Summary: Stocks closed higher in a quiet session and Treasuries rallied on strong demand at the auctions with focus still on economic data such as US PCE and NFP due at the back half of the week. Optimism from China’s measures to cut stamp duty faded quickly as foreigners continued to sell into the gains. US dollar seen to be retracing after six consecutive weeks of gains. Oil prices steadied but swings in LNG could return with more strike threats in Australia.
Key indices edged up in cautious trading, with the S&P500 rising 0.6% to 4,433 and the Nasdaq 100 adding 0.7% to 15,052 in the lightest volume day for the year. Communication services, information technology and industrials led broad-based gains while utilities were the only losing sector within the S&P500. 3M (MMM:xnys) surged 5.2% after news reporting that the industrial giant was nearing a product liability claim settlement.
Trading activity was muted with little headlines and London was closed for a public holiday. The USD45 billion 2-year Treasury note auction and the USD46 billion 5-year auction received good demand and propelled the front-end and belly yields to end the session near their lows (highs in prices). The 2-year yield eased 3bps to 5.05% and the 10-year yield also came down by 3bps to close at 4.20%.
The Hang Seng Index jumped by over 3% and the CSI300 soared as much as 5.4% at the market open after the Chinese authorities cut stamp duties, limited IPO and secondary market placement, and lowered margin financing requirements to boost the equity markets. However, markets spent the rest of the day paring gains. The Hang Seng Index ended the volatile session 1% higher from Friday's close at 18.131. Technology and healthcare stocks top the gainers while utilities and materials lagged.
The CSI300 gained 1.2% on Monday with most of the early gains faded. Properties, construction materials, non-bank financials, and coal mining led. The new measures from the weekend signaled yet another attempt by the Chinese authorities to try to boost investor sentiment. Nonetheless, northbound flows had a net selling of RMB8.3 billion as overseas investors took the opportunity to unload.
After six weeks of gains, there is some scope for consolidation or retracement in the dollar index as highlighted in yesterday’s FX Watch. GBPUSD was seen climbing above 1.26 as it extended its bounce from Friday’s low of 1.2548. UK’s shop price inflation has dropped to a 10-month low in August at 6.9% from 7.6% YoY in July as two rate hikes remain priced in from the BOE. EURUSD also rose above 1.082 while USDJPY was seen moving lower to 146.30 from Monday’s fresh YTD high of 146.74. SEK was the G10 outperformer on Monday with Riksbank Floden’s estimation that the currency is 20% undervalued.
Even as the improvement in sentiment from China’s stimulus measures faded quickly in Monday’s session, the oil markets continued to be supported amid expectations of sustained demand especially into the peak travel period. China weekly flights have surged 13% above pre-COVID levels in the week ending 20 August, and this is pushing demand for jet fuel amid supply tightness.
Japan’s unemployment rate rose for the first time in four months in July, coming in at 2.7% from 2.5% previous and expected. Jobs-to-applicant ratio also decreased to 1.29 in July from 1.30 in June. The data comes at a time when the services sector is expected to continue hiring in anticipation of a pickup in travel demand, especially with China group tours also kicking off. The loosening of the labor market may be another reason for Bank of Japan to continue with its easy monetary policy, suggesting JPY may remain under pressure until Treasuries yields start to cool off.
After a resolution for the Woodside LNG facility workers, now Chevron Australia’s LNG workers are threatening to strike next week and said that industrial actions will escalate each week until Chevron agrees to their bargaining claims. While this could bring some knee-jerk reactions in European gas prices, the threat of any shortages is limited given Chevron only makes up about 5% of global LNG supply, compared to Woodside that made up 11%. Meanwhile, European gas storage sites are filled up to a seasonal high, reducing the risk of a shortage.
BYD (01211:xhkg) reported revenue of RMB140 billion in Q2, rising 67% Y/Y, and revenue of RMB260 billion for H1, up 73% Y/Y. Gross margin and operating margin improved modestly from the previous quarter to 18.7% and 4.7% respectively. Q2 earnings grew 145% Y/Y to RMB6.8 billion and for the H1 earnings increased 205% Y/Y to RMB11 billion. In Q2, NEV wholesale shipment grew 98% Y/Y and 27% Q/Q.
News headlines report that Uber’s (UBER:xnas) AI chatbot under development will help users find restaurants and desired food and speed up ordering.
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Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Commodity Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Head of Commodity Strategy