Global Market Quick Take: Asia – October 12, 2023

US Equities: The major US equity indices climbed for a fourth straight day with S&P 500 up 0.4% and NASDAQ 100 up 0.7% as Treasury yields continued to slide despite hot PPI. Kidney dialysis and related names (DVA, BAX, FMS) were heavily sold after Novo Nordisk (NVO) announced it would end a diabetes drug trial early after interim analysis for the treatment Ozempic showed success in preventing kidney failure. Eli Lilly posted fresh 1-year highs. Energy sector was the biggest loser in the S&P 500 amid the drop in oil prices, and Chevron was down 5.4% on headwinds in Israel and Australia, and Exxon down ~4% after its merger deal with Pioneer. Birkenstock IPO disappointed, falling 12% at its debut.

Fixed income: Treasuries saw a flattening as haven-demand due to the Israel conflict continued and Fed speaker Waller also beat a less hawkish drum like some of his peers recently. 2-year yields dropped to 4.95% earlier but ended the day 1bp higher on hot PPI while 10-year yields were down over 9bps. The USD 35bln 10yr note reopening saw weak demand, adding to the poor 3yr auction on Tuesday.

China/HK Equities: The Hang Seng Index continued to rally, adding over 1% on a Bloomberg story suggesting China is considering higher fiscal spending financed by an additional RMB 1 trillion central government debts. The news can help sentiment but its impact is likely to fade. Even if it materializes, which we doubt, investors may not think that is enough. On the other hand, the deeply negative sentiment reflecting in a flurry of earnings downward revisions and underweight positions may be a good breeding ground for a tradable rally. Soon, the market will also have its eyes on the 3rd Plenary Session of the 20th Central Committee.

FX: The dollar was steady with the DXY index below 106 as market paid little heed to hot PPI report. GBPUSD continues to test 1.23 for a firmer break while EURUSD is having trouble going above 1.0620 for now with gas prices and Italian yields remaining in focus, as most ECB speakers continue to hint at extending the rate pause. Lack of follow-on on China stimulus saw AUDUSD plunge below 0.64 although it rose just above the big figure later, while NZDUSD slid from 0.6050 buy is still holding on to the 0.60 support. USDJPY still close to 149 despite further slide in long-end yields. EURCHF stays below 0.96 on safe haven demand.

Commodities: Energy markets took a breather after the recent run higher following escalation in geopolitical tensions over the weekend. Oil prices dropped by over 2% as a NY Times article said ‘early intelligence shows Hamas attack surprised Iranian leaders U.S. says’, reducing the risk of Iran being dragged in the conflict. EIA STEO cut world oil demand growth forecasts for 2023 and 2024, and monthly oil market reports by OPEC and IEA out today. The surge in gas prices in Europe also stalled. Gold took another leg up, rising to over $1870 as long-end yields slid further.

Macro:

• US PPI for Sept was hotter than expected. Headline PPI rose 0.5% M/M in September (prev. 0.7%), above the consensus 0.3%, with the Y/Y lifting 2.2% (prev. 2.0%, exp. 1.6%). Core metrics also surpassed expectations with M/M and Y/Y climbing 0.3% (exp. & prev. 0.2%) and 2.7% (exp. 2.3%, prev. 2.5%), respectively. Food and energy prices underpinned the strength, and focus turns to CPI due today.
• Fed Governor Waller joined the less hawkish camp to say that “financial markets are tightening up and they are going to do some of the work for us ”. Pricing for further rate hikes is now down to less than 30% probability, while additional rate cuts are being priced in for 2024. The FOMC minutes did not add much new information.

Macro events: ECB Minutes, UK GDP (Aug) exp 0.2% vs. -0.5% prior, US CPI (Sep) exp 3.6% YoY vs. 3.7% prior – read Saxo’s full preview here. US jobless claims exp. 210k vs 207k prior.

In the news:

• Biden warns Iran over Gaza; Israel forms emergency war cabinet (Reuters)
• UAW workers strike Ford Kentucky truck plant in unexpected move (Reuters)
• European companies halt IPO plans on concerns over market conditions (FT)
• ExxonMobil agrees to buy shale group Pioneer in $59.5bn deal (FT)
• China Sovereign Wealth Fund Buys Shares in Big Four Banks (Bloomberg)

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

For a global look at markets – go to Inspiration.