Summary: Fed’s survey on lending standards brought little surprise but Treasuries extended their post-NFP selloff amid a heavy corporate supply. Equities wobbled with US CPI in focus this week to justify the market’s rate cut pricing for the year. China banks and SOEs advanced and trade data will be on the radar today. USDJPY rallied amid thin trading in early Asian hours after slump in Japan’s real wages and spending and BOJ’s Ueda spoke in parliament. Tyson Foods tumbled on earnings miss, and focus today turns to Airbnb.
Key equity benchmarks oscillated between small gains and losses, with the S&P500 finishing Monday nearly unchanged and Nasdaq 100 ticking up 0.3%. Among the 11 S&P500 sectors, communication services gained the most while real estate was the biggest losing sector. The sentiment was calm as the headline measures in the much anticipated Senior Loan Officer Opinion Survey showed the tightening in lending standards was less than feared. Shares of regional banks, however, failed to sustain the initial rally, and the SPDR S&P Regional Banking ETF (KRE:arcx) shed 2% for the day.
US Treasury yields rose by 7bps to 9bps across the curve as corporate flooded the market with over USD20 billion in new issuance, taking advantage of the recent decline in yield and front-loading ahead of the CPI data on Wednesday. Among the supply on Monday was USD5.25 billion from Apple and USD6 billion from Merck. The selloff in Treasuries extended after the release of the Fed’s April Senior Loan Officer Opinion Survey at 2 p.m. New York, which showed only a small tick-up in the percentage of banks tightening lending standards from the previous quarter though on substantially wider spreads over the cost of funds (see details below). The 2-year yield rose 9bps to 4% and the 10-year yield climbed 7bps to 3.51%.
Chinese banks and central state-owned enterprises led rallies in both the Hong Kong and mainland bourses. Central SOE energy giants Sinopec (00386:xhkg), CNOOC (00883:xhkg), PetroChina (00857:xhkg), and China Shenhua Energy (01088:xhkg), together with state-owned lenders Bank of China 03988:xhkg) and China Construction Bank (00939:xhkg) were the top gainers in the Hang Seng Index, rising by 3.7% to 5.9%. The investor sentiment towards SOEs has been relatively buoyed as the Chinese authorities told investors to “discover value” in SOEs. Also driving the 1.2% increase of the Hang Seng Index was AIA (01299:xhkg) which advanced 3%.
The Hang Seng TECH Index added 0.5%, aided by gains in EV names while the performance in the internet space was muted. In the mainland, the CSI300 Index advanced 1.1% with banks, oil and gas, coal mining, and defence leading the charge higher.
USDJPY popped higher with Bank of Japan Governor Ueda making a speech in the parliament today when liquidity is still thin with most Asian markets yet to come online. USDJPY rose from 135 to 135.30 even as his comments were nothing new, saying that the scheduled review won't have any pre-set idea in mind on specific monetary policy moves. He also said that BOJ will take necessary policy action at each meeting, with eye on financial and price developments, even while conducting review – a repeat of what was hinted at the April BOJ meeting. Earlier, Japan’s March labor data signalled that easy monetary policy could continue. NZDUSD hit a high of 0.6359 while AUDUSD made an attempt at 0.68. EURUSD back below 1.10 and GBPUSD heading lower to 1.26 with BOE meeting eyed this week.
Crude oil gained more than 2% on Monday as traders continued to find entry points after last week’s selloff. Demand concerns have somewhat eased with China’s increased travel demand over the Golden Week holiday underpinning some recovery in sentiment, while supply concerns were raised due to the wildfires in Alberta having prompted the evacuation of residents and shut down the oil pipeline system which has halted at least 145kb/d of oil production. WTI prices however reversed back below $73/barrel in early Asian hours after bidding above $73.50 overnight while Brent was just below $77. US CPI out on Wednesday may provide further signals on whether the market pricing of rate cuts this year can be realized, and focus is also on the OPEC monthly report due this week.
The Federal Reserve released the April 2023 Senior Loan Officer Opinion Survey on Bank Lending Practices, which showed that credit standards tightened further and credit demand tumbled in the first quarter to levels not seen since 2009. Lending standards tightened across commercial and industrial sectors, both for large/middle market firms (up to 46% from 44.8% in Q4) as well as for small firms (46.7% from 43.8%), and more so for households except government sponsored enterprises. More banks charged borrowers with widened loan spreads over the cost of funds (62% for large/mid-sized firms vs 45% prior; 58% for small firms vs 33% prior). Meanwhile, demand was weak across all sectors, also including commercial real estate as high interest rates bite. Comments on question suggested that banks expect to tighten standards further across all categories.
The impasse over the US debt ceiling continues to threaten further pressure on the US financial markets this week. President Biden is scheduled to meet with Congressional leaders today to discuss raising the current USD 31.4tn limit, with Congress typically tying approval of a higher debt ceiling to budget and spending measures. Treasury Secretary Janet Yellen has warned that there are “no good options” for solving the debt limit stalemate other than Congress lifting the cap.
Further concerns on credit tightening or delays in debt ceiling solution could continue to drive up short-term Treasury yields, potentially in 3months, as investors hedge against a possible default. The yield on a T-bill maturing at the end of this month is ~4.5%, but there’s a 60-90 basis-point premium for bills maturing in June and July, reflecting the tension in markets. Our Senior Fixed Income Strategist Althea Spinozzi explains what are T-bills and how to get exposure in this article.
Wage data remains a key focus in Japan with BoJ’s new governor Ueda having hinted at his first policy meeting that he will be watching next year’s wage negotiation to be convinced that price pressures in Japan are wage-driven. March wage data released this morning however showed that nominal wage growth softened to 0.8% YoY and February’s figure was also revised lower to 0.8% from 1.1% previously. Real wage growth remains in negative territory, coming in firm at -2.9% YoY. Household spending also came in below expectations, sliding into negative territory at -1.9% YoY from +1.6% previously, suggesting weakening private consumption may continue to support the case for easy monetary policies.
Google (GOOGL:xnas) is reportedly planning to add more AI chat, more videos and more social-media posts to this search result with the preference of young people in mind. The share price of Google climbed 2% on Monday.
Tyson Foods (TSN:xnys) tumbled 16.4% after reporting a Q2FY23 adjusted loss of 4 cents per share, much worse than the consensus estimate for a profit of 79 cents per share. The poor performance was mainly the result of large declines in margins for its chicken and beef products.
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Chief Investment Strategist
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Chief Investment Strategist
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Chief Investment Strategist
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Chief Investment Strategist
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Head of Fixed Income Strategy
Quarterly Outlook
Head of Commodity Strategy