Global Market Quick Take: Asia – December 14, 2023

US Equities: Stocks rallied on a dovish FOMC and Powell. The Dow Jones Industrial Average surged 1.4% to 37,090, reaching an all-time high. The S&P500 gained 1.4% to 4,707, and the Nasdaq 100 added 1.3% to 16,562. The momentum is likely to continue through December, with the S&P500 approaching 5,000. Investors are likely to conclude that the Fed will cut rates more and faster than previously priced in. In extended hours, Adobe sank 5.4% after the software giant provided a downbeat sales outlook for 2024, as it will take time for generative AI products to generate revenues.

Fixed income: Following a dovish FOMC statement and remarks from Fed Chair Powell that effectively signaled potential rate cuts, Treasuries experienced a significant rally. The short end performed well, with the 2-year yield dropping 30bps to 4.43%, while the 10-year yield decreased by 18bps to 4.02%. We reiterate our prediction that the Fed will initiate rate cuts in Q1 2024, and we anticipate further gains in the Treasury market.

China/HK Equities: The Hang Seng Index slid 0.9% and the CSI300 plunged 1.7% on Wednesday, putting an end to the rally earlier this week. This occurred as the readout from China’s Central Economic Work Conference, which set the agenda for economic policies in 2024, contains policy priorities that are essentially familiar rhetoric. Mobile phone stocks outperformed. Xiaomi, rising 2.5%, topped the performance within the Hang Seng Index. AAC Technologies and Sunny Optical gained over 1%.

FX: The dollar plummeted as Treasury yields fell sharply after the FOMC. The DXY plunged 0.9% as the dollar dropped against all G-10 currencies. AUD and JPY gained around 1.7%, with AUDUSD at 0.6665 and USDJPY at 142.85. GBP underperformed due to weaker-than-expected GDP prints, gaining only 0.5% against the dollar, trading at 1.2620.

Commodities: Gold rallied 2.4% to $2,028 amid sharp declines in Treasury yields and the dollar. WTI crude and Brent crude surged around 1.4% to $69.5 and $74.3 respectively. US Mexican Gulf Coast crude inventory fell for the third week to 247.9 million barrels.

Macro

• The Fed’s FOMC, as expected, held rates unchanged. The FOMC statement added the word “any” in front of its description of “additional policy firming”. In the press conference, Chair Powell said that the FOMC added “any” as an acknowledgement that the Fed “is likely at or near the peak rate for this cycle”, and “very focussed” on not making the mistake of keeping rates restrictive for too long. In the Summary of Economic Projections, the Fed removed the one rate hike previously projected and increased the number of rate cuts for 2024 to three, projecting the Fed Fund target falling 75bps to 4.50-4.75% (vs previous projection of 5.0-5.25%) by the end of 2024. Further, the FOMC’s projections, or dot plots, suggest 100bp cuts in 2025 to 3.50-3.75% (vs the previous projection of 3.75-4.0%), and 75bp cuts in 2026 to 2.75-3.0% (same as in the previous projection) by the end of 2026.
• US Core PPI came in softer than expectations in November, remaining unchanged month-on-month in November (vs consensus +0.2%), and slowing to 2.0% Y/Y from 2.4% in October and below the consensus forecast of 2.2%. The headline PPI came in at 0.0% M/M and 0.9% Y/Y, broadly in line with expectations. The softness in the PCE-relevant component in the PPI report tends to support the market projection of November core PCE to fall to 3.4%. 
• The UK GDP contracted 0.3% M/M in October, worse than the -0.1% expected and down from the prior month’s +0.2%.
• The Bank of Japan’s Tankan survey showed a bounce in business sentiment and sticky inflation expectations.
• China’s new RMB loans in November came in lower than expected at RMB1,090 billion (vs consensus 1,300 bn; prior 738bn). The growth of outstanding RMB loans slowed to 10.8% Y/Y in November from 10.9% in October. New aggregate financing increased to RMB2,450 billion in November from RMB1,850 billion in October, below the median projection of RMB2,595 billion. The growth of outstanding aggregate financing edged up to 9.4% Y/Y from 9.3%.

Macro events: US Retail Sales (Nov), Bank of England meeting, Japan Machinery Orders (Oct)

Earnings: Costco, Lennar

In the news:  

• Tesla recalls nearly all vehicles on US roads over lack of Autopilot safeguards (Reuters)
• Adobe Signals That AI Boost Will Take Longer Than Expected (Bloomberg)

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

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