Global Market Quick Take: Asia – January 17, 2024

US Equities: Stocks retreated on Tuesday as the 10-year Treasury yield rose to 4.06%. The S&P 500 shed 0.4% to 4,766 with 10 of its 11 sectors losing except information technology. The Nasdaq 100 was flat, closing at 16,831, supported by strength in semiconductor names on positive analyst reports. Nvidia surged 3.1% to $563.82, reaching a new high. Meanwhile, AMD jumped 8.3%. A notable weakness in Morgan Stanley, which dropped by 4.2% after cautious comments from the management on the margins of its wealth-management business for 2024.

Fixed income: After first reacting to weakness in European government bonds during Asian and European hours, Treasury yields extended their rises in the U.S. session on hawkish comments from Fed Governor Waller who said rate cuts don’t have to be “rushed”. The 10-year yield jumped 12bps to 4.06%.

China/HK Equities: The Hang Seng Index plunged 2.2% to 15,866, reaching low levels last seen in November 2022. Remarks by Hong Kong Chief Executive John Lee that the to-be-legislated Article 23 of the Hong Kong Basic Law would be “forward-looking, flexible, and able to deal with changing situations” triggered some concerns among investors. Additionally, a media report that some large mainland institutional investors were asked not to sell A shares. The report caused speculation that mainland investors would sell more stocks traded in Hong Kong to raise cash. Market sentiments have been cautious ahead of today’s GDP, industrial production, fixed-asset investment and retail sales data from China. The CSI300 Index rebounded 0.6% on Tuesday amid speculation that the “national team” bought A-share ETFs in the afternoon.

FX: Dollar returned to strong gains with the DXY index breaking above 103 to test the 200DMA at 103.45 with Treasuries falling as market’s re-assessed the aggressive rate cut pricing for this year after a pushback from Waller as well as a host of ECB officials. Aussie was the weakest of the majors, with AUDUSD pushing below the 50DMA and breaking the 0.66 handle to test 200DMA at 0.6583. Yen also suffered on the back of higher Treasury yields, with USDJPY breaking past 147 to one-month highs, and pair extended gains in the Asian morning today to 147.50. EURJPY rallied past 160 as well, and GBPJPY broke above 186. EURUSD pushed below the 1.09 mark despite the ECB pushback, while GBP was hit by wage data but held up above the 50DMA.

Commodities: Stronger dollar hurt commodities overnight, although industrial metals closed higher amid hopes of further China stimulus as reports suggested that Beijing was weighing issuance of $139bn of special bonds. China’s economic data remains on watch today. Oil prices shrugged off the Mideast tensions as macro concerns took over amid the pushback from Fed’s Waller and ECB speakers on rate cut expectations. Today’s focus includes the OPEC monthly report along with inventory data as well as US retail sales. Gold slumped on higher Treasury yields but the 50DMA at $2,018 held up.

Macro:

• Fed Governor Waller reaffirmed that the Fed could start cutting rates this year, but he pushed back on market’s aggressive pricing. He said that the central bank should be methodical and careful when lowering rates as there could be concerns around the sustainability of data such as low inflation with strong growth and low unemployment. He did not comment specifically on the possibility of a March rate cut, and continued to emphasize a data-dependent approach. He also did not sound to be in a big rush to taper QT.
• The NY Fed manufacturing survey saw a sharp deterioration. Headline manufacturing business conditions fell to -43.7 from -14.5, much deeper than the forecast of -5, driven primarily by a huge decline in New Orders and Shipments. New Orders fell to -49.4 from -11.3, while Shipments dropped to -31.3 from -6.4.
• UK labor and wage data cooled more than expected. Private sector regular pay growth – which removes the volatile bonus category – now sits at 6.5%, down from a peak of over 8% last summer.
• German January ZEW survey saw economic sentiment a notch higher than expected at 15 vs. 12 expected. But more ECB speakers pushed back on rate cut expectations. ECB’s Villeroy said it was too early to declare victory over inflation, while Simkus said that he is far less optimistic than market on rate cuts. Meanwhile, Muller said that market expectations for 2024 ECB rate cuts are aggressive and wage growth is not in line with inflation target.

Macro events: UK CPI (Dec), US Import/Export Prices (Dec), US Retail Sales (Dec), US IP (Dec), US NAHB (Jan), China GDP (Q4), China Retail Sales/Industrial Production (Dec)

Earnings: Charles Schwab, US Bancorp, Citizen Financials, Prologis, Kinder Morgan, Discover

In the news:

• China’s economy hit target with 5.2% growth in 2023, Premier Li Qiang tells Davos forum (SCMP)
• China Weighs More Stimulus With $139 Billion of Special Bonds (Bloomberg)
• China’s Xi Jinping lays out road map for becoming ‘financial superpower’ – but warns risk can throw efforts off-track (SCMP)
• Trump faces tougher test in New Hampshire after blowout Iowa win (Reuters)
• Goldman and Morgan Stanley report lowest profits in 4 years (FT)
• Morgan Stanley revenue tops estimates, but CEO warns of geopolitical, economic risks ahead (CNBC)

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

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