Global Market Quick Take: Asia – March 30, 2023

What’s happening in markets?

S&P 500 rallies, back above the 4000 level; The Nasdaq 100 enters a bull market on stronger than expected results; combined with hopes that inflation is slowing 

US equities rebounded strongly on Wednesday, with the S&P 500 rising 1.4% and Nasdaq 100 up 1.8%, taking its total rise off its October low to about 23%, meaning its now officially in a bull market. All 11 sectors in the S&P 500 gained, led by real estate, information technology, and consumer discretionary on hopes that the Fed’s preferred inflation gauge will show inflation is slowing, which will allow the Fed to take its foot of the gas with rate hikes. In company news and moves; semiconductor giant, Intel (INTC:xnas) shares rose 7.6% after announcing its new more advanced chip (in the lucrative server market) will be delivered sooner than expected. Micro (MU:xnas) jumped 7.2% after giving upbeat commentary on revenue guidance. Lululemon (LULU:xnas) surged 12.7% after a reporting than expected outlook. 

European equities march up and attempt to enter a bull market; with defence stocks pulling the weight, and offsetting banking sector weakness 

The Euro Stoxx 600 is now up 19% from its October lows and vying to enter a bull market despite the banking crisis. Beneath the surface we can see what’s driving the market. It appears investors are still playing the defensive game, favouring those companies with strong cash flows and those that will be able to withstand a potential recession. As such defence stocks such as Rolls Royce, Saab and Rheinmetall are all in the Euro Stoxx 600 leader board, and up 50% or more each YTD. These stocks as just some of the names in Saxo’s Defence equity basket that are seeing significant gains amid the NATO push for countries to pledge 2% of nation spending toward defence. Meanwhile, amid the China reopening narrative gaining pace again, semiconductors are boding well with ASML also in the leader board. While sectors that typically do well in a recession, such as utilities are being favoured, with Millicon Intl Celluar and Telecom Italia both up about 40% each this year

Treasuries oscillate in a mixed session

Treasuries had a mixed session with the 2-year yield rising 2bps to 4.10% and the 10-year yield dropping by 1bp to 3.56% on Wednesday. Volume was low. The strong rally in equities and a poorly received 7-year auction weighed on the front end to the belly of the yield curve. 

Hang Seng Index advances driven by Alibaba surging 12% on reorganization

Yesterday we saw the Hang Seng Index gain 2.1%, driven by a 12.2% jump in Alibaba (09988:xhkg) shares, after it announced a plan to reorganize the conglomerate into six separately run business groups. Investors reacted positively to the e-commerce and technology giant’s reorganization plan, hoping it will remove some regulatory barriers to business growth as well as enhance the valuation of individual business lines. Industry peers gained, with Meituan (03690:xhkg) rising 4.0% and JD.Com (09618:xhkg) climbing 1.9%. 

Tencent (00700:xhkg) rose 1.7% after the social media conglomerate said it plans to launch subscription services for its WeChat video platform. Kuaishou gained 1.5% on a revenue beat. 

In A-shares, CSI300 edged up 0.2%, with Alibaba-related names, and semiconductor stocks outperforming. Rongsheng Petrochemical (002493:xsec) hit the 10% daily up-limit for the second day in a row after Saudi’s Aramco made a USD 3.6 billion investment for a 10% stake in the independent refinery.

Australia’s share market moves up for the fourth day on bet that the RBA will pause hikes

The ASX200 is attempting to resume its uptrend, setting higher highs, and moving further above its 200-day moving average. It comes as investors are betting the RBA has successfully cooled inflation without sending the economy into reverse. The RBA’s board holds its April policy meeting on Tuesday and money markets are pricing is no further hikes at all, with the cash rate to stay at 3.6%. However, some economists are expecting one more hike of 25 basis-point (0.25%).

Yen retreats ahead of year-end as the safe-haven bid fades

As the fear of a US banking crisis subsided, the safe-haven bid for the Japanese Yen faded. Japanese corporate forex flows increased, as it is approaching the Japanese fiscal year-end. USDJPY jumped over 1% to 132.50 and EURYEN surged to 143.70. AUDJPY climbed to as high as 88.83 overnight before paring some of the gains to trade at 88.50 this morning.

Crude oil rally stalls, as markets await evidence that demand is picking up in Asia

Oil’s rally from March 20 has stalled, with traders weighing up lagging fuel demand on one side, versus a 7.5 million-barrel drop in US crude inventories. Distillates consumption (diesel fuel and fuel oil) is at its lowest seasonal level since 2016, with the market awaiting evidence that air travel will pick up in Asia, with China and Asian air travel languishing under pre-pandemic highs. 

Gold rally takes a breather, weighed by the US dollar, US and EU equity markets rallying 

The gold rally from the March low has taken a breather, with the spot gold price tracking somewhat sideways for the fourth session in a row. Investors remain cautiously optimistic about the bank sector turmoil, while awaiting further evidence that the Fed can potentially pause rate hikes, pending further economic evidence, such as PCE out later this week. Broader risk sentiment has somewhat recovered after the collapse of three US banks and the takeover of Credit Suisse, that pushed gold over $2,000 an ounce last week. That said, gold is holding most of its gains, as bond yields are around 2023 lows, with the 10-year at 3.56%, while swaps traders see a less than 50% chance the Fed will raise rate this year. And that underpins strength in bullion. 

What to consider?

US considers tightening regulations over mid-size banks

During his 2-day appearance before Congress, Fed Vice Chairman for Supervision, Michael Barr expressed support for tighter capital and liquidity requirements on midsize banks with assets between USD 100 billion and 250 billion. Meanwhile, the Wall Street Journal reports that the White House is planning to call for stricter regulations from the Fed and other government agencies, including tighter capital and liquidity rules and stress tests.

US initial jobless claims expected to stay below 200K

The next key data point to watch is the initial jobless claims before the PCE on Friday. The market consensus as per the Bloomberg survey is expecting it to tick up to 195K but still below 200K. The GDP report is the third revision and is not expected to surprise.

The market awaits the Fed preferred inflation gauge, PCE

The market will turn its attention to PCE data later this week, which could be the next big catalyst for markets, with core PCE expected to remain at 4.3%. If the data its hotter than expected, we could see a more risk-off tone enacted, resulting in higher bond yields, a higher US dollar, and likely pressure on tech stocks, which could result in big tech taking a hair cut, while selling could resume on those banks already under pressure.

Be mindful of volatility and potential dip buying in big tech

In 2023, dip buying in quality names has been taking place, whereby investors and fund managers are typically buying into quality names they like, when they pare back. To put it into context, so far in 2023, following down days, the S&P 500 has then gained 0.3% on average the next day. This not only implies gaps are being filled, but ‘bargain’ hunting in quality names is alive. Also recall moves are typically more volatile around end of quarter, while rebalancing is in play.

For a detailed look at what to watch in markets this week – read or watch our Saxo Spotlight.
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