDP and ECB decision due today could bring it lower to test 1.0550. USDJPY meanwhile is back above 150 printing fresh YTD highs of 150.32, raising intervention alert.

Commodities: Crude oil prices were earlier pushed lower on reports that Israel is delaying ground operation, but Brent was back above $90 later as war premium was added back after PM Netanyahu warned that Israel is in a battle for its existence. Copper closed lower and may be heading for a test of $3.55 support again despite China’s stimulus boost, suggesting it continues to fall short to lift sentiment. Gold shot up above $1980 despite the higher Treasury yields and stronger dollar as a safe-haven bid returned.

Macro:

• US new home sales surged 12.3% in September to 759k (prev. 676k), way above the expected 680k.
• Bank of Canada left rates unchanged at 5.00% as expected while it maintained guidance that it is prepared to hike rates further if needed and acknowledging that inflationary risks have increased.
• Germany IFO survey delivered a positive surprise, the IFO expectations index climbed to 84.7 from 83.1 in September.
• WSJ reported that Israel has agreed to delay its ground attack in Gaza in order for the US to assemble air defenses to protect its troops in the Middle East, although Israeli PM later in a speech said that Israel is preparing for a ground invasion in Gaza, where the timing of such would be "reached by consensus" without giving further details; said Israel was doing everything possible to bring hostages home.

Macro events: ECB Refinancing Rate exp 4.50% vs. 4.50% prior, CBRT Repo Rate exp 35% vs. 30% prior, US GDP Advanced (Q3) exp 4.5% YoY vs. 2.1% prior – read preview here.

Earnings: Amazon, Mastercard, Merck, Comcast, Intel, UPS, Unilever, Honeywell, Bristol-Myers Squibb, Schneider Electric, Boston Scientific, Northrop Grumman, China Construction Bank, China Life, SAIC Motor, Tianqi Lithium

In the news:

• U.S mortgage rates soar to highest in more than 23 years (Reuters)
• Israel Agrees to Delay Gaza Invasion to Allow U.S. to Prepare Defenses (WSJ)
• Trump ally Mike Johnson elected House speaker three weeks after McCarthy ouster (CNN)
• Japan's government is considering spending around $33 billion for payouts to low-income households and an income tax cut in a package of measures to cushion the blow to households from rising living costs (Reuters)
• Hong Kong policy address: stamp duty cut to enhance stocks appeal as city looks to end weather-induced market shutdowns (SCMP)
• Hong Kong halves buyers’ stamp duty for non-residents to 7.5%, as John Lee also cuts levy in half for locals in policy address, as property curbs eased for first time in over decade (SCMP)
• Country Garden’s failure to pay interest on the note within a grace period that ended last week “constitutes an event of default,” according to a notice to holders from trustee (Bloomberg)
• Singapore: UOB Profit Climbs as Wealth, Credit Card Fees Buoy Earnings (Bloomberg)

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

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