Market Insights Today: Softer inflation prints from France, solid JOLTS job openings report, mixed messages from the FOMC minutes – 5 January 2023

What’s happening in markets?

Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) ended higher in a choppy session

U.S. stocks had a strong start on Wednesday through the morning and then oscillated after the release of the FOMC minutes in the afternoon digesting the hawkish warnings from the Fed about an unwarranted easing in financial conditions and the dovish signal of an increasing number of Fed FOMC members being concerned about two-sided risks. S&P 500 ended the session 0.8% higher and Nasdaq 100 climbed 0.7%. The rally was broad-based as all 11 sectors within the S&P 500 gained. The interest rate-sensitive real estate sector was the best performer while the energy sector was close to flat as crude oil slid nearly 5%. Tesla (TSLA:xnas) rebounded 5%. Micorsoft (MSFT:xnas) plunged 4.4% on analyst downgrades and concerns about the company’s cloud computing business. The next key focus of investors will be the employment report this Friday.

US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) gained on softer French CPI prints, and the FOMC minutes showed more Fed officials concerned about two-sided risks

Treasuries caught some strong bids in tandem with the European bond markets that rallied on softer-than-expected CPI prints from France. The market pared some gains after a stronger-than-expected JOLTS job openings report and position squaring ahead of the release of the FOMC minutes. Yields, in particular, those in the longer-end segment, fell again after the FOMC minutes. The 10-year finished Wednesday 6bps richer to 3.68% which yields on the 2-year falling only 2bps to 4.35%. The December FOMC minutes highlighted Fed officials’ worries about “an unwarranted easing in financial conditions” due to a misinterpretation by the market of the Fed’s downshift from 75bp to 50bp hike as a pivot. Nonetheless, the minutes showed that “many participants” argued for balancing the two-sided risks of under- and over-tightening in the December meeting. Minneapolis Fed President Kashkari said in an article that he saw rate hikes “at least at the next few meetings”, leading to a terminal rate of 5.375%.

Hong Kong’s Hang Seng (HIF3) and China’s CSI300 (03188:xhkg)

Hang Seng Index rallied for the second day in a row in 2023, registering an impressive gain of 3.2% and rising to above its 250-day moving average. A pledge of fiscal expansion from China’s Finance Minister fueled investors’ optimism in more economic stimulus measures. Hang Seng TECH Index surged 4.6%, led by Alibaba (09988:xhkg) which soared 8.7% following the news that the Chinese authorities approved an increase in registered capital of the consumer finance unit of Ant Group. Shares of Chinese developers and property management services providers climbed on anticipation of state support, following the state-owned Economic Daily emphasizing the importance of the real estate sector to the economy in its editorial, a recent message from the Financial Stability and Development Committee to support “systematically important” property developers, and Asset Management Association of China’s decision to resume approvals for private equity funds investing in property projects. Longfor (00960:xhkg) and Country Garden Services (06098:xhkg) each jumped more than 11%, being the two biggest gainers within the Hang Seng Index. Sunny Optical (02382:xhkg), a supplier to Apple (AAPL:xnas), plunged 10% on analyst downgrades and a Nikkei report that “Apple has notified several suppliers to build fewer components for Airpods, the Apple Watch and MacBooks for the first quarter, citing weakening demand”. Semiconductors names were among the laggards as China was reportedly going to slow its investment push for developing the country’s chip-making industry due to pressures on its fiscal budget. In A-shares, CSI 300 finished the day little changed, with real estate and financials outperforming and weakness in semiconductors and new energy.

FX: AUD gained 1.6% to 0.6840 as China is considering resuming coal imports from Australia

The Australian dollar was the best performer among major currencies against the dollar following news headlines saying that China is considering ending its import ban on Australian coal. EUR and GBP also rebounded from the loss the day before and each up about 0.7% against the dollar. The Japanese yen was the laggard among major currencies and weakened to 132 against the dollar.

Crude oil fell nearly 5% to USD73.17

WTI crude oil fell 4.9% to US73.17 on concerns of a slowing global economy and higher-than-average temperatures in Europe and the U.S.

What to consider?