Global Market Quick Take: Asia – January 2, 2024

US Equities: The S&P 500 retreated 0.4%, and the Nasdaq 100 ticked down 0.3% last Friday, finishing 2023 gaining 24.2% and 53.8%, respectively. The performance during the year was dominated by large-cap technology companies such as the 'magnificent seven.' The S&P 500 Equal Weight Index underperformed with an 11.6% gain. The narrow concentration of performance, rich valuation, and high expectations for the market leader stocks, accompanied by the likelihood of weaker US and European economies ahead, point to a potentially more bumpy Q1 for US equities.

Fixed income: Treasuries finished mixed last Friday, with the 2-year yield falling 3bps to 4.25% while the 10-year yield adding 4bps to 3.88%. Returning from the holidays, investors this week are most likely to focus on the series of labor market data releases in order to gauge how soon the Fed will start cutting rates, starting with the JOLTS job openings data (consensus: 8,863k; prior: 8,733k) on Wednesday, followed by initial jobless claims (consensus: 215k, prior 218k) and ADP private employment (consensus: +115k; prior: +103k) on Thursday, and then finally the most-watched nonfarm payrolls (consensus: +170k; prior: +199k), unemployment rate (consensus: 3.8%; prior: 3.7%), and hourly earnings (consensus: 0.3% M/M or 3.9% Y/Y; prior: 0.4% M/M or 4.0% Y/Y) on Friday. We maintain our call for the first cut to come in Q1 and the tendency for the yield curve to steepen.

China/HK Equities: Last Friday, on the last trading day for the year, the Hang Seng Index finished nearly unchanged for the day but was down 13.8% for the year. The CSI300 edged up 0.5% on Friday but declined 11.4% in 2023. Released during the holiday long weekend, China’s official NBS PMI data indicated that the country’s manufacturing as well as service sectors remain in contraction. The persistent weakness may exert pressure on the Hong Kong and mainland China equity markets today when investors returned from the long weekend. Another gauge of the state of the China manufacturing sector, the Caixin China manufacturing PMI is scheduled to release this morning. The median forecast as per the survey by Bloomberg is 50.3 for December, a decline from 50.7 in November.

FX: The Japanese market remains closed on Tuesday for the New Year holiday. Meanwhile, a Magnitude-7.6 earthquake hit central Japan on Monday. Last Friday, the dollar gained modestly, with DXY up 0.2%, USDJPY up 0.3%, EURUSD down 0.2%, and AUD down 0.3%. The anticipation of a reversal in policy divergence between the US and Japan in 2024— with the Fed cutting rates and the BoJ abandoning its ultra-loose policies—propelled the Yen to strengthen to nearly 140.00 against the dollar last week. The next BoJ decision on monetary policy is scheduled for January 24, 2024. BoJ Governor Ueda’s speeches on December 25 and 27, along with the Summary of Opinions from the December BoJ monetary policy meeting released on December 27, suggest that a January move is unlikely, but the BoJ has kept this option open. In the meantime, USDJPY remains anchored within the 140-145 range, currently trading at around 141.10.

Commodities: Gold is in consolidation mode, sliding 0.1% on Friday to $2,063. Both fundamentally and technically, the yellow metal is likely to move higher in Q1 2024, eyeing $2,193 and possibly $2,231. Crude oil retreated modestly last Friday but traded higher in early Asian hours on Tuesday, with WTI crude gaining 0.4% to reach $72.0. This increase came after Iran sent a destroyer to the Red Sea in response to the US Navy sinking three Houthi militants’ boats.

Macro:

• December US Chicago PMI fell sharply to 46.9 from 55.8 in November, and much below the 50.0 median forecast by street economists. Business barometer, new orders, employment, and order backlogs contracted, dragging down the headline reading into contraction.
• The manufacturing and service sectors both remain in contraction in China in December. China’s official NBS manufacturing PMI unexpectedly declined to 49.0 in December from 49.4 in November, softer than 49.6 forecasted by economists. The decline brought this key barometer of manufacturing activity to its seven-month low and marked its third month of contraction after a brief rebound back into expansion in September. Non-manufacturing PMI increased to 50.4 in December from 50.2 in November, modestly below the 50.5 expected. However, the service sub-index remained at 49.3, signaling contraction while the construction sub-index increased to 56.9 from 55.0.
• In December, the average price of new homes in the top 100 cities in China ticked up 0.1% M/M or 0.27% Y/Y.  However, the average price of secondary market home sales fell 0.55% M/M or 3.5% Y/Y.

Macro events:  US S&P manufacturing PMI (Dec, final), US construction spending, China Caixin manufacturing PMI (Dec), Spain manufacturing PMI, Italy manufacturing PMI EUR M3 growth (Nov), Japan markets closed for holiday.

In the news:

• Powerful quake rocks Japan, nearly 100,000 residents ordered to evacuate (Reuters)
• Oil Rises as Iran Warship Enters Red Sea Following Boat Attacks (Bloomberg)
• ASML Holding NV canceled shipments of some of its machines to China at the request of US  (Bloomberg)
• Ant Completes Process of Removing Jack Ma’s Control (Bloomberg)

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

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