Global Market Quick Take: Asia – February 26, 2024

US Equities: In a lacklustre Friday session after the dramatic surge the day before, the S&P500 Index made a new closing high of 5,089 while the Nasdaq 100 pulled back slightly from a historical intra-day high to close to 17,938. Nvidia’s solid results, upbeat guidance and optimistic assessment of a ‘tipping point’ of the AI industry pointing to AI-induced growth opportunities across industries continue to sustain the upward momentum of the US equity markets.

Berkshire Hathaway reported Q4 net earnings of $37.57 billion, consisting of $8.48 billion in operating earnings, which has grown 28% year-on-year and ahead of analysts' forecast of $7.89 billion, and $29.09 billion in investment and derivative gains. The investment portfolio is little changed and Buffet said in the letter to the shareholders that he did not see meaningful opportunities in deploying the company’s record $167.7 billion cash balance and Berkshire Hathaway has “no possibility of eye-popping performance”.  Berkshire Hathaway was a net seller in its equity portfolio last year. Notably, Buffett praised the five Japanese trading firms: Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo, that Berkshire Hathaway had a 9% stake in each of them, for following "shareholder-friendly policies that are much superior to those customarily practiced in the U.S."

This week, Lowe’s and Salesforce are reporting on Tuesday and Wednesday respectively.

Hong Kong/China Equities: Markets ended mixed on Friday, with the Hang Seng Index sliding 0.1% while the CSI 300 Index added 0.1%. For February so far, both indices gained more than 8% as investors adjusted positions amid state intervention in the A-share market, robust Lunar New Year spending data, and a large cut to the 5-year Loan Prime Rate. This week, the focus will be on the official NBS PMI and private Caixin China PMI scheduled to be released on Friday and anticipation of the National People’s Congress commencing next Tuesday, March 5. Major companies that are reporting this week include Li Auto on Monday, Baidu, iQIYI, Sun Hung Kai Properties, Galaxy, and Budweiser on Wednesday, HKEX and NetEase on Thursday,

Fixed income: Treasuries rebounded last Friday, recovering from losses earlier in the week, with the 10-year yield finishing 7bps lower at 4.25%, which was 3bps lower than the previous week. However, the 2-year underperformed, sliding only 2bps on Friday to end the week 5bps higher at 4.69%. Investors are awaiting the release of the core PCE deflator, which is the Fed’s preferred inflation gauge, this Thursday. After the strong showing in the CPI and PPI data, the median forecast in Bloomberg’s survey sees a robust 0.4% M/M increase in the core PCE and a 2.8% Y/Y increase. Barring an upside surprise in the PCE report, the current level of Treasuries provides investors with meaningful yields.

FX:  The dollar index traded struggled to find a direction on Friday with Fedspeak continuing to lean hawkish but risk sentiment remaining upbeat following the Nvidia-driven AI rally last week. NZDUSD was the outperformer last week, with expectations of a hawkish RBNZ this week adding to the tailwinds along with the risk-on environment boosting high beta currencies. NZDUSD is testing resistance at 0.62 while AUDNZD is back above 1.06. NOK, on the other hand, was the underperformer as USDNOK rose above 10.50. USDJPY rose to highs of 150.80 and intervention threat remains as Japan comes back from holiday today. EURUSD still holding up above 1.08 despite the dovish comments from Lagarde, and focus this week will be on the inflation print.

Commodities:  Crude oil prices declined on Friday, ending the week lower again amid lack of fresh catalysts. Gold rallied on Friday to over $2030 as Treasury yields slipped, but continuation of risk-on on the back of Nvidia-driven AI rally can threaten the momentum. Metals remain in focus with China momentum seen picking up while supply disruptions persist. Iron ore futures were however down over 8% last week in Singapore.

Macro:

• Fed’s Waller (voter) said there is no rush to start cutting rates as inflation progress in being monitored. Lisa Cook (voter) also said that she was optimistic inflation is cooling but wants to see more evidence of getting close to 2% target before discussing rate cuts. Focus now shifts to January core PCE, Fed’s preferred inflation gauge, due out this week.
• ECB’s Lagarde said that Q4 wage numbers are encouraging as pay growth slowed to 4.5%. She also stressed that the ECB is independent, hinting that it may not wait for the Fed to cut rates first.
• China’s regulators said that they would not intervene in normal transactions, including short selling, but only enforce regulations to prevent illegal activities that affect the orderly function of the market.
• New and existing home prices in the top Chinese 70 cities continued to slide, falling by 0.37% and 0.68% M/M respectively in January.

Macro events: US New Home Sales (Jan), US Dallas Fed Manufacturing Activity (Feb)

Earnings: Workday, ONEOK, Fidelity National Information, Li Auto, Public Service Enterprise, HEICO, Zoom, Erie Indemnity, Domino’s Pizza.

In the news:

• Buffett Says ‘Eye-Popping’ Results Unlikely With Record Cash (Bloomberg)
• How a Shifting AI Chip Market Will Shape Nvidia’s Future (WSJ)
• Nikkei average gives boost to BOJ's case for monetary tightening (Nikkei Asia)
• Japan to Give Extra $4.86 Billion to Expand TSMC Kumamoto Plant (Bloomberg)
• BYD Unveils $233,450 EV Supercar to Rival Ferrari, Lamborghini (Bloomberg)
• How Trump defeated Nikki Haley in her home state of South Carolina (Reuters)
• China seeks to strengthen cooperation with New Zealand for CPTPP, commerce minister says (Reuters)
• Disney, Reliance Said to Sign Binding India Media Merger Pact (Bloomberg)

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

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