Global Market Quick Take: Asia – April 11, 2023

What’s happening in markets?

US equities (US500.I and USNAS100.I): finish little changed in a quiet session

S&P 500 and Nasdaq 100 recovered from the 0.8% and 1.5% losses in early trading and recovered to finish Monday nearly unchanged at 4109 and 13051 respectively. Trading was thin as most of Europe and Hong Kong were not yet back from the long holiday weekend. Six out of the 11 S&P 500 sectors gained, led by industrial, up 0.9%, and energy, up 0.7%. The communication services sector, down 0.7%, was the worst performer. Alphabet (GOOGL:xnas) dropped 1.8% and Meta (META:xnas) shed 0.6%. Apple (APPL:xnas) slid 1.6% on weak Mac shipments (see below).

Q1 earnings season kicks off this week with money-center banks, JPMorgan (JPM:xnys), Citigroup (C:xnys), and Wells Fargo (WFC:xnys) reporting this Friday.

Treasuries (TLT:xnas, IEF:xnas, SHY:xnas): the yield on 2-year above 4% as odds for hikes increase

Following the solid employment report last Friday, investors continued to adjust upward the odds for a 25bp rate hike at the May FOMC and took it up to 80%. The upcoming supply of USD90 billion refunding auctions from Tuesday to Thursday also weighed on Treasury prices. Yields across the curve climbed 2-3bps with the 2-year yield back above the 4% handle to 4.01% and the 10-year yield rose to 3.42%.

Chinese equities (HK50.I) and (02846:xhkg): CSI300 down 0.5% on tech weakness

The Hong Kong equity market was closed on Monday for the Easter holiday. In mainland bourses, CSI300 shed 0.3% as technology stocks led the decline. AI-generated content (AIGC), computing, electronics, communication services, and media were among the top losers while petrochemical, non-ferrous metals, electric equipment, and utilities bucked the broad market decline.

AIGC stocks were sold off following the state-owned Economic Daily warning about a speculative bubble forming on AIGC or ChatGPT concept stocks.

FX: USD strength prevails as 2-year yields jump above 4%

The nonfarm payroll data continues to be digested by the markets still and 2-year yields jumped above 4% as the odds of a Fed rate hike in May picked up further and about 60bps of rate cuts are priced by year-end now compared to close to 100bps earlier. That brought a fresh bid to the US dollar. Higher yields as well as a dovish press conference from the BOJ governor Ueda put the yen under pressure, and USDJPY rose to highs of 133.87 before sliding back below 133.50 in early Asian hours today. Risk off mood also brought AUD and NZD lower, but a recovery has ensued from overnight lows as China’s inflation data is eyed today.

Crude oil: lower on USD strength

Crude oil prices slid in the NY session overnight, with WTI sliding below $80/barrel and Brent below $85 amid a risk off mood as traders digested the still-firm US nonfarm payroll report from Friday. That brought the odds of further tightening by the Fed higher, sparking further demand concerns. As we wrote yesterday, crude oil markets will be more focused on demand-side issues now after the supply cuts from OPEC+ have been absorbed by the markets and helped drive out short-sellers as well. This week’s US CPI data will be key to monitor, along with China’s credit data. Monthly outlook reports from OPEC and IEA are also awaited.

Gold (XAUUSD): downside remaining limited

Higher yields and a stronger dollar weighed on the yellow metal on Monday, and XAUUSD slid below the key $2000 level. However, the downside was capped at $1980 and a recovery to $1995 ensued in the early Asian hours. Support still seen at 20DMA at $1972. Silver prices also fell, as gains above $25 await a fresh catalyst. Meanwhile, Newmont made a fresh offer for Newcrest Mining after the earlier offer was rejected in February. The revised offer would entitle Newcrest shareholders to receive 0.400 Newmont shares for every Newcrest share held,  as against 0.38 shares earlier.

What to consider?

IMF/World Bank spring meetings bring growth worries

The International Monetary Fund released its latest World Economic Outlook (WEO) that argued that US and other industrial countries will revert to ultra-low levels of interest rates that prevailed before the pandemic, with the US neutral rate comfortably below 1%. This would be driven by aging populations and sluggish productivity which suggest that growth will remain meagre. Meanwhile, the World Bank revised its 2023 global growth outlook slightly upward to 2% from a January forecast of 1.7% but said that the slowdown from stronger 2022 growth will increase debt distress for developing countries. But this didn’t come without a warning that turmoil in the banking sector and higher oil prices could again put downward pressure on growth prospects in the second half of 2023.

Bank of Japan’s new chief Ueda stays away from hawkish signals at debut press conference

After a decade at the helm, Kuroda retired as the Bank of Japan chief on April 8 and Kazuo Ueda was appointed to the job. In his first press conference as the Governor, Ueda reaffirmed his commitment to yield curve control in the current economic conditions and prices. His policy stance appears to be a continuation of Kuroda’s dovish steps, but he has also kept the door open for any tweaks in policy if markets are under pressure. That means that market participants will continue to expect some tweaks in the BOJ policy, especially as we head into Ueda’s first policy meeting on April 27-28. FinMin Suzuki was also on the wires this morning and said that Ueda and PM Kishida do not think that an immediate re-think on joint policy accord on inflation will be needed.

Fed’s Williams dismisses link between rate hikes and bank failures

Federal Reserve Bank of New York President John Williams said on Monday that financial system troubles that drove the central bank to provide large amounts of credit to banks is not collateral damage from the Fed’s aggressive effort to lower inflation. Williams said he viewed the trouble at the two banks as unique in nature and unlikely to reflect broader trends in the financial system. Still, the turmoil in the banking sector has led market participants to believe that the rapid pace of tightening from the Fed has broken something or will break something.

Apple’s PC shipments decline by over 40%

Apple’s personal computer shipments declined by 40.5% in the first quarter, marking a tough start to the year for PC makers still grappling with a glut of unsold inventory. Shipments by all PC makers combined slumped 29% to 56.9 million units, and fell below the levels of early 2019, as the demand surge driven by pandemic-era remote work evaporated, according to IDC’s latest report. Lenovo and Dell also registered drops of over 30%, while HP’s shipments were down 24%.

Geopolitics and China data dump will be a test for the China reopening story

China held a second day of military drills around Taiwan n Monday, with multiple exercises involving aircraft and ships, after the island’s president, Tsai Ing-wen, returned from a visit to the US. These actions appear to be a repeat of those in August after Pelosi’s visit to Taiwan. Beijing also stepped up some sanctions on Taiwan’s envoy to the US as a symbolic gesture and more measures will remain on watch today. Meanwhile, China has also taken a step in the chip war with the launch of a probe on Micron Technology. Further US-China tensions remain on watch this week as these can play a spoiler in the China reopening story.

Meanwhile, a bunch of key China data will be reported this week and focus will remain on how supportive authorities remain to drive economic growth. Data for March credit financing will be in focus to assess the liquidity provisions and support to the property sector. Inflation will likely remain soft enough to continue to provide room for the People’s Bank of China to announce targeted easing measures if economic momentum fails to pick up in-line with their expectations. Bloomberg consensus expects higher aggregate financing in the month, while CPI is expected to be flat at 1% YoY even as PPI dips further into deflation with -2.5% YoY print expected in March after February’s -1.4% YoY. Trade data for March is also due in the week, and both exports and imports are expected to show a YoY decline.

For a detailed look at what to watch in markets this week – read or watch our Saxo Spotlight.

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