Global Market Quick Take: Asia – November 1, 2024

Key points:

• Macro: US non-farm payrolls today will be key for Fed’s next move
• Equities: Apple disappoints investors with subdued outlook and China weakness
• FX: JPY gains on BOJ while GBP underperforms on UK budget
• Commodities: Silver fell over 3% due to inflation concerns and a less-dovish Fed
• Fixed income: 10-year US Treasury yield hits 4.3% on strong economic data

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Disclaimer: Past performance does not indicate future performance.

Macro:

• US September PCE was in line with expectations on the headline, rising 0.2% M/M, but accelerating from the prior 0.1% pace. Meanwhile, the Y/Y rose by 2.1%, in line with expectations while the prior was revised up to 2.3% from 2.2%. The core metrics saw a 0.3% rise M/M, in line with forecasts while the prior was revised up to 0.2% from 0.1%, while the Y/Y rose by 2.7%, matching the prior pace but above the 2.6% analyst forecast.
• US initial jobless claims (w/e Oct. 26th) tumbled to their lowest since May, printing 216k from 228k, much beneath the expected, 230k, despite an increase being expected due to the seasonal factors.
• The Bank of Japan as expected kept its benchmark interest rate unchanged at 0.25% while sticking to its view that it’s on track to achieve its inflation target, an outlook that points to the possibility of another rate hike in the coming months. The Governor Ueda press conference brought comments on the impacts of the Japanese yen and promises of a policy review.
• Chinese factory activity strengthened for the first time in six months in October, potentially a sign the Chinese economy is stabilizing after Beijing unleashed a number of stimulus measures, although the result of next weeks US election may limit the impact. The official manufacturing PMI rose to 50.1 in October, higher than 49.8 with a reading above 50 marking an expansion. The non-manufacturing PMI showed activity in construction and services expanded after staying little changed the previous month.
• The UK Autumn Budget released yesterday announced a significant increase in government borrowing. Specifically, the Debt Management Office (DMO) has outlined plans for GBP300 billion in gilt issuance for 2024-25, an increase of GBP20 billion from previous estimates. There were a handful of investments announced, including a GBP2.9 bln hike in the defence budget, GBP2 bln for the auto sector over “multiple years”, and GBP5 bln for housebuilding, however the outlook for the UK economy remains uncertain given inflation risks from higher wages and National Insurance costs increasing labor expenses. Stagflation risks would make the BOE walk a tightrope. Read this article to know more.
• Eurozone Q3 GDP growth came in better than expected at 0.4% QoQ vs. 0.2% expected. Downside risks remain but this may prevent the need for ECB to go for a jumbo rate cut in December. US GDP data once more evidenced the continued ‘US exceptionalism’ theme with Q3 GDP up 2.8% YoY.
• NFP preview: Hurricane and Boeing strike effects will be in focus, and consensus for headline jobs growth is at 100k from 254k previously with unemployment rate remaining unchanged at 4.1%. Sentiment is shaky with tech earnings misses and any upside surprises could question the next Fed move and may push out the expectations of a rate cut in November.

Equities: 

• US - US stocks fell sharply, led by Nasdaq, due to disappointing earnings guidance from Microsoft and Meta, highlighting high AI costs. The S&P 500 dropped 1.8%, Nasdaq 100 fell 2.4%, and Dow declined 378 points. Core inflation rose, and jobless claims decreased.
• Apple's Q4 results exceeded expectations for revenue and earnings, but net income declined due to a European tax charge. EPS at $1.64 versus $1.60 estimated, and revenue at $94.93B versus $94.58B estimated. iPhone sales rose 6%, with iPhone 15 outperforming previous models. Shares fell 2% in extended trading.
• Amazon's Q3 earnings and revenue exceeded expectations, driven by growth in cloud computing and advertising. EPS was $1.43 versus $1.14 expected, and revenue was $158.88B versus $157.2B expected. Shares rose 5% in extended trading.
• Japan - Nikkei 225 fell 0.5%, ending a three-day rise, due to US tech earnings and chip stock declines. The BoJ maintained its policy rate. Advantest surged on strong AI demand, while Hitachi and Renesas Electronics dropped.
• Hong Kong – HSI rose 0.7%, recovering from previous losses, as China's factory activity grew for the first time in six months. Investors anticipate potential fiscal stimulus from China, despite ongoing trade tensions and US election concerns.
• Europe - European stocks fell amid disappointing earnings and economic data. Microsoft and Meta's outlooks impacted SAP and ASML, while AB InBev and BNP Paribas also declined. Euro Area inflation rose unexpectedly.
• Earnings – Chevron, Exxon Mobile, Wayfair, FoboTV, Dominion Energy, Charter

FX:

• The US dollar traded mixed with the strength in Japanese yen outweighing the weakness in the British pound while US data remained broadly resilient.
• BOJ Governor Ueda indicated that the central bank will hike rates further and timing will be determined by market moves (especially yen moves). USDJPY traded lower to the 152 handle despite sustained headwinds from US yields.
• UK yields were also in focus post an inflationary budget and pushed sterling lower. GBPUSD slumped to its weakest since August as it pushed below 1.29 handle.

Commodities:

• Gold dipped to $2,750 after reaching $2,790, amid inflation concerns and a less-dovish Fed. Strong US economic data shows resilience to higher rates, while political uncertainty, including potential Trump policies, supports gold as a long-term inflation hedge.
• Silver fell over 3% to a two-week low of $32.7, amid rising borrowing costs and tightened interest-rate expectations due to strong US and Eurozone economic data. Increased bond yields and investor caution also contributed to the drop, mirroring gold's decline.
• WTI crude futures rose 0.95% to $69.26, and Brent increased 0.84% to $73.16, fueled by US growth forecasts and China stimulus hopes. After settlement, news of Iran's imminent retaliatory strike against Israel pushed WTI above $70 and Brent up by over $2.
• US natural gas futures dropped below $2.75/MMBtu from a four-month high of $3.1, due to ample supply and reduced Middle East risk premiums. Rising US production and milder weather forecasts further pressured prices, limiting demand for heating.

Fixed income:

• The 10-year US Treasury yield rose to 4.3%, a three-month high, as economic data showed resilience to higher rates. Strong consumer spending, lower job cuts, and steady core PCE inflation fuelled concerns of persistent inflation. Markets anticipate the Fed may avoid significant rate hikes, while potential Trump policies add pressure on long-term bonds.
• The UK 10-year gilt yield rose above 4.51%, a one-year high, due to concerns over the Labour government's budget. Key factors include increased borrowing, significant bond sales, and tax hikes. Revised GDP and inflation forecasts also influenced yield movements and interest rate expectations.

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