Global Market Quick Take: Asia – August 8, 2024

Key points: 

• Equities: SMCI falls 20% after margins fell short 
• FX: Yen strengthens on risk aversion 
• Commodities: Copper stockpile surges to highest since 2019 
• Fixed income: Treasury yield curve bear steepens  
• Economic data: US jobless claims (Thu), China inflation (Friday) 

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The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events. 

Disclaimer: Past performance does not indicate future performance. 

** Please note that there will be no Saxo Asia Quick Take on 9 August 2024 ** 

In the news: 

• US stock futures drift lower as rebound stalls, tech weakness persists (Investing)
• Warner Bros. Discovery reports wider Q2 loss on $9.1B hit to networks unit (Investing)
• Novo Nordisk posts rare miss on sales of obesity drug Wegovy (Reuters)
• Monster Beverage shares tumble after disappointing Q2 earnings (Investing)
• Toyota cuts 2024 global vehicle output forecast by 5%, Chubu Keizai newspaper reports (Investing)
• SGX posts 4.5% higher adjusted net profit for FY2024, raises quarterly DPS to 9 cents (Yahoo)
• DBS chief Piyush Gupta to step down; Tan Su Shan to take the top job (CNA)

Macro: 

• Bank of Japan Deputy Governor Shinichi Uchida conveyed a strong dovish stance in the first public statement from the central bank since the rate hike on July 31. He asserted that the BOJ would avoid raising interest rates while the markets remain unstable, after the central bank has been under the radar for its hawkish moves, which sent ripples across the Japanese and global equity markets. Uchida suggested that the bank will carefully consider the state of financial markets in future decisions on rate policy. He said that authorities in Japan can afford to wait for the markets to calm before making any decisions. Read this article to know more about the BOJ’s U-turn and what it means for Japanese equities and the yen. Summary of opinions from the BOJ meeting was also released this morning, and emphasised that the rate hike from last week will not have tightening effect and easing stance will remain.  
• Bank of Canada’s July meeting minutes signaled policymakers are worried that a weaker jobs market will delay the recovery in consumer spending and this encouraged them to cut rates last month. Tone was dovish with central bank not worried about risks of inflation getting re-ignited but focused more on the impact of high interest rates on economic growth.  

Macro events: 

• THU: US jobless claims (Aug 3), New Zealand Inflation expectations (Q3) 
• FRI: China CPI / PPI (Jul), German Final CPI (Jul), Canada Jobs Report (Jul)

Earnings: Eli Lilly, Vistra Energy, Plug, Datadog, Cheniere Energy 

Equities: US stocks closed lower on Wednesday, unable to extend Tuesday's recovery following Monday's selloff. The S&P 500 declined by 0.7%, the Nasdaq fell by 1%, and the Dow Jones dropped 234 points. Investors remain focused on analyzing the economic outlook and monetary policy while also turning their attention to earnings reports. Providing some relief, the Bank of Japan's Deputy Governor Shinichi Uchida stated that the central bank would avoid raising interest rates during market instability. The consumer discretionary sector was the biggest laggard, with Tesla shares falling 4.4%, followed by declines in the materials and technology sectors. On the earnings front, Disney shares dropped 4.4% due to concerns over its park business, despite its streaming unit achieving profitability. Airbnb's stock fell 13.4% after issuing a weaker forecast for the current quarter. Super Micro plummeted 20.1% as its margins fell short, while CVS Health decreased by 3.2% due to mixed earnings and its CEO taking over leadership at Aetna. 

Fixed income: U.S. Treasuries are declining as the earlier global market turmoil subsides, with investors steering clear of a sale of 10-year notes offered at lower yields. This selloff drove 10-year Treasury yields up by six basis points on Wednesday to 3.95%, as traders reversed bets on significant interest rate cuts this year. A $42 billion auction of benchmark 10-year securities saw weak demand, with yields well above pre-sale indicative levels. Yields rose by up to 7 basis points across the long end of the curve in a pronounced bear-steepening move. This shift raised 2-year yields by about 3 basis points, steepening the 2s10s spread by ~4 basis points and the 5s30s spread by ~2 basis points for the day. The 10-year yield closed around 3.96%, up by 6 basis points. Interest rate swaps showed that traders are pricing in a 41 basis point cut at the Federal Reserve’s September policy meeting and about 108 basis points of easing by year-end. Just two days ago, around 150 basis points of rate cuts were expected in 2024 amid fears of a U.S. recession. Meanwhile, JGB futures advanced ahead of an ultra-long Japanese bond sale. 

Commodities: Oil extended its largest weekly gain as traders feared a potential Iranian retaliation against Israel for the assassinations of Hezbollah and Hamas leaders. West Texas Intermediate traded above $75 after a 2.8% rise on Wednesday, with Brent near $78. While Israel braces for a possible attack, Iran's president hinted at diplomacy in a call with French President Emmanuel Macron. Concerns about Middle East disruptions and a halt in Libya’s largest field output underpinned recent gains. U.S. data showed crude stockpiles fell for a sixth straight week to their lowest since February. Gold steadied after a five-day decline — the longest in nearly six months — influenced by broader market cues and weak equities. Immediate-delivery bullion traded near $2,385 an ounce after losing almost 3%. Stockpiles surged the most in four years, highlighting weak demand in Asia. A 42,175-ton inflow took London Metal Exchange inventories to their highest since 2019, with material flooding into South Korean and Taiwanese warehouses. 

FX: The US dollar reversed lower this morning in Asia after sustaining its gains on Wednesday. Comments from Bank of Japan’s Deputy Governor Uchida to calm the markets helped put a lid on strength in the Japanese yen. However, the impact was short-lived as the yen weakened again this morning amid lower Treasury yields and safe-haven play as Mideast tensions escalated. Swiss franc, another safe haven, was also higher in the Asian morning. Risk currencies like kiwi dollar, Norwegian krone, British pound and the Australian dollar were on the backfoot. The euro was range-bound and Germany’s final July inflation print will be on the radar on Friday.  

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