Summary: As the market awaits Powell’s testimony to Congress and jobs figures, the stock market ran out of puff, with the Nasdaq 100 closing slightly in the black and the S&P500 nudging further above its 50-day moving average. The Australia dollar is in danger, of hitting 0.67, but could the RBA’s decision today avert its course? Meanwhile the EUR is higher on a hawkish ECB. Gold’s next move hinges on Powell’s testimony which kicks off today. And why CATL’s results could have ripple effects, along with a TikTok ban.
As the market awaits Powell’s testimony to Congress and jobs figures, the stock market ran out of puff, with the Nasdaq 100 closing slightly in the black and the S&P500 nudging further above its 50-day moving average. Six S&P500 sectors rose, while five closed in the red. Apple shares were a standout, rising 1.9% after a US investment bank initiated a “Buy” on the company. Meanwhile, Tesla shares fell about 2% after its Model S and Model X prices were slashed for the second time this year, after lithium price retreated. Meanwhile, Meta shares fell about 0.2% despite the TikTok potential ban gaining momentum in the US - with several countries in Europe considering the same thing.
With a light economic calendar and ahead of Fed Chair Powell’s testimony at the Senate Banking Committee, Treasuries took clues across the pond from German Bunds and were pressured in the afternoon after ECB’s Holzmann signalled potentially four or more 50bp rate hikes in the Eurozone. Hedging flows also weighed on Treasuries as corporate supply picked up with around USD 17 billion in new issues. Th e 10-year pared early gains to finish at 3.96%, 1bp higher in yield.
The Hong Kong stock market experienced a mixed session as investors digested the economic targets set in China’s Government Work Report, which came in with a modest GDP target set at around 5%. Hang Seng Index (HSI.I) managed to finish 0.2% higher with Chinese SOE names in the telecommunication outperforming as China is accelerating the construction of 5G infrastructure and development of 6G. China Tower (00788) surged 7.9% and China Mobile (00941:xhkg) gained 3.2%.
Chinese property developers were laggards during the session following the Government Work Report emphasized again “housing is nor living in, not for speculation” and warned against the “disorderly expansion of capital” of property developers. China Merchant Bank (03698:xhkg) plunged 4.2% on its high exposure to the Chinese housing sector.In A-shares, CSI300 retreated 0.5%. Property developers, coal mining, and financials were the top losers while telecommunication, solar energy, and tourism advanced.
The RBA is expected to hike interest rates for the 10th straight time today, with a 25bps hike expected, which will likely impact forward earnings of Australia’s consumer discretionary, tech and real estate sectors. The RBA’s rate hikes mount despite, bellwethers, such as Commonwealth Bank of Australia, flagging that some households are likely remain under duress this year - amid inflation and rising interest rate pressures – with Australia’s biggest bank putting aside a capital cushion for bad debts provisions and delinquencies. Philip Lowe’s guidance for further tightening will be on watch, especially as the last several economic readings have been weak. Interest rate futures suggest rates will peak at 4.1% in September, with no rate cuts this year. The Aussie dollar could notch fresh YTD lows, but if RBA is more aggressive than expected, the Aussie dollar (AUDUSD) could knee-jerk higher.
The USD started the week on the backfoot before equity markets got jittery about Powell’s speech later today. A soft GDP target out of China however weighed on AUD, with AUDUSD hitting a low of 0.6717. The AUD is now down 6.5% from its Feb 2 high. The RBA meets today with another 25bps rate hike expected, although focus will be more on Lowe’s comments on the path of interest rates from here. NZDUSD was also pushed lower to 0.6173. EURUSD however pushed above 1.0680 on hawkish ECB chatter (read below). Swiss inflation data came in hotter than expected at 3.4% YoY for February from 3.1% exp and 3.3% previous. USDCHF pushed lower to test the 0.93 handle while EURCHF wobbled.
The oil price is steady at just over $80 amid CERAWeek - the world's premier energy conference. Commentary made alluded to a pickup in demand, while supply remains somewhat restricted. It was said at the conference that 75% of global oil demand growth will come from China this year, while companies such as Chevon are working on options to export natural gas to Europe this year. Meanwhile, Estonia called for the EU to halve the $60 price cap on Russian oil this month. And US natural gas plunged on forecasts for milder-than-expected weather.
Gold (XAUUSD) prices inched up to their highest levels since mid-February on Monday before a reversal from the peak at $1858 to 21-DMA at $1844 in the Asian morning today as caution on Fed Chair Powell’s testimony today starts to set in. The surge higher earlier came despite China’s modest growth target and risk of more rate hikes from the Federal Reserve. However, it must be noted that the recent rise in yields has come with higher breakeven inflation as well, suggesting that the market is now looking at inflation to settle higher in the medium-term. This has kept real yields under pressure, supporting the yellow metal. For the recovery to stay intact, however, support at 200DMA of $1840 and the last week’s low of $1805 will be eyed.
Fed Chair Powell will begin his two-day testimony before the Senate and the House committees today. Over the last few weeks, data out of the US has been far more resilient than expected, fueling bets that the Fed will have to raise rates beyond what was communicated earlier and rates will stay elevated for longer as well. Most Fed members have also sounded hawkish, raising the prospect of a shift higher in March dot plot. If a similar message is conveyed by Chair Powell, we could see US Treasury yields getting above critical levels and USD reversing back to an uptrend.
ECB’s Holzmann called for interest rates to be raised by 50bps at each of the next four meetings, and suggested a restrictive policy rate would start from ~4%. President Lagarde and Chief Economist Lane were also on the wires suggesting more rate hikes as well. One of the investment banks, as a result, came out with a terminal rate forecast of 4.25% in wake of Holzmann's remarks, and this led to a drop in EU bonds and a surge higher in EUR crosses.
CATL, the world’s largest battery maker - and Tesla’s battery supplier - reports results on Thursday. It’s expected to report revenue growth of over 80%. However, there is room for a positive surprise - given strong battery and energy storage demand. CATL is also expanding overseas - teaming up with Ford to build a battery manufacturing plant in Michigan, which we will hopefully get details on. As for its outlook - we expect it to be strong, as CATL’s increased its war chest, after selling its $856 million stake in Australia’s biggest lithium company, Pilbara Minerals. We also think guidance could be upgraded - given auto sales in China are expected to rise in 2023, following years of lockdowns. CATL outlook’s will be closely watched by not only EV makers - but also by EV investors – as they could give a gauge on how much car maker’s battery costs could rise.
Senate Intelligence Committee Chairman Mark Warner is set to unveil a bill Tuesday that would allow the US to ban the popular video-sharing app TikTok and other Chinese technology. He said that the law will give the US the power to ban or prohibit foreign technology where necessary, considering companies like TikTok do not keep American data safely and is also a propaganda tool. US tech stocks Snap (+9%), Alphabet (+1.6%) and Pinterest (+1%) rallied on reports.
Iron ore majors face rising volatility
China’s top economic body, the NDRC held a meeting with some industry experts over potential measures to curb iron ore price rises. The iron ore price has risen 62% from its October low - amid rising demand from China, and expectations this will continue - while supply remains tight. It’s not the first-time accusations have come from China. But this time - its allegedly some in the industry are calling on the Chinese government to tighten futures and spot markets oversight and punish those for hoarding and price gouging. BHP and Rio make over 50% of their annual revenue from iron ore, Fortescue makes about 90%. Shares in Fortescue are trading lower for the third day, while BHP trades 2.3% lower at A$47.27, and Rio Tinto has fallen for the second session, losing 2%. Be mindful, BHP and Rio go ex-dividend on March 9. For potential implications on ex-dividends, click here.
Trip.com beat revenue and EPS forecasts as it reported Q4 results yesterday, fueling more weight to the case for the upcoming surge in Chinese outbound travel demand. We had launched the APAC tourism basket to get exposure to this trend, and Trip.com is also included in this basket. Trip.com reported revenue of $729mn (vs. $709mn expected) and EPS of 11 cents (vs. loss of 3 cents expected).
On Tuesday March 7, CrowdStrike (CRWD) reports results well as Darktrace (DARK) its peer. Ashtead Group, Sea Ltd, Ferguson also report.
On Wednesday March 8, Adidas (AD) and Campbell Soup (CPB) are due to report results, along with Ping An Bank, Thales, Geberit. Woodside (WDS) goes ex dividend.
On Thursday March 9, CATL (300750) is due to release results, as well as Jd.com (JD) and Deutsche Post. BHP (BHP) and Rio Tinto (RIO) go ex dividend, along with CSL (CSL), Occidental (OXY) and eBay (EBAY).
On Friday March 10, Oracle (ORCL), DocuSign (DOCU), Daimer Truck, AIA Group, and DiDi Global are due to report.
For what to watch in the markets this week – read or watch our Saxo Spotlight.
For our short black style Week Ahead – read or watch The Week Ahead.
For a global look at markets – tune into our Podcast.
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Commodity Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Head of Commodity Strategy