Global Market Quick Take: Asia – November 18, 2024

Key points:

• Macro: US retail sales and NY Fed survey come in hot
• Equities: Nasdaq 100 lost 2.4% as tech names underperform
• FX: GBP underperformed on weak economic data
• Commodities: Oil fell 5% weekly due to demand issues and increased inventories
• Fixed income: 10-year yield reached 4.5%, the highest level since May

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Disclaimer: Past performance does not indicate future performance.

Macro:

• US retail sales were hotter-than-expected, highlighted by the headline rising 0.4% M/M in October, above the expected 0.3%, albeit below the prior 0.8%, which was revised up from the initial 0.4%. Ex-Autos rose 0.1% M/M (exp. 0.3%), with September’s print revised to 1.0% from 0.5%, while retail control surprisingly declined 0.1% against the forecasted rise of 0.3%, with Sept’s. once again revised higher to 1.2% from 0.7%. What surprisingly got more focus was the NY Fed Empire State manufacturing survey for November came in hot, printing its highest reading in almost three years, at 31.2 (exp. -0.7, prev. -11.9). The survey is extremely noisy but what probably made it so important was that the survey week coincided with the election week. The details were mixed with new orders and shipments soaring to 28 (prev. -10.2) and 32.5 (prev. -2.7), respectively, while unfilled orders slumping to -10.3 (prev. -2.2). Following a hawkish Powell last week and this hawkish set of data on Friday, market has now pushed back on December Fed rate cut pricing, now at 60% from over 80% earlier.
• UK economy saw a deluge of disappointing data on Friday. September GDP slumped 0.1% MoM vs. 0.2% prior and expected, leading to Q3 prelim GDP rising just 0.1% (exp. 0.2%, prev. 0.5%), and Manufacturing output declining 1% (exp. 0.1%, prev. 1.3%). Consumer and business confidence dived in September, potentially due to worries over tax hikes under Labour’s first budget.

Equities: 

• US - S&P 500 fell 1.3% and Nasdaq 100 lost 2.4% after strong US data including retail sales and Powell tilting hawkish in his latest remarks on a December rate cut.
• Alibaba reported earnings last Friday that beat estimates even though sales from its China-focused retail group continue to struggle. Cloud and International businesses outperformed, growing 7% and 35% yoy respectively. Alibaba stock was down 2.2% in US trading.
• Hongkong - HSI closed nearly flat at on Friday after five days of losses. Tech and consumer sector gains offset declines in property and financial stocks, amid mixed Chinese economic data. October's industrial output grew below expectations, while retail sales rose at their fastest pace since February.
• Japan - Nikkei 225 increased by 0.28% on Friday, ending a three-day slump. Positive GDP data boosted market sentiment, with Japan's economy growing 0.3% year-on-year in Q3, following two quarters of decline, driven by improved private consumption and government spending.
• Earnings – Trip.com, Bit Digital, Symbotic, Aecom, Xiaomi

FX:

• A down day for US dollar on Friday amid potential profit taking, but still up considerably for the week as Trump trade continues to get nuanced and immediate focus is on tariff policies which are likely to be inflationary.
• Several other factors continue to support a positive outlook for US dollar, including Fed Chair’s pushback to rate cut expectations for December amid continued US exceptionalism and fiscal risks from Trump 2.0. We discussed the USD outlook in this article.
• Sterling came under pressure and was down 2.4% last week after poor data on Friday, and GBPUSD is now testing a break below 1.26 handle, below which support comes in at 1.2575.
• USDJPY saw a sharp slide from 156.50 to find support at the 154 handle, but pair is testing the level again this morning in Asia as Japan GDP topped estimates and officials were out jawboning. BOJ Governor Ueda is set to hold a press conference on Monday, further adding to caution on yen weakness.
• EURUSD is also testing 1.05 handle, down from a peak of 1.07+ earlier last week.

Commodities:

• WTI crude oil futures fell 2.4% to $67, marking a 5% weekly loss due to China's demand concerns, a stronger US dollar, and revised lower demand forecasts by IEA and OPEC. US crude inventories rose unexpectedly. Brent crude dropped 2.1% to $71. 
• Gold dropped over 4% for the week, the largest decline in three years, due to expectations of milder U.S. Federal Reserve rate cuts, which strengthened the dollar. Gold ended at $2,563.
• Iron ore fell below $100 per tonne due to China's weak property sector, with property investment down 10.3% and new home prices dropping sharply. Despite tax incentives, investor optimism waned. Australian shipments hit a four-year high, while Chinese port stockpiles rose.

Fixed income

• Treasuries had mixed results with a steeper yield curve after a selloff briefly pushed the 10-year yield to 4.5%, highest since May. Yields eased from highs due to dip-buying, including a significant block trade in 10-year note futures. Earlier weakness was driven by US retail sales data. Front-end yields fell over 4 basis points, long-end yields rose about 2 basis points.

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