Global Market Quick Take: Asia – January 15, 2024

US Equities: The S&P 500 Index and the Nasdaq 100 index edged up 0.1% each to 4,784 and 16,833 respectively, just shy of their all-time highs. Energy stocks were the best performers as crude oil prices climbed. Airlines got hammered after Delta Air Lines cut the year’s guidance, blaming geopolitical tension, supply chain issues and energy prices. Bank shares mostly declined, with the KBW Bank Index falling by 1.1%. Wells Fargo plunged 3.3% after reporting higher loan loss provision and warned about net interest income trend in 2024. JPMorgan said lower interest rates this year would impact net interest income. Bank of America and JP Morgan Chase dropped by 1.1% and 0.7% respectively after reporting results below consensus forecasts.  The US market is closed on Monday for holiday.

Fixed income: Yields fell across the curve, led by a 10bps drop in the 2-year yield to 4.14% after components in the PPI report that were input to the PCE compilation showed weakness. Traders positioned for downside surprises in the December PCE data that may bring the 3-month and 6-month annualised rates of PCE inflation below the Fed’s 2% target. The 10-year yield fell 3bps to 3.94%. The 2-10-year yield curve steepened by 7bps to 21bps.

China/HK Equities: As China remained in deflation with negative prints in CPI and PPI growth, both the Hang Seng Index and the CSI300 dropped by 0.4% to 16,245 and 3,284 respectively. Energy stocks bucked the market decline and outperformed.

FX: Dollar was choppy on Friday amid risk on from Yemen strikes but downside pressures coming off sharply lower 2-year Treasury yields, and ended the week broadly unchanged after starting the year with some gains. Overall FX market moves remained subdued on Friday. Japanese yen was stronger as yields fell, but USDJPY remains pinned around the 145 mark although EURJPY slid below 159 as EURUSD continues to find sellers ahead of 1.10. EURNOK also pushed lower amid the moves in oil, printing lows of 11.25 and December lows of 11.18 remain in focus. US markets are closed today, so moves in FX could be subdued. Watch for the reaction from TWD or CNH to the Taiwan election results, as well as the expected MLF cut from China today.

Commodities: Crude oil markets continue to see wild swings amid geopolitical developments and demand concerns, and that could well remain the key theme going into this week as well. China’s deflation and import weakness weighed on the industrial metals, with iron ore down 3.5% on Friday. Strong imports of steel from China despite weak demand has resulted in inventory build, and stockpiles have risen for a 6^th straight week ahead of China Lunar New Year holiday. Gold surged with the decline in yields, as well as a pickup in haven demand amid US-led strikes in Yemen.

Macro:

• US December PPI came in softer-than-expected. Headline PPI declined 0.1% MoM, despite expectations for a 0.1% gain, matching the prior month's decline. YoY was also cooler than expected at 1% (exp. 1.3%), but up from the revised down 0.8% for Nov. The core measure was also cooler than expected and was unchanged M/M, matching the prior read despite expectations for a 0.2% gain, while the Y/Y rose 1.8%, beneath the 1.9% forecast and 2.0% prior. That has led to Fed rate cut pricing picking up further for 2024, with a total of 165bps of rate cuts priced in now vs. 155bps earlier.
• China’s headline CPI deflation slowed to -0.3% Y/Y in December from -0.5% in November, slightly above the -0.4% median forecast. On a month-on-month basis, CPI increased by 0.1% in December vs -0.5% in November. A smaller decline in food prices was a major driver. Core-CPI remained at +0.6% Y/Y, the same as the previous month. PPI deflation decelerated to -2.7% Y/Y in December from -3.0% in November.
• China’s new aggregate financing fell to RMB1,940 billion in December, below the median forecast of RMB2,162 billion. It brings the growth of outstanding aggregate financing slightly higher to 9.5% Y/Y in December from 9.4% in November. The growth in loans to both corporates and households was weak. The year-on-year growth of outstanding RMB loans decelerated to 10.6% from 10.8%.
• China’s export growth in USD terms increased to 2.3% Y/Y in December from 0.5% in November, above expectations. The rebound was attributable to a strong 51.9% Y/Y rise in exports of motor vehicles. Exports to the EU and ASEAN improved while exports to the US fell 6.9% Y/Y. The growth of imports improved to +0.2% Y/Y in December, from -0.6% in November and above the median forecast of -0.5%. but the growth in processing and assembly imports plunged to -7.9% Y/Y.  
• In a closely contested election, Lai Ching-te of the Democratic Progressive Party (DPP) secured the presidency with 40.0%, defeating opponents from the Kuomintang (KMT) and Taiwan People's Party (TPP). Despite winning, Lai received fewer votes than his predecessor Tsai Ing-wen. In the Legislative Yuan, the DPP lost its majority. The hung legislature weakens Lai's presidency, giving opposition parties leverage in shaping the legislative agenda. This development may provide relief to financial markets. For a more in-depth analysis of the results, refer to our article here.

   

  Macro events: Davos WEF (15th-19th); China MLF, India WPI (Dec), Germany Wholesale Price Index (Dec), Sweden CPIF (Dec), EZ Trade (Nov)

  In the news:

• Microsoft edges out Apple as world's most valuable company (Reuters)
• Citi to cut 20,000 jobs, posts $1.8 billion loss in 'disappointing' quarter (Reuters)
• Panasonic to Make Upgraded Electric Car Battery as Early as 2024 (Bloomberg)
• Chinese carmaker BYD held talks with lithium producer in Brazil (FT)

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

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