Global Market Quick Take: Asia – July 18, 2024

In the news:

• Yen surges on possible intervention, sterling hits one-year high (Reuters)
• Global chip stocks from Nvidia to ASML fall on geopolitics, Trump comments (CNBC)
• Biden tests positive for Covid as age worries mount (Yahoo)
• Netflix Earnings Preview: Waiting on a Pullback (Investing.com)
• TSMC set to report strong profit; stock pressured by Trump comments (Reuters)
• ECB rates seen firmly on hold, but door to September cut still open (Reuters)

Macro: 

• US Industrial Production for June rose 0.6% in June, above market expectations of 0.3%, yet fell from the 0.9% seen in May. Housing starts rose 3% in June to 1.353mln, above the expected 1.3mln and the prior, revised higher, 1.314mln, while building permits lifted 3.4% to 1.446mln (exp. 1.395mln, prev. 1.399mln).
• Fed speakers: NY Fed president Williams said that the Fed is closer but not ready to cut. Waller echoed this message while Barkin hinted that July policy meeting may see a change in narrative on whether inflation is still elevated.
• UK inflation remained sticky, especially for services, which was up 5.7% YoY vs. 5.6% expected and BOE’s own forecast of 5.1%. Headline CPI was hot too, at 2.0% (exp. 1.9%, prev. 2.0%) and continues to argue for the BOE to delay its rate cuts beyond August. Focus today on wages and unemployment data.
• Euro-area inflation: The final print of June inflation in the Eurozone was unchanged at 2.5% YoY with services inflation stuck at 4.1% making a July rate cut unlikely.
• ECB Preview: Despite kicking off policy easing at the June meeting, Euro-are inflation has been choppy with services inflation sticky, keeping the timing of next rate cut in doubt. While no rate cut is expected today, markets will be watching whether President Lagarde guides for a September rate cut. However, given there is a two-month gap to the next meeting with plenty of data to chew on in between together with the Fed’s stance and US political narrative as well, today’s ECB meeting could remain a non-event with little guidance offered. We discussed what to watch and likely market reactions in the Weekly FX Chartbook as well as this bond preview.

Macro events: ECB Policy Announcement, Australia Employment (Jun), UK Unemployment/Wages (May), US Jobless Claims (Jul 13)

Earnings: TSMC, Netflix, Dominos, Abbott, Blackstone

Equities:  U.S. equity markets saw a significant downturn, with the Russell 2000 falling 1.06%, yet outperforming the S&P 500 (-1.39%) and Nasdaq 100 (-2.94%). The Dow Jones hit record highs, bolstered by Johnson & Johnson (+3.69%) and UnitedHealth Group (+4.45%). The CBOE Volatility Index spiked 10%, indicating rising market concern. Healthcare and Financials reached new highs, Industrials retreated, and Technology faced heavy selling, led by semiconductors (SOX -6%), causing the Nasdaq 100 to drop over 500 points before paring losses. The semiconductor sector faced some selling today after Trump’s comments on Taiwan dependency, potential severe trade curbs by the White House, and ASML shares tumbling over 10% on mixed Q2 results and weak Q3 sales forecasts.

Fixed income: The Treasury yield curve's flattening trend persisted Wednesday, supported by strong results from a 20-year bond auction. Yields ended the session mixed, with short-term rates edging higher while intermediate and long-term rates outperformed. The 10-year yield settled at around 4.14%, up roughly 1 basis point from Tuesday's close, after recovering from morning losses. Early pressure on Treasuries was led by short-term rates, influenced by UK inflation data that weighed on gilts and prompted swaps traders to scale back expectations for Bank of England rate cuts. UK 2-year yields rose nearly 3 basis points.

Commodities: Gold hit an all-time high of $2478.00, gaining 6.36% over the past four weeks and 25.16% in the last year. Silver fell 3% to $30.30 per ounce, as investors weighed US interest rate cut prospects and awaited updates from China’s Third Plenum. WTI crude oil futures rose 2.59% to $82.86 per barrel on Wednesday, rebounding from three days of losses due to a 4.87 million barrel drop in US oil stockpiles, contrary to the expected 0.8 million barrel increase. Gasoline and distillate stockpiles unexpectedly rose. Prices were also supported by geopolitical tensions, including an attack on a Liberia-flagged tanker by Yemen's Houthis in the Red Sea.

FX: The Japanese yen saw sharp strengthening overnight and again this morning in Asia without any clear catalysts. Markets are pricing in the Fed to start cutting rates in September, and risks of yen carry trade – the practice of borrowing low yielding currencies to invest in high yielding currencies – unwinding are building as yield gap narrows. Recent comments from Trump have also hinted at concerns from US dollar strength. The euro has also gained ahead of the ECB announcement today, as the British pound extended its rally after a sticky inflation report yesterday. Kiwi dollar reversed some of its weakness despite the softer CPI for Q2, while Aussie dollar lagged, and Australia’s employment data will be on watch today.

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

For a global look at markets – go to Inspiration.