Global Market Quick Take: Asia – December 5, 2024

Key points:

• Macro: Powell stressed US economic strength, softer ISM services
• Equities: US stock indices hit new highs, with Nasdaq 100 up 1.2%
• FX: EURUSD flat despite France political turbulence
• Commodities: Gold rose as Powell emphasized the need for cautious monetary policy
• Fixed income: Open interest in Australia's 3-year note futures rises to a nearly three-month high

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Disclaimer: Past performance does not indicate future performance.

Macro:

• Fed Chair Powell gave little new guidance on the path of monetary policy but he did speak up about the economy, stating unemployment is still very low and the Fed is making progress on inflation, albeit they are not quite there yet on inflation. This could suggest some caution on rate cuts, and Mary Daly also signaled no urgency to cut rates and Alberto Musalem noted it may be appropriate to pause rate cuts as soon as this month, but markets were excited about the resilience of the US economy.
• The French government fell after a no-confidence vote, ending PM Michel Barnier’s three-month old administration and pitching the country into a probable period of turbulence. Emmanuel Macron, who isn’t expected to lose his job, is set to address the nation Thursday at 8 p.m. local time.
• US ISM services fell to 52.1 in November from 56.0 and came in significantly below the expected at 55.5. Prices paid ticked marginally higher to 58.2 from 58.1 while business activity dipped to 53.7 from 57.2. New orders (53.7 from 57.4), Employment (51.5 from 53.0), Backlog, and Supplier Deliveries all declined, with the latter falling into contractionary territory.
• US private payrolls were broadly in-line with expectations. Headline ADP printed 146k in November, down from 184k in October but only a notch below the 150k forecast. Pay emetrics saw median change in annual pay for job stayers rise to 4.8% from 4.6%, while for job changers pay increased to 7.2% from 6.2%, indicating some wage pressures. The non-farm payrolls report, up on Friday, will be the next big focus and Saxo’s trading desk has put out a preview here.
• Australia's 3Q GDP growth was sluggish, rising only 0.3% against a 0.5% forecast, as government spending offset weak exports and consumer demand. The YoY rise of 0.8% was below estimates of 1.1% and led traders fully pricing in an April interest rate cut, compared with about 60% odds ahead of the data.

Equities: 

• US - All three major U.S. stock indices hit record highs on Wednesday, with the S&P 500 and Nasdaq 100 up 0.6% and 1.2%, and the Dow Jones gaining 303 points to close above 45,000 for the first time.
• Salesforce surged 11.1% on exceeding revenue forecasts and raising guidance. Marvell rose 23% on strong earnings, while Foot Locker dropped 8.6% due to revenue shortfall.
• Germany - DAX closed above 20,230 for the first time on Wednesday, marking a five-day rally. SAP led the gains with a 3.5% increase, supported by Airbus, Siemens, and Allianz, which rose 0.7% to 1.1%.
• Earnings – TD Bank, Bank of Montreal, Kroger, Lululemon

FX:

• The EUR fluctuated around the 1.0500 level amid political uncertainty in France, where PM Barnier lost a no-confidence vote, leaving President Macron to seek a new PM.
• GBP initially fell after BoE Governor Bailey's comments on future rate cuts but rebounded after stronger-than-expected UK Services PMI data and a weak US ISM Services report.
• JPY weakened but recovered to 150.30, with USD/JPY movements largely driven by fluctuations in U.S. yields.
• AUDUSD fell sharply to 0.64 after 3Q GDP data came in weaker than expected but recovered overnight to 0.6440.

Commodities:

• WTI crude oil futures fell 2% to $68.50 amid anticipation of an OPEC+ production decision. Despite a U.S. inventory drop providing support, geopolitical tensions and increased refinery activity influenced market dynamics, reversing gains from the previous day's rise. Brent crude dropped 1.8% to below $73.
• Gold rose 0.2% as Powell emphasized cautious monetary policy. Mixed U.S. economic data, including disappointing ADP employment changes, supported cautious investor sentiment. Silver gained 0.9% to $31.30.
• Cocoa futures rose 4% to over $9,100 per tonne from a low of $8,809 per tonne on December 3rd, driven by renewed supply concerns.

Fixed income:

• Treasuries rose after Fed Chair Powell's comments maintained steady market expectations for monetary policy. Prices peaked due to a late buyer-initiated futures block trade in the Ultra 10-year contract. Yields fell by 5 to 6 basis points, mainly at the front end.
• Open interest in Australian December 3-year note futures rose by 44,790 contracts, the largest increase since mid-September, indicating stronger bullish sentiment. The yield on the 3-year note fell by 5 basis points to 3.79%.

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