Market Insights Today: - China A shares see large Northbound buying, Ryan Cohen building a stake in Alibaba - 17 January 2023

What’s happening in markets?

Nasdaq 100 (NAS100.I) and S&P 500 (US500.I)

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US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas)

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China’s CSI300 (03188:xhkg) gained 1.6%; Northbound net buying for the 9^th day

CSI300 rose 1.6%, led by brokerage, household appliances, pharmaceuticals, and semiconductor names. Northbound net buying through Stock Connect was RMB15.8 billion on Monday, the 9^th day in a row of net buying for a total of around RMB80 billion. Coal miners, autos, and media stocks retraced. Hong Kong’s Hang Seng Index had a choppy session, rising initially to make a new recent high but failing to hold and sliding to losses in the afternoon before closing nearly flat. The news that the Chinese regulators allowed Didi to resume registration of new users failed to boost the sentiment for internet stocks. On the other hand, Meituan (03690:xhkg) slipped 3.3% as investors feared that the company’s ride-hailing business might lose market share as Didi returns. Hardware names, AAC (02018:xhkg) up 11.4%, Techtronic (00669:xhkg) up 6.2%, and Sunny Optical (02382:xhkg) up 4.0%, stood out as top performers. The automaker, Brilliance (01114:xhkg) tumbled 8.2% after announcing a special dividend of HKD0.96 per share from the disposal of its stake in Brilliance BMW below the street estimate of HK$1.5 per share.

FX: USDJPY seeing a barrier at 129

USDJPY was seen fluctuating around 128.50 in the Asian morning session as Bank of Japan meeting kicks off with speculations of a further policy tweak continuing to build. GBPUSD also failed at another attempt on 1.2300 while AUDUSD returned below 0.7000 ahead of the key China activity data due today, despite January consumer confidence coming in higher at 84.3 from 80.3 previously. A break above 0.7000 could bring the tough resistance of 0.7125 in focus. NZDUSD testing a break above 0.6400.

Crude oil (CLG3 & LCOH3) prices soften

Crude oil prices eased on Monday with WTI falling below $79/barrel and Brent back towards $84/barrel as profit-taking emerged after the 8% rally last week. The World Economic Forum’s annual meeting began with warnings of global recession. This was aided by signs of stronger Russian supply. Seaborne crude exports soared by 30% to 3.8mb/d last week, the highest level since April. India was the biggest buyer, snapping up 33 times more crude than a year earlier. There is a lot to digest in the oil markets, with demand concerns and sanctions on Russian supply and risks of OPEC production cuts. Meanwhile, volatility in gas prices also underpins, suggesting crude oil prices can continue to see two-way price action in this quarter.

US natural gas higher but European gas prices fall

US natural gas settled back above $3.50, higher about 7% on Monday with risks of cold weather at the end of the month. European gas however fell sharply on a strong supply outlook. Dutch front month futures were down more than 15% as full stockpiles in China eased concerns of supply tightness in the LNG market. Chinese importers are trying to divert February and March shipments to Europe amid weak prices at home and high inventories. This is despite a cold snap expected this week.

Iron ore selling eases; and respective equities hold record highs shaking off China’s accusations

The key steel making ingredient, iron ore (SCOA) has fallen 5.3% from its high, including Tuesday’s 0.4% slide, which takes the price to $118.90. Still the iron ore price holds six months highs and is up 56% from its low. The pullback was triggered by China’s top economic planner, the NDRC accusing market participants of hoarding and price gouging after the iron ore price strongly rallied from October’s low in anticipation of demand picking up from China easing restrictions. Iron ore inventory levels are still lower than they were a year ago, which fundamentally supports iron ore price. And the technical indicators indicate the longer term rally could continue. The 50 day moving average is approaching the 200 day moving average. Historically when the 50DMA cross the 200 DMA buying has picked up. Also consider iron ore majors shares, BHP, Rio Tinto Fortescue are holding in record high territory, as investors remember China has made such accusations in the past of price gouging, and the iron ore price previously recovered over the medium to longer term.

Brakes on Copper rally; Aluminium continues to surge higher

A slight recovery in the US dollar on Monday paused the strong rally that has been seen in industrial metals so far this year. Copper fell as signs of weak demand persist. The Yangshan copper cathode premium over LME has declined to USD31.50/t, compared with the 10y average of USD72/t. Stockpiles of copper in Shanghai Futures Exchange warehouses are also higher. HG copper dipped back to $4.14 from highs of over $4.20 last week. Aluminium bucked the trend to push higher as inventories continue to fall. Expectations of stronger demand as China reopens also boosted sentiment. Rio Tinto (RIO) reported 4Q iron ore shipments of 87.3mt, +3.8% YoY vs est 86.2mt and still sees 2023 shipments of 320-335mt while mined copper output guidance raised to 650-710kt from 500-575kt previously.

What to consider?

China GDP and activity data