Summary: US stock indices had a strong finish to the week, with the Nasdaq 100 rising 1.6% and the S&P 500 surging 2%. Despite the fading expectations for interest rate cuts in 2023, the S&P 500 has risen 5.4% and the Nasdaq 100 has soared 12.4% since the beginning of the year. Yields on the 10-year Treasury notes reversed and returned to below 4%, settling at 3.95% to close the week on Friday. On the first day of the First Session of the 14th National People’s Congress, China's Premier Li delivered his last Government Work Report. The report set a target of around 5% for the real GDP growth for 2023, which was at the lower end of expectations.
Nasdaq 100 (NAS100.I) rose 1.6% and S&P 500 (US500.I) surged 2% on Friday, securing a weekly gain of 1.9% and 2.6% respectively. All 11 sectors within the S&P 500 advanced, led by information technology, consumer discretionary, and communication services. Meta (META:xnas), First Solar (FSLR:xnas), and Broadcom (AVGO:xnas) were among the top gainers, rising more than or nearly 6%. Apple (AAPL:xnas) gained 3.5% after announcing the departure of its cloud business head next month. Rivian (RIVN:xnas) jumped 7.6% following raising its EV production target by 24% to 62,000 units.
Since the beginning of the year, the S&P 500 has risen 5.4% and the Nasdaq 100 has soared 12.4% despite the expectations for interest rate cuts in 2023 having largely faded. NVidia (NVDA:xnas) up 65%, Tesla (TSLA:xnas) up 63%, and Meta up 53.9% were among the best-performing stocks that drove the indices higher.
After spending one day above 4% on Thursday, yields on the 10-year Treasury notes reversed and returned to below 4% and settled at 3.95% to close the week on Friday. Headlines were light. The decline in the ISM Services Index in February was smaller than expected and initially saw the short-end lower in prices and higher in yields before the losses faded and reversed as strong bids emerged in the long ends in the afternoon. The 2-10-year spread bull flattened 7bps to -91.
On Friday, Hang Seng Index (HSI.I) was up 0.7%. Hang Seng TECH Index (HSTECH.I) was up 2.1% ahead of the Two Sessions in China, annual meetings of China’s legislature, and top political advisory body. Technology, auto, and Chinese developer stocks led the charge higher. Closing at 20567, Hang Seng Index was up 2.79% over the week.
Hang Seng TECH Index gained 2.8%, with China internet names leading the charge higher. Bilibili (09626:xhkg) surged 10.3% following the online entertainment firm reporting a smaller net loss in Q4. TVB (00511:xhkg) soared 51.6% on heavy volume after the television broadcaster announced cooperation plans with Alibaba’s Taobao for live-streaming broadcasts. Wynn Macau (01128:xhkg) fell 4.3%, weighed on by hedging flows after the Macao casino operator issued a USD600m of convertible bonds.
Benchmark A-share indices advanced. The CSI300 (000300.I) climbed 0.3% on Friday and gained 1.7% over the week. The Shanghai Stock Exchange Composite Index gained for the fifth day in a row, closing at 3328.39, the highest level since July 2022. The net purchase of northbound funds was RMB 2 billion. Large state-owned companies in strategic industries, typically those starting with the prefix “China”, were among the top gainers ahead of the Two Sessions.
The Australian share market fell for the fourth straight week last week. And with BHP and Rio and Woodside all going ex-dividend this week, it could be very volatile week. For more on what to watch this week, refer to Saxo’s Week Ahead.
The USD was broadly weaker last week after a run higher in February on expectations that most of the Fed’s tightening is priced in and yields are potentially reaching close to their peaks. This week brings a test of this rhetoric with Chair Powell’s testimony and the US jobs report scheduled for release. GBPUSD once again found support at 1.1920 despite a dovish turn by BOE Gov Bailey last week, and returned to 1.2040. AUDUSD worth a watch again this week with support at 0.67 being eyed as the RBA meets this week and China’s lower growth expectations may weigh. USDJPY has reversed back below 136 as yields gains ease, but if US yields continue their run higher and/or Governor Kuroda stays overly dovish at his final Bank of Japan meeting this week then a return to 137+ remains likely.
Crude oil prices faced 2-way action on Friday with an initial move lower by over 2% on a WSJ report saying the UAE is debating internally whether to leave OPEC. But these reports were denied later on, and enthusiasm of the oil bulls going into China’s policy meetings over the weekend with policy stimulus expectations running high helped crude oil make a quick reversal. WTI prices got close to $80/barrel from a dip to $76 earlier, while Brent rose to $86 from $82.50. A modest weakness is coming back again this morning in Asia, keeping the range intact. However, China’s weaker than expected growth target set over the weekend may still keep oil prices choppy, with eyes also on any possibility of hawkish remarks from Chair Powell this week or the US jobs report.
China sets a real GDP growth target of "around 5%" for 2023 in the Government Work Report to the National People's Congress. This target is at the lower end of expectations ranging from 5% to 5.5% going into the meeting. Other key macroeconomic targets include adding 12 million jobs to urban area employment for 2023, a consumer inflation target of 3%, and a fiscal deficit target of 3% of nominal GDP. The report emphasizes the importance of boosting domestic aggregate demand, particularly household consumption, and aims to deepen the reform of state-owned enterprises while encouraging private enterprises to grow. For more details, see our note here.
US ISM services stays strong
The headline ISM services cooled less than expected in February, falling to 55.1 from 55.2 in January, better than the expected 54.5. The prices paid component, which raised concerns again about the disinflation rhetoric from the manufacturing ISM report last week, cooled only slightly to 65.8 from 67.8 in January, showing sticky services prices. Employment rose to 54 from 50.0, matching the highest since March 2022 and therefore showing more signs of a tight labour market. New orders accelerated to 62.6 from 60.4 but business activity slowed to 56.3 from 60.4.
Caixin Services PMI rose to 55 in February (consensus estimate: 54.5), the highest level since September 2022, from 52.9 in January, echoing the strength of the recovery in the official NBS PMI survey earlier in the week. Both the business activities component and the new order components were in the expansion territory.
In reports sent to Congress, the Biden administration told lawmakers that the Treasury Department and the Commerce Departing are drafting new regulations to prohibit U.S. companies from making advanced technology investments abroad, which is understood as focusing on China.
Fed member Mary Daly was on the wires over the weekend, and sounded hawkish as she raised the prospects of an upward shift in the Fed’s dot plot as well. She said that inflation is still high, and the Fed has to think about 'continuous tightening', signalling higher rates and remaining at elevated levels for a longer period of time, if inflation stays hot. Another member Barkin also clearly said that there will be no rate cuts this year. Focus will be on data in the run upto Fed’s March meeting, but Chair Powell’s testimony and the February jobs report this week will be key for the markets.
The Japanese Trade Union Confederation (JTUC, more commonly known as Rengo) says its survey of 2000+ unions in the country shows an average pay rise request of 4.49% this year. This is the highest since 1998's 4.36% and is much higher than the 2.97% sought in 2022. The Bank of Japan continues to highlight that wage growth is key for achieving sustained demand-pull inflation. Japan's "shunto" spring wage talks will be key to watch this month as any larger than expected increase in wages will fuel more tightening expectations for the Bank of Japan, having a profound impact on global liquidity as well.
Speculators or hedge funds raised bullish bets on Brent crude oil by 9.4k lots to near a 15-month high at 286k lots in the week to February 28. The cost of holding a short position in Brent, reflected through the current backwardation, supported a continued collapse in the gross short to a 12-year low at 22k lots. While the ICE Europe Exchange is up to date in its reporting, the US CFTC is still catching up following a January 31 cyberattack on ION Cleared Derivatives, a third-party software and service provider for derivative trading. The latest report covered the week to February 7, when gold reached $1975 before crashing to $1885, triggering a 29% drop in the gold net long to 79k. The CFTC is expected to be up to data around mid-March.
Starting from 17 March, the S&P 500 will move Visa (V), Mastercard (MA), and Paypal (PYPL), which specialize in payment services from its Information Technology sector to the Financials sector, and Automatic Data Processing (ADP), which provide human resources services from the Information sector to the Industrials sector.
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Chief Investment Strategist
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Head of Fixed Income Strategy
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Head of Commodity Strategy