Saxo Strategy Team

Summary:  Markets continue to stabilize after the traumatic collapse of SV Bank in the US and the lightning official response to prevent contagion, with US equities rallying back to the closing level of last Thursday. Global short yields rebounded sharply as the market prices back in a modest further tightening from the Fed at coming meetings. FX is largely stable with the JPY weakening on the yield rebound and after the damp squib from the BoJ Friday. Gold is struggling to maintain the 1,900 level. What is our trading focus? US equities (US500.I and USNAS100.I) bounce back as fears of immediate contagion fade. Equities rebounded sharply yesterday, particularly the Nasdaq 100 index, which pulled back well above the 200-day moving average near 12,150 yesterday. The S&P 500 is more financials-heavy and has bounced less, though it has erased all of the losses since the close of last Thursday, the day that Silicon Valley Bank first lurched lower and set in the motion the lightning contagion through the US banking sector that prompted a dramatic official response at the weekend and Monday’s wild session. Investors are struggling to understand the follow on implications of what unfolded, both in the immediate- and longer term. Hang Seng Index bounces on overnight global market rallies and economic activity data supporting the recovery notion in China Hang Seng Index rallied 1.3%, driven by Chinese property and insurance names. Market sentiment stabilized somewhat after U.S. bank stocks as well as the broad U.S. benchmark indices recouped some ground. The February economic activity data from China supported the recovery case. Headline retail sales grew 3.5% Y/Y in the first two months of 2023. Excluding autos, which suffered from the expiration of government subsidies, retail sales grew 5.0% in January-February from a year ago. Meanwhile, industrial production, growing 2.4% Y/Y, came in slightly below expectation but fixed asset investment, rising 5.5% Y/Y, was better than expected. In A-shares, the CSI300 barely changed from yesterday’s close. Semiconductor, data security, cloud computing, and 6G names retreated while pharmaceutical, terminals, cement, and nuclear stocks gained. FX: Dollar finds support, SEK boosted by hawkish Riksbank; safe-havens plummet The US dollar found some support with the US February CPI remaining hot (more below) and as concerns around a banking crisis eased, even if a number of indicators are still showing some level of strain. This saw the safe-havens giving back some of their recent gains. USDJPY rose back above 134.50 after the CPI release while USDCHF touched 0.9160 late yesterday. BOJ minutes from the January meeting continued to emphasise the need for monetary easing, and ruled out further policy changes – no surprise given the March 10 meeting damp squib. SEK outperformed with hawkish Riksbank rhetoric ahead of the Swedish CPI out this morning. Governor Thedeen reiterated that inflation is still far too high and monetary policy needs to act to bring it back to 2% within a reasonable timeframe, adding that guidance for a 25bps or 50bps hike in April remains valid and data dependent. Read next: Facebook and Instagram parent Meta has announced discontinuing NFT support on mentioned platformed | FXMAG.COM Crude oil tumbles to low end of range. The oil price rebounded slightly overnight after tumbling again yesterday. The Organization of Petroleum Exporting Countries (OPEC) today highlighted a modest surplus next quarter. OPEC said it is pumping about 28.92 million barrels of crude a day, or about 300,000 a day more than it expects to be needed in the second quarter. OPEC+ could potentially cut output, but mayt hink OPEC+ will likely stick to these production levels, given non-OECD countries like China and India are likely to increase demand. Meanwhile, Estonia, Lithuania and Poland called for cut in the price cap on Russian crude to $51.45. Ahead, we await the IEA report on Wednesday after the body last month forecast oil demand to rise by 2 million barrels a day in 2023. Precious metal rally halts in its tracks awaiting further developments. Gold is poised at the key 1,900 area as traders await further developments, but perhaps looking resilient at the margin, given the relatively tight price action on display around that 1,900 area, while other markets, from US short yields to US equities are seeing a sharp, if partial unwinding of the moves since the trauma in the US banking sector broke out last Thursday. Silver is bottled up ahead of the important 22.00 area. If selling pressure does come in to the precious metals complex, the first focus will likely be on the 1850-60 area. The epic rally in Treasuries fades, with yields rising sharply all along the curve. A rally in U.S. regional banks’ share prices, credit spread compression reversing some of the recent widening, and a 0.452% M/M increase in the core CPI in February from 0.412% M/M in January saw yields reverse the dramatic fall the day before. The yield on the 2-year notes surged 27bps to finish the New York session at 4.25% and added additional 5bps at Europe open today to 4.30%. The 10-years climbed 12bps to 3.69% overnight before retreating to 3.67% this European morning. Interest rate futures repriced and brought the probability now back to leaning towards a 25bp hike at the FOMC next week before the Fed pauses. What is going on? U.S. inflation remains sticky in the medium-term Headline U.S. consumer price (CPI) index is down -0.4 point to 6.0 % year-over-year in February. This is the lowest level since September 2021. This level is 3.1 points below the peak of June 2022. Core inflation is also decelerating but at a slower pace. Core CPI on a year-on-year basis is down 0.1 point to 5.5% year-over-year in February, but the month-on-month rose slightly more than expected by 0.5% (by virtue of rounding the 0.452% figure). The year-on-year figure is the lowest level since December 2021. Looking into details, services (excluding energy) continue to be one of the main contributors to inflationary pressures, especially shelter (+0.8 %), rent (+0.8 %), hotel (+2,6 %) and airfare (+6.4 %). In our view, goods disinflation is clearly not happening fast enough. The NFIB survey released yesterday also confirms the disinflationary road will be bumpy. A net 38 % of owners reported raising average selling prices, down 4 points from a month earlier. This is the lowest level since April 2021. But a net 25 % of respondents are planning price hikes in the next three months. All of this probably opens the door to front loaded-hikes this year. Today, in the inflation front, we will focus on the first estimate of the U.S. February PPI. More job cuts at Meta; Apple’s cost cutting efforts Facebook parent Meta announced a second round of job cuts, saying that it will cut roughly 10,000 jobs over the coming months and also stop hiring for about 5,000 open positions. Mass layoffs in the tech sector continue to suggest the difficult operating environment for companies that boomed during the zero-interest rates years, but is still not reflective of the broader US labor market which remains in an imbalance with the supply remaining short. Meta shares rallied over 7% Apple also announced a delay in bonus payments for some corporate divisions and an expansion of the cost cutting efforts. What are we watching next? Watching systemic risk indicators in US for further knock-on effects The lightning response of US officials to the contagion across the financial sector since the collapse of Silicon Valley Bank late last week has managed to stabilize the market for now, but we will have to watch for knock-on effects in the medium- to longer term, especially if depositors hunt for higher yields on offer in money markets and even US treasuries that banks have so far not really passed on to their customers in savings account, which could trigger a contraction in credit and therefore affect the growth outlook. More US data up today: Feb. PPI & Retail Sales After a firm CPI print for February, focus turns to other US data of note this week to further affirm the state of the consumer and the price pressures. PPI and retail sales for February are due today and both are expected to show a modest cooling. Consensus expectations are for February producer prices to rise by +0.3% MoM (prev. +0.7%) and 5.4% YoY (prev. 6.0%), with the core Ex Food and Energy prices expected at +0.4% MoM and +5.2% YoY (prev. 5.4%). February Retail Sales are expected to cool to –0.4% MoM from January’s jump of 3.0% MoM after unseasonably warm weather may have provided a big boost in that month. UK budget on watch for growth and fiscal picture; firm jobs data supports another BOE hike The UK Chancellor of the Exchequer Jeremy Hunt will be delivering the spring budget today, which will be an important one to watch especially after the market turmoil in September when Hunt's predecessor Kwasi Kwarteng and former Prime Minister Liz Truss unveiled lavish tax cuts roiling the markets. Expectations are for the Hunt to prioritize keeping public finances steady, announce less near-term borrowing but only a marginally improved medium-term fiscal outlook. Meanwhile, UK jobs data out yesterday was not cool enough for the BOE to pause. Payroll addition for February came in at 98k vs. 65k expected, but last month’s was revised lower to 42k from 102k (which was 10x expected). Unemployment rate remained steady at 3.7% for the three months to January, while wages were a notch softer. Chancellor Hunt will likely highlight the labour supply difficulties in the UK by calling this a “back to work” budget that makes it more attractive for those on benefits to join the labour force. Earnings to watch The name to pull out of today’s earnings report in the European session is BMW, which has reported this morning after yesterday saw Volkswagen announcing enormous levels of capital investment, much of it for its future EV programs. The company forecast EBIT margins for 2023 of 8-10% versus consensus estimates of 8.7%. The company says that profit margins for the year will be steady, driven by sales of its high end and EV models. The EV models are forecast to reach 15% of total deliveries this year, from 9% last year. Later, watching former growth darling Adobe, which saw its share prices cratering more than 50% from late 2021 highs by the massive shift in yields and decelerating pace of its growth. As well, the legal status of its acquisition of rival Figma is in focus as the US Department of Justice may move with an antitrust suit against Adobe. Wednesday: Constellation Software, BMW, E.ON, Ping An Insurance, Prudential, Inditex, Adobe Thursday: Verbund, Rheinmetall, KE Holdings, Enel, FedEx, Dollar General Friday: Vonovia Economic calendar highlights for today (times GMT) 0900 – Poland Feb. CPI 1000 – Eurozone Jan. Industrial Production 1215 – Canada Feb. Housing Starts 1230 – UK Chancellor to present Spring Budget 1230 – US Feb. PPI 1230 – US Feb. Retail Sales 1230 – US Mar. Empire Manufacturing 1400 – US Jan. Business Inventories 1400 – US Mar. NAHB Housing Market Index 1430 – US DoE Weekly Crude Oil & Product Inventories 2145 – New Zealand Q4 GDP 0030 – Australia Feb. Employment Change / Unemployment Rate Source: Global Market Quick Take: Europe – March 15, 2023 | Saxo Group (home.saxo)

Summary:  The S&P500 fell 4.2% in August, erasing half of July’s rally, with investors selling down companies that face balance sheet tightening from runaway inflation and higher for longer interest rates. Meanwhile, in August, investors bought into sectors contributing to inflation. At Saxo, we think these trends will probably continue. We cover everything you need to know about what is happening in markets today and what to consider next. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities declined for the fourth day in a row, with S&P 500 down 0.78%, the Nasdaq 100 falling 0.57%.The month of August ended with S&P 500 losing 4.24% and Nasdaq 100 down 5.22%.  The markets were in a risk-off mood with the focus being fixed on rising bond yields and the hawkish stance of the central bank in the U.S. and across the pond in Europe, and with an eye on the job report coming out of the U.S. tomorrow.  Chewy (CHWY:xnys) dropped 7.9%, as the pet retailer lowered guidance for 2022 revenues, citing customer pulling back on discretionary items. The consumer trade-down echoed the general trend found in other U.S. retailers.   Bed Bath & Beyond (BBBY:xnas) tumbled 21.3% after announcing a plan to close about 150 stores. Nvidia (NVDA:xnas) plunged 5% in extended hours after the company warned that the new U.S. rules restricting the export of artificial intelligence may substantially affect the company’s sales to China.  U.S. treasuries (TLT:xnas, IEF:xnas, SHY:xnas)   Yields took a blip lower initially after the weaker-than-expected ADP Employment report but surged higher to finish the day at the high.  The benchmark 10-year note yield closed at 3.19%.  Cleveland Fed President Mester joined the recent chorus of hawkish fedspeaks vowed to get inflation down “even if the economy were to go into recession” and “it will be necessary” to raise the Fed fund rate to “above 4% by early next year and hold it there”.  The U.S. treasury yield curve bear steepened, with the 2-year yield +5bps as the belly to the long-end yields jumped 8bps to 9bps. Hong Kong’s Hang Seng (HSIU2) and China’s CSI300 (03188:xhkg)   Hang Seng Index gapped down by nearly 2% at the open but managed to crawl back all the losses to finish the day flat.  China consumption stocks led the market higher in anticipation of incremental policy stimuli and recovery of consumer demand during the mid-autumn festival, Xiabuxiabu Catering (00520:xhkg) +9.4%, Haidilao (06862:xhkg) +6.5%, China Tourism Group Duty Free (01880:xhkg) +7.1%, Li Ning (02331:xhkg) +3.9%, Anta Sports (02020:xhkg) +1.5%.  In the auto space, BYD (01211:xhkg) tumbled nearly 8%, following news of Berkshire Hathaway reducing its stake in the company. On the other hand, Nio (09866:xhkg) and XPeng (09868:xhkg) rose more than 2%.  Hang Seng Tech Index (HSTECH.I) gained 1%, with performance divergence among stocks.  Tencent (00700:xhkg) gained 1.1% while Baidu (09888:xhkg) dropped by 3.3% on operating margin contraction. China banking shares traded in Hong Kong were mixed after ICBC (01398:xhkg), China Construction Bank (00939:xhkg), and Bank of China (03988:xhkg) reported growth in revenues and profits but higher non-performing loan ratios. Coal mining and oil stocks fell on the Hong Kong bourse as well as the mainland bourses on weaker energy prices.  CSI 300 bounced from the early sell-off and closed little changed.     Australia's ASX200 (ASX:XASX) closes higher for the 2nd month, but on the first day of September equities unwind the August rally and cut July’s rally  Australia’s market has rallied for two straight months. But the rally is likely to run out of steam iin September, with Aussie equites to face selling pressure. September is historically the worst month for equities, with the ASX200 losing 0.6% each month on average since the index was formed. The reason for this? Companies pay out their yearly dividends in September. Today, many major companies go ex-dividend, transferring the dividend right to shareholders. Companies going ex-dividend include BHP, Whitehaven Coal, AGL and Credit Corp. This month, the ASX faces a host of extra issues. The RBA is tipped to hike interest rates at its September meeting next Tuesday, front loading rate hikes for the next few months. This comes at a time when home prices marked their steepest decline in four decades and building approvals for private homes, fell to their lowest level since 2012. This means banks will face selling pressure. Crude oil prices (CLU2 & LCOV2)   EIA reported a decline in crude oil inventory of 3.3 million and gasoline inventory of 1.1 million with SPR slowing to 3 million barrels, so resulting in an overall draw of 6.4 mb/d, but the reaction in the oil market remained muted. Production was adjusted higher by 0.1 mb/d to 12.1 mb/d. No change in net trade with imports and exports both declining 0.2 mb/d. WTI futures still trading below $90/barrel in Asian morning as focus shifts back to demand concerns, and Brent futures were below $96. USDJPY heading to 140   The late move higher in US 10-year yields has come back to haunt the yen, with Bank of Japan still remaining committed to keeping its 10-year yields capped at 0.25%. USDJPY rose to fresh 24-year highs of 139.44 in early Asian trading hours, and heading straight to 140 unless we see some verbal intervention coming through from the Japanese officials today. Risk abound with US jobs data due on Friday, and dollar momentum remaining strong. EURUSD still above parity with ECB’s rate hike in focus for next week, beyond the vagaries of gas supplies. GBPUSD however made fresh 2022 lows at 1.1586 as economic weakness remains in focus.    What to consider?  Fed’s Mester calls for over 4% Fed funds rate Cleveland Fed President Loretta Mester backed rates to go above 4% early next year and holding it there, while also clearly calling for no rate cuts in 2023. On inflation, Mester noted it is too soon to say inflation has peaked and wage pressures show little sign of abating, while the fight against inflation will be a long one. This message should get stronger if jobs, and more importantly CPI, data continues to be strong. At the same time, we now have Quantitative Tightening going to its full pace and Mester said that balance sheet reduction could take three years or so. New US ADP jobs data disappointed, but wage data remain upbeat While it is hard to trust estimates on the US ADP report given that it is using a new methodology and market impact/trust is only likely to build over time, it was notable that the headline came in at less than the half of the median estimate. Employment change for August was 132k vs expectations of 300k – clearly putting Friday’s NFP release in focus. ADP said that the data suggests a shift toward a more conservative pace of hiring. ADP noted that the median change in annual pay (ADP matched person sample) was +7.6% YoY for Job-Stayers, and +16.1% YoY for Job-Changers, still suggesting a pretty tight labor market.    Eurozone August CPI continues to climb According to the preliminary estimate, it was out at 9.1% year-over-year versus prior 8.9% and expected 9.0%. Core CPI, which is highly watched by the European Central Bank (ECB), is still uncomfortably high at 4.3% year-over-year. This is likely that double-digit inflation in the eurozone will become a reality by year-end. The Bundesbank has already warned that German inflation could peak around 10% year-over-year in the coming months. Expect a lively debate among the ECB Governing Council about the pace of tightening on 8 September. Several governors are leaning towards an aggressive hike (meaning 75 basis points) while a minority of governors and the ECB chief economist Philip Lane would rather prefer a step-by-step increase in order to take into consideration the risk of recession. US stocks wipe out half of the July rally, what is behind this and what’s next? The S&P500 fell 4.2% in August, erasing half of July’s rally, with investors selling down companies that face balance sheet tightening from runaway inflation and higher for longer interest rates. Meanwhile, in August, investors bought into sectors contributing to inflation (The Oil & Gas sector rose 9%, Agricultural 6%, Fertilizers 5%, and Food Retailers 3%). Meanwhile, investors topped up exposure to stocks/sectors that benefit from higher rates, which is why Insurance rose 3%. Inversely, the most selling was in sectors that will likely suffer from slower growth, higher rates, and inflation (Home Furniture fell 14% in August, Semiconductors lost 10%, Office REITs slid 10%). Notably, the S&P500 closed under its 200-day moving average for the 100th day. The last time this occurred was in the GFC. And since then, this is also the only time the S&P500 and Nasdaq have not made a typical V-shape recovery. This is something Saxo’s strategists Peter Garnry and Jessica Amir warned of, and recently highlighted in the Quarterly Outlook. As uncertainty remains, and comments from Fed and ECB speakers are increasingly bearish; we think growth sectors (tech, consumer spending, and REITs) will face further pressure given their futures earnings will dimmish. Inversely we expect commodities to continue to outperform.     China’s official manufacturing PMI edged up but remained in contractionary territory  China’s official NBS manufacturing PMI edged up to 49.4 in August from 49.0 in July, above expectations but remaining in contractionary territory. The improvement was largely driven by the rise of the new orders sub-index to 49.8 in August from 48.5 in July and helped by strong activities in the food and beverage industries ahead of the mid-autumn festival.  Covid-related disruptions and energy rationing were negative factors pressuring manufacturing activities.  Heatwaves and drought-induced power curbs have caused Sichuan and Chongqing to shut-down manufacturing activities for six days and eight days in August respectively. The stepping up of pandemic controls in quite a number of cities affected the survey negatively. The non-manufacturing PMI decelerated to 52.6 in August from 53.8 in July.  Both the services sector and the construction sector weakened.     Caixin China Manufacturing PMI is expected to fall to 50.0 The median forecasts of economists surveyed by Bloomberg expect the Caixin manufacturing PMI to slide to 50.0 in August from 50.4 in July, right at the threshold between expansion and contraction.  The official NBS Manufacturing PMI released yesterday showed that improvements were found in large and medium-sized enterprises but the activities in small businesses decelerated t a 47.6 reading in August from 47.9 in July.  Moreover, during the survey month, a Covid-19 outbreak hit Yiwu, an export-focussed manufacturing hub in Zhejiang, and might drag on the Caixin manufacturing PMI, which has a higher weight for medium and small-sized businesses in the eastern coastal region.   Australian manufacturing data falls, pressured by higher rates, wages, and scarcity of staff  Manufacturing only contributes 30% to GDP, however, two key sets of weaker manufacturing data will be reflected on by professional investors today. Manufacturing data released by AI Group showed activity fell into contractionary territory, following six months of expansion. The drop in Australian PMI to 49.3 in August was triggered by slower growth in factory activity from higher interest rates and wages, and a lack of workers. The other set of manufacturing data released from S&P Global showed manufacturing fell to a reading of 53.8 in August, down from 55.7 in July. Significantly, the reading was revised lower from the flash (preview reading) and was the lowest read in a year. As such, investors may see selling pressures in key manufacturing stocks. ASX manufacturers and producers to watch include; Woodside, Caltex, Woodside, Whitehaven and Viva Energy, in energy, which may also see profit-taking after gaining a post as some of this year’s best ASX performers. Other companies to watch include Amcor, the global packaging giant. CSL, the global vaccine, and blood therapy business. As well as BHP, Rio Tinto, and Fortescue, global mining producers.  US ISM manufacturing data due today Lower prices at the pump has seemingly helped the US economy reverse from the slowdown concerns, with Chairman Powell also getting the confidence to say that the economic momentum is strong. ISM manufacturing, which is scheduled to be reported on Thursday, may reflect the weakness seen in the S&P survey, but will still be lifted by the backlog in auto vehicle production. Consensus estimates expect ISM manufacturing to cool slightly from July’s 52.8 and come in at 51.9 in August, still remaining in expansionary territory. ISM employment will also be key to watch ahead of the NFP data due on Friday.  Singapore’s first digital bank launch Grab and Singtel have entered an alliance to roll out a banking app next week in Singapore called GXS, that will be Singapore's first digital bank. This is mostly targeted to younger users and small businesses, tapping on Grab's food and ride-hailing customers, in order to improve the penetration of financial services in Singapore. A savings account is also in the offering, with no minimum balance requirement, in direct competition to the traditional banks.   For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets, what to consider – September 1, 2022

Summary:  Whiplash in global sentiment as the US equity market ended yesterday on a sour note at new local lows, only to see the mood brighten considerably in Asia, perhaps in part due to a massive plunge in crude oil prices. Sentiment toward the euro has certainly improved this week, as the single currency posted strong gains nearly across the board yesterday on another steep drop in natural gas prices and fresh hawkish rhetoric from an ECB member ahead of next Thursday’s meeting.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures reversed hard yesterday after pushing through above the 100-day moving average closing below the 4,000 level at 3,987. The culprit was more hawkish comments from both the Fed and ECB on top of very strong JOLTS Job Openings supporting the view that the labour market remains tight, likely leading to more wage pressures. Also, the S&P CoreLogic house index for June showed that house prices slowed down significantly on m/m basis highlighting the negative impact from higher mortgage rates. S&P 500 futures are trading back above the 4,000 level this morning with the 50-day moving average sitting around the 4,017 level is a key support level to watch today. Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) In U.S. trading the night before, Hang Seng Index Futures tumbled 2.3% in a confluence of factors including Taiwanese soldiers on front-line islands firing shots at civilian drones believed flying from mainland China, a newswire report saying the U.S. regulator, PCAOB, selected Alibaba (BABA:xnys/09988:xhkg) for audit inspection commencing in September, Berkshire Hathaway reducing holdings in BYD, Covid-related lockdown concerns, and the continuous decline of the U.S. equity markets. Hang Seng Index gapped down by nearly 2% at the Asian market open but managed to crawl back all the loss and turn to a gain of 0.5% at the time of writing. The tech space led the charge higher, Hang Seng Tech Index (HSTECH.I) surged by 2.4%. In A shares, CSI 300 reversed the downtrend in the morning and bounced to 0.8% higher. Surging euro take the single currency higher across the board The EURUSD exchange rate was stable-to-stronger as the EU continues to build natural gas supplies ahead of the winter and as the price for gas dropped sharply yesterday again. More hawkish comments from the ECB, this time from Nagel, who argued for “front-loading” rate hikes, also helped the euro higher. The Euro was higher across the board, with EURCHF surging nearly to 0.9800 and EURUSD staying above parity despite the USD strength elsewhere. The bigger level in the latter is toward the 1.0100 local range high and former range low. Next Thursday’s ECB will be critical for the euro outlook, with the market leaning for a 75 basis point hike. Selling pressure in GBP ramps up Pessimism built in sterling after Goldman Sachs hinted that peak inflation in the UK could reach 22% in early 2023 and downgraded its GDP forecast. GBPUSD touched lows of 1.1622 before settling around 1.1660.  EURGBP pushed higher to 0.8600, its strongest level since early July. Crude oil prices (CLU2 & LCOV2) Crude oil on track for a third monthly drop took a 7.5% tumble on Tuesday after recording the best day in six weeks on Monday. Both highlight a market suffering from low liquidity and lack of direction. Brent has returned to $100 with the slower growth and demand narrative once attracting sellers. In addition, a two-day plunge in EU gas prices also weighing on sentiment while new Covid infections and the worst heatwaves in decades in China added to the negative sentiment. On the supply side the Iraq turmoil is not having any impact on oil supplies while an Iran nuclear deal still lingers. Ahead of today’s EIA weekly stock report, the API last night reported a 600k barrels increase in oil stocks with big draws seen in gasoline and diesel. Further volatility can be expected in European gas prices over the coming days, and that could spill over to crude oil as well. EU Gas traders watch Nord Stream 1 and political initiatives to suppress power prices Dutch TTF benchmark gas which touched €350/MWh on Friday trades €270/MWh on the opening with focus on Gazprom’s announced 3-day closure of the NordStream 1 pipeline for maintenance, and whether it will reopen on September 3 or remain shut as part of Putin’s gas war against Europe. The closure coinciding with maintenance in Norway, including at the giant Troll fields. NordStream 1 currently supplies Europe with 33 mcm/day compared with its capacity of 167 mcm/day. A re-opening on September 3 could send prices tumbling further towards €200/MWh, a level still high enough to curb demand. Gas has also been losing altitude in response to rapidly filling storage sites, although daily flows will be needed throughout the winter, and signs the EU is preparing to intervene to dampen soaring power prices. Gold (XAUUSD) Gold remains troubled by the recent hawkish shift by the US Federal Reserve, but the downside pressure has eased a bit by a weaker dollar and geopolitical tensions. The price nevertheless trades below support-turned-resistance at $1729/oz with $1715/oz support preventing another attempt to challenge key support at $1680/oz. A host of Fed speakers were on the wires yesterday, and all of them focused on inflation, suggesting aggressive action from the Fed will continue. Meanwhile, Taiwanese soldiers fired shots to ward off civilian drones flying close to islands near China, spooking fears that tensions could escalate. What is going on? First shipment of wheat out of Ukraine arrives in Africa The first export of wheat from Ukraine since the invasion of Russia in February has arrived in Djibouti, east Africa. The 23,000-ton shipment is bound for Ethiopia which is struggling with ongoing drought and conflict. A recent agreement between Russia and Ukraine, mediated by the UN and Turkey, has allowed 50 ships to resume shopping grain around the world. Wheat harvest was also seen picking up in Canada as yields improved amid better weather conditions, helping to ease supply worries in the key agricultural crop. US consumer confidence and JOLTS data came in better-than-expected US consumer confidence rose to its highest level in three months to come in at 103.2 in August from 95.7 previously. Both the expectation index and present situation index saw improvements, rising to 75.1 (prev. 65.6) and 145.4 (prev.139.7), respectively. This could be partly driven by lower pump prices, but also signals that a healthy job market report may be coming this week. The 1-year ahead inflation expectation fell to 7.0% (prev. 7.4%), which was a seven-month low. Meanwhile, US JOLTS rose to 11.239mln in July, above the expected 10.45mln and previous 10.698mln, hinting that the labor market remains tight. German CPI’s upside surprise, ECB still leaning towards front-loading Germany CPI came in higher than expected at 7.9% YoY (vs. 7.5% prev and 7.8% expected) while the MoM print was slightly softer at 0.3% (vs. 0.9% prev and 0.4% expected). Food and energy price gains underpinned, but fuel rebate helped to take some pressure off. Meanwhile, ECB speakers continued to push for more front-loaded rate hikes, in contrast to ECB’s Lane calling for more step-by-step increases on Monday and signaling recession concerns yesterday. THe ECB’s Nagel argued for front-loading rate tightening and Knot clearly said he’s leaning towards a 75bp hike in September, but he is open to a discussion, as did Muller. Wunsch also vouched for rates in restrictive territory, and Vasle (non-voter) said the September rate hike should exceed 50bps. Pricing for the ECB meeting next Thursday closed yesterday around +65 basis points. Taiwan shot at drones flying close to its offshore islands Taiwan’s authorities said in a statement Taiwanese soldiers fired shots in three incidents on Tuesday to ward off drones flying close to small offshore islands controlled by Taiwan. The statement did not identify where these civilian drones were from but said that the drones flew away in direction of Xiamen, a coastal city in mainland China. Taiwan’s President Tsai Ing-wen previously urged Taiwan’s military force to take “appropriate by necessary” actions to drive away civilian drones having been buzzing Taiwan’s military installations on its front-line islands. Crowdstrike reports better than expected results Shares were higher in US extended trading, following a 0.7% rise in the regular session after reporting second-quarter results that topped expectations, while it also raised its forecasts for the year. The cyber security giant reported revenue rose to $535mn, up from $337.7mn last year. Annual recurring revenue grew 59% to $2.14bn compared to the same time last year. This is a somewhat of a testament that cyber security is a defensive industry, as it is able to somewhat thrive regardless of economic conditions weakening. Chinese lithium miners are seeing explosive growth Tiangqi and Ganfeng, two of the world’s largest lithium miners, both reported very strong results seeing net income increasing multiples times from last year as lithium carbonate prices have risen 80% this year in China driven by supply shortages of lithium and extremely rapidly growing demand for electric vehicles. What are we watching next? The EU will hold an emerging energy meeting on 9 September This happens while the EU is set to meet its gas storage filling goal (80 %) two months ahead of target. Germany, which is one of the largest European economies most dependent on Russian gas, is also on track to meet its national storage goal before the deadline expires. In recent weeks, the EU has scaled up efforts in order to avoid energy rationing this winter. On this emergency meeting, Spain is expected to propose that the entire EU apply the ‘Iberian exception’ to set electricity prices. In mid-April 2022, the European Commission agreed that Spain and Portugal create a temporary mechanism to decouple the price of gas from that of electricity for a period of 12 months. Concretely, the price of gas was capped to an average of €50 per megawatt-hour. This resulted in electricity bills being halved for about 40 % of Spanish and Portuguese consumers with regulated rates. This could be applied at the EU scale. The Chinese Communist Party national congress commences on Oct. 16 The politburo decided to propose to schedule the next once-every-five-year National Congress of the Chinese Communist Party (the “CCP”) for Oct 16, 2022.  The 2,300-odd delegates attending the National Congress will elect the CCP’s Central Committee which consists of 205 full (voting) members and 170 alternate (non-voting) members. The full members of the Central Committee will elect among themselves the 25 members of the Politburo and the members of the Politburo will then choose among themselves the seven members of the Politburo Standing Committee, who are the highest leaders of the CCP.  The National Congress will review the CCP’s work over the past five years and formulate policy directions and action plans for the next five years.  Today is the first report of US ADP Payrolls Change using new methodology The ADP Research Institute and Stanford Digital Economy Lab have revised the methodology for the ADP’s monthly employment report, arguing that the new report will offer a better view on the labor market, with breakdowns of weekly data for the prior month and more data on changes in pay. Only time will tell whether the market will begin to trust this data more than the official nonfarm payrolls “establishment” survey. Earnings to watch Today’s US earnings focus is MongoDB expected to report 42% y/y revenue growth in FY23 Q2 (ending 31 July) with operating profit getting very close to break-even. The database company has been running positive cash flow from operations over the past two quarters, but investors would like to see operating income (includes share-based compensation) break-even as well. Today: MongoDB, Brown-Forman, Veeva Systems Thursday: Pernod Ricard, Broadcom, Lululemon Athletica, Hormel Foods Friday: BNP Paribas Fortis Economic calendar highlights for today (times GMT) 0755 – Germany Aug. Unemployment Change/Rate 0800 – Poland Flash Aug. CPI 0900 – Eurozone Flash Aug. CPI 1200 – US Fed’s Mester (voter) to speak 1215 – US Aug. ADP Private Payroll change 1230 – Canada Jun. GDP 1345 – US Aug. Chicago PMI 1430 – EIA's Weekly Crude and Fuel Stock Report 2300 – South Korea Q2 GDP 0145 – China Aug. Caixin Manufacturing PMI Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 31, 2022

Summary:  US stocks move below the key 4,000 level for the first time since July, while also moving under the 50-day moving average, signifying the S&P500 could gain momentum to the downside and potentially retreat to the low set in June. Selling pressure in GBP ramps up, crude oil prices tumble from fresh highs, iron ore retreats below the key $100 level and could remain contained for the year ahead, meanwhile, coal prices remain in record territory. The first shipment of wheat out of Ukraine arrives in Africa. In company news, we cover the latest in the EV space, plus what the latest is from Crowdstrike, the cybersecurity giant. Here is what's happening in markets right now, and what to consider next. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) again on the back foot, being pressured lower US equities fell for the third straight day on Tuesday, with the S&P and the Nasdaq both falling 1.1%. Pressure fell upon equities last night for several key reasons; firstly the market had another reality check - rate rises will intensify. New York Fed President John Williams said on Tuesday restrictive policy will be needed to slow demand, and rate hikes have not achieved that yet. Over in Europe a policy makers said the ECB should make a 75 basis-point hike at its September meeting. All in all, this caused short-term rates, the US 2-year Treasury yield, to rise to its highest level in almost 15-years, as traders bet more rate hikes are coming. This pressured commodity prices, which pulled back on fears rate hikes will soften demand. On top of that OPEC+ didn’t discuss production cuts. So Oil fell ~6%. WTI settled around ~$91.64. As such, the Oil and Gas sectors fell 4%, adding the most weight to Tuesday’s drop. Secondly, equities were also pressured on fears that geopolitical tensions could escalate, after Taiwanese soldiers fired shots to ward off civilian drones flying close to islands near China. And Thirdly, equities are also facing end of month rebalancing; where investors typically take profits from top performers and buy laggards to bring their assets allocations into alignment. Noteworthy movers in US equities   Retailers Big Lots (BIG:xnys) and Best Buy (BBY: xnys) surged 11.8% and 1.6% respectively after reporting Q2 earnings that beat market expectations.  Big Lots’ narrower loss was attributed to margin improvements from cost controls. Likewise, Best Buy’s better-than-expected earnings was largely due to cost controls, as sales fell nearly 13% YoY in the quarter. The discount retailers indicated they’re copping the brunt of trade-downs, while they also warned about a pullback in consumer spending.  U.S. treasuries (TLT:xnas, IEF:xnas, SHY:xnas)   Treasury yields were little changed on Tuesday, with the 2-year yield rising modestly by 2bps to 3.44% as the market continued to price in a 75bp Fed hike at the September FOMC.  The stronger JOLT job openings data and consumer confidence data, plus Fed officials’ reiteration of determination to bring inflation back under control contributed to the bids to the front end of the curve. Hong Kong’s Hang Seng (HSIU2) and China’s CSI300 (03188:xhkg)   Hong Kong and mainland China equities pulled back moderately, Hang Seng Index -0.37%. Tech names were weak.  Hang Seng Tech Index plunged as much as 3% before bouncing off the low to finish the day only 0.5% lower.  The news of Shenzhen and other cities stepping up pandemic control measures fuelled the risk-off sentiment that has already been hanging over the market.  Share prices of Chinese developers were broadly lower as mortgage repayment boycott cases increased to 103 cities and 347 development projects.  According to the Ministry of Industry and Information Technology, smartphone sales in China fell 2.9% YoY in the period between Jan and July.  Despite reporting solid 1H results, China automaker, BYD (01211:xhg) slid 0.5% following an exchange filing showing that Buffett’s Berkshire Hathaway reduced its stake in the company. Auto retailer, Zhongsheng (00881:xhkg) plunged by 7%.  In A-shares, mining stocks, gas, electric equipment, and auto parts underperformed. In U.S. trading, Hang Seng Index Futures tumbled 2.3% in a confluence of factors including Taiwanese soldiers on front-line islands firing shots at civilian drones believed flying from mainland China, a newswire report saying the U.S. regulator, PCAOB, selected Alibaba (BABA:xnys/09988:xhkg) for audit inspection commencing in September, Berkshire Hathaway reducing holdings in BYD, Covid-related lockdown concerns, and the continuous decline of the U.S. equity markets.  Compared to their closes in Hong Kong, ADRs of BYD fell by 4.2%, and Alibaba by 3.3%. Selling pressure in GBP ramps up Despite a relatively stable USD, pessimism built in sterling after Goldman Sachs hinted that peak inflation in the UK could reach 22% in early 2023 and downgraded its GDP forecast. GBPUSD touched lows of 1.1622 before settling around 1.1660. EURUSD was stable-to-stronger given the stabilising gas situation and the hawkish ECB rhetoric pushing for a jumbo rate hike at the September meeting again. EURGBP pushed higher to 0.8600, its strongest levels since early July.   Crude oil prices (CLU2 & LCOV2)   Crude oil was down over 6% after recording the best day in six weeks on Monday when Brent traded above $105/barrel. The reversal yesterday came on the back of a general improvement in risk appetite as European gas prices plunged. This will likely lower diesel prices, reducing the demand for oil. Fresh lockdown announcements in key Chinese cities also raised demand concerns. Meanwhile the supply situation looked better in the near-term amid reduced Iraq supply disruptions risk and rumours of a potential Iran agreement. Oil inventories also surprised with 593k barrel rise. Reports that OPEC+ not considering a production cut supported price action in the Asian morning hours, and WTI futures reversed to inch back above$92/barrel. Further volatility can be expected in European gas prices today, and that could spill over to crude oil as well, as Nord Stream 1 goes into maintenance.  Gold (XAUUSD)   Gold continues to have trouble finding direction amid a hawkish Fed speak but rising geopolitical tensions. A host of Fed speakers were on the wires yesterday, and all of them focused on inflation, suggesting aggressive action from the Fed will continue. Meanwhile, Taiwanese soldiers fired shots to ward off civilian drones flying close to islands near China, spooking fears that tensions could escalate. Strong US economic data both from consumer confidence and JOLTS jobs opening also bumped up the US 10-year yields, and Gold was seen dipping below the key 1729 support on Tuesday, coming in sights of the one-month lows.  First shipment of wheat out of Ukraine arrives in Africa   The first export of wheat from Ukraine since the invasion of Russia in February has arrived in Djibouti, east Africa. The 23,000-ton shipment is bound for Ethiopia which is struggling with ongoing drought and conflict. A recent agreement between Russia and Ukraine, mediated by the UN and Turkey, has allowed 50 ships to resume shopping grain around the world. Wheat harvest was also seen picking up in Canada as yields improved amid better weather conditions, helping to ease supply worries in the key agricultural crop.  What to consider?  US consumer confidence and JOLTS data came in better-than-expected   US consumer confidence rose to its highest level in three months to come in at 103.2 in August from 95.7 previously. Both the expectation index and present situation index saw improvements, rising to 75.1 (prev. 65.6) and 145.4 (prev.139.7), respectively. This could be partly driven by lower pump prices, but also signals that a healthy job market report may be coming this week. The 1-year ahead inflation expectation fell to 7.0% (prev. 7.4%), which was a seven-month low. Meanwhile, US JOLTS rose to 11.239mln in July, above the expected 10.45mln and previous 10.698mln, hinting that the labor market remains tight.  German CPI’s upside surprise, ECB still leaning towards front-loading   Germany CPI came in higher than expected at 7.9% YoY (vs. 7.5% prev and 7.8% expected) while the MoM print was slightly softer at 0.3% (vs. 0.9% prev and 0.4% expected). Food and energy price gains underpinned, but fuel rebate helped to take some pressure off. Meanwhile, ECB speakers continued to push for more front-loaded rate hikes, in contrast to ECB’s Lane calling yesterday for more step-by-step increases and signaling recession concerns yesterday. ECB’s Knot however clearly said he’s leaning towards a 75bp hike in September but he is open to a discussion, as did Muller. Wunsch also vouched for rates in restrictive territory, and Vasle (non-voter) said the September rate hike should exceed 50bps.  The Chinese Communist Party will hold its national congress on Oct. 16   The politburo meeting held on Tuesday decided to propose to the Central Committee of the 19th National Congress to schedule the next once-every-five-year National Congress of the Chinese Communist Party (the “CCP”) for Oct 16, 2022.  The 2,300-odd delegates attending the National Congress will elect the CCP’s Central Committee which consists of 205 full (voting) members and 170 alternate (non-voting) members. The full members of the Central Committee will elect among themselves the 25 members of the Politburo and the members of the Politburo will then choose among themselves the seven members of the Politburo Standing Committee, who are the highest leaders of the CCP.  The National Congress will review the CCP’s work over the past five years and formulate policy directions and action plans for the next five years.   Taiwan shot at drones flying close to its offshore islands    Taiwan’s authorities said in a statement Taiwanese soldiers fired shots in three incidents on Tuesday to ward off drones flying close to small offshore islands controlled by Taiwan. The statement did not identify where these civilian drones were from but said that the drones flew away in the director of Xiamen, a coastal city of mainland China. Taiwan’s President Tsai Ing-wen previously urged Taiwan’s military force to take “appropriate by necessary” actions to drive away civilian drones having been buzzing Taiwan’s military installations on its front-line islands.   Iron ore falls below the key $100 level   The key steel ingredient fell below $100 for the first time in five weeks, on signs of China’s steel industry worsening. Steel production will fall by more than 8 million tons in the second half, due to plans to restrict output in the key hub of Tangshan. This is according to Minmetals Futures. That cut in production equates to a decline of 10%. China’s steel industry is reeling amid a property crisis, that’s showing no promise of turning around any time soon. Authorities in Tangshan, near Beijing also decided to cut production at a recent meeting, Meanwhile a major steel maker, Angang Steel says it sees tough conditions persisting through the end of the year. This backs up BHP’s comments last week, where BHP’s CFO told Saxo in an one-on-one interview, that iron ore demand will remain limited in the year ahead, not able to outpace supply. This means iron ore pricing will remain capped. Coal prices are back at record highs, amid the energy crisis   With global electricity prices skyrocketing and likely to worsen, and nothing being resolvable, the coal price is being bid again, pushing it once again back to record territory. For consuemrs, unfortunately this means higher power bills, especially in those regions dependent on coal for electricity (India, China, Australia). With the coal futures price, and the spot coal price moving to higher levels, this supports future earnings and cashflows in coal companies. As such, many coal stocks are trading at record highs. Shares in Australia’s largest pure-play coal company Whitehaven Coal (WHC) hit a brand-new record all-time high yesterday, A$8.15, but today is facing selling pressure (profit taking perhaps). Other stocks that make money from Coal include BHP in Australia. In Asia, Bayan Resources, and Yankunang Energy, as well as Shaanxi Coal. Alibaba has been selected for audit inspection by the PCAOB   According to Reuters, Alibaba (BABA:xnys/09988:xhkg) has been selected, together with some others, by the Public Company Accounting Oversight Board (the “PCAOB”) for audit work inspection commencing in September.  Buffett’s Berkshire Hathaway reduces its stake in the Chinese EV maker BYD   Warren Buffett’s Berkshire Hathaway sold around 1.33 million shares of BYD (01211:xhkg) at an average price of HKD277.10, bringing its stake in BYD to 19.92% of the total issued H shares or 7.51% of the total issued share capital on Aug. 24.  Comparing the ending balance after the sale to the ending balance as of June 30 revealed in BYD’s interim results announcement released earlier this week, Berkshire Hathaway had previously undisclosed sale of 4.95 million shares since July.  Assuming the 4.95 million shares were sold at the average closing prices in July and August, Berkshire Hathaway cashed out a total of about HK$1.8 billion from the sale of these 6.28 million shares over the past two months which was similar to the aggregate cost that Berkshire Hathaway had initially paid for the whole amount of 7.73% stake (or 20.49% of H shares) in BYD. Covid cases resurface in 31 provinces in China   China’s southern technology hub, Shenzhen shut down the world’s largest electronics retailing marketplace in response to a surge of Covid cases. The cities of Dalian, Chengdu, Yiwu, and Sanya are also under some sort of restriction. Baidu reported inline Q2 results   Baidu’s (BIDU:xnys/9888:xhkg) revenue fell 5% YoY to RMB 29.65 billion, largely in line with consensus estimates. Its operating margin came in at 22%, contracting 5 percentage points YoY, due to sluggishness in the high-margin ads business and a revenue mix shifting toward lower-margin non-ads business.  Q2 Non-GAAP EPS increased 2% YoY to RMB15.79, well above analysts’ RMB9.82 median forecast.      American companies have a downbeat outlook on doing business in China   The US-China Business Council’s annual member survey showed that a record 21% of the 117 multinational companies headquartered in the US said they were downbeat on their business in China for the next five years, (according to those surveyed). 90% of respondents said their businesses were affected by lost sales and uncertainty over reliable deliveries.   China is set to tighten scrutiny of companies seeking to raise funds through issuing offshore bonds   According to a consultative draft document on the portal of the National Development and Reform Commission, China is planning to require companies that seek to issue bonds offshore to register, report and receive approval from the authorities for debts that have tenors exceeding one year.   China’s official PMIs are scheduled to be released today   The median forecasts of economists surveyed by Bloomberg expect China’s official NBS manufacturing PMI to edge up to 49.2 in August from 49.0 in July, while firmly remaining in contractionary territory. Heatwaves and drought-induced power curbs have caused Sichuan and Chongqing to shut-down manufacturing activities for six days and eight days in August respectively. The stepping up of pandemic controls in some cities could also affect the survey negatively. The median forecast for August official NBS non-manufacturing PMI is 52.2, down from last month’s 53.8 but remains in expansionary territory.   Crowdstrike, the cybersecurity giant reported better than expected results   Crowdstrike shares were higher after hours in the US, following a 0.7% rise in the regular session after reporting second-quarter results that topped analysts expectations, while it raised its forecasts for the year. The cyber security giant reported revenue rose to $535 million, up from the $337.7 million in the year-ago quarter. Annual reoccurring revenue grew 59% to $2.14 billion compared to the same time last year. This is a somewhat of a testament that cyber security is a defensive industry that is able to do well, regardless of economic conditions weakening. For a global look at markets – tune into our Podcast. Source: APAC Daily Digest: What is happening in markets and what to consider next – August 31, 2022

Summary:  Markets traded mostly sideways yesterday as the US dollar’s advance was stymied and US yields pushed back slightly lower. China continues to allow its currency to trade toward the lows for the cycle versus the US dollar as the 7.00 area nears in USDCNH. The euro bobbed back up toward parity versus the US dollar yesterday as natural gas prices fell even as Russia shuts the key Nord Stream pipeline down for a purported few days of maintenance.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) US equities stabilised yesterday following that knee-jerk reaction on Friday to the Jackson Hole presentations with S&P 500 futures touching and bouncing off the 50-day moving average closing above the critical 4,000 level. S&P 500 futures are trading around the 4,044 level this morning sandwiched between the 100-day moving average above this level and the 50-day moving average below suggesting a bigger move is shaping up in either direction. The next big shift in sentiment will be when we get the US August CPI print on 13 September as that is the key data point to shape expectations from current levels. Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hong Kong and mainland China equities pulled back moderately, Hang Seng Index -0.9%. Tech names were weak. Hang Seng Tech Index plunged as much as 3% before bouncing off the lows to finish the morning session down 1.7%.  According to the Ministry of Industry and Information Technology, smartphone sales in China fell 2.9% YoY in the period between Jan and July. Despite reporting solid 1H results, China automaker, BYD (01211:xhg) slid 0.6%. In A-shares, mining stocks, gas, electric equipment, and auto parts underperformed, CSI 300 -0.5%. Pinduoduo (PDD:xnas), a leading Chinese eCommerce platform listed on Nasdaq reported strong 2Q results, showing stronger than peer gross merchandise value growth and better-than-expected margin improvement. US dollar and especially USDCNH The US dollar tried higher, but failed to follow through as risk sentiment stabilized and US Treasury yields eased back lower. The USDCNH rate, however, continues to push toward the high of the cycle, trading near 6.92 this morning. EURUSD trades near parity this morning after natural gas prices fell sharply in Europe yesterday and despite ECB Chief Economist Lane arguing for steady rate increases (pushing back against the pricing of a possible 75 basis point move at next week’s ECB meeting). Incoming data this week will be critical for USD direction. JPY weakness to bring back pressure on Bank of Japan USDJPY is back to testing its record July highs despite little change in money market pricing of the Fed rate path following Powell’s hawkish speech at Jackson Hole. The peak Fed funds rate is still priced in at 3.8%, while some of the Fed speakers have started to suggest 4%+ levels that may be needed to combat inflation. This brings the September dot plot in focus, but we get the jobs and CPI data before that as well. Any further upward re-pricing of the Fed path, if resulting in gains in US 10-year yields, could very well take USDJPY to new highs with Japanese yields still remaining capped due to the Bank of Japan’s yield curve control policy. If, however, US data underwhelms, the room on the downside for USDJPY is tremendous. Crude oil prices (CLU2 & LCOV2) Crude oil prices saw their best day in six weeks amid threats of a decline in supply from OPEC and production outages in Libya. Brent futures rose above $105/barrel although some softening was seen in Asia overnight, while WTI rose to $97/barrel. This follows news from last week that Kazakhstan’s exports of crude may be impacted for months because of damage to its port facility. Meanwhile, negotiations between Iran and the US over the revival of the 2015 nuclear deal could drag on for weeks, easing fears of an imminent surge in supply. Pro Farmer tour see lowest US corn production since 2019 The just completed Pro Farmer tour across the US grain belt helped drive corn futures in Chicago to a two-month high on Monday after the tour saw the US corn crop at 13.76 bn bushels, below USDA forecasts for 14.36 billion bushels. Pro Farmer predicted a soybean crop of 4.54 billion, in line with the USDA’s latest forecast. Wheat, supported by corn’s rally, touched its highest since July 12 despite news that Ukraine agricultural exports could rise to 6.5 million ton in October, double the volume in August.  The soybean vs corn ratio needs to stay low (favouring corn) ahead of the South American planting season in order to persuade farmers there to plant more of the fertilizer intensive crop. US Treasuries (TLT, IEF) US treasury yields eased lower yesterday. An interesting paper presented at the Jackson Hole conference at the weekend suggests that the Fed will have a hard time delivering on quantitative tightening without causing harm to financial market functioning, which could mean less supply of treasuries from the Fed if its shies away from reducing its balance sheet at the previously touted pace of $95 billion/month. Otherwise, incoming US data is the focus through the August CPI release on September 13. What is going on? Shell CEO warns of prolonged European gas crisis Shell CEO Ben van Beurden gave comments from Norway’s ONS conference, suggesting that Europe could face gas shortages for a number of winters. This disproves reports suggesting that Europe has already built reserves for the winter demand and reaffirms our belief that a move to broad-based energy supply will continue to be top of mind in the long run. In the near term, demand destruction appears to be the only possible solution, and Van Beurden stressed the need for efficiency savings as well as rationing. ECB Lane dials back on jumbo rate hike expectations ECB chief economist Lane was on the wires on Monday and hinted at a steady pace of rate hikes in a “step-by-step” manner rather than jumbo rate hikes. This appears to be a pushback against calls for a 75bps rate hike at the September meeting, as he made the case to allow the financial system to absorb the rate changes. Moreover, on inflation, Lane said long-term inflation expectations remain close to the two per cent target, while near-term inflation expectations are quite elevated. BYD reported 1H earnings at the high end of the preannounced range Chinese automaker BYD (01211) reported 1H revenue up 66% y/y to RMB 151bn. In terms of segments, auto revenue surged 130% y/y while mobile handset revenues contracted 4.8% y/y. Net profits jumped 206% to RMB 3.6bn, at the top end of the preannounced range of RMB 2.8-3.6bn. Volume growth (353K new energy passenger vehicles in 2Q, +265% y/y) beating market expectations despite two rounds of price increases in 2022 and supply chain disruptions. The company’s EV market share rose to 29% (vs 17% in 2021). Pinduoduo delivered Q2 results showing stronger than peer sales growth Pinduoduo (PDD:xnas), a leading eCommerce platform with strong penetration into agricultural products and online shoppers from rural areas, reported 1H total revenue up 36% y/y, far exceeding the 3% y/y consensus estimate. The company attributed the revenue growth to a recovery in consumption since mid-May, successful promotion campaigns, and 48-hour daily necessity supply packs for people facing lockdown. The company’s strong market position in rural areas and agriculture-related products also help it stand out from its rivals. In Q2, the company achieved a 20 %-point improvement in margin, reaching 33.5%, but the management cautioned investors that the margin compression was attributed to temporary cost savings early in the quarter and spending had increased since mid-May. Non-GAAP EPS came in at RMB 7.54, +161% y/y. Shares in Uranium companies and other nuclear-related companies are back in the spotlight Japan has signaled its openness to more nuclear power, at the same time, Tesla founder Elon Musk has applauded uranium as an energy alternative, during an energy conference in Norway. Uranium stocks moved higher as a result on Monday in the US, which boosted the Global X Uranium ETF up 7%, to its highest level since June 8. Shares in the Asia-Pacific region followed. Australian stocks saw the most significant moves given the country has the largest uranium reserves globally. Australia’s Paladin rose 11%, Deep Yellow 15% and Boss Energy 10%, while Rio Tinto (which owns a deposit) rose over 1%. Japan’s Mitsubishi Heavy Industries and Tokyo Electric Power gained 3%. Companies to watch in Europe, include Yellow Cake and Kazatomprom. What are we watching next? August U.S. job report is out on Friday There should not be a major surprise. The economist consensus expects a 300,000 payrolls increase in August and a stable unemployment rate at 3.5 % - this is a five-decade low. If this is confirmed, it all points to a healthy labor market (despite the moderate pace of job increases). Today, the U.S. government will also release July data on vacancies and quits. Expect job openings to remain elevated, thus pointing to resilient demand for labor. These figures are unlikely to play a major role at the September FOMC meeting since it is well-known that labor market data are lagged indicators. Inflation remains the main point of concern, as mentioned by Fed Chair Jerome Powell last week at Jackson Hole Symposium. August EZ CPI will be painfully high The consensus expects a new increase of 9 % year-over-year when the data will be released on Wednesday. This should convince European Central Bank (ECB) policy makers to raise borrowing costs by a sizable increase on September 8. At Jackson Hole, ECB’s executive board member Isabel Schnabel indicated the central bank has no other choice but to act with ‘determination’. This is a matter of credibility. According to Bloomberg, traders now price a 50 % chance of a 75-basis points rate hike in September. Earnings to watch Today’s earnings focus is China are lithium miners Tianqi Lithium and Ganfeng Lithium as the growth in electric vehicles sales is putting enourmous pressure on availability of lithium and prices of lithium carbonate. Baidu is another Chinese earnings release to watch today as the company’s footprint in online advertising will give insights into economic activity. Later in the US, earnings to watch are Crowdstrike in the cyber security industry and HP in computing hardware. Today: Woodside Energy, ICBC, China Yangtze Power, Muyuan Foods, SF Holdings, Shaanxi Coal, Midea Group, Tianqi Lithium, Ganfeng Lithium, Bank of Montreal, China Construction Bank, Bank of China, Great Wall Motor, COSCO Shipping, Partners Group, Baidu, Crowdstrike, HP Wednesday: MongoDB, Brown-Forman, Veeva Systems Thursday: Pernod Ricard, Broadcom, Lululemon Athletica, Hormel Foods Friday: BNP Paribas Fortis Economic calendar highlights for today (times GMT) 0700 – Spain Flash Aug. CPI 0830 – UK Jul. Net Consumer Credit 0830 – UK Jul. Mortgage Approvals 0900 – Euro Zone Aug. Confidence Surveys 1115 – ECB's Vasle to speak 1200 – Hungary Rate Decision 1200 – US Fed’s Barkin (Non-voter) to speak 1200 – Germany Aug. Flash CPI 1300 – US Jun. S&P CoreLogic Home Price Index 1400 – US Aug. Consumer Confidence 1400 – US Jul. JOLTS Job Openings 1500 – US Fed’s Williams (voter) to speak 1600 – ECB Speakers Holzmann and others 2030 – API's Weekly Crude and Fuel Stock Report 0130 – China Aug. Manufacturing/Non-manufacturing PMI Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 30, 2022

Summary:  The rise in U.S. treasury yields pressured growth stocks with the Nasdaq 100 falling below its 50-day average, which puts it back in a precarious position. Fed Kashkari said he was glad to see the markets fell after Chair Powell’s Jackson Hole speech to tighten financial conditions. Global equity markets have certainly got the message and are in a risk-off mood. What is happening in markets?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  US Stocks fell for the second day, but modestly compared to Friday’s sell-off that was triggered by Fed Chair Powell vowing rates will stay higher for longer to cool runaway inflation while suggesting there will be no pivot to cutting rates in 2023, S&P 500 -0.7%, Nasdaq 100 -1%.  Minneapolis Fed president Kashkari said that “he certainly was not exited to see the stock market rallying” after the last FOMC meeting and “people now understand the seriousness of our commitment to getting inflation back down to 2%.” Tech stocks dragged the markets lower, Nvidia -2.8%, Tesla -1.1%.  Twitter (TWTR:xnys) dropped 1.1% after Elon Musk ad subpoenaed a Twitter whistleblower to share information.  Meanwhile, gains in value stocks somewhat held up the market last night, with the oil, gas, and agricultural sectors rising 1-2%. It comes as Oil prices rose 4% on Monday as potential OPEC+ output cuts and conflict in Libya helped to offset a strong U.S. dollar. While the Ag sectors were supported higher after the wheat price jumped 4.9% and corn rose 2.2% (at its highest level in 2 months) after heat damage worsened US crops more than expected. As such it appears markets are back to their risk off modus operandi, selling down growth names (which are based on future earnings which gets diminished amid higher rates), and instead, buying value (commodities), with rising cashflows. U.S. treasuries (TLT:xnas, IEF:xnas, SHY:xnas) US treasury yield rose across the curve.  The 2-year yield rose to as high as 3.48% during the day, the highest level since November 2007, before paring the rise to settle 3bps higher at 3.42%.  The 10-year yield rose 7bps to 3.11%,  taking the 2-10 year curve steepened by 3bps to -32bps.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hong Kong and mainland China equities traded relatively calm in the midst of a large post-Jackson Hole selloff in the U.S., Hang Seng Index -0.7%, CSI 300 -0.4%.  The deal made between the U.S. and China regulators last Friday regarding access to audit work papers did not trigger much new buying in China internet stocks on Monday as it had already been well wired before the official announcement.  Further, there is much remained to be seen if the agreement will be implemented to the satisfaction of both sides as the U.S. and China regulators seem to differ in their interpretation.  Meituan (03690:xhkg) gained 2.6% after reporting solid Q2 results, which Hang Seng Tech Index dropped 1.2%. China’s industrial profits slumped to contracting 14.5% YoY from (v.s. +1.1% in June) and a fall of 11.3% sequentially from June.  The weakness was mainly driven by upstream sectors.  Coal mining stocks initially slumped but rallied later in the days and finished higher in Hong Kong and mainland bourses.   Geely (00175:xhkg) rose 1.7% as the automaker’s Zeekr line of EVs will be the first to use a new battery from CATL that provides over 1,000km range per charge.  SMIC (00981:xhkg), -2.1%, announced spending USD7.5 billion to build a plant in Tianjin to make 12-inch wafers. Chinese banks traded weak as Reuters reported that China’s central bank and bank regulators had been making calls to banks to push them to make more lending to support the real economy than put their funds in financial investments.  USDJPY weakness to bring back pressure on Bank of Japan USDJPY is back to testing its record July highs despite little change in money market pricing of the Fed rate path following Powell’s hawkish speech at Jackson Hole. The peak Fed funds rate is still priced in at 3.8%, while some of the Fed speakers have started to suggest 4%+ levels that may be needed to combat inflation. This brings the September dot plot in focus, but we get the jobs and CPI data before that as well. Any further upward re-pricing of the Fed path, if resulting in gains in US 10-year yields, could very well take USDJPY to new highs with Japanese yields still remaining capped due to the Bank of Japan’s yield curve control policy. If however, US data underwhelms, the room on the downside for USDJPY is tremendous. USDCNH made a new high at 6.9327 Wider interest rate differentials between the U.S. dollar and the renminbi and a weaker economic outlook in China continued to pressure the renminbi weaker. USDCNH surged to as high as 6.9327 on Monday during Asian hours before paring it as the greenback fell against most of the G10 and emerging market currencies in London hours.  In Asia this morning, USDCNH is trading at 6.9066. Crude oil prices (CLU2 & LCOV2) Crude oil prices saw their best day in a month amid threats of a decline in supply from OPEC cuts and production outages in Libya. Brent futures rose above $105/barrel although some softening was seen in the Asian morning, while WTI rose to $97/barrel. This follows news from last week that Kazakhstan’s exports of crude may be impacted for months because of damage to its port facility. Meanwhile, negotiations between Iran and the US over the revival of the 2015 nuclear deal could drag on for weeks, easing fears of an imminent surge in supply. What to consider? The volatility index rises to its highest level in 9 weeks, suggesting more volatility is coming. And the fundamentals back this up with US yields spiking After the Fed’s 8-minute Jackson Hole speech, the volatility index surged to its highest level in 9-weeks, forming an uptrend pattern, suggesting more market volatility is ahead. We believe the market is only just beginning to price in higher for longer interest rates and inflation. The bond market is affirming this with yields spiking again. But what is also alarming, is that the futures market is still pricing in that the Fed will cut rates in 2023. This is despite the Fed suggesting it won’t pivot to cutting rates. The other issue is keeping markets on notice is that; if the Fed makes more hawkish remarks and hikes rates more than expected, then the market will face further volatility, and selling in growth sectors and names that are interest rate sensitive, are likely to come under pressure. Shell CEO cautions against a prolonged European gas crisis Shell CEO Ben van Beurden gave comments from Norway’s ONS conference, suggesting that Europe could face gas shortages for a number of winters. This disproves reports suggesting that Europe has already built reserves for the winter demand, and reaffirms our belief that a move to broad-based energy supply will continue to be top of mind in the long run. In the near term, demand destruction appears to be the only possible solution, and Van Beurden stressed need for efficiency savings as well as rationing. Eurozone inflation and Nord Stream maintenance will be key for the ECB There is no question on the direction in Eurozone inflation, given the extensive reports on gas prices and power costs in the region over the last few days. However, some softening may be warranted after an all-time high of 8.9% was reached on the Eurozone inflation print in July, given the easing in pump prices in August. Still, gas supply concerns continue to remain top-of-mind for Germany with Gazprom announcing another leg of maintenance for the Nord Stream pipeline this week. Food prices are also seeing another pickup, and further gains in the headline print in Q4 cannot be ruled out. Calls for a 75 basis points rate hike by the European Central Bank have already picked up, and these could gain further traction if we see a strong CPI print this week. However, if Nord Stream supply comes back on time after its 3-day scheduled maintenance, and with some potential increases in capacity as has been hinted, that could mean a substantial decline in European gas prices and relief in utility costs in the months to come. ECB Lane tones dials back on jumbo rate hike expectations ECB chief economist Lane was on the wires on Monday, and hinted at a more steady pace of rate hikes in a “step-by-step” manner rather than jumbo rate hikes. This appears to be a pushback against calls for a 75bps rate hike at the September meeting, as he made the case to allow the financial system to absorb the rate changes. Moreover, on inflation, Lane said long-term inflation expectations remain close to the two per cent target, while near-term inflation expectations are quite elevated. BYD reported 1H earnings at the high end of the preannounced range Chinse auto maker BYD (01211) reported 1H revenues growing 66% YoY to RMB 151 billion.  In terms of segments, auto revenues surged 130% YoY while mobile handset revenues contracted 4.8% YoY. Net profits jumped 206% to rMB3.595 billion, at the top end of the preannounced range of CNY2.8-3.6 billion. Volume growth (353K new energy passenger vehicles in 2Q, +265% YoY) beat market expectations despite two rounds of price increases in 2022 and supply chain disruptions.  The company’s EV market share rose to 29% (vs 17% in 2021).  Pinduoduo delivered Q2 results showing stronger than peer sales growth Pinduoduo (PDD:xnas), a leading eCommerce platform with strong penetration into agricultural products and online shoppers from rural areas., reported 1H total revenue growing at 36% YoY, far exceeding the 3% YoY consensus estimate.  The company attributed the revenue growth to a recovery in consumption since mid-May, successful promotion campaigns, and 48-hour daily necessity supply packs for people facing lockdown.  The company’s strong market position in rural areas and agriculture-related products also help it stand out from its rivals.  In Q2, the company achieved a 20 percentage point improvement in margins, reaching 33.5%, but the management cautioned investors that the margin compression was attributed to temporary cost savings early in the quarter and spending had increased since mid-May.  Non-GAAP EPS came in at Rmb7.54, +161% Uranium companies and other nuclear-related companies are back in the spotlight  Elon Musk said countries should not shut down existing nuclear power plants as Europe grapples with an energy crisis “If you have a well-designed nuclear plant, you should not shut it down - especially right now”, said Musk during an energy conference in Norway. That resulted in the Global X Uranium ETF climbing 7.4% on Monday to its highest level since June 8, supported by US uranium stocks rising. Uranium stocks in the Asia-Pacific region to watch include Australia’s Paladin, Deep Yellow and Boss Energy, as well Japan’s Kansai Electric Power and Tokyo Electric Power, as well as Mitsubishi Heavy Industries. In South Korea watch Doosan Enerbility, Kepco. And in Europe, monitor Yellow Cake and Kazatomprom.      For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 30, 2022

Summary:  Equity markets plunged on Friday in the wake of Fed Chair Powell’s speech, in which he invoked famed Fed inflation fighter Volcker and warned against a premature easing of policy. While US yields are only modestly higher in the wake of the speech, the US dollar is soaring, bringing a new unwelcome tightening on global liquidity. Particularly intense focus on USDJPY as the Bank of Japan faces a new challenge from JPY weakness as it insists on maintaining its maximum easing policy.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) US equities posted their worst session since at least June in the wake of Fed Chair Powell’s Jackson Hole speech on Friday, with the S&P 500 losing over 3% on the session and trading lower still overnight to start the week, with the psychologically key 4,000 level looming into view. The Nasdaq sliced over 4% lower and traded near its 55-day moving average overnight, in the 12,400 area. Sentiment looks fragile, with any further rise in treasury yields and the US dollar the key risk for driving a possible worsening of sentiment this week. Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) After having staged an impressive bounce from the trough of a 2-month losing streak last week on the back of reports that the U.S. and China regulators were reaching a deal to avoid the delisting of Chinese companies from U.S. bourses, Hang Seng Index fell nearly 1% on Monday following the post-Jackson Hole selloff in U.S. equities. In addition, in statements from the U.S. and China regulators last Friday regarding access to audit work papers, the interpretations looked rather different in some key aspects. According to the Public Company Accounting Oversight Board (PCAOB), the agreement gives the U.S. regulator, “complete access to the audit work papers, audit personnel, and other information”. On the other hand, in its announcement and Q&As with reporters, China Securities Regulatory Commission emphasized that audit work papers and other information will be “obtained by and transferred through Chinese regulators”. Meituan (03690:xhkg) outperformed, +3.7% after reporting a solid Q2 and continuous order growth in June and August. CSI 300 dropped 0.7%.  US dollar and especially USDCNH in the wake of Fed Chair Powell’s speech A forceful new USD rally was set in motion in reaction to Fed Chair Powell’s speech on Friday, with more aggravated strength versus Asian currencies on Monday as yields rose and the JPY weakened (more on USDJPY below), but also as China allowed its currency to drop versus the US dollar, a key development in cementing the impact of this USD move globally. The most salient potential driver for further USD strength this week would be strong US data (especially on Friday’s August US jobs and earnings report) that drives Treasury yields higher. USDJPY While the focus is generally on the US dollar this week already and the broader fallout should the greenback continue its aggravated ascent, the stakes are very high for USDJPY, which risks a new upward spiral that will challenge the Kuroda-led Bank of Japan as it insists on maintaining it accommodative policy in the face of rising yields elsewhere.  A massive bout of volatility may lie ahead if market participants decide to take on the BoJ, which will eventually likely cave at some unknown level higher, perhaps 150 in USDJPY if it rises that far? Crude oil prices (CLV2 & LCOV2) Crude oil trades higher extending last week’s gain with supply concerns more than offsetting the potential negative growth/demand impact of Powell’s higher-for-longer interest rate speech on Friday at Jackson Hole. An Iran nuclear deal has yet to be reached with a breakthrough unlikely to add much in terms of additional barrels before next year. Libya, one of OPEC’s most volatile producers saw deadly clashes in the capital over the weekend sparking fears over supply to an energy starved Europe. In a addition high gas prices in Europe and Asia will continue to underpin demand and prices for diesel and heating oil. Brent is currently stuck in a range around $100 with resistance around $103 and support at $98. Gold (XAUUSD), silver (XAGUSD), platinum (XPTUSD) and copper (COPPERUSDED22) ... have tumbled the most since Friday after Fed’s Powell signaled that interest rates would keep rising and remain elevated for longer. The US 2-year Treasury yield reached the highest since 2007 with additional headwinds seen from the stronger dollar. The markets belief in the Fed’s ability to combat inflation helped drive the one-year inflation swap down to 3.06%, a one-year low. We maintain the view of gold being a hedge against the belief the Fed will be successful in lowering inflation without hurting economic growth to the point where the focus returns to central bank support but given the renewed breakdown on Friday and continuation today, the price may in the short term once again look at critical support below $1700. US Treasuries (TLT, IEF) US treasury yields rose across the board on Friday, actually quite modestly relative to the attention given to Fed Chair Powell’s speech, but the move followed through further in the Asian session Monday as the US dollar also rose, a toxic combination for risk sentiment. The US 10-year benchmark yields trades near the highs last week above 3.10% this morning, with the chief focus on the 3.50% area high established in mid-June if yields continue to rise. This week features important US data through Friday’s US jobs report. What is going on? Powell’s message at Jackson Hole gets serious While Powell still stayed away from clearly defining a rate path or the expected terminal rates for the Fed, his strong message did suggest that the fight against inflation is far from over. Powell reiterated that the decision on September 21st on whether the Fed will lift rates by 50bps or 75bps will be driven by the “totality” of data since the July meeting. That puts a great deal of emphasis on the US jobs report due on September 2nd, and the US CPI report due September 13th. There was also some emphasis on rates being held at the peak rate for some time, but there isn’t a substantial change to the market’s expectation of the Fed path yet, with cuts still seen for next year by the money markets. Other Fed speakers still see higher terminal rates Inflation remains the overarching theme in all the Fed talk, and no comfort is being taken from the softening in July inflation. Mester (2022 voter) accepted that the Fed hasn’t reached neutral rates yet and said that rates need to go above 4% and held there for some time. Bostic (2024 voter) also suggested a higher terminal rate of 3.5-4.75% compared to what was reflected in the June dot plot, and said rates need to be held there for some time and rate cut talks are premature. Soft US July PCE inflation confirms the dip in the CPI data Lower petrol prices cooled price pressures in July, and this has been re-confirmed by the PCE print on Friday. The headline came in at 6.3% YoY (vs. 6.8% expected) while core was at 4.6% YoY (vs. 4.7% expected). The market reaction to these softer numbers was however restrained as the hawkish message from Powell at Jackson Hole took the limelight. The magnitude of the September rate hike still remains a coinflip, but the Fed members have refused to take comfort with the softer CPI print and continue to push for an aggressive fight against inflation. ECB speakers remain committed to inflation fight despite recession risks A host of ECB speakers at the weekend continued to push for aggressive rate hikes to fight inflation. Schnabel, speaking at Jackson Hole, said rates must be raised, even into a recession. Kazaks also emphasised the need for further front-loading of rate hikes after the 50bps rate hike announced by the central bank in July. In fact, there were hints of a 75bps rate hike. There were also some concerns on a weaker EUR, as that fuels further inflationary pressures and the benefit of cheaper exports is diminished by supply chain disruption. Villeroy said that the neutral rate should be reached before the end of the year while Kazaks said he would get there in the first quarter of next year. Energy prices continue to climb in France Last Friday, the French 1-year electricity forward was close to €1,000 per MWh (versus €900 per MWh for Germany). This represents an increase of +1000 % compared with the long-term average of 2010-2020. Since Autumn 2021, the French government has capped electricity and gas prices (electricity price increase was capped at +4 % this year). But this is very costly for public finances (about €20bn so far this year). The cap on energy prices will expire at the end of the year for gas and in February 2023 for electricity. The government is not planning to extend it further. More targeted measures to help the poorest part of the population to cope with higher energy prices is the most likely scenario. The risk of electricity shortage is real in France this winter. During the summer, electricity demand is around 45 GWh. During the winter, higher consumption will push electricity demand around 80-90 GWh. This will put under tension all the electricity infrastructure, thus increasing the risk of shortage. We think that France is certainly in a worse position than Germany when it comes to energy supply (in the short-term). The world's fourth largest iron ore miner, Fortescue releases 2nd highest profit on record Fortuecue Metals (FMG) posted a 40% drop in full-year profits, mirroring the steep declines in iron ore prices. Despite iron ore shipments hitting a record, Fortescue posted a A$6.2 billion profit, down from the A$10.35 billion last year. So what’s next? It’s pledged another record year of iron ore shipments (187-192mt) and wants to accelerate its push into clean energy, aiming to produce an initial 15 million tons a year of green hydrogen by 2030, to help its heavy industry and long-distance transport decarbonize. It will spend $600-$700 million to do so this financial year. As we covered last week in our BHP interview, iron ore demand is likely to slow over the coming 30 years (that’s where Fortescue’s income comes from). Meanwhile, the world requires double the amount of green metals. So the question remains; can Fortescue diversify its business in time? Fortescue’s shares are up 21% from their July low, with investors hoping China infrastructure stimulus will support iron ore demand and boost the company’s earnings.  What are we watching next? The US dollar is the wrecking ball here for risk sentiment – any rise in US yields would make things worse The rising US dollar is bad enough for global markets as the greenback is a financial condition unto itself, but if US treasury yields continue to rise this week, this could prove double trouble for global markets and potentially aggravate the sudden downside momentum tilt set in motion on Friday by Fed Chair Powell’s speech at the Jackson Hole conference.   China manufacturing PMIs, scheduled to release this week, are expected to decelerate in the midst of power curbs The median forecasts of economists surveyed by Bloomberg expect China’s official NBS manufacturing PMI to edge up to 49.3 in August from 49.0 in July but remains firmly in the contractionary territory and the Caixin manufacturing PMI to slide to 50.1 in August from 50.4 in July, approaching the threshold between expansion and contraction. The heatwaves and drought-induced power curbs caused Sichuan and Chongqing to shut-down manufacturing activities for six days and eight days in August, respectively. The median forecast for the August official NBS non-manufacturing PMI is 52.2, down from last month’s 53.8 but remains in the expansionary territory.  Earnings to watch This week’s earnings will tilt towards a Chinese focus, but from a macro perspective we are watching Lululemon on Thursday to get an update on the US consumer. Expectations are still looking for a +20% y/y revenue growth in the current quarter so the bar is set high on the outlook. Monday: Haier Smart Home, Foshan Haitian Flavouring, Agricultural Bank of China, BYD, Pinduoduo, Trip.com, DiDi Global, CITIC Securities Tuesday: Woodside Energy, ICBC, China Yangtze Power, Muyuan Foods, SF Holdings, Shaanxi Coal, Midea Group, Tianqi Lithium, Ganfeng Lithium, Bank of Montreal, China Construction Bank, Bank of China, Great Wall Motor, COSCO Shipping, Partners Group, Baidu, Crowdstrike, HP Wednesday: MongoDB, Brown-Forman, Veeva Systems Thursday: Pernod Ricard, Broadcom, Lululemon Athletica, Hormel Foods Friday: BNP Paribas Fortis Economic calendar highlights for today (times GMT) 0800 – Switzerland SNB Weekly Sight Deposits 1300 – ECB Chief Economist Lane to speak 1430 – US Aug. Dallas Fed Manufacturing survey 1815 – US Fed Vice Chair Brainard to speak 2330 – Japan Jul. Jobless Rate 0130 – Australia Jul. Building Approvals Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 29, 2022

Summary:  After a hawkish message from Fed Chair Powell at Jackson Hole on Friday, and the focus is squarely on the US jobs report this week and August CPI due on September 13 to move the needle on the magnitude of the September rate hike. Still, the deliberation will now move to where the terminal rates are seen and how long they would be held there. We also get a further update on US economic momentum from the ISM indices and consumer confidence on the radar. European energy crisis situation and the ECB rate hike expectations will develop with the Eurozone CPI prints and the progress on Nord Stream maintenance. China’s manufacturing PMI will be key given the recent heatwaves, as will be Australia’s final manufacturing PMI.   From Powell to jobs After a hawkish message by Fed Chair Powell at the Jackson Hole conference on Friday, focus shifts to the August jobs report in the US to steer between a 50 vs. 75 basis points rate hike at the September meeting. Last month’s robust employment gains of 528k outperformed market expectations boosted the dollar, although the gains were reversed a few days later with a soft CPI report. Both of these reports have to send out a consistent message this time to seal the deal on a 75bps rate hike at the September meeting. Consensus expectations are for gains of 300k on nonfarm payrolls for August, with a steady unemployment rate of 3.5% and slight weakness in average earnings to 0.4% MoM from 0.5% earlier. Meeting or slightly exceeding these forecasts would put the ball in the court of the CPI release, but another strong outperformance could bump up the tightening expectations. Still, our sense is that that the deliberation should now move to how long the Fed will stay at the peak rate, as well as Quantitative Tightening which goes into full gear from September. US economic momentum has likely improved with lower gasoline prices Lower prices at the pump has seemingly helped the US economy reverse from the slowdown concerns, with Chairman Powell also getting the confidence to say that the economic momentum is strong. Consumer confidence, due on Tuesday should likely show a pickup with lower gasoline prices. The easing of financial conditions last month, in contrast to the Fed’s goal of tightening, may also have supported consumer sentiment. ISM manufacturing, which is scheduled to be reported on Thursday, may reflect the weakness seen in the S&P survey, but will still be lifted by the backlog in auto vehicle production. Housing sales may continue to moderate, but housing prices continue to rise and no systemic risks are seen. China manufacturing PMIs expected to decelerate in the midst of heatwaves The median forecasts of economists surveyed by Bloomberg expect China’s official NBS manufacturing PMI to edge up to 49.3 in August from 49.0 in July but remains firmly in the contractionary territory and the Caixin manufacturing PMI to slide to 50.1 in August from 50.4 in July, approaching the threshold between expansion and contraction. The heatwaves and drought-induced power curbs caused Sichuan and Chongqing to shut-down manufacturing activities for six days and eight days in August respectively. The province of Sichuan accounts for 4.2% of China’s industrial production and is an important manufacturing hub for semiconductor and solar panel industries. Both Sichuan and the municipality of Chongqing, which accounts for 2.1% of China’s industrial production, are crucial manufacturing centres for industrial components, including auto parts. During the month, a Covid outbreak hit Yiwu, an export-focussed manufacturing hub in Zhejiang, and could have contributed to dragging on the Caixin manufacturing PMI, which has a higher weight for SMEs in the eastern coastal region. The median forecast for the August official NBS non-manufacturing PMI is 52.2, down from last month’s 53.8 but remains in the expansionary territory.  The key Australian economic data to watch, and why key stocks will move in response On the same day China releases manufacturing data, which will be watched closely by commodity investors and Australian investors alike, given key commodities such iron ore, copper, nickel, coal are essential to Chinese manufacturing, investors will then quickly turn their attention to Australia’s August manufacturing indicators. Although Australia is not manufacturing economy, given services contribute 70% to GDP, manufacturing is still closely looked at as many top ASX companies are key producers and manufacturers. This includes energy companies like Woodside, Caltex, Viva Energy, as well as global packaging company, Amcor and global vaccine maker CSL, as well as global mining juggernauts BHP, Rio Tinto and Fortescue. So, when manufacturing data comes out, if its stronger than expected, (above a read of 51), then you might see an increase in buying in some of Australia’s key manufacturers. That being said, it’s really important to note that last month’s gauges pointed to slower growth in factory activity with higher interest rates, higher wages, and a lack of workers slowing activity. So it will be key to see if manufacturing continues to slow. Eurozone inflation and Nord Stream maintenance will be key for the ECB There is no question on the direction in Eurozone inflation, given the extensive reports on gas prices and power costs in the region over the last few days. However, some softening may be warranted after an all-time high of 8.9% was reached on the Eurozone inflation print in July, given the easing in pump prices in August. Still, gas supply concerns continue to remain top-of-mind for Germany with Gazprom announcing another leg of maintenance for the Nord Stream pipeline this week. Food prices are also seeing another pickup, and further gains in the headline print in Q4 cannot be ruled out. Calls for a 75 basis points rate hike by the European Central Bank have already picked up, and these could gain further traction if we see a strong CPI print this week. However, if Nord Stream supply comes back on time after its 3-day scheduled maintenance, and with some potential increases in capacity as has been hinted, that could mean a substantial decline in European gas prices and relief in utility costs in the months to come. India/South Korea GDP will re-affirm Asia’s steady growth India and South Korea GDP report GDP growth in Asia this week, along with inflation figures as well in South Korea. A double-digit GDP growth print is expected for India, with consensus at 15.2% YoY amid a strong recovery in services demand, albeit on a weak base. Commodity price gains are however likely to return and weigh on growth recovery going forward, as will slower global demand. But the RBI remains in a position to push further with its rate hikes to get a grip on inflation. South Korea’s Q2 GDP is however likely to remain steady, and focus will instead be on August inflation as that remains a bigger problem with over 6% prints being seen lately.   Key economic releases & central bank meetings this week Monday 29 August United Kingdom Market Holiday Australia Retail Sales (Jul) Japan Coincident Index Final (Jun), Unemployment rate (Jul)   Tuesday 30 August Thailand Industrial Production (Jul) Germany Import Prices (Jul), Inflation (Aug) Spain Inflation Rate (Aug), Business Confidence (Aug) United Kingdom Mortgage Approvals (Jul) Eurozone Consumer Confidence Final (Aug) US House Price Index (Jun), US Conference Board Consumer Confidence (Aug)   Wednesday 31 August South Korea Industrial Production (Jul) Japan Industrial Production (Jul) China NBS Manufacturing PMI (Aug) France Inflation Rate (Aug) Germany Unemployment Rate (Aug) Hong Kong Retail Sales (Jul) Eurozone Core Inflation Rate (Aug) Italy Inflation Rate (Aug) United States MBA Mortgage Applications (26 Aug), United States ADP Employment Change (Jun) India GDP (Q2) Canada GDP (Q2)   Thursday 1 September S&P Worldwide Manufacturing PMIs South Korea GDP Growth Rate (Q2), Exports (Aug) Japan Capital Spending (Q2) Australia Home Loans (Jul) Indonesia Inflation Rate (Aug) Germany Retail Sales (Jul) United Kingdom Nationwide Housing Prices (Aug) Italy GDP Growth Rate (Q2), Unemployment Rate (Jul) Eurozone Unemployment Rate (Jul) United States Jobless Claims (Aug)   Friday 2 September South Korea Inflation (Aug) Germany Balance of Trade (Jul) United States Non-Farm Payrolls (Aug) Unemployment Rate (Aug), Factory Orders (Jul)   Key earnings releases this week Monday: Haier Smart Home, Foshan Haitian Flavouring, Agricultural Bank of China, BYD, Pinduoduo, Trip.com, DiDi Global, CITIC Securities Tuesday: Woodside Energy, ICBC, China Yangtze Power, Muyuan Foods, SF Holdings, Shaanxi Coal, Midea Group, Tianqi Lithium, Ganfeng Lithium, Bank of Montreal, China Construction Bank, Bank of China, Great Wall Motor, COSCO Shipping, Partners Group, Baidu, Crowdstrike, HP Wednesday: MongoDB, Brown-Forman, Veeva Systems   Thursday: Pernod Ricard, Broadcom, Lululemon Athletica, Hormel Foods Friday: BNP Paribas Fortis   Source: Saxo Spotlight: What’s on investors and traders radars this week?

Summary:  The 8-minute speech from Powell focused on one message: no pivot to easing in 2023. The hawkish remarks sent U.S. equities sinking the most since June and down more than 3% across major indices. Policymakers in the ECB also sent out hawkish comments and brought a 75 basis point hike to the table at the September ECB meeting. The U.S. and China regulators announced a deal on audit work papers and removed for the time being the risk of compulsory delisting of Chinese companies from U.S. bourses. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities sank last Friday after Powell spent all his Jackson Hole speech on one thing: pushing back on the market’s speculation that the Fed would pivot and start easing next year.  The tech-heavy Nasdaq dropped 4.1%, leading the charge lower, Alphabet (GOOG:xnas) -6.4%, Amazon (AMXN:xnas) -4.8%, Nvidia (NVDA:xnas) -9.2%. Apple (AAPL:xnas) fell 2.8% after the U.S. Department of Justice announced working on a potential antitrust case against the company. S&P 500 had its worst day since June and plunged 3.4%, Dell Technologies (DELL:xnys) -13.5%, HP (HPQ:xnys) -8.9%. The post-Powell speech selloff capped off a two-week losing streak of the markets and turned major indices’ performance in August into the red.  Earlier in the week, the market sentiment was dampened by downbeat comments from the management of retailers on a glut of inventory and plans to cut prices.  U.S. treasuries (TLT:xnas, IEF:xnas, SHY:xnas) After Fed Chair Powell’s hawkish comments about the need to keep raising rates until inflation is under control regardless of pains incurred to the economy and employment, the U.S. yield curve twisted and flattened, with the 2-year to 5-year yield rising by 3bps to 3.37%, 10-year nearly unchanged at 3.04%, and the 30-year yield falling by 5bps to 3.19%.  The money market continued to unwind the 2023 rate cut bet and the SOFR Dec 22-Dec 23 (SR3Z2 vs SR3Z3) spread narrowed to -24bps.  Weakness on the front ends began even before Powell’s comments as the market took notice of the ECB’s readiness to consider a 75bp rate hike in its meeting in September due to a deterioration in the inflation outlook.    Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hang Seng Index, +1% last Friday and +2% for the week staged an impressive bounce from the trough of a 2-month losing streak on Thursday and continued to charge higher on the back of reports that the U.S. and China regulators were reaching a deal to avoid the delisting of Chinese companies from U.S. bourses due to disagreement on access to audit work papers.  Later on Friday after the Hong Kong market close, the U.S. and China regulators separately announced that an agreement had been signed and released some details.  Chinese ADRs opened higher in the U.S. session but finished the day 0.7% lower as being dragged down by the sharp decline in the U.S. equity market.  CSI 300 was little changed last Friday and was down 1% for the week.  With U.S. index futures continuing to decline this morning in Asia, the markets’ focus today is likely to be shadowed by the development in the U.S. markets rather than much follow-through from the confirmation of the U.S.-China deal on audit working papers.  Dollar’s post-Jackson Hole gains extend into Asia The dollar continued its run higher in the early Asian hours on Monday after a hawkish tone from Fed Chair Powell on Friday resulted in some volatility but eventual dollar bid. AUDUSD was the weakest in the Asian morning, sliding below 0.6900 amid volatile commodity prices. USDJPY broke above 138 to 1-month highs and USDCNH surged to 6.9000+ levels. EURUSD ended last week below parity and slid further lower to 0.9936 this morning with a tough week ahead as Nord Stream 1 maintenance will likely cause a step up in energy supply concerns. With corporate month end on Monday, and a UK holiday, the scope for further dollar gains remains. Crude oil prices (CLU2 & LCOV2) Crude oil prices ended last wee in gains on supply concerns taking centre stage again, primarily with Saudi Arabia flagging the risk that OPEC+ may cut production to stabilise volatile markets. Demand picture stabilized, and higher gas prices increased the gas-to-fuel switching demand. But oil prices eased in the Asian morning session with Brent futures back at $100/barrel and WTI futures below $93. A warmer winter in the early weeks is putting a lid on demand, and hawkish central bank messages have also hinted at slowdown concerns. Meanwhile, OPEC+ member states, including Iraq, Venezuela and Kazakhstan, suggested readiness within the 23-strong oil producing alliance to intervene and restore balance in the oil market. This is building up concerns on a potential OPEC cut at its Sept 5 meeting. Corn futures surging at Asia open US corn futures rose to a fresh 2-month high in early Asian hours, following last week’s gains supported by concerns that hot and dry weather in the Midwest during the final crop development period may limit the production outcome. USDA’s crop progress report found a 2% decline in the share of the crop rated good or excellent, with 55 percent of fields falling in those two categories. The rating was a new five-year low for this time of year and the second lowest rating since the drought year of 2012. This comes on top of slow shipments from Ukraine and drought in China. The world's fourth largest iron ore miner, Fortescue releases 2nd highest profit on record Fortuecue Metals (FMG) posted a 40% drop in full-year profits. Despite posting record shipments to China, the steep declines in iron ore prices saw the company record a A$6.2 billion profit, down from the A$10.35 billion last year. The result still marked Fortescue’s second-highest profit on record, with the company to pay a final dividend of A$1.21 per share, taking the total payout to A$2.07 (which is a 75% payout on NPAT). So what’s next for Fortescue, the world’s 4th largest iron ore miner? Fortescue sees iron ore shipments being 187m-192m tones in the year ahead (that's another record). Fortescue also overhauled its management and wants to accelerate its push into clean energy. Its clean energy business, Fortescue Future Industries aims to produce an initial 15 million tons a year of green hydrogen by 2030, to help sectors including heavy industry and long-distance transport, decarbonize. $600-$700 million will be spent on clean energy in the coming financial year. As we covered last week in our BHP interview, iron ore demand is likely to slow over the coming 30 years (that’s where Fortescue’s income comes from). Meanwhile, the world requires double the amount of green metals. So the question remains; can Fortescue diversify its business in time? Fortescue’s shares are up 21% from their July low, with investors hoping China infrastructure stimulus will support iron ore demand and boost the company’s earnings.   What to consider? Powell’s message at Jackson Hole gets serious While Powell still stayed away from clearly defining a rate path or the expected terminal rates for the Fed, his strong message did suggest that the fight against inflation is far from over. Powell reiterated that the decision on September 21st on whether the Fed will lift rates by 50bps or 75bps will be driven by the “totality” of data since the July meeting. That puts a great deal of emphasis on the US jobs report due on September 2nd, and the US CPI report due September 13th. There was also some emphasis on rates being held at the peak rate for some time, but there isn’t a substantial change to the market’s expectation of the Fed path yet, with cuts still seen for next year by the money markets. Other Fed speakers still see higher terminal rates Inflation remains the overarching theme in all the Fed talk, and no comfort is being taken from the softening in July inflation. Mester (2022 voter) accepted Fed hasn’t reached neutral rates yet, and said that rates need to go above 4% and held there for some time. Bostic (2024 voter) also suggested a higher terminal rate of 3.5-4.75% compared to what was reflected in the June dot plot, and said rates need to be held there for some time and rate cut talks are premature. The deal between U.S. and China on ADRs Market chatters about a deal between the U.S. and China regulators regarding the allowance to the U.S. regulators access to audit work papers of the auditors of Chinese companies listed on U.S. bourses first emerged last Thursday and the deal was announced by the U.S. and China regulators on Friday.  According to the Public Company Accounting Oversight Board (PCAOB), the agreement gives the U.S. regulator, “complete access to the audit work papers, audit personnel, and other information [the PCAOB] need[s] to inspect and investigate any firm ‘the [PCAOB] choose[s], with no loopholes and no exceptions. But the real test will be whether the words agreed to on paper translate into complete access in practice”. On the other hand, in its announcement and Q&As with reporters, China Securities Regulatory Commission emphasized “the principle of reciprocity” and that “the two sides will communicate and coordinate in advance to plan for inspections and investigations”. The materials such as audit work papers that the U.S. regulator need[s] access to will be obtained by and transferred through the Chines side.  The Chinese side will also take part in and assist in the interviews and testimonies of relevant personnel of audit firms requested by the U.S. side.” Meituan delivered solid Q2 results Meituan (03690:xhkg) reported a 16% YoY growth in revenues to RMB 51 billion, above market expectations across segments better performance.  Adjusted net profits turned positive to RMB 2.1 billion versus a loss of CNY 2.2 billion in Q1 and analyst consensus of an over RMB 2 billion loss.  The company’s food delivery business a strong recovery and the management said that the recovery continued into July and August, with order volumes rising in low-teens YoY in July and at about 20% YoY in August month to date. Soft US PCE confirms the CPI message Lower pump prices cooled price pressures in July, and this has been re-confirmed by the PCE print on Friday. Headline came in at 6.3% YoY (vs. 6.8% expected) while core was at 4.6% YoY (vs. 4.7% expected). The market reaction to these softer numbers was however restrained as the hawkish message from Powell at Jackson Hole took the limelight. The magnitude of the September rate hike still remains a coinflip, but the Fed members have refused to take comfort with the softer CPI print and continue to push for an aggressive fight against inflation. ECB speakers remain committed to inflation despite recession risks A host of ECB speakers on the weekend continued to push for aggressive rate hikes to fight inflation. Schnabel, speaking at Jackson Hole, said rates must be raised, even into a recession. Kazaks also emphasised on further front-loading of rate hikes after the 50bps rate hike announced by the central bank in July. In fact, there were hints of a 75bps rate hike. There were also some concerns on a weaker EUR, as that fuels further inflationary pressures and the benefit of cheaper exports is diminished by supply chain disruption. Villeroy said that the neutral rate should be reached before the end of the year while Kazaks said he would get there in the first quarter of next year. Australian retail trade surged to another record; with dining out and a winter clothing sprees fueling the charge  Australian retail sales data showed how resilient the Aussie consumer is, with retail spending rising for the 7th straight month, up 1.3% vs the +0.3% consensus expected. As electricity bills in Australia are at a record high, and likely to rise, people are layering up this Aussie winter, so retail spending surged to another new record high, A$34.7 billion in July. The Australian winter spending spree saw Department Stores sales surge 3.8% and clothing (footwear and personal accessory retailing) rocket up 3.3%. Australians are living through one of their coldest winters in history; as such spending rose the most in the coldest climates; Victoria and the ACT. Yet spending at cafes and restaurants remained strong, surging to yet another brand new record high (A$5 billion in July), up from 1.8% from the prior month. All this, is despite a softening Australian housing market and the quickest succession of rate hikes in history.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 29, 2022

Summary:  Markets are steady ahead of a widely anticipated speech at the US Federal Reserve’s Jackson Hole, Wyoming conference from Fed Chair Jerome Powell, although he may do little more than remain on message on the Fed’s plans for tightening policy. The US dollar trades near cycle highs ahead of the speech, with US treasury yields having eased back a bit yesterday on a strong 7-year treasury auction. In Europe, power and natural gas prices continue their ascent from already dire levels, thereby supporting demand for fuel-based products.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures bounced back 1.4% to the 4,200 level in what seems to have been a technical move ahead of Jerome Powell’s keynote speech at Jackson Hole which is expected today. For equities the main question is how central banks are seeing structural in the years to come because that will be linked to the terminal rate the Fed sees as neutral for the economy and inflation. The US 10-year yield is trading around the 3.05% level this morning and we expect a quiet session in US equities unless Powell’s speech delivers a hawkish tone which could then erase yesterday’s gains. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) After staging an impressive bounce from the trough of a 2-month losing streak yesterday, Hong Kong equities opened higher before giving back much of its gains to end the morning session 0.7% higher. Yesterday’s 3.6% rally in the Hang Seng Index and 6% surge in Hang Seng TECH Index were fueled by initially chatters among traders about unverified progress on resolving the audit working papers access issue in the heart of the Chinese ADR delisting risk. During New York hours, the Wall Street Journal ran an article, suggesting that the U.S. and China are nearing a deal to allow American regulators to inspect in Hong Kong the audit working papers of Chinese companies listed in the U.S. The news sent Chinese ADRs soaring, the NASDAQ Golden Dragon China Index +6.3%. US dollar steady on the strong side ahead of Jackson Hole Yesterday saw some tactical chopiness in USD pairs, as the greenback sold off to support in places and criss-crossed parity in EURUSD terms before settling back to the strong side ahead of Fed Chair Powell’s speech at the Jackson Hole conference today. Powell is widely expected to stay on message on the Fed’s hopes to get ahead of the curve, but surprises are possible if his language is a bit more pointed than expected or he brings stronger guidance on the importance of QT, etc. Next event risks for the USD in the wake of today’s Powell speech (and July PCE inflation print as noted below) are next Friday’s payrolls/earnings report, the Sep 13 Aug. CPI data release, and then the Sep 21 FOMC decision. AUDNZD The Antipodean currency pair closed yesterday at its highest level since 2017 in a bid to escape the range that has prevailed since then, with a bit more range toward 1.1300 that stretches all the way back to 2013. If the pair can make a notable foray above these levels, it might suggest that traders are viewing the pair from a current account perspective, as Australia has been running record surpluses on its formidable complex of commodity exports, while New ZEaland is running unprecedented deficits on rising costs for energy imports. In the longer term perspective, AUDNZD has traded above 1.3500 as recently as 2011. Crude oil (CLV2 & LCOV2) Crude oil trades steady with Brent trading around $100 per barrel with a tightening supply outlook offsetting the recessionary drums that have been banging ever louder in recent weeks. Focus on today’s Jackson Hole speech from Fed Chair Powell and its potential impact on bond and currency markets, and with that the general level of risk appetite in the market. EU gas and power reached new peaks on Thursday on worries about Russian gas supplies following the upcoming 3-day maintenance supporting demand for crude-based products like diesel and heating oil. The prospect of a revived Iran nuclear deal still receiving some attention although a deal may only have a small immediate impact, small change compared with the soon to expire US SPR release program which saw 8 million barrels pumped into the market last week. In Brent, the next level of upside interest can be found at $102.50. Copper (COPPERUSDEC22) Copper has settled into a $3.55 to $3.73 range after making a steady recovery from the June/July +30% collapse. The primary focus remains on China and the government’s efforts to shore up its troubled property sector and its slowing economy in general. This past week we have seen rate cuts and the announcement of a 1 trillion-yuan economic stimulus program, including a 300-billion-yuan investment in infrastructure projects, which will boost the consumption of industrial metals, including copper. Above the current range copper may target $3.85/lb next but it will likely require a rally above $4/lb before speculators reverse the net short they have held since April. US Treasuries (TLT, IEF) US treasury yields fel back a few basis points, but the 10-year benchmark still trades above 3.00% today ahead of Fed Chair Powell’s speech. (More below – special focus on longer end of the yield curve on any QT guidance in the speech). A strong auction of 7-year treasuries yesterday helped bring support to the market after the weak 5-year auction the prior day. What is going on? ECB meeting minutes suggest another 50-basis points hike The meeting minutes point to another 50-basis point hike at the September 8 ECB meeting, a move that is actually more than fully priced in by the market. At the same time, the ECB minutes noted that it saw “no evidence of significant second round effects” in which wages drive an inflationary spiral. The central bank’s “TPI” or Transmission Protection Instrument meant to prevent peripheral sovereign yield spreads from widening excessively was widely discussed and is clearly a hot potato politically. An FT article noted that hedge funds have built up a nearly EUR 40 billion speculative short in Italian BTPs Additional hawkish Fed comments before we get to Powell Several Fed speakers were on the wires echoing the same message on inflation and more rate hikes. The markets are still holding their breath for what Powell has to say later today. James Bullard (2022 voter) reiterated his year-end target of 3.75% to 4% and market expectation is not too far from that now. Esther George (2022 voter) was more open about rates going above 4% but stayed away from a specific guidance for the September meeting. Patrick Harker (2023 voter) said rates need to be lifted into restrictive territory. Raphael Bostic (2024 voter) told the WSJ it's too soon to call inflation’s peak and that he hasn't decided yet on a 50 or 75bps rate hike next month. German business sentiment is not that bad in August The headline IFO Survey reading was out at 88.5 versus 86.8 expected and 88.6 prior. This is only a bit softer than the previous month. The same goes as well for the current conditions (out at 97.5 in August versus prior 97.7) and expectations (80.3, unchanged compared to July). Overall, business sentiment remains soft. But given the quick economic deterioration, it could have been much worse. We still expect sentiment to further fall in the coming months as the German economy sinks into a recession. The energy crisis is hitting consumers and companies very hard – thus leading to lower demand and corporate investment. Yesterday, Germany’s benchmark year-end power kept rising (+13% in one day) to a new record of EU725/MWH. So far, the German government has spent roughly €60bn to limit the impact of higher energy prices on households and corporations. This represents about 1.7% of GDP according to the calculations of the Belgium-based think tank Bruegel. In percentage of GDP, this is still much less than many other European countries (3.7 % of GDP for Greece, 2.8 % for Italy and 2.3 % for Spain, for instance). In any case, this is unsustainable, of course. The US and China are getting closer to resolve Chinese ADR audit papers inspection issue According to a Wall Street Journal article, Chinese securities regulators “are making arrangements for US-listed Chinese companies and their accounting firms to transfer their audit working papers and other data from mainland China to Hong Kong” and “would allow American accounting regulators to travel to Hong Kong to inspect the audit records”. It is important to note that an agreement has yet to be reached and the regulators on both sides remain silent about it so far. One of the hurdles to the proposed arrangement of transfer of audit working papers from the mainland to Hong Kong will be whether it can satisfy the US regulators, particularly the SEC Chair Gensler who has emphasized “full access”. If this turns out to happen, it will not only benefit the Chinese companies that are listed in the US but also sets the US and China in a more conciliatory mood at least in some financial matters, and shows case the uniqueness of the position of Hong Kong U.S. discount retailers reported mixed Q2 results, highlighting pricing pressures ahead Dollar General (DG:xnys) reported revenue growth of 9% y/y to $9.4bn, in line with the consensus estimate, and EPS of $2.98, +10.6% y/y, above the consensus estimate of $2.94.  Same-store sales in Q2 grew 4.6% y/y, above the consensus at +3.8%. In the company’s guidance for 2022, revenue growth was raised to +11% from previously +10.0-10.5% and the same-store-sales growth was raised to +4.0-4.5% from +3.0-3.5%. Q2 results from another discount retailer, Dollar Tree (DLTR:xnys) were however weaker, with revenue growth of 6.7% y/y to $6.77bn, slightly below the consensus estimate of $6.79bn.  EPS came in at $1.60, in line with expectations. Same-store-sale for the quarter was +4.9%, below the consensus estimate at +5.0%.  The company lowered its 2022 full-year EPS guidance to $7.10-$7.40 and said that 60% of the cut was due to cutting prices. The management said that they “expect the combination of this pricing investment at Family Dollar and the shoppers’ heightened focus on needs-based consumable products will pressure gross margins in the back half of the year”. The comments from Dollar Tree cast a shadow over the health of consumers in the US in general.  Meituan is scheduled to report Meituan (03690:xhkg) is scheduled to report Q2 results on Friday after the market close. Analysts are upbeat about the food and grocery delivery platform’s potential benefitting from the recovery of consumer demand amid the reopening and cost control initiatives.  The consensus estimate (as per the Bloomberg survey) for Q2 revenue is to grow 11% YoY to RMB48.59 billion and an adjusted net loss of RMB2.17 billion What are we watching next? The Kansas City Fed hosts its annual symposium in Jackson Hole This year’s theme is “Reassessing Constraints on the Economy and Policy”. The symposium will last until Saturady. Fed Chair Jerome Powell will speak today. Given the loosening of financial conditions since the June FOMC meeting, the market has been concerned that Powell will echo the pushback against the notion that the Fed knows that it is set to materially slow its pace of policy tightening after the September 21 FOMC rate decision (majority looking for another 75 basis points). Data dependency will likely be underlined in his speech, but any guidance on the Fed’s approach to QT could also garner considerable attention as longer treasury yields pull back higher toward the cycle highs from June. Softer July US PCE print would not derail Fed’s tightening After a softer CPI report in July, focus will turn to the PCE measure – the version of the CPI that is tracked by the Fed to gauge price pressures. Lower gasoline prices mean that PCE prints could also see some relief, although we still upside pressures to inflation given that energy shortages will likely persist and easing financial conditions mean that inflation could return. We would suggest not to read too much into a softer PCE print this week, as the stickier shelter and services prices mean that the 2% inflation target of the Fed remains unachievable into then next year. This suggests that the aggressive tightening by the Fed will likely continue, despite any likely softness in the PCE this week. Earnings to watch Today’s earnings focus is Meituan which is expected to see 11% y/y revenue growth with estimates expecting to see growth accelerating into Q3, so this will be the market’s focus in today’s earnings release. The latest stimulus efforts by the Chinese government and lifting of mobility restrictions could provide tailwind for the consumer into Q3. Today: Meituan, China Shenhua Energy, China Petroleum & Chemical Next week’s earnings releases: Monday: Fortescue Metals, Haier Smart Home, Foshan Haitian Flavouring, Agricultural Bank of China, BYD, Pinduoduo, Trip.com, DiDi Global Tuesday: Woodside Energy, ICBC, China Yangtze Power, Midea Group, Tianqi Lithium, Bank of Montreal, China Construction Bank, Bank of China, Great Wall Motor, COSCO Shipping, Partners Group, Baidu, Crowdstrike, HP Wednesday: MongoDB Thursday: Pernod Ricard, Broadcom, Lululemon Athletica, Hormel Foods Friday: BNP Paribas Economic calendar highlights for today (times GMT) 0800 – Italy Aug. Consumer/Manufacturing Confidence surveys 1230 – US Jul. Personal Income/Spending 1230 – US Jul. PCE Inflation 1400 – US Fed Chair Powell to speak at Jackson Hole, Wyoming 1400 – US Aug. Final University of Michigan Confidence Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 26, 2022

Summary:  U.S. equities rallied ahead of the Jackson Hole Powell keynote. Comments from discount retailer Dollar Tree about pressures to cut prices and customers shifting to “needs-based consumable products” cast doubts on the health of U.S. consumers. The market chatters and then a WSJ article on a potential deal between the U.S. and China on access to audit working papers and avoiding Chinese ADR delisting sent the share prices of China internet stocks and ADRs soaring. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities rallied for the second day in a row ahead of the much anticipated Powell speech at the Jackson Hole symposium on Friday, S&P 500 +1.4%, Nasdaq 100 +1.8%.  Discount retailers, Dollar General (DG:xnys) and Dollar Tree (DLTR:xnys) reported Q2 results.  Discount General beat the relatively high expectations and finished the session down modestly -0.6%.  Peer Dollar Tree’s results fared weaker with in-line Q2 results but a downward revision of full-year EPS due to its plan to cut prices sent its share price 10.2% lower.   U.S. treasuries (TLT:xnas, IEF:xnas, SHY:xnas) U.S. treasury yield fell 7 to 8 basis points from the belly to the long-end of the curve after a strong 7-year auction. The change in 2-year yields was relatively modest, -2bps. Flows were light ahead of Chair Powell’s keynote speech at the Jackson Hole event on Friday. Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) China internet stocks rallied dramatically in a typhoon-shortened session in Hong Kong on Thursday, JD.COM (09618:xhkg) +11%, Bilibili (09626:xhkg) +10.3%, Baidu (09888:xhkg) +9.2%, Alibaba (09988:xhkg) +8.8%, Meituan (03690:xhkg) +8%, Tencent (00700:xhkg) +4.8%.  Hang Seng Tech Index (HSTECH.I) surged 6%.  Investors found optimism in the 19-point stimulus package as well as chatters among traders about unverified progress on resolving the audit working papers access issue in the heart of the Chinese ADR delisting risk.  During New York hours, the Wall Street Journal ran an article, suggesting that the U.S. and China are nearing a deal to allow American regulators to inspect in Hong Kong the audit working papers of Chinese companies listed in the U.S.  The NASDAQ Golden Dragon China Index soared 6.3%. Compared to their respective Hong Kong closing levels, Alibaba +4.5%, Meituan +4.0%, Tencent +2.1%.  Chinese property names rallied across the board by 2% to 5%.   The performance in A-shares was more measured, CSI 300 fluctuated between gains and losses and finished the session 0.8% higher.   Coal miners, oil and gas, and crude tankers stocks surged in Hong Kong as well as mainland bourses.  Mainland investors did not participate much in the sharp move higher as southbound flows registered a net outflow. AUDUSD on the backfoot in early Asian hours The USD rebound returned in early Asian hours on Friday amid a sustained hawkish tilt inn Fed commentaries ahead of Powell taking the stage at the Jackson Hole summit. AUDUSD saw downside pressures and slid to sub-0.6960 from an overnight high of 0.6991. AUDNZD found support at 1.1200 and may be looking at new highs of the cycle with the current account differentials at play. USDJPY caught a bid early as well, and rose to 136.70 with focus squarely on high Powell’s comments can take the US yields. Crude oil prices (CLU2 & LCOV2) Hawkish Fed comments and further prospects of Iran deal saw crude oil reversing lower in the overnight session. However, modest gains have returned this morning with the supply side remaining a key focus with Brent futures close to $100 and WTI at $93+. Saudi Arabia was joined by Libya and Congo in supporting the view that supply curbs may be needed to stabilise the oil market. Further concerns on Kazakhstan’s supply also emerged amid repair works required on three damage moorings at the port facility. What to consider? Some more hawkish Fed comments before we get to Powell Several Fed speakers were on the wires echoing the same message on inflation and more rate hikes. The markets are still holding their breath for wat Powell has to say later today. James Bullard (2022 voter) reiterated his year-end target of 3.75% to 4% and market expectation is not too far from that now. Esther George (2022 voter) was more open about rates going above 4%, but stayed away from a specific guidance for the September meeting. Patrick Harker (2023 voter) said rates need to be lifted into restrictive territory. Raphael Bostic (2024 voter) told the WSJ it's too soon to call inflation’s peak and that he hasn't decided yet on a 50 or 75bps rate hike next month. Tokyo CPI surprises to the upside Japan’s Tokyo inflation for August has come in close sight of the 3% mark, with headline at 2.9% y/y vs. expectations for 2.6%. The core measure was also above expectations at 2.6% y/y, coming in despite measures to help cool price pressures. Further gains can be expected later in the year as cheaper cell phone fees are reversed, and we also see threats of an energy crisis in Japan as LNG imports get diverted to Europe. This will continue to erode the purchasing power and keep the risk of a BOJ pivot alive. Europe’s energy woes French power prices soared 15% to EUR 900/MWh, more than 10x last year’s price amid expanding nuclear outages. Meanwhile in Germany, power prices for next year soared as much as 23% to an all-time high of EUR 792/MWh. UK and Italy also recorded fresh highs in power prices while Spain's parliament approved a law aimed at cutting energy use. The UK will announce its financial commitment for a new nuclear plant, Sizewell C, next week. The U.S. and China are said to nearing a deal in resolving the Chinese ADR audit papers inspection issue According to a Wall Street Journal article, Chinese securities regulators “are making arrangements for U.S.-listed Chinese companies and their accounting firms to transfer their audit working papers and other data from mainland China to Hong Kong” and “would allow American accounting regulators to travel to Hong Kong to inspect the audit records”. It is important to note that an agreement has yet to be reached and the regulators from both sides remain silent about it so far.  One of the hurdles to the proposed arrangement of transfer of audit working papers from the mainland to Hong Kong can satisfy the U.S. regulators, particularly the U.S. SEC Chair Gensler who has emphasized “full access”.  If this turns out to happen, it will not only benefit the Chinese companies that are listed in the U.S. but also sets the U.S. and China in a more conciliatory mood at least in some financial matters, and shows case the uniqueness of the position of Hong Kong.  German business sentiment is not that bad in August The headline reading is out at 88.5 versus expected 86.8 and prior 88.6. This is only a bit softer than the previous month. The same goes as well for the current conditions (out at 97.5 in August versus prior 97.7) and the expectations (80.3, unchanged compared to July). Overall, business sentiment remains soft. But given the quick economic deterioration, it could have been much worse. We still expect sentiment to further fall in the coming months as the German economy sinks into a recession. The energy crisis is hitting very hard consumers and companies – thus leading to lower demand and corporate investment. Yesterday, Germany’s benchmark year-end power kept rising (+13% in one day) to a new record of EU725/MWH. So far, the German government has spent roughly €60bn to limit the impact of higher energy prices on households and corporations. This represents about 1.7% of GDP according to the calculations of the Belgium-based think tank Bruegel. In percentage of GDP, this is still much less than many other European countries (3.7 % of GDP for Greece, 2.8 % for Italy and 2.3 % for Spain, for instance). In any case, this is unsustainable, of course. Softer July US PCE print would not derail Fed’s tightening After a softer CPI report in July, focus will turn to the PCE measure – the version of the CPI that is tracked by the Fed to gauge price pressures. Lower gasoline prices mean that PCE prints could also see some relief, although we still upside pressures to inflation given that energy shortages will likely persist and easing financial conditions mean that inflation could return. We would suggest not to read too much into a softer PCE print this week, as the stickier shelter and services prices mean that the 2% inflation target of the Fed remains unachievable into then next year. This suggests that the aggressive tightening by the Fed will likely continue, despite any likely softness in the PCE this week. U.S. discount retailers reported mixed Q2 results, highlighting pricing pressures ahead Dollar General (DG:xnys) reported revenue growth of 9% YoY to $9.4 billion, in line with the consensus estimate, and EPS of $2.98, +10.6% YoY, above the consensus estimate of $2.94.  Same-store sales in Q2 grew 4.6% YoY, above the consensus at +3.8%.  In the company’s guidance for 2022, revenue growth was raised to +11% from previously +10.0-10.5% and the same-store-sales growth was raised to +4.0-4.5% from +3.0-3.5%.  Q2 results from another discount retailer, Dollar Tree (DLTR:xnys) were however weaker, with revenue growth of 6.7% YoY to $6.77 billion, slightly below the consensus estimate of $6.79 billion.  EPS came in at $1.60, in line with expectations.  Same-store-sale for the quarter was +4.9%, below the consensus estimate at +5.0%.  The company lowered its 2022 full-year EPS guidance to $7.10-$7.40 and said that 60% of the cut was due to cutting prices.  The management said that they “expect the combination of this pricing investment at Family Dollar and the shoppers’ heightened focus on needs-based consumable products will pressure gross margins in the back half of the year”.  The comments from Dollar Tree casts a shawdow over the health of consumers in the U.S. in general.  Earnings on the tap Meituan (03690:xhkg) is scheduled to report Q2 results on Friday after the market close.  Analysts are upbeat about the food and grocery delivery platform’s potential in being benefited from the recovery of consumer demand amid the reopening and cost control initiatives.  The consensus estimate (as per the Bloomberg survey) for Q2 revenue is to grow 11% YoY to RMB48.59billion and adjusted net loss of RMB2.17 billion.  Coal miner China Shenhua Energy (01088:xhkg) and oil and gas company Sinopec (00386:xhkg) are also scheduled to report on Friday.      For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 26, 2022

Summary:  A quiet session yesterday for equities, even as US treasury yields jumped higher once again ahead of a highly anticipated speech tomorrow from US Fed Chair Jerome Powell at the Fed’s annual Jackson Hole conference. In Europe, the focus remains on the dire natural gas and power prices as prices seem to ratchet perilously higher every day. That taken into consideration, EURUSD trading near parity doesn’t rate as such a weak performance from the single currency.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) Despite a shocking low PMI services figures for August, signs that financial conditions are beginning to tighten again, and surging US 10-year yield closing at 3.1%, S&P 500 futures pushed higher after initially trading to new lows in yesterday’s session. S&P 500 futures are extending their short-term momentum this morning trading around the 4,158 level which is still in the heart of the trading range of 4,100-4,170 which was established earlier this month. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) After having been closed in the morning due to a typhoon, Hong Kong resumed trading in the afternoon and the Hang Seng Index rallied 1.5% on new incremental stimulus measures from the Chinese Government to boost the economy. A-shares fluctuated between gains and losses and edged up as much as 0.2%. Coal miners, oil and gas, and crude tankers stocks gained. China internet stocks rallied, Alibaba (09988:xhkg) +4.3%, JD.COM (09618:xhkg) +5.1%, Baidu (09888:xhkg) +5.4%, Bilibili (09626:xhkg) +4.3%. US dollar edges back lower ahead of Jackson Hole After a feint higher yesterday, the US dollar generally closed lower yesterday across the board despite a solid new surge higher in US treasury yields as traders eye the Jackson Hole conference speech tomorrow from Fed Chair Powell. EURUSD continues to bob back toward the obvious psychological pivot level at parity, teasing that level this morning, while China played its part in helping the USD lower overnight with a surprisingly strong fixing for USDCNY after it hit a two-year high yesterday amidst reports from Reuters (citing unnamed sources) that dealers in China were warned from official sources against aggressively selling the yuan. JPY crosses Global bond yields are pulling back higher, with the Japanese government bond yields from 10 years and shorter on the yield curve frozen in their tracks due to the Bank of Japan’s yield-curve-control (YCC) policy, meaning that further upside in yields may be absorbed by the yen itself. USDJPY trades sideways as the USD is a bit softer, but other JPY crosses have pulled back higher, as AUDJPY threatens the top of the range soon (high in Jul. Near 95.70 vs. 95.05 this morning) and EURJPY bounced strongly after threatening a look at local support yesterday. The reaction in the US treasury market and Friday close after Fed Chair Powell’s speech at Jackson Hole will prove critical for whether a fresh aggravated rise in yields once again challenges the BoJ commitment to its YCC policy. Crude oil prices (CLV2 & LCOV2) Crude oil prices extended their gains following a volatile Wednesday that initially saw prices dip after the EIA reported a smaller than expected drop in US crude stockpiles. However, the report also showed a second week of lower production together with record exports of crude oil and products to energy-starved economies looking for alternative supplies to those from Russia. Diesel exports hit a record with an increased amount of gas-to-fuel switching underpinning demand. Not least from Europe where Dutch TTF gas touched $500 per barrel of crude oil equivalent (€300/MWh), and German power $1,100 per barrel (€646/MWh). In our latest update we highlighted the increased risk of short covering from funds who in anticipation of an economic slowdown had cut their net long exposure in WTI and Brent to a 28-month low. In Brent, the next level of upside interest can be found at $102.50. U.S. corn (CORNDEC22) U.S. corn trades higher for a seventh day, hitting a two-month high, supported by concerns that hot and dry weather in the Midwest during the final crop development period may limit the production outcome. A poor US harvest will likely exacerbate the food inflation that’s already been gripping the world this year with dwindling global grain stockpiles being driven by war, drought and the overall impact of climate change. The US is the biggest producer and exporter of corn which is used in everything from animal feed to biofuels and sweeteners. Above $6.64/bu, the December contract may take aim at $6.88/bu next. US Treasuries (TLT, IEF) US treasury yields rose again yesterday as demand at the 5-year US treasury auction was at the weak end of the range. The 10-year benchmark closed above 3.10% for the first time since late June. A 7-year auction is up today ahead of Fed Chair Powell’s Jackson Hole conference speech tomorrow, the most significant event risk for the treasury market until the next CPI release in September and then the September 21 FOMC meeting. What is going on? Emerging countries dominate in terms of nuclear capacity under construction According to the latest data released by the World Nuclear Association, the countries with highest nuclear capacity under construction are: China (23.3K MG), India (6.6K MG), Turkey (4.8K MG) and South Korea (4.2K MG). The United Kingdom is the first developed country in the list with 3.4K MG. France lags with only 1.6K MG, for instance. Nuclear energy is the subject of intense debate in several European countries. In our view, this is certainly one of the best options to support green transition and avoid a surge in the energy bill which will lead to lower purchasing power for longer. China’s State Council rolled out 19 new supportive measures to boost the economy The crux of the new stimulus package consists of an incremental RMB300 billion financing from policy banks to provide equity-like capital for infrastructure projects and urges issued to local governments to utilize unused quota balances carried over from previous years to issue RMB500 billion special bonds by the end of October this year.  The package includes a plan to facilitate state-owned electricity generating companies to issue RMB200 billion bonds.  Nvidia provides a weak outlook Investors already knew that Q2 would be a weak quarter given the profit warning earlier this month, but underlying demand continues below estimates with Q3 revenue guidance of $5.9bn +/- 2% is well below estimates of $6.9bn, but on a positive note the chipmaker is guiding gross margin of 65% which means that it expects profitability to remain in line with recent history. On the conference call management says that China has been the disappointment in terms of demand. Shares fell 4% in extended trading. US President Biden cancels up to $20,000 student debt ... with $10k in forgiveness for any borrower making less than $125k/year and $20k for holders of Federal Pell grants. The move affects tens of millions of Americans (and possible voters in the mid-term elections) and will cost an estimated $300 billion over 10 years. Salesforce growth is slowing down Q2 operating income was better than expected while revenue of $7.7bn up 22% y/y was in line with estimates. The FY revenue outlook of $30.9-31bn was below estimates of $31.7-31.8bn suggesting IT spending is slowing down amid uncertainty over the economy with July seeing a particular shift in customer attitude. Shares were down 4% in extended trading. Snowflake post strong guidance Q2 revenue was $497mn vs est. $468mn and updated its fiscal year operating margin guidance to 2% from previously 1% suggesting the company is able to maintain high growth while lowering its spending growth. The revenue beat was driven by an inflow of new customers. Shares were up 17% in extended trading. Coffee prices surge on Brazil and Vietnam supply worries Both Arabica (KCZ2) and Robusta (RCX2) coffee futures extended their three-day surge on signs of a deteriorating supply outlook. Stockpiles in Vietnam, the world’s top supplier of the Robusta variety, are expected to halve by the end of September from a year earlier while stocks of the Arabica bean monitored by the ICE exchange has slumped to a 23-year low. Freak weather in South America during the past year has decimated the production outlook for Brazil, Colombia and Central America, while recent dryness has already started to raise concerns about next year’s crop. The June high at $2.42 in Arabica being the only level standing in the way for a push towards the 11-year high at $2.605 reached in February. Natural gas has become the biggest component in the Bloomberg Commodity Index (BCOM) The index tracks the performance of 23 major commodity futures targeting a one-third exposure in energy, metals and agriculture. The target weights are set once a year every January and if prices shift significantly during the year, a reweighting will occur the following January. The 160% year-to-date surge in US natural gas futures has more than doubled its weight to 17% from 8%, and in the process made it the biggest component in the BCOM index, more than double that of WTI and Brent combined. What it means? The index has become more volatile and if maintained throughout the year a major rebalancing (selling of natural gas) will occur this January. What are we watching next? The Kansas City Fed hosts its annual symposium in Jackson Hole This year’s theme is “Reassessing Constraints on the Economy and Policy”. The symposium will last until 27 August. Fed Chair Jerome Powell will speak tomorrow. Given the loosening of financial conditions since the June FOMC meeting, the market has been concerned that Powell will echo the pushback against the notion that the Fed knows that it is set to materially slow its pace of policy tightening after the September 21 FOMC rate decision (majority looking for another 75 basis points). Data dependency will likely be underlined in his speech, but any guidance on the Fed’s approach to QT could also garner considerable attention as longer treasury yields pull back higher toward the cycle highs from June. Japan’s Tokyo CPI for August to show more price pressures Japan's Tokyo CPI for August is due on Friday morning, and it is likely to suggest further price pressures above the Bank of Japan's 2% target. Consensus expectations point toward another higher print of 2.7% y/y for the headline measure and 2.5% y/y on the core measure, signalling inflationary pressures will continue to question the Bank of Japan's resolve on the ultra-easy policy stance. Earnings to watch Today’s earnings focus is Fortum, Delivery Hero, and NIO. Europe’s energy crisis is putting immense pressure on utility companies and consumers. Fortum is not normally a company we find interesting but given the current crisis management’s assessment of the outlook is important to read. Delivery Hero sits inside the consumer economy and especially on the discretionary spending side with delivery of take-away orders; 1H revenue growth is expected at 76% y/y. NIO is in focus following the weaker than expected result from XPeng. Today: South32, Toronto-Dominion Bank, Fortum, Delivery Hero, AIA Group, China Life Insurance, CNOOC, CRH, Dollar General, Vmware, Marvell Technology, Workday, Dollar Tree, Dell Technologies, NIO Friday: Meituan, China Shenhua Energy, China Petroleum & Chemical Economic calendar highlights for today (times GMT) 0800 – Germany Aug. IFO Business Climate Survey 1130 – ECB Meeting Minutes 1230 – US Weekly Initial Jobless Claims 1230 – US Q2 GDP Revision 1430 – EIA Natural Gas Storage Change 1500 – US Aug. Kansas City Fed Manufacturing survey 2200 – New Zealand Aug. ANZ Consumer Confidence 2230 – New Zealand RBNZ Governor Orr to speak 2330 – Japan Aug. Tokyo CPI Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 25, 2022

Summary:  US Treasury yields climbed higher ahead of Jackson Hole, where the bar for hawkishness from Fed Chair Powell has been set high. USD gained modestly but the Japanese yen has been largely stable. Energy crisis threats are getting louder, and a re-embrace of nuclear power by Japan may just be the first step to long-term solutions. Crude oil rally was reignited, and coffee futures also extended gains on supply issues. Nvidia disappointment may bring more tech disappointment, but focus shifts to retailers reporting today. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities closed modestly higher, taking a pause after a 3-day decline, S&P 500 +0.29% to close at 4140, Nasdaq 100 +0.28%. Energy stock led as the WTI crude firmed up by 1.2%, following EIA data showing a fall in crude oil inventory, Apache (APA:xnys) +3.9%, Ceterra Energy (CTRA:xnys) +3.2%. Nordstrom (JWN:xnys) tumbled 20% and Macy (M:xnys) fell 4%, after the retailers lowered their earnings guidance the day before, citing slowdown in spending of shoppers. On the other hand, Peloton Interactive (PTON:xnas) jumped 20% on news that the sporting goods company plans to sell its products on Amazon (AMZN:xnas). Bed Bath & Beyond (BBBY:xnas) snapped a 5-day collapsing streak to bounce 18% on news of closing a new loan deal.  U.S. treasuries (TLT:xnas, IEF:xnas, SHY:xnas) U.S. yields climbed throughout the session, with initial selling triggered by a massive 22bp jump in the yield of 2-year U.K. Gilts across the pond. Treasury yields continued to edge up after digesting that headline durable goods orders came in flat, below forecasts but looking less weak once stripping out the more volatile transportation and defense orders. The result of the 45-billion 5-year auction was weak. 2-year yields rose 9bps to close at 3.39% and 10-year yields climbed 5bps to 3.10%.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) The news of 19 additional stimulus measures from China’s State Council coming out after the Hong Kong market close fueled buying in Chinese ADRs in the New York session, the NASDAQ Golden Dragon China Index +2.5%.  During the Hong Kong session, however, the equity markets slid, Hang Seng –1.2%, CSI 300 -1.9%. Chinese internet stocks were weak. Kuaishou (01024:xhkg) fell 8.1% in spite of reporting better-than-expected earnings as some traders attributed the fall to overhang of the stake of Tencent in the company. Meituan (03690:xhkg), another company that counts Tencent (00700:xhkg) a major shareholder, fell 2.7%. Chinese auto names dropped, led by XPeng (09868:xhkg) that tumbled 12.2%, followed by over 5% declines in other EV names.  The State Council backed newspaper, Economic Times, ran a piece saying that the special loans to developers initiative much talked about earlier this week was not to fuel speculation in properties but to ensure delivery of stalled presold residential units, Longfor (00960:xhkg) -3%, Country Garden(02007:xhkg) -3.9%.  The Stock Exchange of Hong Kong will be closed this morning due to a typhoon and is scheduled to resume trading in the afternoon.  Higher yields bring modest gains in USD With US 10-year yields going above 3.1%, there was a modest bump higher in US dollar which is now close to its cycle highs, recovering from the post-PMI lows. EURUSD trades close to parity, looking for further direction as Jackson Hole is awaited and the energy crisis related weakness seems to be priced in for now. Higher US yields however didn’t push up USDJPY considerable, but commodity currencies continued to face further pressure. NZDUSD was the weakest on the G10 board, and pressure aggravated this morning with Q2 NZ retail sales disappointing at -2.3% QoQ vs. expectations of 1.7% gains. Crude oil prices (CLU2 & LCOV2) Price action in crude oil intensified with Brent back above $101/barrel in Asian morning and WTI futures trading above $95. US crude oil stockpiles fell, with commercial inventories down 3.3m bbl last week, according to EIA data. This was driven by record exports of crude and refined oil, and comes despite a record 8m bbl SPR release and net imports rising by 0.9m b/d. Both technical and fundamental factors are turning supportive, and a potential short squeeze is brewing. Coffee futures extend gains Coffee, both Arabica and Robusta, rallying strongly for a third day as the supply outlook continues to deteriorate. The June high at $2.42 in Arabica the only level standing in the way for a push towards the Feb 11-year high at $2.605. Robusta stocks in Vietnam are expected to have dropped by 50% at end-September while arabica supplies have been hurt by weather conditions in Brazil, Colombia and Central America. What to consider? A weaker message from Powell could bring a risk rally While most of the Fed members lately have been consistent in their view on inflation and the need for more aggressive rate hikes, the bar for Powell has been set high. Market pricing for September rate hike has shifted towards 75bps with 60% odds, up from about 45% earlier in the week. Moreover, the market now prices in peak Fed funds rate at above 3.75%, which is pretty much in-line with the dot plot. Additionally, only about 37bps of easing is priced in for next year, and given the uncertain economic environment, Powell may chose to stay on the sidelines. Any hints on staying data-dependent or highlighting the risk of an economic slowdown may be viewed as dovish, and result in a risk rally. US durable goods data remains mixed July durable goods orders data disappointed on the headline but core orders came in above expectations, again suggesting resilience in the economy. Headline was unchanged m/m against expectations of 0.6% gain, with June’s print revised higher to 2.2% from 2.0% earlier. Excluding the volatile components such as transportation and defense, durable goods orders were up 0.3% and 1.2% respectively. Japan’s nuclear plans getting a leg up The threat of an energy crisis has prompted Japan to make headway on bring back nuclear power after more than a decade following the Fukushima disaster. Japan plans to restart seven more nuclear reactors from next summer onwards, and PM Kishida said that the government will also explore development and construction of new reactors as the country aims to avoid new strains on power grids that buckled under heavy demand this summer, and to curb the nation’s reliance on energy imports. Japan Tokyo CPI for August to show more price pressures Japan's Tokyo CPI for August is due on Friday morning, and it is likely to suggest further price pressures above the Bank of Japan's 2% target. Consensus expectations point toward another higher print of 2.7% y/y for the headline measure and 2.5% y/y on the core measure, signalling inflationary pressures will continue to question the Bank of Japan's resolve on the ultra-easy policy stance. Nvidia earnings may spell tech caution Nvidia (NVDA:xnas) reported Q2 revenue growing by 3% YoY and EPS $0.51, in line with expectations.  The company provided Q3 revenue guidance to be $5.9 billion, plus or minus 2%, missing the previous estimate of $6.92 billion. The share of the chip maker fell 4.5% in extended hours trading. China’s State Council rolled out 19 new stimulus measures to support the economy The crux of the new stimulus package consists of an incremental RMB300 billion financing from policy banks to provide equity-like capital for infrastructure projects and a new quota utilizing unused quota carried over from previous years to allow local governments to issue RMB500 billion special bonds by the end of October this year.  Emerging countries dominate in terms of nuclear capacity under construction According to the latest data released by the World Nuclear Association, the countries with highest nuclear capacity under construction are: China (23.3K MG), India (6.6K MG), Turkey (4.8K MG) and South Korea (4.2K MG). The United Kingdom is the first developed country in the list with 3.4K MG. France lags with only 1.6K MG, for instance. Nuclear energy is the subject of intense debate in several European countries. In our view, this is certainly one of the best options to support green transition and avoid a surge in the energy bill which will lead to lower purchasing power for longer.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 25, 2022  

Summary:  US equities continued to push sharply lower yesterday as the strong US dollar is in focus as EURUSD dropped well below parity yesterday. US Treasury yields are playing their part in pressuring sentiment as the US 10-year yield benchmark rose above 3.00%. The next important event risk is this Friday’s Jackson Hole, Wyoming speech from Fed Chair Powell, as the Fed is expected to remind the market that it remains in full inflation-fighting mode, pushing back against the impression that it may be set to cut rates next year.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures extended their losses yesterday as the US 10-year yield moved above the 3% level and the Fed Funds futures curve moved lower across the whole curve (meaning less rate cuts expected next year). Markets are beginning to second-guess their aggressive bets in July on inflation cooling fast enough to warrant rate cuts next year as the galloping energy crisis makes it difficult for inflation to cool. Tangibles-driven themes such as commodities, logistics, energy storage and financials were the relative winners in yesterday’s session. S&P 500 futures are now in the support zone from before the last leg up that started on 10 August; we see the 4,100 level as the next level to watch on the downside and then the 100-day moving average at 4,085. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Index and CSI300 were both down about 0.6%. A Bloomberg report yesterday, citing “people familiar with the matter”, suggested the size of the central bank and other authorities’ support lending program to developers could be as large as RMB 200bn. The reaction of the share prices of Chinese Property developers were mixed, Country Garden (02007:hkg) +3.1%, Longfor (00960:xhkg) -1.4%. Postal Savings Bank of China (01658:xhkg) plunged 5.5% after the Chinese bank reported net profit miss with a 10 bps y/y fall in net interest margin to 2.27% in H1. Gross loans grew 13% y/y in H1 but at a more tepid growth of 3% q/q.  Non-performing loans ratio overall was steady at 0.8% but mortgage NPL ratio climbed by 8 bps to 0.52%. US dollar rally following through The US dollar rally continued apace yesterday, as EURUSD traded well below parity and closed at its lowest level in nearly twenty years yesterday. GBPUSD has teased below 1.1760, its lowest level since a one-off pandemic-outbreak spike in early 2020, while other USD pairs are not yet at extremes of the cycle, including AUDUSD, still well above the sub-0.6700 lows of July, and USDJPY, which has not yet challenged the cycle high north of 139.00. There is clearly a reflexive situation at the moment in the US dollar, risk sentiment and US treasury yields. USDCNH Broad USD strength remains behind the weaker CNH in the USDCNH exchange rate as the CNH continues to rise versus, for example, the EUR, while the CNHJPY exchange rate trades near the important 20.00 area. Any more significant move in this critical exchange rate could quickly steal some of the focus away from the US dollar. The contrast between an easing PBOC (moving once again earlier this week) and tightening central banks nearly everywhere else is stark. The next important level for the pair is 7.00, with the range high of the last decade near 7.20. Crude oil prices (CLU2 & LCOV2) Crude oil prices made a sharp U-turn higher on Monday after the Saudi Energy Minister talked about a potential production cut after saying the futures market has become increasingly disconnected from underlying fundamental developments, a view that we share. His comment supported the market on a day where risk appetite generally took a knock from the stronger dollar and falling equity markets. A global shift from gas to oil, from Europe to Asia, has taken a deeper hold amid gas shortage fears accelerating in the wake of another upcoming maintenance of the Nord Stream 1 pipeline and heatwaves in China. Diesel prices trades higher supported by refinery margins, the so-called crack spread hitting seasonal highs around the world. Gold (XAUUSD) and Silver (XAGUSD) Gold broke below the key $1744 support on Monday before finding support at $1729, the 61.8% retracement of the July to August bounce. Dollar strength and a run higher in US yields weighed on the shine of the yellow metal, which has seen downside pressures since last week after touching the critical $1800-level. Hawkish Fed talk this week could further weigh on the short-term prospects for Gold. Silver also dipped below the key 19 handle, erasing most of the gains seen since late July. German year-ahead power prices hit a fresh record high German year-ahead power prices surged to EUR 700/MWh with Dutch TTF gas prices close to EUR 300/MWh. The surge came on the back of another leg higher in natural gas prices which rose over 13% in Europe amid concerns around the next scheduled 3-day maintenance of the Nord Stream 1 pipeline. It appears that demand destruction remains the most obvious but painful cure right now, along with a longer-term focus on ensuring a broad-based supply of energy from coal, gas, nuclear, solar, hydrogen, and more. US Treasuries (TLT, IEF) US treasury yields rose yesterday, with the 10-year benchmark closing above 3.00% for the first time in over a month yesterday. Rising yields are likely an important driver of weaker risk sentiment after the melt-up in the wake of the late July FOMC meeting, but practically, a move toward the cycle highs from June near 3.50% (in the lead-up to the FOMC meeting on June 16) is needed to seize the spotlight. The behavior of the treasury market in the wake of the Jackson Hole conference speech from fed Chair Powell this Friday is an important next step, particularly if Powell provides strong guidance on the pace or importance of the Fed’s balance sheet tightening (QT). What is going on? EURUSD falls below parity, eyes on 0.9500 The latest concerns on the European energy crisis weighed on the Euro which was seen sipping below parity to the US dollar. Higher US yields and gains in the US dollar also underpinned, taking EURUSD to lows in the low 0.9900’s this morning. The European recession is coming hard and fast, and the PMIs today will likely signal increasing pressure on the region. The next step for the US dollar is the Fed Chair Powell speech this Friday as discussed below. Australia and Japan services PMIs plunged into contraction Australia saw its services PMI drop to 49.6 in August in a flash print, from 50.9 in July. Manufacturing PMI, however, held up at 54.5, just weakening slightly from last month’s 55.7. The spate of rate hikes seen from Reserve Bank of Australia is likely taking its toll on demand and manufacturing. Meanwhile, prices remain elevated amid the persistent supply chain issues, and more rate hikes are still on the cards. Japan’s flash manufacturing PMI for August came in lower at 51.0 from 52.1 previously, nut stayed in expansion territory. Services PMI however plunged into the contraction zone below 50, coming in at 49.2 for a flash August print from 50.3 in July. The fresh COVID wave in Japan, although comes without any broad-based new restrictions, is impeding the services demand and will likely weigh on Q3 GDP growth. Palo Alto outlook remains strong The cyber security company reported last night Q4 revenue and EPS above estimates and Q1 outlook is slightly above estimates while the FY outlook is well above consensus estimates. Q4 networks billing growth was 44% vs est. 25% suggesting demand is accelerating and bolstering our view that the cyber security industry is a high growth and counter-cyclical industry in the years to come. Shares were up 9% in extended trading. Zoom shares were down 8% in extended trading The popular video conferencing software that rose to prominence during the pandemic is lowering its FY outlook relative to previous announcements. The slowdown in their business is due to slower enterprise growth which could be a function of Microsoft and other major technology companies that have entered the enterprise business for video conference. What are we watching next? Europe and UK PMIs may spell further caution. The Euro-area flash composite PMI and the UK flash PMI for August are both due to be released on Tuesday. Following a slide in ZEW and Sentix indicators for July, the stage is set for a weaker outcome on the PMIs too. July composite PMI for the Euro-area dipped into contractionary territory at 49.9, while the UK measure held up at 52.1. The surge in gas and electricity prices continue to weigh on GDP growth outlook, with recession likely to hit by the end of the year. USD and US Treasury yields as Jackson Hole Fed conference is the macro event risk of the week Friday The US dollar and yields are setting risk sentiment on edge as EURUSD has plunged well through parity. US Treasury yields have supported the USD rally with the entire curve lifting over the last couple of weeks and longer yields closing at new one-month highs. The Fed has pushed back consistently against the market’s pricing of a Fed turnaround to easing rates next year with partial success, as expectations for rate cuts have shifted farther out the curve and from higher levels. The next focus is this Friday’s Jackson Hole symposium speech from Fed Chair Powell, who is expected to stay on message and maintain credibility on fighting inflation after the two large 75 basis point hikes at the last two meetings. The Fed’s attitude toward quantitative tightening may be a focus in the speech as well, with the pace of QT supposedly set to pick up in coming weeks to $95B/month. So far, the QT has been slow out of the gates, with the balance sheet currently only some $115B smaller than at its mid-April peak. Earnings to watch Today’s earnings focus is on CATL and JD.com, with especially CATL being important as the world’s largest battery manufacturer to the car industry and thus pivotal for the electrification of the transportation sector. CATL is expected to report revenue growth of 126% y/y in Q2 as EV adoption is accelerating, but key risks ahead are rising input costs across lithium and energy. JD.com is expected to report 3% revenue growth in Q2 as growth is grinding to a halt on very weak consumer confidence in China. Today: CATL, Intuit, Medtronic, JD.com Wednesday: LONGi Green Energy, Royal Bank of Canada, PetroChina, Ping An Insurance Group, Nongfu Spring, Mowi, Nvidia, Salesforce, Pinduoduo, Snowflake, Autodesk Thursday: South32, Toronto-Dominion Bank, Fortum, Delivery Hero, AIA Group, China Life Insurance, CNOOC, CRH, Dollar General, Vmware, Marvell Technology, Workday, Dollar Tree, Dell Technologies, NIO Friday: Meituan, China Shenhua Energy, China Petroleum & Chemical Economic calendar highlights for today (times GMT) 0715-0800 – Eurozone Aug. Flash Manufacturing and Services PMI 0830 – UK Aug. Flash Manufacturing and Services PMI 1000 – UK Aug. CBI Trends in Total Orders and Selling Prices 1100 – ECB's Panetta to speak 1345 – US Aug. Flash Manufacturing and Services PMI 1400 – US Aug. Richmond Fed Manufacturing 1400 – Eurozone Aug. Flash Consumer Confidence 1400 – US Jul. New Home Sales 2300 – US Fed’s Kashkari (non-voter) to speak  Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 23, 2022

Summary:  Equities were sold off on Monday, continuing a slide from their summer rally high, in the midst of position adjustments ahead of the Jackson Hole central banker event later this week. U.S. 10-year yields returned to above 3%. China cut its 5-year loan prime rates and plans to extend special loans to boost the ailing property markets. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities lost ground and continued to retrace from the high of the latest rally since mid-June.  The market sentiment has become more cautious ahead of Fed Chair Powell’s speech this Friday at the Jackson Hole symposium and a heavy economic data calendar, S&P 500 – 2.1%, Nasdaq 100 -2.7%.  The rise of U.S. 10-year bond yield back to above 3% added to the selling pressures in equities.  Zoom Video (ZM:xnas) fell 8% in after-hours trading as the company reported Q2 revenues and earnings missing estimates and cut its full year revenues guidance. U.S. treasuries (TLT:xnas, IEF:xnas, SHY:xnas) Bonds were sold off as traders adjusted positions ahead of the Jackson Hole.  The treasury yield curve bear flattened with 2-year yields surging 8bps to 3.30% and 10-year yields climbing 4bps to 3.01%, above the closely watched 3% handle.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hang Seng fell 0.6% while CSI300 climbed 0.7% on Monday. Chinese developers gained on today’s larger-than-expected cut in the 5-year loan prime rate and the Chinese authorities plan to provide special loans through policy banks to support the delivery of stalled residential housing projects, CIFI (00883:xhkg) +11.5%, Country Garden (02007:xhkg) +3.2%.  China extended EV waivers from vehicle purchase tax and other fees to the end of 2023, but the share price reactions of Chinese EV makers traded in Hong Kong were mixed.  Great Wall Motor (02333:xhkg) soared 11%, benefiting from launching a new model that has a 1,000km per charge battery while Nio (09866:xhkg) and Li Auto(02015:xhkg) fell 4.2% and 1.4% respectively. Xiaomi (01810:xhkg) dropped 3.3% after Q2 revenues -20% YoY and net profit -67% YoY, on lower smartphone shipments (-26% YoY).  Smartphone parts suppliers, AAC Technologies (02018:xhkg) and Sunny Optical (02382:xhkg) declined 5.6% and 4.2% respectively.  The share price performance of the four companies that will be added to the Hang Seng Index was mixed, Baidu (09888:xhkg) +0.9%, China Shenhua Energy (01088:xhkg) +2.1%, Hansoh Pharmaceutical (03692:xhkg) +3.2% but Chow Tai Fook Jewellery (01929:xhkg) -0.6%.  SenseTime (00020:xhkg) gained 4.2% as the company will replace China Pacific Insurance (02601:xhkg) -2.8% as a constituent company of the Hang Seng China Enterprises Index.  ENN Energy (02688:xhkg) plunged more than 14% after reporting H1 results below market expectations.  China retailer Gome (00493) collapsed 20% after resuming trading from suspension and a plan t buy from the controlling shareholder a stake in China property assets.  EURUSD falls below parity, eyes on 0.9500 The latest concerns on the European energy crisis weighed on the Euro which was seen sipping below parity to the US dollar. Higher US yields and gains in the US dollar also underpinned, taking EURUSD to lows of 0.9926. The European recession is coming hard and fast, and the PMIs today will likely signal increasing pressure on the region. Also on the radar will be Fed Chair Powell’s speech at the Jackson Hole later this week, with a fresh selloff in the pair likely to target 0.9500 next. USDCNH heading to further highs After PBOC’s easing measures on Monday, the scope for further yuan weakness has increased. USDCNH broke above 6.8600 overnight and potentially more US dollar strength this week on the back of a pushback from Fed officials on easing expectations for next year could mean a test of 7.00 for USDCNH. Still, the move in yuan is isolated, coming from China moving to prevent the yuan from tracking aggravated USD strength rather than showing signs of desiring a broader weakening. EURCNH has plunged to over 1-month lows of 6.8216 on the back of broader EUR weakness. Crude oil prices (CLU2 & LCOV2) Crude oil prices made a recovery overnight despite the strength in the US dollar. A global shift from gas to oil, from Europe to Asia, has taken a deeper hold amid gas shortage fears accelerating in the wake of another upcoming maintenance of the Nordstream pipeline. Diesel and refinery margins have also been supported as a result, with Asia diesel crack rising to its previous high of $63 amid low inventory levels. WTI futures reversed back to the $90/barrel levels and Brent were back above $96. Comments from Saudi Energy Minister threatening to dial back supply also lifted prices, but these were mis-read and in fact, focused more on the mismatch between the tightness in the futures and the physical market. Gold (XAUUSD) and Silver (XAGUSD) Gold broke below the key $1744 support and is now eying $1729, the 61.8% retracement of the July to August bounce. Dollar strength and a run higher in US yields weighed on the shine of the yellow metal, which has seen downside pressures since last week after touching the critical $1800-level. Hawkish Fed talk this week could further weigh on the short-term prospects for Gold. Silver also dipped below the key 19 handle, erasing most of the gains seen since late July.   What to consider? German year-ahead power prices hit a fresh record high German year-ahead power prices surged to EUR 700/MWh with Dutch TTF gas prices close to EUR 300/MWh. The surge came on the back of another leg higher in natural gas prices which rose over 8% in Europe amid concerns around the next scheduled 3-day maintenance of the Nordstream pipeline. It appears that demand destruction remains the most obvious but painful cure right now, along with a longer-term focus on ensuring a broad-based supply of energy from coal, gas, nuclear, solar, hydrogen, and more.  Australia and Japan services PMIs plunged into contraction Australia saw its services PMI drop to 49.6 in August in a flash print, from 50.9 in July. Manufacturing PMI, however, held up at 54.5, just weakening slightly from last month’s 55.7. The spate of rate hikes seen from Reserve Bank of Australia is likely taking its toll on demand and manufacturing. Meanwhile, prices remain elevated amid the persistent supply chain issues, and more rate hikes are still on the cards. Japan’s flash manufacturing PMI for August came in lower at 51.0 from 52.1 previously, nut stayed in expansion territory. Services PMI however plunged into the contraction zone below 50, coming in at 49.2 for a flash August print from 50.3 in July. The fresh COVID wave in Japan, although comes without any broad-based new restrictions, is impeding the services demand and will likely weigh on Q3 GDP growth. Europe and UK PMIs may spell further caution The Euro-area flash composite PMI and the UK flash PMI for August are both due to be released on Tuesday. Following a slide in ZEW and Sentix indicators for July, the stage is set for a weaker outcome on the PMIs too. July composite PMI for the Euro-area dipped into contractionary territory at 49.9, while the UK measure held up at 52.1. The surge in gas and electricity prices continue to weigh on GDP growth outlook, with recession likely to hit by the end of the year. China’s plan to provide loans to ensure delivery of presold residential projects is said to be of the size of RMB 200 billion Last Frida, Xinhua News reported that the PBoC, jointly with the Housing Ministry and the Ministry of Finance rolled out a program to make special loans through policy banks to support the delivery of stalled residential housing projects but the size of the program was not mentioned.   A Bloomberg report yesterday, citing “people familiar with the matter”, suggested the size of the support lending program could be as large as RMB 200 billion.  Beijing municipal government rolled out initiatives to promote hydrogen vehicles The municipal government of Beijing announced support for the construction of hydrogen vehicle refueling stations with RMB500 million for each station, aiming at building 37 new stations by 2023 and bringing the adoption of fuel-cell cars to over 10,000 units in the capital. Earlier in the month, the Guangdong province released a plan to build 200 hydrogen vehicle refueling stations by 2025. Since last year, there have been 13 provinces and municipalities rolling out policies to promote the development of the hydrogen vehicle industry.  Earnings on tap Reportedly there have been shorts being built up in Dollar Tree (DLTR:xnys) as traders are expecting that discount retailer missing when reporting this Thursday.   On the other hand, investors are expecting Dollar General (DG:xnys) results to come in more favourably, , which also reports this Thursday.  Key earnings scheduled to release today including Medtronic (MDT:xnys), Intuit (INTU:xnas), JD.COM (09618.xhkg/JD.xnas), JD Logistics (02615:xhkg), Kingsoft (02888:xhkg), and Kuishaou (01023:xhkg). Singapore reports July inflation figures today Singapore's inflation likely nudged higher in July, coming in close proximity to 7% levels from 6.7% y/y in June. While both food and fuel costs continue to create upside pressures on inflation, demand-side pressures are also increasing as the region moves away from virus curbs. House rentals are also running high due to high demand and delayed construction limiting supplies. The Monetary Authority of Singapore has tightened monetary policy but more tightening moves can be expected in H2 even as the growth outlook has been downwardly revised.     For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast Source: APAC Daily Digest: What is happening in markets and what to consider next – August 23, 2022

Summary:  US equities continued to push sharply lower yesterday as the strong US dollar is in focus as EURUSD dropped well below parity yesterday. US Treasury yields are playing their part in pressuring sentiment as the US 10-year yield benchmark rose above 3.00%. The next important event risk is this Friday’s Jackson Hole, Wyoming speech from Fed Chair Powell, as the Fed is expected to remind the market that it remains in full inflation-fighting mode, pushing back against the impression that it may be set to cut rates next year.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures extended their losses yesterday as the US 10-year yield moved above the 3% level and the Fed Funds futures curve moved lower across the whole curve (meaning less rate cuts expected next year). Markets are beginning to second-guess their aggressive bets in July on inflation cooling fast enough to warrant rate cuts next year as the galloping energy crisis makes it difficult for inflation to cool. Tangibles-driven themes such as commodities, logistics, energy storage and financials were the relative winners in yesterday’s session. S&P 500 futures are now in the support zone from before the last leg up that started on 10 August; we see the 4,100 level as the next level to watch on the downside and then the 100-day moving average at 4,085. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Index and CSI300 were both down about 0.6%. A Bloomberg report yesterday, citing “people familiar with the matter”, suggested the size of the central bank and other authorities’ support lending program to developers could be as large as RMB 200bn. The reaction of the share prices of Chinese Property developers were mixed, Country Garden (02007:hkg) +3.1%, Longfor (00960:xhkg) -1.4%. Postal Savings Bank of China (01658:xhkg) plunged 5.5% after the Chinese bank reported net profit miss with a 10 bps y/y fall in net interest margin to 2.27% in H1. Gross loans grew 13% y/y in H1 but at a more tepid growth of 3% q/q.  Non-performing loans ratio overall was steady at 0.8% but mortgage NPL ratio climbed by 8 bps to 0.52%. US dollar rally following through The US dollar rally continued apace yesterday, as EURUSD traded well below parity and closed at its lowest level in nearly twenty years yesterday. GBPUSD has teased below 1.1760, its lowest level since a one-off pandemic-outbreak spike in early 2020, while other USD pairs are not yet at extremes of the cycle, including AUDUSD, still well above the sub-0.6700 lows of July, and USDJPY, which has not yet challenged the cycle high north of 139.00. There is clearly a reflexive situation at the moment in the US dollar, risk sentiment and US treasury yields. USDCNH Broad USD strength remains behind the weaker CNH in the USDCNH exchange rate as the CNH continues to rise versus, for example, the EUR, while the CNHJPY exchange rate trades near the important 20.00 area. Any more significant move in this critical exchange rate could quickly steal some of the focus away from the US dollar. The contrast between an easing PBOC (moving once again earlier this week) and tightening central banks nearly everywhere else is stark. The next important level for the pair is 7.00, with the range high of the last decade near 7.20. Crude oil prices (CLU2 & LCOV2) Crude oil prices made a sharp U-turn higher on Monday after the Saudi Energy Minister talked about a potential production cut after saying the futures market has become increasingly disconnected from underlying fundamental developments, a view that we share. His comment supported the market on a day where risk appetite generally took a knock from the stronger dollar and falling equity markets. A global shift from gas to oil, from Europe to Asia, has taken a deeper hold amid gas shortage fears accelerating in the wake of another upcoming maintenance of the Nord Stream 1 pipeline and heatwaves in China. Diesel prices trades higher supported by refinery margins, the so-called crack spread hitting seasonal highs around the world. Gold (XAUUSD) and Silver (XAGUSD) Gold broke below the key $1744 support on Monday before finding support at $1729, the 61.8% retracement of the July to August bounce. Dollar strength and a run higher in US yields weighed on the shine of the yellow metal, which has seen downside pressures since last week after touching the critical $1800-level. Hawkish Fed talk this week could further weigh on the short-term prospects for Gold. Silver also dipped below the key 19 handle, erasing most of the gains seen since late July. German year-ahead power prices hit a fresh record high German year-ahead power prices surged to EUR 700/MWh with Dutch TTF gas prices close to EUR 300/MWh. The surge came on the back of another leg higher in natural gas prices which rose over 13% in Europe amid concerns around the next scheduled 3-day maintenance of the Nord Stream 1 pipeline. It appears that demand destruction remains the most obvious but painful cure right now, along with a longer-term focus on ensuring a broad-based supply of energy from coal, gas, nuclear, solar, hydrogen, and more. US Treasuries (TLT, IEF) US treasury yields rose yesterday, with the 10-year benchmark closing above 3.00% for the first time in over a month yesterday. Rising yields are likely an important driver of weaker risk sentiment after the melt-up in the wake of the late July FOMC meeting, but practically, a move toward the cycle highs from June near 3.50% (in the lead-up to the FOMC meeting on June 16) is needed to seize the spotlight. The behavior of the treasury market in the wake of the Jackson Hole conference speech from fed Chair Powell this Friday is an important next step, particularly if Powell provides strong guidance on the pace or importance of the Fed’s balance sheet tightening (QT). What is going on? EURUSD falls below parity, eyes on 0.9500 The latest concerns on the European energy crisis weighed on the Euro which was seen sipping below parity to the US dollar. Higher US yields and gains in the US dollar also underpinned, taking EURUSD to lows in the low 0.9900’s this morning. The European recession is coming hard and fast, and the PMIs today will likely signal increasing pressure on the region. The next step for the US dollar is the Fed Chair Powell speech this Friday as discussed below. Australia and Japan services PMIs plunged into contraction Australia saw its services PMI drop to 49.6 in August in a flash print, from 50.9 in July. Manufacturing PMI, however, held up at 54.5, just weakening slightly from last month’s 55.7. The spate of rate hikes seen from Reserve Bank of Australia is likely taking its toll on demand and manufacturing. Meanwhile, prices remain elevated amid the persistent supply chain issues, and more rate hikes are still on the cards. Japan’s flash manufacturing PMI for August came in lower at 51.0 from 52.1 previously, nut stayed in expansion territory. Services PMI however plunged into the contraction zone below 50, coming in at 49.2 for a flash August print from 50.3 in July. The fresh COVID wave in Japan, although comes without any broad-based new restrictions, is impeding the services demand and will likely weigh on Q3 GDP growth. Palo Alto outlook remains strong The cyber security company reported last night Q4 revenue and EPS above estimates and Q1 outlook is slightly above estimates while the FY outlook is well above consensus estimates. Q4 networks billing growth was 44% vs est. 25% suggesting demand is accelerating and bolstering our view that the cyber security industry is a high growth and counter-cyclical industry in the years to come. Shares were up 9% in extended trading. Zoom shares were down 8% in extended trading The popular video conferencing software that rose to prominence during the pandemic is lowering its FY outlook relative to previous announcements. The slowdown in their business is due to slower enterprise growth which could be a function of Microsoft and other major technology companies that have entered the enterprise business for video conference. What are we watching next? Europe and UK PMIs may spell further caution. The Euro-area flash composite PMI and the UK flash PMI for August are both due to be released on Tuesday. Following a slide in ZEW and Sentix indicators for July, the stage is set for a weaker outcome on the PMIs too. July composite PMI for the Euro-area dipped into contractionary territory at 49.9, while the UK measure held up at 52.1. The surge in gas and electricity prices continue to weigh on GDP growth outlook, with recession likely to hit by the end of the year. USD and US Treasury yields as Jackson Hole Fed conference is the macro event risk of the week Friday The US dollar and yields are setting risk sentiment on edge as EURUSD has plunged well through parity. US Treasury yields have supported the USD rally with the entire curve lifting over the last couple of weeks and longer yields closing at new one-month highs. The Fed has pushed back consistently against the market’s pricing of a Fed turnaround to easing rates next year with partial success, as expectations for rate cuts have shifted farther out the curve and from higher levels. The next focus is this Friday’s Jackson Hole symposium speech from Fed Chair Powell, who is expected to stay on message and maintain credibility on fighting inflation after the two large 75 basis point hikes at the last two meetings. The Fed’s attitude toward quantitative tightening may be a focus in the speech as well, with the pace of QT supposedly set to pick up in coming weeks to $95B/month. So far, the QT has been slow out of the gates, with the balance sheet currently only some $115B smaller than at its mid-April peak. Earnings to watch Today’s earnings focus is on CATL and JD.com, with especially CATL being important as the world’s largest battery manufacturer to the car industry and thus pivotal for the electrification of the transportation sector. CATL is expected to report revenue growth of 126% y/y in Q2 as EV adoption is accelerating, but key risks ahead are rising input costs across lithium and energy. JD.com is expected to report 3% revenue growth in Q2 as growth is grinding to a halt on very weak consumer confidence in China. Today: CATL, Intuit, Medtronic, JD.com Wednesday: LONGi Green Energy, Royal Bank of Canada, PetroChina, Ping An Insurance Group, Nongfu Spring, Mowi, Nvidia, Salesforce, Pinduoduo, Snowflake, Autodesk Thursday: South32, Toronto-Dominion Bank, Fortum, Delivery Hero, AIA Group, China Life Insurance, CNOOC, CRH, Dollar General, Vmware, Marvell Technology, Workday, Dollar Tree, Dell Technologies, NIO Friday: Meituan, China Shenhua Energy, China Petroleum & Chemical Economic calendar highlights for today (times GMT) 0715-0800 – Eurozone Aug. Flash Manufacturing and Services PMI 0830 – UK Aug. Flash Manufacturing and Services PMI 1000 – UK Aug. CBI Trends in Total Orders and Selling Prices 1100 – ECB's Panetta to speak 1345 – US Aug. Flash Manufacturing and Services PMI 1400 – US Aug. Richmond Fed Manufacturing 1400 – Eurozone Aug. Flash Consumer Confidence 1400 – US Jul. New Home Sales 2300 – US Fed’s Kashkari (non-voter) to speak  Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 23, 2022

Summary:  Equities were sold off on Monday, continuing a slide from their summer rally high, in the midst of position adjustments ahead of the Jackson Hole central banker event later this week. U.S. 10-year yields returned to above 3%. China cut its 5-year loan prime rates and plans to extend special loans to boost the ailing property markets. What is happening in markets?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities lost ground and continued to retrace from the high of the latest rally since mid-June.  The market sentiment has become more cautious ahead of Fed Chair Powell’s speech this Friday at the Jackson Hole symposium and a heavy economic data calendar, S&P 500 – 2.1%, Nasdaq 100 -2.7%.  The rise of U.S. 10-year bond yield back to above 3% added to the selling pressures in equities.  Zoom Video (ZM:xnas) fell 8% in after-hours trading as the company reported Q2 revenues and earnings missing estimates and cut its full year revenues guidance. U.S. treasuries (TLT:xnas, IEF:xnas, SHY:xnas) Bonds were sold off as traders adjusted positions ahead of the Jackson Hole.  The treasury yield curve bear flattened with 2-year yields surging 8bps to 3.30% and 10-year yields climbing 4bps to 3.01%, above the closely watched 3% handle.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hang Seng fell 0.6% while CSI300 climbed 0.7% on Monday. Chinese developers gained on today’s larger-than-expected cut in the 5-year loan prime rate and the Chinese authorities plan to provide special loans through policy banks to support the delivery of stalled residential housing projects, CIFI (00883:xhkg) +11.5%, Country Garden (02007:xhkg) +3.2%.  China extended EV waivers from vehicle purchase tax and other fees to the end of 2023, but the share price reactions of Chinese EV makers traded in Hong Kong were mixed.  Great Wall Motor (02333:xhkg) soared 11%, benefiting from launching a new model that has a 1,000km per charge battery while Nio (09866:xhkg) and Li Auto(02015:xhkg) fell 4.2% and 1.4% respectively. Xiaomi (01810:xhkg) dropped 3.3% after Q2 revenues -20% YoY and net profit -67% YoY, on lower smartphone shipments (-26% YoY).  Smartphone parts suppliers, AAC Technologies (02018:xhkg) and Sunny Optical (02382:xhkg) declined 5.6% and 4.2% respectively.  The share price performance of the four companies that will be added to the Hang Seng Index was mixed, Baidu (09888:xhkg) +0.9%, China Shenhua Energy (01088:xhkg) +2.1%, Hansoh Pharmaceutical (03692:xhkg) +3.2% but Chow Tai Fook Jewellery (01929:xhkg) -0.6%.  SenseTime (00020:xhkg) gained 4.2% as the company will replace China Pacific Insurance (02601:xhkg) -2.8% as a constituent company of the Hang Seng China Enterprises Index.  ENN Energy (02688:xhkg) plunged more than 14% after reporting H1 results below market expectations.  China retailer Gome (00493) collapsed 20% after resuming trading from suspension and a plan t buy from the controlling shareholder a stake in China property assets.  EURUSD falls below parity, eyes on 0.9500 The latest concerns on the European energy crisis weighed on the Euro which was seen sipping below parity to the US dollar. Higher US yields and gains in the US dollar also underpinned, taking EURUSD to lows of 0.9926. The European recession is coming hard and fast, and the PMIs today will likely signal increasing pressure on the region. Also on the radar will be Fed Chair Powell’s speech at the Jackson Hole later this week, with a fresh selloff in the pair likely to target 0.9500 next. USDCNH heading to further highs After PBOC’s easing measures on Monday, the scope for further yuan weakness has increased. USDCNH broke above 6.8600 overnight and potentially more US dollar strength this week on the back of a pushback from Fed officials on easing expectations for next year could mean a test of 7.00 for USDCNH. Still, the move in yuan is isolated, coming from China moving to prevent the yuan from tracking aggravated USD strength rather than showing signs of desiring a broader weakening. EURCNH has plunged to over 1-month lows of 6.8216 on the back of broader EUR weakness. Crude oil prices (CLU2 & LCOV2) Crude oil prices made a recovery overnight despite the strength in the US dollar. A global shift from gas to oil, from Europe to Asia, has taken a deeper hold amid gas shortage fears accelerating in the wake of another upcoming maintenance of the Nordstream pipeline. Diesel and refinery margins have also been supported as a result, with Asia diesel crack rising to its previous high of $63 amid low inventory levels. WTI futures reversed back to the $90/barrel levels and Brent were back above $96. Comments from Saudi Energy Minister threatening to dial back supply also lifted prices, but these were mis-read and in fact, focused more on the mismatch between the tightness in the futures and the physical market. Gold (XAUUSD) and Silver (XAGUSD) Gold broke below the key $1744 support and is now eying $1729, the 61.8% retracement of the July to August bounce. Dollar strength and a run higher in US yields weighed on the shine of the yellow metal, which has seen downside pressures since last week after touching the critical $1800-level. Hawkish Fed talk this week could further weigh on the short-term prospects for Gold. Silver also dipped below the key 19 handle, erasing most of the gains seen since late July.   What to consider?   German year-ahead power prices hit a fresh record high German year-ahead power prices surged to EUR 700/MWh with Dutch TTF gas prices close to EUR 300/MWh. The surge came on the back of another leg higher in natural gas prices which rose over 8% in Europe amid concerns around the next scheduled 3-day maintenance of the Nordstream pipeline. It appears that demand destruction remains the most obvious but painful cure right now, along with a longer-term focus on ensuring a broad-based supply of energy from coal, gas, nuclear, solar, hydrogen, and more.  Australia and Japan services PMIs plunged into contraction Australia saw its services PMI drop to 49.6 in August in a flash print, from 50.9 in July. Manufacturing PMI, however, held up at 54.5, just weakening slightly from last month’s 55.7. The spate of rate hikes seen from Reserve Bank of Australia is likely taking its toll on demand and manufacturing. Meanwhile, prices remain elevated amid the persistent supply chain issues, and more rate hikes are still on the cards. Japan’s flash manufacturing PMI for August came in lower at 51.0 from 52.1 previously, nut stayed in expansion territory. Services PMI however plunged into the contraction zone below 50, coming in at 49.2 for a flash August print from 50.3 in July. The fresh COVID wave in Japan, although comes without any broad-based new restrictions, is impeding the services demand and will likely weigh on Q3 GDP growth. Europe and UK PMIs may spell further caution The Euro-area flash composite PMI and the UK flash PMI for August are both due to be released on Tuesday. Following a slide in ZEW and Sentix indicators for July, the stage is set for a weaker outcome on the PMIs too. July composite PMI for the Euro-area dipped into contractionary territory at 49.9, while the UK measure held up at 52.1. The surge in gas and electricity prices continue to weigh on GDP growth outlook, with recession likely to hit by the end of the year. China’s plan to provide loans to ensure delivery of presold residential projects is said to be of the size of RMB 200 billion Last Friday, Xinhua News reported that the PBoC, jointly with the Housing Ministry and the Ministry of Finance rolled out a program to make special loans through policy banks to support the delivery of stalled residential housing projects but the size of the program was not mentioned.   A Bloomberg report yesterday, citing “people familiar with the matter”, suggested the size of the support lending program could be as large as RMB 200 billion.  Beijing municipal government rolled out initiatives to promote hydrogen vehicles The municipal government of Beijing announced support for the construction of hydrogen vehicle refueling stations with RMB500 million for each station, aiming at building 37 new stations by 2023 and bringing the adoption of fuel-cell cars to over 10,000 units in the capital. Earlier in the month, the Guangdong province released a plan to build 200 hydrogen vehicle refueling stations by 2025. Since last year, there have been 13 provinces and municipalities rolling out policies to promote the development of the hydrogen vehicle industry.  Earnings on tap Reportedly there have been shorts being built up in Dollar Tree (DLTR:xnys) as traders are expecting that discount retailer missing when reporting this Thursday.   On the other hand, investors are expecting Dollar General (DG:xnys) results to come in more favourably, , which also reports this Thursday.  Key earnings scheduled to release today including Medtronic (MDT:xnys), Intuit (INTU:xnas), JD.COM (09618.xhkg/JD.xnas), JD Logistics (02615:xhkg), Kingsoft (02888:xhkg), and Kuishaou (01023:xhkg). Singapore reports July inflation figures today Singapore's inflation likely nudged higher in July, coming in close proximity to 7% levels from 6.7% y/y in June. While both food and fuel costs continue to create upside pressures on inflation, demand-side pressures are also increasing as the region moves away from virus curbs. House rentals are also running high due to high demand and delayed construction limiting supplies. The Monetary Authority of Singapore has tightened monetary policy but more tightening moves can be expected in H2 even as the growth outlook has been downwardly revised.     For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 23, 2022

Summary:  Equities closed last week on the defensive as a rising US dollar and especially US treasuries weighed. The US 10-year yield is threatening the 3.00% level for the first time in a month ahead of the important US July PCE inflation data and Fed Chair Powell’s speech on Friday. How forcefully will Powell push back against the virtual melt-up in financial conditions after the market felt the Fed pivoted to less tightening at the July meeting?   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures are still rolling over as the US 10-year yield zoomed to 3% on Friday with the index futures trading just above the 4,200 level this morning. The next levels on the downside sit around the 4,100 to 4,170 range, but in the longer term the 4,000 level is the big level to watch. Energy markets are still sending inflationary signals which is key to watch for sentiment this week. In terms of earnings, Palo Alto Networks and Zoom Video will report earnings. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Index and CSI300 were moderately higher, +0.2% and +0.8% respectively. Chinese developers gained on today’s larger-than-expected cut in the 5-year loan prime rate and last Friday’s report that the PBoC, jointly with the Housing Ministry and the Ministry of Finance to roll out a program to make special loans through policy banks to support the delivery of stalled residential housing projects. Great Wall Motor (02333:xhkg) soared 11%. In A-shares, auto names were among stocks that outperformed. Xiaomi (01810:xhkg) dropped 3% after reporting Q2 revenues -20% YoY and net profit -67% YoY, largely in line with expectations.  US dollar dominates focus in forex this week The US dollar rally picked up speed last week, with key levels falling in a number of USD pairs last week that now serve as resistance, including 1.0100 in EURUSD and 1.2000 in GBPUSD, both of which now serve as resistance/USD support. A significant break of EURUSD parity will likely add further psychological impact, and more practically, an upside break in yields at the longer end of the US yield curve is playing a supportive roll, one that will intensify its driving roll if the benchmark 10-year US Treasury yield follows through higher above the 3.00% level it touched in trading overnight. A complete sweep of USD strength also threatens on any significant follow through higher in USDCNH as it threatens an upside break here (more below). The next key event risk for the US dollar arrives with this Friday’s Jackson Hole symposium speech from Fed Chair Powell (preview below). USDCNH Broad USD strength is helping to drive a move to new cycle highs above 6.84 as the week gets underway, but CNH is not weak in other pairings with G10 currencies, quite the contrary. Still, a move in this critical exchange rate will remain a focus, and the contrast between an easing PBOC (moving once again overnight) and tightening central banks nearly everywhere else is stark. The USDCNH moving higher will receive considerable additional focus if the 7.00 level. Crude oil prices (CLU2 & LCOV2) Crude oil turned lower in the Asian overnight after modest gains last week as the focus continues to alter between demand destruction fears and persistent supply shortages. Fears of an economic slowdown reducing demand remains invisible in the physical market but it has nevertheless seen crude oil give up all the post Russia invasion gains while speculators or hedge funds have cut bullish bets on WTI and Brent to the lowest since April 2020. WTI futures trades back below $90/barrel while Brent futures dipped below $96. Still, the gas-to-fuel switch led by record gas prices in Europe has seen refinery margins strengthen again lately and it now adds to the fundamental price-supportive factors. Focus may turn back to Iranian supply early in the week though, with reports that a deal is ‘imminent’. Cryptocurrencies The crypto market took a major hit on Friday with the total crypto market cap diving by more than 9 %, but prices have stabilized over the weekend. The total market cap is now close to the psychological $1 trillion level. US Treasuries (TLT, IEF) Rising US Treasury yields are pushing back against the strong improvement in financial conditions of recent weeks after the US 10-year Treasury yield benchmark jumped to new highs on Friday, well clear of the prior range after a few teases higher earlier in the week and bumping up against the psychologically key 3.00% level. Any follow through higher toward the 3.50% area highs of the cycle would likely add further pressure to financial conditions and risk sentiment more broadly. What is going on? German PPI shocks on the upside Germany’s July PPI smashed expectations to come in at 5.3% MoM, the biggest single gain since the Federal Republic started compiling its data in 1949 and above the consensus estimate of 0.7%. The data suggests potentially a lot more room on the upside to Eurozone inflation, and a lot more pain for German industries. European PMIs due this week will gather attention, as will Germany’s IFO numbers. Berkshire Hathaway wins approval to acquire Occidental Petroleum Warren Buffett’s industrial conglomerate that recently increased its stake in Occidental Petroleum to over 20% following the US Climate & Tax bill which adds more runway for oil and gas companies has now won regulatory approval for acquiring more than 50% the oil and gas company. This means that Berkshire Hathaway is warming up to its biggest acquisition since its Burlington acquisition. The power shortage in China China is currently being hit by a heatwave with a large part of the country experiencing -degree Celsius temperatures since the beginning of August. The surge in air conditioning caused electricity consumption to soar. To make things worse, drought has reduced hydropower output.  Some provinces and municipalities, especially Sichuan, are curbing electricity supply to industrial users in order to ensure electricity supply for residential use. This has caused disruptions to manufacturing production and added to the headwinds faced by the Chinese economy. China cut its 5-year loan prime rate loan prime more than expected China’s National Interbank Fund Center, based on quotes from banks and under the supervision of the PBoC, fixed the 1-year loan prime rate (“LPR”) 5 bps lower at 3.60% and the 5-year loan prime rates (“LPR”) 15 basis points lower at 4.30%. The larger-than-expected reduction in the 5-year LPR, which is the benchmark against which mortgage loan rates in China are set at a spread, may signal stronger support from the PBoC to the housing market.  The Chinese authorities are coming to the developers’ aid in delivering pre-sold homes Last Friday the Housing Ministry, the Ministry of Finance, and the PBoC, according to Xinhua News, jointly rolled out a program to make special loans through policy banks to support the delivery of presold residential housing projects which are facing difficulties in completion due to lack of funding.  Investors will monitor closely this week to gauge if there is additional information about the size of the program and if the PBoC will print money to fund it.  The resurgence of Covid cases in China Daily locally transmitted new cases of Covid-19 in China persistently stated above 2,000 since August 12, 2022, with Hainan, Tibet, and Xinjiang being the regions most impacted. The constituent companies of the Hang Seng Index will increase to 73 from 69 Hang Seng Indexes Company announced last Friday to add China Shenhua Energy (01088:xhkg), Chow Tai Fook Jewellery (01929:xhkg), Hansoh Pharmaceutical (03693:xhkg), and Baidu (09888:xhkg) to the Hang Seng Index, bringing the latter’s number of constituent companies to 73 from 69. The changes will take effect on September 5, 2022. In addition, SenseTime (00020:xhkg) will replace China Pacific Insurance (02601:xhkg) as a constituent company of the Hang Seng China Enterprises Index.  Australian share market at a pivotal point After rising for five straight weeks including last week's 1.2% lift, many market participants hold their breath this rally will continue. However, standing in the way are profit results from a quarter of the ASX200 companies to be released this week. For the final week of profit results, we hear from Qantas (Australia's largest airline), Whitehaven Coal (Australia's largest coal company), as well as other stocks that are typically held in Australian superannuation funds; including Coles, Woolworths, Wesfarmers, Endeavour. And lastly about 20 companies trade ex-dividend this week, however they are not expected to move the market's needle. Money managers increased their commodity exposure for a third week to August 16 The Commitment of Traders (COT) Report covering positions and changes made by money managers in commodities to the week ending August 16 showed a third week of net buying with funds adding 123k lots to 988k lots, a seven-week high. The buying was broad led by natural gas, sugar, cattle and grains with most of the selling concentrated in crude oil and gold. More in our weekly update out later. Prior to the latest recovery in price and positions hedge funds had been net sellers for months after holding 2.6 million lots at the start of the year. What are we watching next? USD and US Treasury yields as Jackson Hole Fed conference is the macro event risk of the week Friday The US dollar strengthened sharply, with EURUSD challenging near parity, USDCNH breaking higher today after another PBOC rate cut, and USDJPY not far from cycle highs. US Treasury yields have supported the move with the entire curve lifting over the last couple of weeks and longer yields pulling to new local highs last week. The Fed has pushed back consistently against the market’s pricing of a Fed turnaround to easing rates next year with partial success, as expectations for rate cuts have shifted farther out the curve and from higher levels. This week, the key test for markets is up on Friday as the US reports the Fed’s preferred measure of inflation, the July PCE inflation data, while Fed Chair Powell will also speak on Friday, offering the most important guidance on how the Fed feels about how it feels the market understands its intentions.   Earnings to watch Plenty of important earnings releases this week with the largest ones listed below. Today’s key focus is Palo Alto Networks, Zoom Video, and XPeng. Cyber security stocks have done reasonably well over the past year despite valuations coming down as demand is still red hot, Analysts expect Palo Alto Networks to report revenue growth of 27% y/y. Zoom Video, which was the pandemic superstar, is also reporting today with estimates looking for 9% revenue growth, down considerably from 54% y/y growth just a year ago. Monday: Palo Alto Networks, Zoom Video, XPeng Tuesday: CATL, Intuit, Medtronic, JD.com Wednesday: LONGi Green Energy, Royal Bank of Canada, PetroChina, Ping An Insurance Group, Nongfu Spring, Mowi, Nvidia, Salesforce, Pinduoduo, Snowflake, Autodesk Thursday: South32, Toronto-Dominion Bank, Fortum, Delivery Hero, AIA Group, China Life Insurance, CNOOC, CRH, Dollar General, Vmware, Marvell Technology, Workday, Dollar Tree, Dell Technologies, NIO Friday: Meituan, China Shenhua Energy, China Petroleum & Chemical Economic calendar highlights for today (times GMT) 0800 – Switzerland SNB weekly sight deposits 1230 – US Jul. Chicago Fed National Activity Index 2300 – Australia Aug. Flash Manufacturing/Services PMI 0030 – Japan Aug. Flash Manufacturing/Services PMI Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 22, 2022

Summary:  The dollar story will face a fresh test this week as the central bankers gather for the Jackson Hole symposium from August 25 to 27. We can expect some more push back on the 2023 easing expectations, and this could also mean some upside in US Treasury yields. July PCE due at the end of the week will likely be side-lined by the event, and any gasoline-driven easing should have little relevance. In Europe, the gas situation remains on watch and the July PMIs will likely spell more caution. China’s LPR cuts this morning have signalled a stronger support to the property markets, but the Covid situation and the power curbs continue to cloud the outlook. Earnings pipeline remains robust, key ones being Palo Alto, Nvidia and Intuit, followed by a few discount retailers like Dollar General and Dollar Tree in the U.S., and China Internet companies, JD.COM, and Meituan.   US dollar awaiting its next signals from the Jackson Hole There is a considerable tension between the market’s forecast for the economy and the resulting expected path of Fed policy for the rest of this year and particularly next year, as the market believes that a cooling economy and inflation will allow the Fed to reverse course and cut rates in a “soft landing” environment (the latter presumably because financial conditions have eased aggressively since June, suggesting that markets are not fearing a hard landing/recession). Some Fed members have tried to push back against the market’s expectations for Fed rate cuts next year it was likely never the Fed’s intention to allow financial conditions to ease so swiftly and deeply as they have in recent weeks. The risks, therefore, point to a Fed that may mount a more determined pushback at the Jackson Hole forum, the Fed’s yearly gathering at Jackson Hole, Wyoming that is often used to air longer term policy guidance. This will have further implications for the US dollar, which is threatening the cycle highs versus sterling, the euro and on the comeback trail against the Japanese yen as well. The US dollar is a barometer of global liquidity, and a continued rise would eventually snuff out the improvement in financial conditions we have seen since the June lows in equity markets, particularly if longer US treasury yields are also unmoored from their recent range and rise back to 3.00% or higher. Europe and UK PMIs may spell further caution The Euro-area flash composite PMI and the UK flash PMI for August are both due to be released on Tuesday. Following a slide in ZEW and Sentix indicators for July, the stage is set for a weaker outcome on the PMIs too. July composite PMI for the Euro-area dipped into contractionary territory at 49.9, while the UK measure held up at 52.1. The surge in gas and electricity prices continue to weigh on GDP growth outlook, with recession likely to hit by the end of the year. More price pressures to come to Asia Singapore's inflation likely nudged higher in July, coming in close proximity to 7% levels from 6.7% y/y in June. While both food and fuel costs continue to create upside pressures on inflation, demand-side pressures are also increasing as the region moves away from virus curbs. House rentals are also running high due to high demand and delayed construction limiting supplies. The Monetary Authority of Singapore has tightened monetary policy but more tightening moves can be expected in H2 even as the growth outlook has been downwardly revised. We also get Japan's Tokyo CPI for August, which is likely to suggest further gains above the Bank of Japan's 2% target. Consensus expectations point toward another higher print of 2.7% y/y for the headline measure and 2.5% y/y on the core measure, signalling inflationary pressures will continue to question the Bank of Japan's resolve on the ultra-easy policy stance. Malaysia’s July inflation is also due at the end of the week, and likely to go above the 4%-mark from 3.4% previously. Softer July US PCE print would not derail Fed’s tightening After a softer CPI report in July, focus will turn to the PCE measure – the version of the CPI that is tracked by the Fed to gauge price pressures. Lower gasoline prices mean that PCE prints could also see some relief, although we still upside pressures to inflation given that energy shortages will likely persist and easing financial conditions mean that inflation could return. We would suggest not to read too much into a softer PCE print this week, as the stickier shelter and services prices mean that the 2% inflation target of the Fed remains unachievable into then next year. This suggests that the aggressive tightening by the Fed will likely continue, despite any likely softness in the PCE this week. Housing markets, Covid-19 cases, and power curbs are key things to watch in China this week The data calendar is light in China this week with only July industrial profits data scheduled to release on Saturday.  This morning, China’s National Interbank Fund Center, based on quotes from banks and under the supervision of the PBoC, fixed the 1-year loan prime rate (“LPR”) 5 bps lower at 3.60% and the 5-year loan prime rates (“LPR”) 15 basis points lower at 4.30%.  The larger reduction in the 5-year LPR, which is the benchmark against which mortgage loan rates in China are set, may signal stronger support from the PBoC to the housing market.  Last Friday the Housing Ministry, the Ministry of Finance, and the PBoC, according to Xinhua News, jointly rolled out a program to make special loans through policy banks to support the delivery of presold residential housing projects which are facing difficulties in completion due to lack of funding.  Investors will monitor closely this week to gauge if there is additional information about the size of the program and if the PBoC will print money to fund it.  As daily locally transmitted new cases of Covid-19 in China persistently surged and stayed above 2,000 since August 12, 2022, the market will watch the development closely and how it will affect the economy.   In addition to the pandemic, power shortage in the Sichuan province and some other areas in China due to unusually high temperature (higher power consumption for air-conditioning) and drought (which affects hydropower output), investors are assessing the impact of the government-imposed power rationing for industrial users on production, in particular the auto industry and consumer electronics industry in the affected areas. Key earnings this week On Monday, investors will scrutinize the results from Palo Alto Networks (PANW:xnas) in the U.S. to gauge the latest business development in the security software industry, which has drawn much attention this year as cybersecurity has become a focus. Intuit (INTU:xnas) is scheduled to report on Tuesday and its results may provide information about the small and medium-sized businesses that the company focuses in it business.  After a disappointing preannouncement earlier in the month, the bar for Nvidia (NVDA:xnas)’s earnings release this Wednesday may be low.  In HK/China, the results from the Postal Savings Bank of China may provide the market with some insights into the state of the Chinese banking system, especially situations outside the top-tier cities. JD.COM (09618:xhkg/JD:xnas) on Tuesday and Meituan (03690:xhkg) on Friday will be the focus of investors monitoring the business trend of eCommerce and delivery platforms in China.  Key economic releases & central bank meetings this week Monday, Aug 22 South Korea: Exports (Aug, first 20 days)Hong Kong: CPI (Jul)   Tuesday, Aug 23 United States: S&P Global US Manufacturing PMI (Aug, preliminary)United States: S&P Global US Services PMI (Aug, preliminary)Eurozone: PMI Manufacturing (Aug)Eurozone: Consumer Confidence (Aug)United Kingdom: PMI Manufacturing (Aug), PMI Services (Aug)Japan: PMI Manufacturing (Aug)Singapore: CPI (Jul) Wednesday, Aug 24 United States: Durable Goods Orders (Jul, preliminary)United States: Pending Home Sales (Jul) Thursday, Aug 25 United States: GDP (Q2, second)United States: Initial Jobless Claims (Aug)United States: Kansas City Fed Manufacturing Activity (Aug)United States: Jackson Hole Symposium (Aug 25 to 27)Germany: IFO Survey (Aug)France: Business Confidence (Aug)South Korea: Bank of Korea Policy Meeting Friday, Aug 26 United States: Personal Income, Personal Spending, PCE Deflator & PCE Core Deflator (Jul)United States: U of Michigan Sentiment Survey (Aug, final)United States: Fed Chair Powell’s speech at the Jackson Hole SymposiumFrance: Consumer Confidence (Aug)Eurozone: M3 (Jul)Italy: Consumer Confidence (Aug)Italy: Economic Sentiment (Aug)Tokyo: Tokyo-area CPI (Aug)Singapore: Industrial Production (Jul) Saturday, Aug 27 China: Industrial Profits (Jul) Key earnings releases this week Monday: Postal Savings Bank of China (01658:xhkg), Palo Alto Networks (PANW:xnas) Tuesday: Medtronic (MDT:xnys), Intuit (INTU:xnas), JD.COM (09618:xhkg/JD:xnas), JD Logistics (02615:xhkg), Kingsoft (03888:xhkg), Kuaishou (01024:xhkg) Wednesday: PetroChina (00857:xhkg), Ping An Insurance (02318:xhkg), Nongfu Spring (09633:xhkg), LONGi Green Energy Technology (601012:xssc), Pinduooduo (PDD:xnas), Nvidia (NVDA:xnas), Salesforce (CRM:xnys), JD Health (06618:xhkg) Thursday: AIA (01299:hkgs), Wulinagye Yibin (000858:xsec), China Life Insurance (02628:xhkg), CNOOC (00883:xhkg), Dollar General (DG:xnys), NIO (09866:xhkg/NIO:xnas) Friday: Meituan (03690:xhkg), China Shenhua (01088:xhkg), Sinopec (00386:xhkg)    Source: Saxo Spotlight: What’s on investors and traders radars this week?

Summary:  Equity markets managed a quiet session yesterday, a day when the focus is elsewhere, especially on the surging US dollar as EURUSD is on its way to threatening parity once again, GBPUSD plunged well below 1.2000 and the Chinese renminbi is perched at its weakest levels against the US dollar for the cycle. Also in play are the range highs in longer US treasury yields, with any significant pull to the upside in yields likely to spell the end to the recent extended bout of market complacency.   What is our trading focus?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures bounced back a bit yesterday potentially impacted by the July US retail sales showing that the consumer is holding up in nominal terms. The key market to watch for equity investors is the US Treasury market as the US 10-year yield seems to be on a trajectory to hit 3%. In this case we would expect a drop in S&P 500 futures to test the 4,200 level and if we get pushed higher in VIX above the 20 level then US equities could accelerate to the downside. Fed’s Bullard comments that he is leaning towards a 75 basis point rate hike at the September meeting should also negatively equities here relative to the expectations. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Index edged up by 0.4% and CSI300 was little changed. As WTI Crude bounced back above $90/brl, energy stocks outperformed, rising 2-4%. Technology names in Hong Kong gained with Hang Seng Tech Index (HSTECH.I) up 0.6%. Investors are expecting Chinese banks to cut loan prime rates on Monday, following the central bank’s rate cut earlier this week. The China Banking and Insurance Regulatory Commission (CBIRC) is looking at the quality of real estate loan portfolios and reviewing lending practices at some Chinese banks. The shares of NetEase (09999:xhkg/NTES:xnas) dropped more than 3% despite reporting above-consensus Q2 revenue up 13% y/y, and net profit from continuing operations up 28%.  PC online game revenue was above expectations, driven by Naraka Bladepoint content updates and the launch of Xbox version. Mobile game segment performance was in line. USD pairs as the USD rally intensifies The US dollar rally is finding its legs after follow up action yesterday that took EURUSD below the key range low of 1.0100, setting up a run at the psychologically pivotal parity, while GBPUSD slipped well south of the key 1.2000 and USDJPY ripped up through 135.50 resistance. An accelerator of that move may be applied if US long treasury yields pull come further unmoored from the recent range and pull toward 3.00%+. A complete sweep of USD strength would arrive with a significant USDCNH move as discussed below, and the US dollar “wrecking ball” will likely become a key focus and driver of risk sentiment as it is the premiere measure of global liquidity. The next key event risk for the US dollar arrives with next Friday’s Jackson Hole symposium speech from Fed Chair Powell. USDCNH The exchange rate is trading at the highs of the cycle this morning, and all traders should keep an eye out here for whether China allows a significant move in the exchange rate toward 7.00, and particularly whether CNH weakness more than mirrors USD strength (in other words, if CNH is trading lower versus a basket of currencies), which would point to a more determined devaluation move that could spook risk sentiment globally, something we have seen in the past when China shows signs of shifting its exchange rate regime from passive management versus the USD. Crude oil Crude oil (CLU2 & LCOV2) remains on track for a weekly loss with talks of an Iran nuclear deal and global demand concerns being partly offset by signs of robust demand for fuel products. Not least diesel which is seeing increasing demand from energy consumers switching from punitively expensive gas. Earlier in the week Dutch TTF benchmark gas at one point traded above $400 per barrel crude oil equivalent. So far this month the EU diesel crack spread, the margin refineries achieve when turning crude into diesel, has jumped by more than 40% while stateside, the equivalent spread is up around 25%, both pointing to a crude-supportive strength in demand. US natural gas US natural gas (NGU2) ended a touch lower on Thursday after trading within a 7% range. It almost reached a fresh multi-year high at $9.66/MMBtu after spiking on a lower-than-expected stock build before attention turned to production which is currently up 4.8% y/y and cooler temperatures across the country lowering what until recently had driven very strong demand from utilities. LNG shipments out of Freeport, the stricken export plant may suffer further delays, thereby keeping more gas at home. Stockpiles trail the 5-yr avg. by 13%. US Treasuries (TLT, IEF) The focus on US Treasury yields may be set to intensify if the 10-year treasury benchmark yield, trading near 2.90% this morning, comes unmoored from its recent range and trades toward 3.00%, possibly on the Fed’s increase in the pace of its quantitative tightening and/or on US economic data in the coming week(s). Yesterday’s US jobless claims data was better than expected and the August Philadelphia Fed’s business survey was far more positive than expected, suggesting expansion after the volatile Empire Fed survey a few days earlier posted a negative reading.   What is going on?   Global wheat prices continue to tumble ... with a record Russian crop, continued flows of Ukrainian grain and the stronger dollar pushing down prices. The recently opened corridor from Ukraine has so far this month seen more than 500,000 tons of crops being shipped, and while it's still far below the normal pace it has nevertheless provided some relief at a time where troubled weather has created a mixed picture elsewhere. The Chicago wheat (ZWZ2) futures contract touch a January on Thursday after breaking $7.75/bu support while the Paris Milling (EBMZ2) wheat traded near the lowest since March. Existing home sales flags another red for the US housing market while other US economic data continues to be upbeat US existing home sales fell in July for a sixth straight month to 4.81 mn from 5.11 mn, now at the slowest pace since May 2020, and beneath the expected 4.89 mn. Inventory levels again continued to be a big concern, with supply rising to 3.3 months equivalent from 2.9 in June. This continues to suggest that the weakening demand momentum and high inventory levels may weigh on construction activity. The Philly Fed survey meanwhile outperformed expectations, with the headline index rising to +6.2 (exp. -5.0, prev. -12.3), while prices paid fell to 43.6 (prev. 52.2) and prices received dropped to 23.3 (prev. 30.3). New orders were still negative at -5.1, but considerably better than last month’s -24.8 and employment came in at 24.1 from 19.4 previously Fed speakers push for more rate hikes St. Louis Federal Reserve President James Bullard 2.6% with more front-loading in 2022. Fed’s George, much like Fed’s Daly, said that last month’s inflation is not a victory and hardly comforting. Bullard and George vote in 2022. Fed’s Kashkari said that he is not sure if the Fed can avoid a recession and that there is more work to be done to bring inflation down, but noted economic fundamentals are strong. Overall, all messages remain old and eyes remain on Fed Chair Powell speaking at the Jackson Hole conference on August 26, next Friday.  Japan’s inflation came in as expected Japan’s nationwide CPI for July accelerated to 2.6% y/y, as expected, from 2.4% y/y in June. The core measure was up 2.4% y/y from 2.2% previously, staying above the Bank of Japan’s 2% target and coming in at the strongest levels since 2008. Upside pressures remain as Japan continues to face a deeper energy crisis threat into the winter with LNG supplies possibly getting diverted to Europe for better prices. Still, Bank of Japan may continue to hold its dovish yield curve control policy unless wage inflation surprises consistently to the upside.   What are we watching next?   Strong US dollar to unsettle markets – and Jackson Hole Fed conference next week? The US dollar continues to pull higher here, threatening the cycle highs versus sterling, the euro and on the comeback trail against the Japanese yen as well. The US dollar is a barometer of global liquidity, and a continued rise would eventually snuff out the improvement in financial conditions we have seen since the June lows in equity markets, particularly if longer US treasury yields are also unmoored from their recent range and rise back to 3.00% or higher.  The focus on the strong US dollar will intensify should the USDCNH exchange rate, which has pulled to the highs of the cycle above 6.80, lurch toward 7.00 in coming sessions as it would indicate that China is unwilling to allow its currency to track USD direction. As well, the Fed seems bent on pushing back against market expectations for Fed rate cuts next year and may have to spell this out a bit more forcefully at next week’s Jackson Hole conference starting on Thursday (Fed Chair Powell to speak Friday). Earnings to watch The two earnings releases to watch today are from Xiaomi and Deere. The Chinese consumer is challenged over falling real estate prices and input cost pressures on food and energy, and as a result consumer stocks have been doing bad this year. Xiaomi is one the biggest sellers of smartphones in China and is expected to report a 20% drop in revenue compared to last year. Deere sits in the booming agricultural sector, being one of the biggest manufacturers of farming equipment, and analysts expect a 12% gain in revenue in FY22 Q3 (ending 31 July).   Today: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Economic calendar highlights for today (times GMT) 1230 – Canada Jun. Retail Sales 1300 – US Fed’s Barkin (Non-voter) to speak Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 19, 2022

Summary:  Better than expected economic data continued to support sentiment in US in contrast to Europe, where ECB’s Schnabel's warning on the growth/inflation picture aggravated concerns. Fed speakers meanwhile continued to push for more rate hikes this year, aiding dollar strength despite lack of a clear direction in long end yields. EUR and GBP broke below key support levels, but oil prices climbed higher amid improving demand outlook but sustained supply issues. Focus now on Jackson Hole next week. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  In its second lightest volume session of the year, U.S. equities edged modestly higher, S&P 500 +0.23%, Nasdaq 100 +0.26%. As WTI crude climbed 2.7%, rebounding back above $90, the energy space was a top gainer aside from technology. Exxon Mobil (XOM:xnys) gained 2.4%.  Cisco (CSCO:xnas) surged 5.8% after reporting better-than-expected revenues. Nvidia (NVDA:xnas), +2.4% was another top contributor to the gain of the S&P 500 on Wednesday.  95% of S&P 500 companies have reported Q2 results, with about three-quarters of them managing to beat analyst estimates. On Friday there is a large number of options set to expire.  The U.S. treasury yield curve bull steepened on goldilocks hope The U.S. 2-10-year curve steepened 7bps to -32bps, driven by a 9bp decline in the 2-year yield.  In spite of hawkish Fed official comments and the August Philadelphia Fed Index bouncing back to positive territory, the market took note of the falls in the prices paid diffusion index and the prices received index from the survey and sent the short-end yields lower.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Both Hang Seng Index and CSI300 declined about 0.8%.  Tencent (00700:xhkg) rose 3.1% after reporting results that beat estimates as a result of better cost control and adverting revenues. Other China internet stocks traded lower, Bilibili (09626:xhkg) -4.2%, Baidu (09888:xhkg) -4.5%, Alibaba (09988:xhkg) -2.1%, JD.COM (09618:xhkg) -2.5%. The surge of Covid cases in China to a three-month high and the Hainan outbreak unabated after a 2-week lockdown, pressured consumer stocks.  Great Wall Motor (02333:xhkg) led the charge lower in autos, plunging near 6%.  Other automakers fell 2% to 4%.  Geely (00175:xhkg) fell 3.1% after reporting 1H earnings missing estimates.  A share Chinese liquor names declined, Kweichow Moutai (600519:xssc) -1.2%, Wuliangye Yibin (000858:xsec) -1.6%. Chinese brewers were outliner gainers in the consumer space, China Resources Beer (00291:xhkg) +4.8%, Tsingtao Brewery (00168:xhkg) +1.9%. Chinese property developers traded lower with Country Garden (02007:xhkg) losing the most, -5.2% , after warning that 1H earnings may have been down as much as 70%. The China Banking and Insurance Regulatory Commission (CBIRC) is looking at the quality of real estate loan portfolios at some financial institutions.  EURUSD and GBPUSD break through key support levels Dollar strength prevailed into the end of the week with upbeat US economic data and a continued hawkish Fedspeak which continued to suggest more Fed rate hikes remain in the pipeline compared to what the market is currently pricing in. EUR and GBP were the biggest loser, with both of them breaking below key support levels. EURUSD slid below 1.0100 handle while GBPUSD broke below 1.2000 despite a selling in EGBs and Gilts. USDJPY also broke above 136 in early Asian trading hours despite lack of a clear direction in US 10-year yields and a slide in 2-year yields. AUDUSD testing a break below 0.6900 as NZDUSD drops below 0.6240. Crude oil prices (CLU2 & LCOV2) Oil prices reversed their drop with WTI futures back above $90/barrel and Brent futures above $96. Upbeat US economic data has supported the demand side sentiment in recent days. Moreover, President Xi’s comment that China will continue to open up the domestic economy also aided the demand equation. Supply concerns, meanwhile, were aggravated by geopolitical tension around a potential incident at the Zaporizhzhia nuclear plant in Ukraine. Meanwhile, Shell hinted at reducing the capacity of Rhineland oil refinery due to the lower water level on the Rhine river and said the situation regarding supply is challenging but carefully managed. Gold (XAUUSD) still facing mixed signals The fate of gold has been turned lower again this week with the yellow metal facing decline of 2.5% so far in the week and breaking below the $1759 support, the 38.2% retracement of the July to August bounce. Stronger dollar, along with Fed’s continued hawkish rhetoric, weighed. Silver (XAGUSD) is also below the key support at $19.50, retracing half of its recent gains. The short-term direction has been driven by speculators reducing bullish bets, but with inflation remaining higher-for-longer, the precious metals can continue to see upside in the long run. What to consider? Existing home sales flags another red for the US housing market US existing home sales fell in July for a sixth straight month to 4.81 mn from 5.11 mn, now at the slowest pace since May 2020, and beneath the expected 4.89 mn. Inventory levels again continued to be a big concern, with supply rising to 3.3 months equivalent from 2.9 in June. This continues to suggest that the weakening demand momentum and high inventory levels may weigh on construction activity. US economic data continues to be upbeat The Philly Fed survey outperformed expectations, with the headline index rising to +6.2 (exp. -5.0, prev. -12.3), while prices paid fell to 43.6 (prev. 52.2) and prices received dropped to 23.3 (prev. 30.3). new orders were still negative at -5.1, but considerably better than last month’s -24.8 and employment came in at 24.1 from 19.4 previously. While this may be a good signal, survey data tends to be volatile and a long-term trend is key to make any reasonable conclusions. Jobless claims also slid to 250k still suggesting that the labor market remains tight. Fed speakers push for more rate hikes St. Louis Federal Reserve President James Bullard flagged another 75 basis point rate hike at the September meeting and hinted at 3.75-4% Fed funds rate by the end of the year with more front-loading in 2022. Fed’s George, much like Fed’s Daly, said that last month’s inflation is not a victory and hardly comforting. Bullard and George vote in 2022. Fed’s Kahskari said that he is not sure if the Fed can avoid a recession and that there is more work to be done to bring inflation down, but noted economic fundamentals are strong. Overall, all messages remain old and eyes remain on Fed Chair Powell speaking at the Jackson Hole conference on August 25. Japan’s inflation came in as-expected Japan’s nationwide CPI for July accelerated to 2.6% y/y, as expected, from 2.4% y/y in June. The core measure was up 2.4% y/y from 2.2% previously, staying above the Bank of Japan’s 2% target and coming in at the strongest levels since 2008. Upside pressures remain as Japan continues to face a deeper energy crisis threat into the winter with LNG supplies possibly getting diverted to Europe for better prices. Still, Bank of Japan may continue to hold its dovish yield curve control policy unless wage inflation surprises consistently to the upside. Cisco’s revenues came in flat, beating a previously feared decline Cisco Systems reports July 2022 quarter revenues of USD13.1 billion, down 0.2% YoY but better than the consensus of a 3% decline.  Net income came in at USD3.4 billion, -3.2% YoY but more than 1 percentage point above consensus.  The fall in product order was also smaller than feared.  The company guided the fiscal year 2023 revenue growth of +4% to +6%, ahead of the 3% expected and FY23 EPS of USD3.49 to USD3.56, in line with expectations as gross margin pressures are expected to offset the impact of higher sales.  NetEase’s Q2 results beat NetEase (09999:xhkg/NTES:xnas) reported above-consensus Q2 revenues, +13% YoY, and net profit from continuing operations, +28%.  PC online game revenues were above expectations, driven by Naraka Bladepoint content updates and the launch of Xbox version.  Mobile game segment performance was in line.  Geely Automobile 1H earnings missed estimates on higher costs Chinese automaker Geely reported higher-than-expected revenue growth of 29%YoY in 1H22 but a 35% YoY decline in net profit which was worse than analyst estimates.  The weakness in profit was mainly a result of a 2.6 percentage point compression of gross margin to 14.6% due to higher material costs and production disruption, higher research and development costs, and the initial ramping-up of production of the Zeekr model.  The company maintains its sales volume target of 1.65 million units, an growth of 24% YoY, for the full year of 2022.    For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 19, 2022

Summary:  US equities traded a bit lower yesterday after the S&P 500 challenged the 200-day moving average from below the prior day for the first time since April in the steep comeback from the June lows. Sentiment was not buoyed by the FOMC minutes of the July meeting suggesting the Fed would like to slow the pace of tightening at some point. Crude oil rose from a six-month low on bullish news from the US and OPEC.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures rolled over yesterday wiping out the gains from the two previous sessions and the index futures are continuing lower this morning trading around the 4,270 level. US retail sales for July were weak and added to worries of the economic slowdown in real terms in the US. The 10-year yield is slowing crawling back towards the 3% level sitting at 2.87% this morning. A move to 3% and potentially beyond would be negative for equities. The next levels to watch on the downside in S&P 500 futures are 4,249 and then 4,200 Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Shares in the Hong Kong and mainland China markets declined. China internet stocks were weak across the board with Tencent (00700:xhkg) +2.7% and Meituan (03690:xhkg) +1%, being the positive outliers. Tencent reported a revenue decline of 3% y/y in Q2, weak, but in line with market expectations. Non-GAAP operating profit was down 14% y/y to RMB 36.7bn, and EPS fell 17% y/y to RMB 2.90 but beating analyst estimates. Revenues from advertising at -18% y/y were better than expected. In the game segment, weaker mobile game revenues were offset by stronger PC game revenues. Beer makers outperformed China Resources Beer (00291:xhkg) +3.8%, Tsingtao Brewery (00168:xhkg) +1.7%. COSCO Shipping Energy Transportation (01138:xhkg) made a new high at the open on strong crude oil tanker freight rates before giving back some gains. USD pairs as the USD rally intensifies The US dollar rally broadened out yesterday, as USDJPY retook the 135.00 area, but needs to follow through above 135.50-136.00 to take the momentum back higher. Elsewhere, AUDUSD has broken down again on the move down through 0.7000 and USDCAD has posted a bullish reversal, needing 1.3000 for more upside confirmation. The GBPUSD pair looks heavy despite a massive reset higher in UK rates in the wake of recent UK inflation data, with a close below 1.2000 indicating a possible run on the sub-1.1800 lows, while EURUSD is rather stuck tactically, as price has remained bottled up above the 1.0100 range low. USDCNH, as discussed below, may be a key pair for whether the USD rally broadens out even more aggressively, and long US treasury yields and risk sentiment are other factors in the mix that could support the greenback, should the 10-year US treasury benchmark move higher toward 3.00% again or sentiment roll over for whatever reason. Certainly, tightening USD liquidity could prove a concern for sentiment as the Fed turns up the pace of quantitative tightening – something it seems behind schedule in doing if we look at the latest weekly Fed balance sheet data.  USDCNH The exchange rate edged higher again to above 6.80 overnight after a brief spike higher earlier this week as China’s PBOC moved to stimulate with a small 10-basis point rate cut of the key lending rate. There is no real drama in the exchange rate yet after the significant rally this spring from below 6.40 to 6.80+, but traders should keep an eye on this very important exchange rate for larger volatility and significant break above 6.83, as China’s exchange rate policy shifts can provoke significant volatility across markets. Crude oil Crude oil (CLU2 & LCOV2) bounced from a six-month low on Wednesday in response to a bullish US inventory report that saw big declines in gasoline and crude oil stocks as demand from US motorist climbed to the highest this year while crude exports reached a record $5 million barrels per day. The prospect for an Iran nuclear deal continues to weigh while OPEC’s new Secretary-General said spare capacity was becoming scarce. US strategic reserves are now at the lowest level since 1985 and the government has by now sold around 90% of what was initially offered in order to bring down prices. While demand concerns remain a key driver for macroeconomic focused funds selling crude oil as a hedge we notice a renewed surge in refinery margins, especially diesel, supported by increased demand from gas-to-fuel switching Gold and silver Gold has so far managed to find support at $1759, the 38.2% retracement of the July to August bounce, after trading weaker in response to a stronger dollar and rising yields. Silver (XAGUSD) meanwhile has almost retraced half of its recent strong gains with focus now on support at $19.50. The latest driver being the FOMC minutes which signaled ongoing interest-rate hikes and eventually at a slower pace than the current. The short-term direction has been driven by speculators reducing bullish bets following a two-week buying spree in the weeks to August 9 which lifted the net by 63k lots, the strongest pace of buying in six months. ETF holdings meanwhile have slumped to a six-month low, an indication investor, for now, trusts the FOMC’s ability to bring down inflation within a relatively short timeframe   What is going on? Financial conditions are tightening, if modestly. Recent days have brough a rise in short US treasury yields, but more importantly it looks as though some of the risk indicators like corporate credit spreads may have bottomed out here after a sharp retreat from early July highs – one Bloomberg high yield credit spreads to US treasuries peaked out above 5.75% and was as low as 4.08% earlier this week before rising to 4.19% yesterday, with high yield bond ETFs like HYG and JNK suffering a sharp mark-down yesterday of over a percent. Factors that could further aggravate financial conditions include a significant CNH weakening, higher US long treasury yields (10-year yield moving back toward 3.00%, for example) or further USD strength. Adyen sees margin squeeze. One of Europe’s largest payment companies reports first-half revenue of €609mn vs est. €615mn despite processed volume came significantly above estimates at €346bn suggesting the payments industry is experiencing pricing pressures. Cisco outlook surprises. The US manufacturer of networking equipment surprised to the upside on both revenue and earnings in its fiscal Q4 (ending 30 July), but more importantly, the company is guiding revenue growth in the current fiscal quarter of 2-4% vs est. -0.2% and revenue growth for the current fiscal year of 4-6% vs est. 3.3%. Cisco said that supply constraints are beginning to ease and that customer cancellations are running below pre-pandemic levels, and that the company’s growth will be a function of availability. Stale FOMC minutes hint at sustained restrictive policy, but caution on pace of tightening. Fed’s meeting minutes from the July meeting were released last night, and officials agreed to move to restrictive policy, with some noting that restrictive rates will have to be maintained for some time to bring inflation back to the 2% target. Still, there was also talk of slowing the pace of rate hikes ‘at some point’, despite pushing back against easing expectations for next year. The minutes were broadly in-line with the market’s thinking, and lacked fresh impetus needed to bring up the pricing of Fed’s rate hikes. Chairman Powell’s speech at the Jackson Hole Symposium next week will be keenly watched for further inputs. US retail sales were a mixed bag. July US retail sales were a little softer at the headline level than the market expected (0% growth versus the +0.1% consensus) but the ex-auto came in stronger at 0.4% (vs. -0.1% expected). June’s growth was revised down to 0.8% from 1%. The mixed data confirmed that the US consumers are feeling the pinch from higher prices, but have remained resilient so far and that could give the Fed more room to continue with its aggressive rate hikes. Lower pump prices and further improvements in supply chain could further lift up retail spending in August. The iron ore miners are resilient despite price pressures Despite China planning more fiscal stimulus to fund infrastructure investment, the iron ore (SCOA, SCOU2) price paired back 8% this week, retreating to its lowest equal level in five weeks at $101.65, a level the iron ore price was last at in December 2021. Since March, the iron ore price has retreated 37%, with the most recent pull back being fueled by concerns China’s Covid cases are surging again with cases at a three-month high, as the outbreak worsens in the tropical Hainan province. Despite iron ore pulling back, shares in iron ore majors like BHP, remain elevated, up off their lows, with BHP’s shares trading 14% up of its July low, and moving further above its 200-day moving average, on hopes of commodity demand picking up. What are we watching next? Norway’s central bank guidance on further tightening. The Norges Bank is expected to hike 50 basis points today to take the policy rate to 1.75% despite an indication from the bank in June that the bank would prefer to shift back to hiking rates by 25 basis points, as a tight labour market and soaring inflation weigh. The path of tightening for the central bank has been an odd one, as it was the first G10 bank to actually hike rates in 2021, but finds itself with a far lower policy rate than the US, for example, which started much later with a faster pace of hikes. But NOK may react more to the direction in risk sentiment rather than guidance from the Norges Bank from here, assuming no major surprises. The EURNOK downtrend has slowed of late – focusing on 10.00 if the price action continues to back up. Japan’s inflation will surge further. Japan’s nationwide CPI for July is due on Friday. July producer prices came in slightly above expectations at 8.6% y/y (vs. estimates of 8.4% y/y) while the m/m figure was as expected at 0.4%. The continued surge reflects that Japanese businesses are grappling with high input price pressures, and these are likely to get passed on to the consumers, suggesting further increases in CPI remain likely. More government relief measures are likely to be announced, while signs of any Bank of Japan pivot away from its low rates and yield-curve-control policy are lacking. Bloomberg consensus estimates are calling for Japan’s CPI to accelerate to 2.6% y/y from 2.4% previously, with the ex-fresh food number seen at 2.4% y/y vs. 2.2% earlier.   Earnings to watch In Europe this morning, the key earnings focus is Adyen which has already reported (see review above) and Estee Lauder which is deliver a significant slowdown in figures and increased margin pressure due to rising input costs. Today’s US earnings to watch are Applied Materials and NetEase, with the former potentially delivering an upside surprise like Cisco yesterday on improved supply chains. NetEase, one of China’s largest gaming companies, is expected to deliver Q2 revenue growth of 12% y/y as growth continues to slow down for companies in China. Today: Applied Materials, Estee Lauder, NetEase, Adyen, Nibe Industrier, Geberit Friday: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Economic calendar highlights for today (times GMT) 0800 – Norway Deposit Rates 0900 – Eurozone Final Jul. CPI 1100 – Turkey Rate Announcement 1230 – US Weekly Initial Jobless Claims 1230 – Canada Jul. Teranet/National Bank Home Price Index 1230 – US Philadelphia Fed Survey 1400 – US Jul. Existing Home Sales 1430 – EIAs Weekly Natural Gas Storage Change 1720 – US Fed’s George (Voter) to speak 1745 – US Fed’s Kashkari (Non-voter) to speak 2301 – UK Aug. GfK Consumer Confidence 2330 – Japan Jul. National CPI Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 18, 2022

Summary:  U.S. equities took a pause from their week-long advance, with S&P 500 retreating before its 200-day moving average. Target’s Q2 results disappointed as the retailer suffered from high inventories and U.S. consumers shifted from discretionary to grocery items. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S.’s advance higher took a pause yesterday amid higher bond yields and disappointing results from Target (TGT:xnys), -2.7%. Target’s Q2 earnings fell sharply and missed consensus expectations on weaker gross margins due to slower sales in discretionary items and inventory impairments.  Lowe’s (LOW:xnys) reported mixed results, with earnings beating estimates but same-store sales growth weaker than expected. Higher U.S. bond yields triggered by a dramatic rise in U.K. bond yields and reported pension fund rebalancing-related selling added to the equity weakness.  S&P 500 dropped 0.7% and Nasdaq 100 shed 1.2%.  U.S. treasury yields rose from spilling over from a massive rise in U.K. Gilt yields and weak 20-year bond auction U.S. 10-year treasury yields jumped 9bps to 3.05%, taking cues from the sharp move higher in U.K. Gilts and European sovereign bond yields following white-hot UK CPI data. Long-end yields moved further higher on poor results from the 20-year auction.  Short-end yields fell in the late afternoon after the July FOMC minutes signaling that it “would become appropriate at some point to slow the pace of policy rate increases” which reaffirmed the market’s expectation of a 50bps, instead of 75bps on the September FOMC.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hang Seng Index bounced modestly by 0.5%; CSI399 gained 9.6%. Meituan (03690:xhkg) rallied 3.3% after a 9% drop yesterday due to a Reuters story suggesting that Tencent (00700:xhkg) plans to divest its 17% stake (USD24 billion) in Meituan. Tencent denied such a divesture plan last night.  Power tools and floor care equipment maker and a supplier to Home Depot (HD:xnys) and Wal Mart (WMT:xnys), Techtronic Industries (00669:xhkg) jumped more than 10% after better-than-expected results from the two U.S. retailers. China Resources Power (00836:xhkg) +5.7% after reporting weak 1H22 results but more wind and solar projects on the pipeline. Other Chinese power producers also outperformed amid power shortages. China Power (02380:xhkg) surged more than 8%. On Tuesday, China’s Premier Li Keqiang visited Shenzhen and held a meeting with provincial chiefs from Jiangsu, Zhejiang, Shandong, Henan, and Sichuan to reiterate the central government’s push for full use of policies to stabilize the economy. Hong Kong Exchanges (00388:xhkg) fell 1.6% after reporting lower revenues, higher costs, and a 22% YoY decline in EPS, worse than market expectations. After the market close, Tencent reported weak but in line with expectations revenues and better-than-feared earnings in Q2. Tencent’s ADR climbed 3.5% overnight from the Hong Kong close. AUDUSD eying the labor market report, GBP will see more pain ahead A mixed session again overnight for the US dollar with FOMC minutes and US retail sales failing to provide any fresh impetus to the markets. AUDUSD was the biggest loser on the G10 board, sliding below 0.7000 to lows of 0.6911 after real wage data for Q2 showed a massive slump. Labor market data due this morning could further weigh on RBA expectations, if it comes out softer than expected. The weakness seen in the commodity markets, especially iron ore and copper, weighed on the antipodeans. GBPUSD stays above 1.2000 despite a 40bps gains in UK 2-year yields after the double-digit UK CPI print. USDJPY tested the resistance at 135.50 but was rejected for now. Crude oil prices (CLU2 & LCOV2) Crude oil prices made a slight recovery overnight, with WTI futures getting back to over $87/barrel and Brent futures close to $94 after data showed US inventories fell sharply. Sentiment was also supported by comments from OPEC’s new Secretary-General, Haitham Al Ghais, who said that world oil demand will rise by almost 3mb/d this year. He also said there is a high chance of a supply squeeze this year, in part because fears of slowing usage in China are exaggerated. This helped to take the focus off the prospects of the Iran nuclear deal for now. What to consider? Stale FOMC minutes hint at sustained restrictive policy Fed’s meeting minutes from the July meeting were released last night, and officials agreed to move to restrictive policy, with some noting that restrictive rates will have to be maintained for some time to bring inflation back to the 2% target. Still, there was also talk of slowing the pace of rate hikes ‘at some point’, despite pushing back against easing expectations for next year. The minutes were broadly in-line with the market’s thinking, and lacked fresh impetus needed to bring up the pricing of Fed’s rate hikes. Chairman Powell’s speech at the Jackson Hole Symposium next week will be keenly watched for further inputs. US retail sales were a mixed bag July US retail sales are a little softer at the headline level than the market expected (0% growth versus the +0.1% consensus) but the ex-auto came in stronger at 0.4% (vs. -0.1% expected). June’s growth was revised down to 0.8% from 1%. The mixed data confirmed that the US consumers are feeling the pinch from higher prices, but have remained resilient so far and that could give the Fed more room to continue with its aggressive rate hikes. Lower pump prices and further improvements in supply chain could further lift up retail spending in August. UK CPI opens the door for another 50bps rate hike UK headline inflation hits 10.1%, the highest in decades and above the 9.8% expected and for the month-on-month reading of +0.6%, higher than the +0.4% expected. Core inflation hit 6.2% vs. 5.9% expected and 5.8% in Jun. That matched the cycle high from back in April. Retail inflation rose +0.9% MoM and +12.3% YoY vs. +0.6%/+12.0% expected, respectively. The Bank of England has forecast that inflation will peak out this fall at above 13%. While the central bank forecasted a recession lasting for five quarters at the last meeting, it will be hard for them to not press ahead with further tightening at the August meeting, and in fact the scope for another 50bps rate hike is getting bigger. Reserve Bank of New Zealand hikes 50 basis points to 3.00%, forecasts 4% policy rate peak The RBNZ both increased and brought forward its peak rate forecast to 4.00%, a move that was actually interpreted rather neutrally – more hawkish for now, but suggesting that the RBNZ would like to pause after achieving 4.00%. RBNZ Governor warned in a press conference that New Zealand home prices will continue to fall. This is actually a desired outcome after a huge spike in housing speculation and prices due to low rates from the pandemic response and massive pressure from a Labor-led government that had promised lower housing costs were behind the RBNZ’s quick pivot and more aggressive hiking cycle in 2021. Australian wages grew at their quickest pace in eight years, but less than expected Australia’s wage-price index gained 0.7% in the second quarter, just shy of estimates further pressuring the Aussie dollar back toward its 50-day moving average against the US dollar. Annual wage growth came in at 2.6% but real wages - adjusted for headline inflation fell 1% QoQ, and was 3.3% lower than a year earlier, eroding consumer spending power. What’s next. All eyes will be on Australia’s Reserve Bank which might be pressured to hike more than expected at its September meeting. Despite Australian wages growing slower than expected, the RBA estimates retail gas and electric prices to rise 10-15% in the second half of the year, so that will be a focus point when they consider their next move in interest rates. Tencent reported weak but in-line Q2 revenues and better-than-feared earnings Tencent reported a revenue decline of 3% YoY in Q2, weak but in line with market expectations.  Non-GAAP operating profit was down 14% YoY to RMB 36.7 billion and EPS fell 17% YoY to RMB2.90 but they beat analyst estimates.  Revenues from advertising, -18% YoY, were better than expected.  In the game segment, weaker mobile game revenues were offset by stronger PC game revenues. Disappointing results from Target and mixed results from Lowe’s Target reported EPS of USD0.39, missing estimates.  The company indicated strength in food and beverage, beauty, and household essentials but weaker in discretionary categories.  Gross margin of 21.5%, down from 30.4% year-ago quarter and below expectations. Lowe’s reported better than expected EPS of USD4.67 (vs consensus USD4.58) but a decline of 0.3% in same-store sales.  Lowe’s inventories grew 11.6% YoY, substantially lower than peer Home Depot.  With a 15% increase in product costs, the inventory volume was in effect down low-single digit. Power crunch in China shut factories Chongqing is limiting power supply to industrial users from yesterday to next Wednesday.  In Sichuan, Foxconn’s Chengdu factory is suspending operations for six days from August 15 to 20 due to a regional power shortage. The suspension is affecting Foxconn’s supply of iPad to Apple.  The company says the impact “has been limited at the moment” but it may affect shipments if the power outage persists.  The Chengdu government is imposing power curbs on industrial users to ensure electricity supply for the city’s residents.  Toyota and CATL are also suspending some operations in Sichuan due to a power shortage. Foxconn has started test production of the Apple watch in Vietnam Foxconn has started test production of the Apple watch in its factories in Vietnam. With the passage of CHIPS and Science Act earlier this month in the U.S., investors are monitoring closely if Taiwanese and Korean chipmakers as well as their customers may be accelerating the building up of production capacity away from China.  World’s biggest Sovereign Wealth fund posts its biggest half-year loss on record   Norway’s oil fund, the world’s biggest owner of public traded companies lost 14.4% in the six months through to June. In currency terms that’s $174 billion. The slump was driven by the fund’s loss in technology stocks with Meta Platforms (owning Facebook and Instagram) and Amazon, leading the decline. However, just like the market, the fund’s energy sector delivered positive share price performance, benefiting from a sharp rise in earnings in the oil, gas, and refined energy product sector. Meanwhile, investments in logistics property helped the fund’s unlisted real estate holdings gain 7.1%, though they account for 3% of its assets. Japan’s inflation will surge further Japan’s nationwide CPI for July is due to be reported at the end of the week. July producer prices came in slightly above expectations at 8.6% y/y (vs. estimates of 8.4% y/y) while the m/m figure was as expected at 0.4%. The continued surge reflects that Japanese businesses are waddling high input price pressures, and these are likely to get passed on to the consumers, suggesting further increases in CPI remain likely. More government relief measures are likely to be announced, while any little hope for a Bank of Japan pivot is fading. Bloomberg consensus estimates are calling for Japan’s CPI to accelerate to 2.6% y/y from 2.4% previously, with the ex-fresh food number seen at 2.4% y/y vs. 2.2% earlier. For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 18, 2022

  Summary:  The US equity market rally extended modestly yesterday, but turned tail upon the cash S&P 500 Index touching the key 200-day moving average at 4,325. Market today will eye the latest US Retail Sales report from July, which saw peak gasoline prices in the US mid-month, while the FOMC Minutes may prove a bit stale, given they were created before three weeks of the market rallying sharply and financial conditions easing aggressively, likely not the Fed’s intention.   What is our trading focus?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures broke above the 200-day moving average yesterday and then got rejected. Momentum in US equities got a bit more fuel from two good earnings releases from Home Depot and Walmart rising 4% and 5% respectively. S&P 500 futures are pushing higher again this morning and will likely attempt once more to break above the 200-day moving average. Long-term US interest rates are still well-behaved trading around the 2.8% level and the VIX Index has stabilised just below the 20 level. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Index rallied 1% today, reversing yesterday’s loss. Meituan (03690:xhkg) bounced nearly 5% after its 9% drop yesterday due to a Reuters story suggesting that Tencent (00700:xhkg) plans to divest its 17% stake (USD24 billion) in Meituan.  Tencent denied such a divesture plan last night.  Power drills and floor care equipment maker and a supplier to Home Depot (HD:xnys), Techtronic Industries (00669:xhkg) jumped more than 7% after better-than-expected results from Home Depot overnight.  On Tuesday, China’s Premier Li Keqiang held a video conference with provincial chiefs from Jiangsu, Zhejiang, Shandong, Henan, and Sichuan to reiterate the central government’s push for full use of policies to stabilize the economy.  CSI300 gained 0.6%. USD pairs, including GBPUSD, which bounced strongly off 1.2000 support  A mixed overnight session for FX as the US yields wobbled. Risk sentiment held up with the mixed US data accompanied by a less bad outcome in the US retailer earnings than expected. This made the safe-haven yen a clear underperformer, and USDJPY rose back above 134. But a clear trend in the pair is still missing and a break above 135 is needed to reverse the downtrend. Cable teased key psychological support at 1.2000 yesterday before rising later in the day above 1.2100 ahead of today’s UK CPI report, which may confirm the need for further BOE action after labor data showed wage pressures. EURUSD bounced from session lows at 1.0123 but has posted a recent bearish reversal that keeps the focus lower, particularly on any breakdown through 1.0100, the multi-week range low. USD traders will focus on today’s US Retail Sales and FOMC minutes. USDCNH – there was a brief spike higher in USDCNH earlier this week as China moved to stimulate with a small 10-basis point rate cut of the key lending rate – no drama yet, but traders should keep an eye on this very important exchange rate for larger volatility and significant break above 6.80, as Chines exchange rate policy shifts can provoke significant moves across markets. Crude oil (CLU2 & LCOV2) touched a fresh six-month low on Tuesday with Brent trading lower, in anticipation of the Iran nuclear deal being revived, before bouncing in response to the API reporting a draw in crude oil and especially gasoline stocks. While a deal with Iran could see it raise production by around one million barrels per day, Goldmans talks about a mutually beneficial stalemate for both sides with Iran wanting to avoid sanctions while the US wants to avoid higher oil prices but also the political backlash from a potential deal. EIA’s weekly crude and fuel stocks report on tap later with the market also focusing on gasoline demand and the levels of exports. Over in Europe meanwhile the Dutch TTF benchmark gas trades near an eye-popping $400 per barrel crude oil equivalent, a level that will continue to attract demand for oil-based products due to switching. Copper (COPPERUSSEP22) continues to trade within its established upward trending range after China’s Premier Li Keqiang asked local officials from six provinces to bolster pro-growth measures after weaker financing and activity data were reported earlier this week. In addition, copper is also enjoying some tailwind from rising zinc and aluminum prices after Europe's largest smelters said it would halt production and after producers in China were told to curb production in order to preserve electricity supply during the current heatwave. HG copper’s trading range has narrowed to between $3.585, the uptrend from the July low and $3.663 the 50-day moving average.   What is going on?   US housing scare broadens, industrial production upbeat US Housing starts fell 9.6% in July to an annualized 1,446k, well beneath the prior 1,599 and the expected 1,537k. Housing starts are now down for five consecutive months, and suggest a cooling housing market in the wake of higher borrowing costs and higher inflation. Meanwhile, building permits declined 1.3% in July to 1,674k from 1,696, but printed above the expected 1,650k. There will be potentially more scaling back in construction activity as demand weakens and inventory levels rise. On the other hand, industrial production was better than expected at 0.6% m/m (prev: -0.2%) in July, possibly underpinned by holiday demand but the outlook is still murky amid persistent inflation and supply chain issues. UK headline inflation hits 10.1% The highest in decades and above the 9.8% expected and for the month-on-month reading of +0.6%, higher than the +0.4% expected. Core inflation hit 6.2% vs. 5.9% expected and 5.8% in Jun. That matched the cycle high from back in April. Retail inflation rose +0.9% MoM and +12.3% YoY vs. +0.6%/+12.0% expected, respectively. The Bank of England has forecast that inflation will peak out this fall at above 13%. Reserve Bank of New Zealand hikes 50 basis points to 3.00%, forecasts 4% policy rate peak The RBNZ both increased and brought forward its peak rate forecast to 4.00%, a move that was actually interpreted rather neutrally – more hawkish for now, but suggesting that the RBNZ would like to pause after achieveing 4.00%. 2-year NZ rates were unchanged later in the session after a brife poke higher. RBNZ Governor warned in a press conference that New Zealand home prices will continue to fall. This is actually a desired outcome after a huge spike in housing speculation and prices due to low rates from the pandemic response and massive pressure from a Labor-led government that had promised lower housing costs were behind the RBNZ’s quick pivot and more aggressive hiking cycle in 2021. Walmart shares rally on improved outlook The largest US retailer surprised on both revenue and earnings in its Q2 report with most of the revenue growth coming from higher prices and not volume. The retailer now sees an EPS decline of 9-11% this fiscal year compared to previously 11-13% suggesting input cost pressures are easing somewhat. Walmart is seeing more middle and high-income customers and the retailer has also cancelled orders for billions of dollars to lower inventory levels suggesting global supply chains are improving. Walmart shares were up 5%. Home Depot still sees robust market The largest US home improvement retailer beat on revenue and earnings yesterday in its Q2 results with Q2 comparative sales up 5.8% vs est. 4.6% highlighting that volumes are falling as revenue growth is below inflation rates. The US housing market figures on housing starts and permits cemented that the US housing market is slowing down due to the recent rally in mortgage rates. Home Depot is taking a conservative approach to guidance, but the market nevertheless pushed shares 4% higher. Apple supplier Foxconn suspends its factory in Chengdu due to a power crunch Foxconn’s Chengdu factory is suspending operations for six days from August 15 to 20 due to a regional power shortage. The suspension is affecting Foxconn’s supply of iPad to Apple. The company says the impact “has been limited at the moment” but it may affect shipments if the power outage persists. The Chengdu government is imposing power curbs on industrial users to ensure electricity supply for the city’s residents. At the same time, Foxconn has started test production of the Apple watch in its factories in Vietnam. With the passage of CHIPS and Science Act earlier this month in the U.S., there have been speculations that Taiwanese and Korean chipmakers and their customers may be accelerating the building up of production capacity away from China. Big European aluminium plant to halt production Norsk Hydro’s aluminium plant in Slovakia is halting primary production by end of September due adverse conditions such as elevated electricity prices. The aluminium company would incur significant financial losses should it continue its operations.   What are we watching next?   Eyes on US retail sales today  US retail sales will be next test of the US consumer after less bad retailer earnings last night. Retail sales should have been more resilient given the lower prices at pump improved the spending power of the average American household, and Amazon Prime Day in the month possibly attracted bargain hunters as well. However, consensus expectations are modest at 0.1% m/m compared to last month’s 1.0%. FOMC minutes to be parsed for hints on future Fed moves The Federal Reserve had lifted rates by 75bps at the late July meeting to bring the Fed Funds rate to a level they have previously considered neutral, but stayed away from providing any forward guidance. The minutes of that July meeting are to be released later today, and member comments will be watched closely for any hints on the expectation for September rate hike or the terminal Fed rate. The hot July US jobs report and the cooling July inflation number, as well as a blistering three week rally in equity markets have further confused the markets since the Fed meeting, even as Fed speakers continue to push against any expectations of rate cuts as soon as ‘early’ 2023. The next chief focus for Fed guidance will remain on the Fed’s Jackson Hole, Wyoming symposium next week. Earnings to watch Today’s European earnings focus is Carlsberg and Coloplast with the former reporting strong first-half organic growth of 20.7% vs est. 15.5% suggesting breweries are seeing healthy volume and price gains. Tencent is the key focus in Asia and especially given the recent developments in China on anti-monopoly laws and its decision to divest its $24bn stake in Meituan. In the US the focus will be on Cisco which saw its growth grinding to a halt in the previous quarter. Wednesday: Tencent, Hong Kong Exchanges & Clearing, Analog Devices, Cisco Systems, Synopsys, Lowe’s, CSL, Target, TJX, Coloplast, Carlsberg, Wolfspeed Thursday: Applied Materials, Estee Lauder, NetEase, Adyen, Nibe Industrier, Geberit Friday: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Economic calendar highlights for today (times GMT) 0900 – Eurozone Q2 GDP Estimate 1230 – US Jul. Retail Sales 1430 – US Weekly Crude Oil and Product Inventories 1800 – US FOMC Minutes 1820 – US Fed’s Bowman (Voter) to speak 2110 – New Zealand RBNZ Governor Orr before parliamentary committee 0130 – Australia Jul. Employment Change (Unemployment Rate)   Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Has The Best Main Interest Rate In 7 Years

Summary:  S&P500 index broke above the key 4,300 resistance level while the NASDAQ pushed lower amid mixed economic data and better-than-feared earnings from Walmart and Home Depot. US housing data continues to worsen, but the focus now turns to FOMC minutes due later today, as well as the US retail sales which will be next test of the strength of the US consumer. Asia session may have trouble finding a clear direction, but Australia’s wage price index and RBNZ’s rate hike may help to provide some bounce. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities were mixed. Tech names had an initial pullback, followed by short-coverings that narrowed the loss of the Nasdaq 100 to 0.23% at the close. S&P500 edged up 0.19% to 4,305 on better-than-feared results from retailers, moving towards its 200-day moving average (4,326). Walmart (WMT:xnys) and Home Depot (HD:xnys) reported Q2 results beating analyst estimates. Walmart gained 5% on strong same-store sales growth and a deceleration in inventory growth. Home Depot climbed 4% after reporting better than expected EPS and same-store sales but with an acceleration in inventory buildup. The declines in housing starts and building permits released on Monday and the downbeat comments about the U.S. housing market from the management of Compass (COMP:xnys), an online real estate brokerage, highlighted the challenges faced in the housing sector.  Short-end U.S. treasury yields rose as the long-end little changed The bigger than expected increases in July industrial production (+0.6% MoM), manufacturing production (+0.7% MoM), and business equipment production (+0.6%) triggered some selling in the short-end of U.S. treasury curve, pushing the 2-year yield 8 bps higher to 3.25% as 10-year yield edged up 1bp.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) China internet stocks were sold off on Tuesday afternoon after Reuters ran a story suggesting that Tencent (00700:xhkg) plans to divest its 17% stake (USD24 billion) in Meituan (03690:xhkg).  The shares of Meituan collapsed 9% while Tencent gained 0.9%.  After the close of the Hong Kong market, Chinese media, citing sources “close to the matter” suggested that the divesture story is not true. However, the ADRs of Meituan managed to recover only 1.7% in New York trading. The newswire story also triggered selling on Kuaishou (01024:xhkg), -4.4%, which has Tencent as a major investor. The decline in internet stocks dragged the Hang Seng Index 1% lower. On the other hand, Chinese developers soared on another newswire report that state-owned China Bond Insurance is going to provide guarantees to new onshore debts issued by several “high quality” developers, including Country Garden (02007:xhkg) +9%, Longfor (00960:xhkg) +12%, CIFI (00884:xhkg) +12.9%, and Seazen (01030:xhkg) +7.6%.  Shares of Chinese property management services also surged higher.  GBPUSD bounced off the 1.2000 support, NZD eyeing RBNZ A mixed overnight session for FX as the US yields wobbled. Risk sentiment held up with the mixed US data accompanied by a less bad outcome in the US retailer earnings than what was expected. This made the safe-haven yen a clear underperformer, and USDJPY rose back above 134. But a clear trend in the pair is still missing and a break above 135 is needed to reverse the downtrend. Cable got lower to remain in close sight of the 1.2000 big figure, but rose above 1.2100 subsequently. UK CPI report due today may confirm the need for further BOE action after labor data showed wage pressures. NZDUSD remains near lows of 0.6320 but may see a knee-jerk higher if RBNZ surprises on the hawkish side. Crude oil prices (CLU2 & LCOV2) Crude oil prices remain under pressure due to the prospect of Iran nuclear deal, and printed fresh lows since the Ukraine invasion. Some respite was seen in early Asian session, and WTI futures were last seen at $87/barrel and Brent is below $93. The EU submitted a final proposal to salvage the Iran nuclear deal, and prospects of more energy supply are dampening the price momentum. It has been reported that Iran’s response was constructive, and they are now consulting with the US on a way ahead for the protracted talks. The API reported crude inventories fell by 448,000 barrels last week, while gasoline stockpiles increased by more than 4 million barrels. Government data is due later Wednesday. European Dutch TTF benchmark gas futures (TTFMU2) touched €250/MWh, but has cooled off slightly recently, but still signals the heavy price that Europe is paying for the dependence on Russian gas. Copper holding up well despite China slowdown concerns Despite reports of weaker financing and activity data from China earlier this week, Copper remains well supported and registered only modest declines. BHP’s results provided some offset, as did the supply side issues in Europe. Only a break below the key 350 support will turn the focus lower. Meanwhile, zinc rallied amid concerns of smelter closures in Europe. What to consider? US housing scare broadens, industrial production upbeat Housing starts fell 9.6% in July to 1.446 mn, well beneath the prior 1.599 mn and the expected 1.537 mn. Housing starts are now down for five consecutive months, and suggest a cooling housing market in the wake of higher borrowing costs and higher inflation. Meanwhile, building permits declined 1.3% in July to 1.674 mn from 1.696 mn, but printed above the expected 1.65 mn. There will be potentially more scaling back in construction activity as demand weakens and inventory levels rise. On the other hand, industrial production was better than expected at 0.6% m/m (prev: -0.2%) possibly underpinned by holiday demand but the outlook is still murky amid persistent inflation and supply chain issues. US retailer earnings come in better than feared Walmart (WMT:xnys) and Home Depot (HD:xnys) reported better-than-feared results on Tuesday. Walmart’s Q2 revenues came in at USD152.9 billion (+8.4% YoY, consensus USD150.5bn). Same-store sales increased 8.4% YoY (vs consensus +6.0% YoY).  EPS of USD1.77, down 0.8% from a year ago quarter but better than the consensus estimate of USD1.63. While inventories increased 25.5% in Q2, the rate of increase has moderated from the prior quarter’s +32.0%. The company cited falls in gas prices, market share gain in grocery, and back-to-school shopping key reasons behind the strength in sales.  Home Depot reported Q2 revenues of USD43.9 billion (vs consensus USD43.4bn), +6.5% YoY.  Same-store sales grew 5.8%, beating analyst estimates (+4.9%).  EPS rose 11.5% to $5.05, ahead of analyst estimates (USD4.95). However, inventories grew 38% YoY in Q2, which was an acceleration from the prior quarter. The management cited inflation and pulling forward inventory purchases given supply chain challenges as reasons for the larger inventory build-up. Target (TGT:xnys) is scheduled to report on Wednesday. Eyes on US retail sales US retail sales will be next test of the US consumer after less bad retailer earnings last night. Retail sales should have been more resilient given the lower prices at pump improved the spending power of the average American household, and Amazon Prime Day in the month possibly attracted bargain hunters as well. However, consensus expectations are modest at 0.1% m/m compared to last month’s 1.0%. A cooling labor market in the UK UK labor market showed signs of cooling as job vacancies fell for the first time since August 2020 and real wages dropped at the fastest pace in history. Unemployment rate was steady at 3.8%, and the number of people in employment grew by 160,000 in the April-June period as against 256,000 expected. There was also a sprinkle of good news, with the number of employees on payrolls rising 73,000 in July, almost triple the pace expected. Also, wage growth was strong at 4.7% in the June quarter from 4.4% in the three months to May, which may be key for the BOE amid persistent wage pressures. Australia Q2 Wage Index to determine future RBA rate hike size? The RBA Minutes out on Tuesday showed a central bank that is trying to navigate a “narrow path” for keeping the Australian economy on an “even keel”. The RBA has often singled out wages as an important risk for whether inflation risks becoming more embedded and on that note, today sees the release of the Q2 Wage Index, expected to come in at 2.7% year-on-year after 2.4% in Q1. A softer data point may have the market pulling back expectations for another 50 basis point rate hike at the next RBA meeting after the three consecutive moves of that size. The market is about 50-50 on the size of the RBA hike in September, pricing a 35bps move. RBNZ set to decelerate its guidance after another 50 basis point move today? The Reserve Bank of New Zealand is expected to hike its official cash rate another 50 basis points tonight, taking the policy rate to 3.00%. With business and consumer sentiment surveys in the dumps in New Zealand and oil prices retreating sharply the RBNZ, one of the earliest among developed economies to tighten monetary policy starting late last year, may be set for more cautious forward guidance and a wait and see attitude, although wages did rise in Q2 at their second fastest pace (+2.3% QoQ) in decades. The market is uncertain on the future course of RBNZ policy, pricing 45bps for the October meeting after today’s 50bps hike and another 37bps for the November meeting. FOMC minutes to be parsed for hints on future Fed moves The Federal Reserve had lifted rates by 75bps to bring the Fed Funds rate at the level that they consider is neutral at the July meeting, but stayed away from providing any forward guidance. Meeting minutes will be out today, and member comments will be watched closely for any hints on the expectation for September rate hike or the terminal Fed rate. The hot jobs report and the cooling inflation number has further confused the markets since the Fed meeting, even as Fed speakers continue to push against any expectations of rate cuts at least in ‘early’ 2023. We only have Kansas City Fed President Esther George (voter in 2022) and Minneapolis Fed President Kashkari (non-voter in 2022) speaking this week at separate events on Thursday, so the bigger focus will remain on Jackson Hole next week for any updated Fed views.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 17, 2022

Summary:  Equities traded higher still yesterday as treasury yields fell further back into the recent range and on hopes that an Iran nuclear deal will cement yesterday’s steep drop in oil prices. The latest data out of the US was certainly nothing to celebrate as the July US Homebuilder survey showed a further sharp drop in new housing interest and a collapse in the first regional US manufacturing survey for August, the New York Fed’s Empire Manufacturing.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures extended their gains yesterday getting closer to the 200-day moving average sitting around the 4,322 level. The US 10-year yield seems well anchored below 3% and financial conditions indicate that S&P 500 futures could in theory trade around 4,350. The news flow is light but earnings from Walmart later today could impact US equities should the largest US retailer lower their outlook for the US consumer. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hong Kong and mainland Chinese equities were mixed. CSI300 was flat, with electric equipment, wind power, solar and auto names gained. Hang Seng Index declined 0.5%. Energy stocks fell on lower oil price. Technology names were weak overall, Hang Seng TECH Index (HSTECH.I) declined 0.9%. Sunny Optical (02382:xhkg) reported worse than expected 1H22 results, revenues -14.4% YoY, net profits -49.5%, citing weakening component demand from the smartphone industry globally. The company’s gross margin plunged to 20.8% from 24.9%. Li Auto’s (02015:xhkg/LI:xnas) Q2 results were in line with expectations but Q3 guidance disappointed. The launch L9 seems cannibalizing Li ONE sales. USD: strength despite weak US data and falling treasury yields and strong risk sentiment Yesterday, the JPY tried to make hay on China cutting rates and as global yields eased back lower, with crude oil marked several dollars lower on hopes for an Iran nuclear deal. But the move didn’t stick well in USDJPY, which shrugged off these developments as the USD firmed further across the board, despite treasury yields easing lower, weak data and still strong risk sentiment/easy financial conditions. A strong US dollar is in and of itself is a tightening of financial conditions, however, and yesterday’s action has cemented a bullish reversal in some pairs, especially EURUSD and GBPUSD, where the next important levels pointing to a test of the cycle lows are 1.0100 and 1.2000, respectively. Elsewhere, USDJPY remains in limbo (strong surge above 135.00 needed to suggest upside threat), USDCAD has posted a bullish reversal but needs 1.3000 for confirmation, and AUDUSD is teetering, but needs a close back below 0.7000 to suggest a resurgent US dollar and perhaps widening concerns that a Chinese recession will temper interest in the Aussie. Crude oil Crude oil (CLU2 & LCOV2) trades lower following Monday’s sharp drop that was driven by a combination softer economic data from China and the US, the world’s top consumers of oil, and after Iran signaled a nuclear deal could be reached soon, raising the prospect of more Iranian crude reaching the market. The latest developments potentially reducing demand while adding supply forced recently established longs to bail and short sellers are once again in control. Brent needs to hold support at $93 in order to avoid further weakness towards $90. Focus on Iran news. Copper Copper (COPPERUSSEP22) led the metals pack lower, without breaking any key technical levels to the downside, after China’s domestic activity weakened in July. Meanwhile, supply side issues in Europe also cannot be ignored with surging power prices putting economic pressure on smelters, and many of them running at a loss. HG copper jumped 19% during the past month and yesterday’s setback did not challenge any key support level with the first being around $3.50/lb. BHP, the world’s top miner meanwhile hit record profits while saying that China is likely to offer a “tail wind” to global growth (see below). EU power prices hit record high on continued surge in gas prices ... threatening a deeper plunge into recession. The latest surge being driven by low water levels on Europe’s rivers obstructing the normal passage for diesel, coal, and other fuel products, thereby forcing utilities to use more gas European Dutch TTF benchmark gas futures (TTFMU2) has opened 5% higher at €231/MWh, around 15 times higher than the long-term average, suggesting more pain ahead for European utility companies. Next-year electricity rates in Germany (DEBYF3) closed 3.7% higher to 477.50 euros ($487) a megawatt-hour on the European Energy Exchange AG. That is almost six times as much as this time last year, with the price doubling in the past two months alone. UK power prices were also seen touching record highs. US Treasuries (IEF, TLT) see long-end yields surging. Yields dipped back lower on weak US economic data, including a very weak Empire Manufacturing Survey (more below) and another sharp plunge in the NAHB survey of US home builders, suggesting a rapid slowdown in the housing market. The survey has historically proven a leading indicator on prices as well. The 10-year benchmark dipped back further into the range after threatening to break up higher last week. The choppy range extends down to 2.50% before a drop in yields becomes a more notable development, but tomorrow’s US Retail Sales and FOMC minutes offer the next test of sentiment. What is going on? Weak Empire State manufacturing survey and NAHB Index Although a niche and volatile measure, the United States NY Empire State Manufacturing Index, compiled by the New York Federal Reserve, fell to -31.3 from 11.1 in July, its lowest level since May 2020 and its sharpest monthly drop since the early days of the pandemic. New orders and shipments plunged, and unfilled orders also declined, albeit less sharply. Other key areas of concern were the rise in inventories and a decline in average hours worked. This further weighed on the sentiment after weak China data had already cast concerns of a global growth slowdown earlier. Meanwhile, the US NAHB housing market index also saw its eighth consecutive monthly decline as it slid 6 points to 49 in August. July housing starts and building permits are scheduled to be reported later today, and these will likely continue to signal a cooling demand amid the rising mortgage rates as well as overbuilding. China's CATL plans to build its second battery factory in Europe CATL unveiled plans to build a renewable energy-powered factory for car battery cells and modules in Hungary. It will invest EUR 7.34 billion (USD 7.5bn) on the 100-GWh facility, which will be its second one in Europe. To power the facility CATL will use electricity from renewable energy source, such as solar power. At present, CATL is in the process of commissioning its German battery production plant, which is expected to roll out its first cells and modules by the end of 2022. Disney (DIS) shares rise on activist investor interest Daniel Loeb of Third Point announced a significant new stake in Disney yesterday, helping to send the shares some 2.2% higher in yesterday’s session. The activist investor recommended that the company spin off its ESPN business to reduce debt and take full ownership of the Hulu streaming service, among other moves. Elliott exits SoftBank Group The US activist fund sold its stake in SoftBank earlier this year in a sign that large investors are scaling back on their investments in technology growth companies with long time to break-even. In a recent comment, SoftBank’s founder Masayoshi Son used more cautious words regarding the investment company’s future investments in growth companies. BHP reports its highest ever profit, bolstered by coal BHP posted a record profit of $21.3bn supported by considerable gains in coal, nickel and copper prices during the fiscal year ending 30 June 2022. Profits jumped 26% compared to last year’s result. The biggest driver was a 271% jump in the thermal coal price, and a 43% spike in the nickel price. The world’s biggest miner sees commodity demand improving in 2023, while it also sees China emerging as a source of stable commodity demand in the year ahead. BHP sees supply covering demand in the near-term for copper and nickel. According to the company iron ore will likely remain in surplus through 2023. In an interview Chief Executive Officer Mike Henry said: Long-term outlook for copper, nickel and potash is really strong because of “unstoppable global trends: decarbonization, electrification, population growth, increasing standards of living,” What are we watching next? Australia Q2 Wage Index tonight to determine future RBA rate hike size? The RBA Minutes out overnight showed a central bank that is trying to navigate a “narrow path” for keeping the Australian economy on an “even keel”. The RBA has often singled out wages as an important risk for whether inflation risks becoming more embedded and on that note, tonight sees the release of the Q2 Wage Index, expected to come in at 2.7% year-on-year after 2.4% in Q1. A softer data point may have the market pulling back expectations for another 50 basis point rate hike at the next RBA meeting after the three consecutive moves of that size. The market is about 50-50 on the size of the RBA hike in September, pricing a 35 bps move. RBNZ set to decelerate its guidance after another 50 basis point move tonight? The Reserve Bank of New Zealand is expected to hike its official cash rate another 50 basis points tonight, taking the policy rate to 3.00%. With business and consumer sentiment surveys in the dumps in New Zealand and oil prices retreating sharply the RBNZ, one of the earliest among developed economies to tighten monetary policy starting late last year, may be set for more cautious forward guidance and a wait and see attitude, although wages did rise in Q2 at their second fastest pace (+2.3% QoQ) in decades. The market is uncertain on the future course of RBNZ policy, pricing 44 bps for the October meeting after tonight’s 50 bps hike and another 36 bps for the November meeting. US retailer earnings eyed After disappointing results last quarter, focus is on Walmart and Home Depot earnings later today. These will put the focus entirely on the US consumer after the jobs data this month highlighted a still-tight labor market while the inflation picture saw price pressures may have peaked. It would also be interesting to look at the inventory situation at these retailers, and any updated reports on the status of the global supply chains.   Earnings to watch Today’s US earnings focus is Walmart and Home Depot with analysts expecting Walmart to report 7% revenue growth y/y and 8% decline y/y in EPS as the US retailer is facing difficulties passing on rising input costs. Home Depot is expected to report 6% growth y/y in revenue and 10% growth y/y in EPS as the US housing market is still robust driving demand for home improvement products. Sea Ltd, the fast-growing e-commerce and gaming company, is expected to report revenue growth of 30% y/y in Q2 but worsening EBITDA margin at -16.2%. The previous winning company is facing headwinds in its gaming division and cash flow from operations have gone from positive $318mn in Q1 2021 to negative $724mn in Q1 2022. Today: China Telecom, Walmart, Agilent Technologies, Home Depot, Sea Ltd Wednesday: Tencent, Hong Kong Exchanges & Clearing, Analog Devices, Cisco Systems, Synopsys, Lowe’s, CSL, Target, TJX, Coloplast, Carlsberg, Wolfspeed Thursday: Applied Materials, Estee Lauder, NetEase, Adyen, Nibe Industrier, Geberit Friday: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Economic calendar highlights for today (times GMT) 0900 – Germany Aug. ZEW Survey 0900 – Eurozone Jun. Trade Balance 1200 – Poland Jul. Core CPI 1215 – Canada Jul. Housing Starts 1230 – US Jul. Housing Starts and Building Permits 1230 – Canada Jul. CPI 2030 – API Weekly Report on US Oil Inventories 2350 – Japan Jul. Trade Balance 0130 – Australia Q2 Wage Index 0200 – New Zealand RBNZ Official Cash Rate announcement 0300 – New Zealand RBNZ Governor Orr Press Conference  Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Financial Markets Today: Quick Take – August 16, 2022

Summary:  The weaker-than-expected economic data from China caught much of the attention and dragged U.S. bond yields and commodities lower. U.S. equities have been in a 4-week rally. Investors are weighing if the U.S. economy is heading into a soft-landing or a recession and if the Chinese economy can recover in the coming months. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities opened lower on weak economic data prints from China as well as a weaker-than-expected Empire State manufacturing survey but climbed towards midday and finished higher. S&P 500 rose 0.4%. Nine of its 11 sectors gained, with shares of consumer staples and utilities outperforming. Nasdaq 100 rose 0.75%, led by a 3% jump in Tesla (TSLA:xnas).  U.S. treasury yields fell Treasury yields fell across the front end to the belly of the curve after a bunch of weak economic data from China and the Empire State manufacturing survey came in at -31.3, much weaker than 5.0 expected. Two-year yields fell by 7bps to 3.17% and 10-year yields declined 5bps to 2.78%.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hong Kong and mainland Chinese equities tried to move higher in early trading but soon reversed and turned south, Hang Seng -0.7%, CSI300 -0.1%.   The People’s Bank of China cut its policy on Monday but the unexpected move did not stir up much market excitement. The visit of another delegation of US lawmakers to Taiwan within 12 days of Speaker Pelosi’s visit stirred up concerns about the tension in the Sino-American relationship.   Container liner, Orient Overseas (00316:xhkg) plunged nearly 15%.   Stocks that have a dual listing of ADRs, in general, declined on Monday’s trading in Hong Kong following Friday’s decisions for five central SOEs to apply for delisting from the New York Stock Exchange, PetroChina (00857:xhkg/PTR:xnys) -3.4%, Sinopec (00386:xhkg/SNP:xnys) -2.9%, Alibaba (09988:xhkg/BABA:xnys) -1.2, Baidu (09888:xhkg/BIDU:xnas) -1%, Bilibili (09626:xhkg/BILI:xnas) -1%. SMIC (00981:xhkg) dropped more than 6% on analyst downgrades.  Chinese property names dropped as home prices continued to fall in China.  USD broadly firmer against G10 FX, expect JPY The US dollar started the week on the front foot, amid a weaker risk sentiment following a miss in China’s activity data and the disappointing US manufacturing and housing sentiments. The only outlier was the JPY, with USDJPY sliding to lows of 132.56 at one point before reversing the drop. The 131.50 level remains a key area of support for USDJPY and a bigger move in the US yields remains necessary to pierce through that level. The commodity currencies were the hardest hit, with AUDUSD getting in close sight of 0.7000 ahead of the RBA minutes due this morning. NZDUSD also plunged from 0.6450 to 0.6356. The Chinese yuan weakened and bond yields fell after disappointing economic data and surprising rate cuts USDCNH jumped more than 1% from 6.7380 to as high as 6.8200 on Monday following the weak credit data from last Friday, disappointing industrial production, retail sales, and fixed assets investment data released on Monday morning, and unexpected rate cuts by the People’s Bank of China. The 10-year Chinese government bond yield fell 8bps to 2.67%, the lowest level since April 2020, and about 20bps below the yield of 10-year U.S. treasury notes. Crude oil prices (CLU2 & LCOV2) Crude oil prices had a variety of headwinds to deal with both on the demand and the supply side. While demand concerns were aggravated due to the weak China data, and the drop in US Empire State manufacturing – both signaling a global economic slowdown may be in the cards – supply was also seen as being possibly ramped up. There were signs of a potential breakthrough in talks with Iran as Tehran said it sent a reply to the EU's draft nuclear deal and expects a response within two days. Meanwhile, Aramco is also reportedly ramping up production. WTI futures dropped back below $90 while Brent touched $95/barrel. Metals face the biggest brunt of China data weakness Copper led the metals pack lower after China’s domestic activity weakened in July, which has raised the fears of a global economic slowdown as the zero-Covid policy is maintained. Meanwhile, supply side issues in Europe also cannot be ignored with surging power prices putting economic pressure on smelters, and many of them running at a loss. This could see further cuts to capacity over the coming months. Iron ore futures were also down. What to consider? Weak Empire State manufacturing survey and NAHB Index Although a niche measure, the United States NY Empire State Manufacturing Index, compiled by the New York Federal Reserve, fell to -31.3 from 11.1 in July, its lowest level since May 2020 and its sharpest monthly drop since the early days of the pandemic. New orders and shipments plunged, and unfilled orders also declined, albeit less sharply. Other key areas of concern were the rise in inventories and a decline in average hours worked. This further weighed on the sentiment after weak China data had already cast concerns of a global growth slowdown earlier. Meanwhile, the US NAHB housing market index also saw its eighth consecutive monthly decline as it slid 6 points to 49 in August. July housing starts and building permits are scheduled to be reported later today, and these will likely continue to signal a cooling demand amid the rising mortgage rates as well as overbuilding. European power price soared to record high European power prices continue to surge to fresh record highs amid gas flow vagaries, threatening a deeper plunge into recession. Next-year electricity rates in Germany advanced as much as 3.7% to 477.50 euros ($487) a megawatt-hour on the European Energy Exchange AG. That’s almost six times as much as this time last year, with the price doubling in the past two months alone. UK power prices were also seen touching record highs. European Dutch TTF natural gas futures were up over 6%, suggesting more pain ahead for European utility companies. China’s activity data China’s July industrial production (3.8% YoY vs consensus 4.3% & June 3.9%), retail sales (2.7% YoY vs consensus 4.9% & June 3.1%), and fixed asset investments (5.7% YTD vs consensus 6.2% & June 6.1%) released this more were weak across the board.  Property investment growth dropped to -6.4% YTD or -12.3% YoY in July, well below market expectations of -5.7% YTD.  Surprising rate cuts from the PBOC met with muted market reactions The People’s Bank of China cut its policy 1-year Medium-term Lending Facility Rate by 10bps to 2.75% from 2.85% and the 7-day reverse repo rate by 10bps to 2.0% from 2.1%.  Market reactions to the surprising move were muted as credit demand, as reflected in the aggregate financing and loan growth data was weak in China. BHP ‘s FY22 results better than expected The Australian mining giant reported FY22 results beating analyst estimates with strong EBITDA and EBITDA margin. Coal segment performance was ahead of expectations while results from the copper and iron ore segments were slightly below expectations.  The company announced a larger-than-expected dividend payout and a higher capex plan for 2023. RBA minutes due to be released this morning Earlier in the month, the Reserve Bank of Australia (RBA) raised the cash rate by 50bps to 1.85% and the accompanying Statement on Monetary Policy emphasized an uncertain and data-dependent outlook. The RBA releases its minutes from the July meeting today, and the market focus will be on the range of options discussed for the August hike and any hint of future interest rate path.  US retailer earnings eyed After disappointing results last quarter, focus is on Walmart and Home Depot earnings later today. These will put the focus entirely on the US consumer after the jobs data this month highlighted a still-tight labor market while the inflation picture saw price pressures may have peaked. It would also be interesting to look at the inventory situation at these retailers, and any updated reports on the status of the global supply chains.     For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast. Source: APAC Daily Digest: What is happening in markets and what to consider next – August 16, 2022

Summary:  US treasury yields at the long end of the curve surged over 15 basis points at one point yesterday in the wake of heavy treasury futures selling and a somewhat soft T-bond auction, which helped to turn sentiment lower in the equity market after the major averages had advanced to new local highs. The jump in US yields checked the US dollar’s descent as traders mull whether a break higher in US treasury yields will offer the currency fresh support after its break lower this week in many USD pairs.   What is our trading focus?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures attempted to run higher above the key 4,200 level but was rejected forcefully, closing a bit lower for the session and just above the 4,200 level. This morning the index futures are again trying to push higher trading around the 4,222 level with yesterday’s high at 4,260 being the natural resistance level in the short-term. Today’s earnings and macro calendar are light except for the Michigan surveys at 1400 GMT on consumer sentiment and expectations for the economy and inflation which could move the market on a surprise print. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hong Kong and mainland Chinese equities treaded water, fluctuating between small gains and losses. Sportswear and EV names gained. Li Ning (02332:xhkg) climbed more than 4% after reporting better than expected 1H results with sales growth of 22% and net profit growth of 12% from last year. The solid sales growth was led by online sales and wholesale business. China’s EV sales volumes grew 124% YoY (wholesale) and 117% YoY (retail) in July, much faster than the growth of the overall passenger vehicle market and had a penetration rate of 26.7%. XPeng (09868:xhkg) led the charge higher, gaining 4.2%, NIO (09866:xhkg) +3.6%, Li Auto (02015:xhkg) +1.7%. Leading semiconductor names, SMIC (00981:xhkg) and Hua Hong (01347:xhkg) reported inline and better-than expected results respectively. In its earnings call, the management of SMIC noted orders from some of its customers could fall meaningfully in near-term due to high inventories and suggested that recovery could come at around end of 2022 or early 2023. Share prices of SMIC declined 1.8%. USD: jump in long treasury yields checks the greenback’s descent After USDJPY traded to new local lows yesterday below 132.00, the pair snapped back well north of 133.00 in the wake of a surge in long US treasury yields (more below) and the USD sell-off was likewise checked elsewhere as risk sentiment also rolled over by late in the US equity trading session. The USD resilience is not yet technically significant and won’t be on a broad basis until/unless USDJPY surges back above perhaps 136.00, the EURUSD surge above 1.0300 is pushed back below 1.0250, and the aggressive AUDUSD move is pummeled back below 0.7000. The get a broader USD resurgence might require higher US yields and a deepening turn to the negative in risk sentiment, until then. Gold (XAUUSD) is heading for a fourth weekly gain ... supported by a weaker dollar after lower-than-expected CPI and PPI data helped reduce expectations for how high the Fed will allow rates to run. However, rising risk appetite as seen through surging stocks and bond yields trading higher on the week, have so far prevented the yellow metal from making a decisive challenge at key resistance above $1800/oz, and the recent decline in ETF holdings and low open interest in COMEX futures points to a market that is looking for a fresh and decisive trigger. Gold needs to hold $1760 in order to avoid a fresh round of long liquidation, while silver is looking for support at $20.23, its 50-day SMA. Copper and industrial metals in general have seen a strong recovery with COPPERSEP22 now eying resistance at $3.7150, its 50-day SMA. Crude oil (CLU2 & LCOV2) traded higher on Thursday ... before some light profit emerged overnight in Asia. Prices have been supported by signs of softer inflation improving the growth outlook, weaker dollar and improving demand, especially in the US where gasoline prices at the pumps have fallen below $4 per gallon for the first time since March. In addition, the International Energy Agency (IEA) lifted its consumption estimate by 380 kb/d, saying soaring gas prices amid strong demand for electricity is driving utilities to switch from expensive gas to fuel based products. Meanwhile, OPEC may struggle to raise output in coming months due to limited spare capacity. WTI futures touched $94/barrel while Brent futures returned to the 100-mark, thereby supporting our view that oil prices have reached a potential through in this correction phase.   US Treasuries (IEF, TLT) see long-end yields surging US yields at the long end of the curve ripped higher with the move aggravated by a somewhat soft 30-year T-bond auction, though the bulk of the move higher in yields unfolded earlier in the day on heavy selling of treasury futures. The 30-year yield rose a chunky 15.5 basis points at one point yesterday and traded to the highest levels in weeks, with the 10-year likewise poking above local highs in the 2.87% yield area. The jump in yields is technically significant if it holds and proceeds to 3.00%, suggesting that the consolidation phase is over. As well, the rise at the long end of the curve has significantly steepened the yield curve from a recent extreme in the 2-10 inversion of –49 basis points to –34 basis points.   What is going on?   US jobless claims rise, University of Michigan ahead US initial jobless claims 262K vs 265K estimate, notably higher than the 248k the prior week and the highest since November 2021. The 4-week moving average of initial jobless claims increased to 252K vs 247.5K last week, but still below 350k levels that can cause an alarm. The modest pickup in claims suggests that turnover at weaker firms is increasing. Key data to watch today is the preliminary University of Michigan survey for August, where expectations are for a modest improvement given lower gasoline prices. The grains sector trades at a five-week high ahead of today’s supply and demand report The Bloomberg Grains Index continues to recover following its 28% June to July correction with gains this past week being led by wheat (WHEATDEC22) and corn (CORNDEC22) in response to a weaker dollar and not least hot and dry weather in the US and another heatwave in Europe raising concerns about yield and production. Hot and dry weather at a critical stage for yield developments ahead of the soon to be harvested crop has given today’s World Agricultural Supply and Demand Estimates report some additional attention with surveys looking for lower yields and with that lower ending stocks. San Francisco Fed President Mary Daly sees 50 basis point hike at September FOMC meeting Daly is not an FOMC voter this year. Unlike her colleague (also a non-voter this year) Neel Kashkari at the Minneapolis Fed, she is satisfied with the median forecast of a 3.4% policy rate by year-end, which would be achieved with a 50 basis point move in September, followed by two 25 basis point hikes in November and December. Kashkari thinks 3.9% is more appropriate for a year-end target policy rate. Daly noted that she is happy to see inflation coming down, but is still open for a larger rate increase in September if necessary. “It really behooves us to stay data dependent and not call it”. The market is currently priced for 60 basis points of hiking at the September 21 FOMC meeting. Illumina shares down 23% on massive earnings miss The DNA-sequencing company slashed its fiscal year outlook last night due to potential penalties in Europe from its acquisition of another company. Its FY EPS forecast is now $2.75-2.90 down from previously $4-4.20.   What are we watching next?   UK Q2 GDP likely to show a contraction ... after April was down 0.2% and May up 0.5%. June GDP is likely to have seen a larger contraction given less working days in the month, as well as constrained household spending as inflation surged to a fresh record high. While there may be a growth recovery in the near-term, the Bank of England clearly outlined a recession scenario from Q4 2022 and that would last for five quarters. Our Macro Strategist Chris Dembik has painted a rather pessimistic picture of the UK economy. Another downside surprise in US inflation US July PPI dipped into negative territory to come in at -0.5% MoM, much cooler than 1% last month or the +0.2% expected. But on a YoY basis, PPI remains up a shocking 9.8%. Core PPI rose 0.4% MoM, which means on a YoY basis core producer prices are up 7.6% (lower than June's +8.2% but still near record highs). Goods PPI fell 1.8%, dominated by a 9.0% drop in energy. Meanwhile, services PPI was up 0.1% in July. Despite the slowdown in both PPI and CPI this week, PPI is still 1.3% points above CPI, suggesting margin pressures and a possible earnings recession. Fed’s Daly said she will be open to a 75bps rate hike at the September meeting. Next signals from the Fed at Jackson Hole conference Aug 25-27 There is a considerable tension between the market’s forecast for the economy and the resulting expected path of Fed policy for the rest of this year and particularly next year, as the market believes that a cooling economy and inflation will allow the Fed to reverse course and cut rates in a “soft landing” environment (the latter presumably because financial conditions have eased aggressively since June, suggesting that markets are not fearing a hard landing/recession). Some Fed members have tried to push back against the market’s expectations for Fed rate cuts next year it was likely never the Fed’s intention to allow financial conditions to ease so swiftly and deeply as they have in recent weeks. The risks, therefore, point to a Fed that may mount a more determined pushback at the Jackson Hole forum, the Fed’s yearly gathering at Jackson Hole, Wyoming that is often used to air longer term policy guidance. Earnings to watch There are no important earnings today except for Flutter Entertainment which has already reported ahead of the trading start in London. Flutter reports first-half revenue of £3.4bn vs est. £3.2bn. Today: Flutter Entertainment Economic calendar highlights for today (times GMT) 0900 – Eurozone Jun. Industrial Production 1400 – US Fed’s Barkin (non-voter) to speak 1400 – US Aug. Preliminary University of Michigan sentiment 1600 – USDA's World Agriculture Supply and Demand report (WASDE) Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Financial Markets Today: Quick Take – August 12, 2022

Summary:  Another downside surprise in US inflation in the wake of lower energy prices lifted the equity markets initially overnight. However, sustained hawkishness from Fed speakers brought the yields higher, weighing on equities which closed nearly flat in the US. Crude oil prices made a strong recovery with the IEA boosting the global growth forecast for this year. EURUSD stayed above 1.0300 and will be eying the University of Michigan report today along with UK’s Q2 GDP. What is happening in markets?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  After rising well over 1% in early trading amid the weaker-than-expected PPI prints, U.S. equities wiped out gains and closed lower, S&P 500 -0.07%, Nasdaq 100 -0.65%. Energy stocks were biggest gainers, benefiting from a 2.6% rally in the price of WTI crude, Devon Energy (DVN:xnys) +7.3%, Marathon Oil (MRO:xnys) +7%, Schlumberger (SLB:xnys) +5.7%.  Consumer discretionary and technology were the biggest decliners on Thursday. Chinese ADRs gained, Nasdaq Golden Dragon Index climbed 2.6%.  U.S. treasuries bear steepened In spite of weaker-than-expected PPI data, U.S. long-end treasury yields soared, 10-year yields +10bps to 2.99%, 30-year yields +14bps to 3.17%. The rise in long-end yields were initially driven by large blocks of selling in the T-bond and Ultra-long contracts and exacerbated in the afternoon after a poor 30-year auction. The yield of 2-year treasury notes was unchanged and the 2-10-year yield curve steepened 10bps to minus 23bps.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hong Kong and mainland Chinese equities surged, Hang Seng Index +2.4%, CSI300 Index +2.0%. Northbound inflows into A shares jumped to a 2-month high of USD1.9 billion. In anticipation of a 15% rise in the average selling price of Apple’s iPhone 14 as conjectured by analysts, iPhone parts supplier stocks soared in both Hong Kong and mainland exchanges, Q Technology (01478:xhkg) +17.7%, Sunny Optical (02382:xhkg) +9%, Cowell E (01415:xhkg) +4%, Lingyi iTech (002600:xsec) +10%. China internet names rebounded, Alibaba (09988:xhkg) +4.3%, Tencent (00700:xhkg) +2.7%, Meituan (03690:xhkkg) +4.0%, Baidu (09888:xhkg) +5.2%. Power tool and floor care manufacturer, Techtronic Industries (00669:xhkg) soared nearly 11% after reporting  a 10% year-on-year growth in both revenues and net profits in 1H22. The company rolled out a new generation of drill drivers that have embedded with machine learning algorithm. After collapsing 16% in share price yesterday, Longfor (00960) managed to stabilize and recover 5.7% following the company’s refutation of market speculation that it had failed to repay commercial papers due. EURUSD re-tested resistance levels EURUSD reclaimed the key 1.0300 on Thursday amid a softer dollar, and printed highs of 1.0364. While weaker-than-expected inflation prints in the US this week have curtailed dollar strength, it is hard for EURUSD to sustain gains amid the energy crisis and European recession concerns. A break below 1.0250 would be needed for EURUSD to reverse the trend, however. AUDUSD, likewise, trades above 0.7100 amid the risk on tone, but a turn lower in equities could reverse the trend. GBPUSD has been more range-bound around 1.2200 ahead of the Q2 GDP data scheduled to be released today, and EURGBP may be ready to break above 0.8470 resistance if the numbers come out weaker-than-expected. Crude oil prices (CLU2 & LCOV2) Crude oil prices gained further on Thursday amid signs of softer inflation, weaker dollar and improving demand. The International Energy Agency (IEA) lifted its consumption estimate by 380 kb/d, saying soaring gas prices amid strong demand for electricity is driving utilities to switch to oil. This could be aided by lower gasoline prices, which have dented demand during the US driving season. Prices fell below USD4/gallon for the first time since March. Meanwhile, OPEC may struggle to raise output in coming months due to limited spare capacity. WTI futures touched $94/barrel while Brent futures rose towards the 100-mark.   What to consider? Another downside surprise in US inflation US July PPI dipped into negative territory to come in at -0.5% MoM, much cooler than 1% last month or the +0.2% expected. But on a YoY basis, PPI remains up a shocking 9.8%. Core PPI rose 0.4% MoM, which means on a YoY basis core producer prices are up 7.6% (lower than June's +8.2% but still near record highs). Goods PPI fell 1.8%, dominated by a 9.0% drop in energy. Meanwhile, services PPI was up 0.1% in July. Despite the slowdown in both PPI and CPI this week, PPI is still 1.3% points above CPI, suggesting margin pressures and a possible earnings recession. Fed’s Daly said she will be open to a 75bps rate hike at the September meeting. US jobless claims rise, University of Michigan ahead US initial jobless claims 262K vs 265K estimate, notably higher than the 248k the prior week and the highest since November 2021. The 4-week moving average of initial jobless claims increased to 252K vs 247.5K last week, but still below 350k levels that can cause an alarm. The modest pickup in claims suggests that turnover at weaker firms is increasing. Key data to watch today is the preliminary University of Michigan survey for August, where expectations are for a modest improvement given lower gasoline prices. China’s central bank expects CPI to hover around 3% In its 2nd quarter monetary policy report released on Wednesday, the People’s Bank of China (PBOC) expects the CPI being at around 3% for the full year of 2022 and at times exceeding 3%.  The release of pend-up demand from pandemic restrictions, the upturn of the hog-cycle, and imported inflation, in particular energy, are expected to drive consumer price inflation higher for the rest of the year in China but overall within the range acceptable by the central bank.  The PBOC expects the recent downtrend of the PPI to continue and the gap between the CPI and PPI growth rates to narrow. The PBOC reiterates that it will avoid excessive money printing to spur growth so as to safeguard against inflation.  China’s President Xi is said to be visiting Saudi Arabia next week The Guardian reports that President Xi Jinping is expected to visit Saudi Arabia on an invitation extended from Riyadh in March.  China has been eager to secure its oil supply and explore the possibility of getting its sellers to accept the renminbi to settle oil trade.   While relying on the United States for security in a volatile region and supplies of weapons, Saudi Arabia with Prince Mohammed being in charge is looking for leverage in the kingdom’s relationship with the United States.  UK Q2 GDP likely to show a contraction The Q2 GDP in the UK is likely to show a contraction after April was down 0.2% and May up 0.5%. June GDP is likely to have seen a larger contraction given less working days in the month, as well as constrained household spending as inflation surged to a fresh record high. While there may be a growth recovery in the near-term, the Bank of England clearly outlined a recession scenario from Q4 2022 and that would last for five quarters. Our Macro Strategist Chris Dembik has painted a rather pessimistic picture of the UK economy.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 12, 2022

Summary:  Equity markets are ebullient in the wake of the softer than expected US July CPI data print yesterday, as a sharp drop in energy prices helped drag the CPI lower than expected for the month. The knee-jerk reaction held well in equities overnight, if to a lesser degree in the weaker US dollar. But US yields are nearly unchanged from the levels prior to the inflation release, creating an interesting tension across markets, also as some Fed members are explicitly pushing back against market anticipation of the Fed easing next year.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) The July CPI report showing core inflation rose only 0.3% m/m compared to 0.5% m/m expected was just what the market was hoping for and had priced into the forward curve for next year’s Fed Funds rate. Long duration assets reacted the most with Nasdaq 100 futures climbing 2.9%. However, investors should be careful not to be too optimistic as we had a similar decline in the CPI core back in March before inflation roared back. As Mester recently stated that the Fed is looking for a sustained reduction in the CPI core m/m, which is likely a 6-month average getting back to around 0.2% m/m. Given the current data points it is not realistic to be comfortable with inflation before late Q1 next year. In Nasdaq 100 future the next natural resistance level is around 13,536 and if the index futures can take out this then the next level be around 14,000 where the 200-day average is coming down to. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hong Kong and mainland Chinese equities climbed, Hang Seng Index +1.8%, CSI300 Index +1.6%. In anticipation of a 15% rise in the average selling price of Apple’s iPhone 14 as conjectured by analysts, iPhone parts supplier stocks soared in both Hong Kong and mainland exchanges, Q Technology (01478:xhkg) +16%, Sunny Optical (02382:xhkg) +7%, Cowell E (01415:xhkg) +4%, Lingyi iTech (002600:xsec) +10%. Semiconductors gained, SMIC (00981:xhkg) +3%, Hua Hong (01347:xhkg) +4%. After collapsing 16% in share price yesterday, Longfor (00960) only managed to recover around 3% after the company denied market speculation that it failed to repay commercial papers due. UBS’ downgraded Longfor and Country Garden (02007:xhkkg) yesterday citing negative free cash flows for the first half of 2022 highlighted the tight spots even the leading Chinese private enterprise property developers are in. Chinese internet stocks rallied, Alibaba (09988:xhkg) +3%, Tencent (0700:xhkg) +1%, Meituan (03690:xhkkg) +2.7%. China ended its military drills surrounding Taiwan on Wednesday, which lasted three days longer what had been originally announced. USD: Treasuries don’t point to further weakness here The US dollar knee-jerked lower on the softer-than-expected July CPI data, although US yields ended the day unchanged, creating an interesting tension in a pair like USDJPY, which normally takes its lead from longer US yields (unchanged yesterday after a significant dip intraday after the US CPI release). USDJPY dipped almost all the way to 132.00 after trading above 135.00 earlier in the day. What are traders to do – follow the coincident US yield indicator or the negative momentum created by yesterday’s move? Either way, a return above 135.00 would for USDJPY would likely require an extension higher in the US 10-year yield back near 3.00%. EURUSD is another interesting pair technically after local resistance just below 1.0300 gave way, only to see the pair hitting a brick wall in the 1.0350 area (major prior range low from May-June). Was this a break higher or a misleading knee-jerk reaction to the US data? A close below 1.0250 would be needed there to suggest that EURUSD is focusing back lower again. A similar setup can be seen in AUDUSD and the 0.7000 area, with a bit more sensitivity to risk sentiment there. Gold (XAUUSD) did not have a good day on Wednesday Gold was trading lower on the day after failing to build on the break above resistance at $1803 as the dollar weakened following the lower-than-expected CPI print, thereby reducing demand for gold as an inflation hedge. Instead, the prospect for a potential shallower pace of future rate hikes supported a major risk on rally in stocks and another daily reduction in bullion-backed ETF holdings. Yet comments by two Fed officials saying it doesn’t change the central bank’s path toward even higher rates – and with that the risk of a gold supportive economic weakness - did not receive much attention. Gold now needs to hold $1760 in order to avoid a fresh round of long liquidation, while silver, which initially received a boost from higher copper prices before following gold lower needs to hold above its 50-day SMA at $20.26. Crude oil Crude oil futures (CLU2 & LCOV2) traded higher on Wednesday supported by a weaker dollar after the lower US inflation print gave markets a major risk on boost. Also, the weekly EIA report showed a jump in gasoline demand reversing the prior week’s sharp drop. Gasoline inventories dropped 5 million barrels to their lowest seasonal level since 2015 on a combination of strong exports and improved domestic demand while crude oil stocks rose 5.4m barrels primarily supported by a 5.3 million barrels release from SPR. Focus today on monthly Oil Market Reports from OPEC and the IEA. Dutch natural gas The Dutch TTF natural gas benchmark futures (TTFMQ2) rallied amid concerns over Russian gas supplies and falling water levels on the key Rhine River which threatens to disrupt energy shipments of fuel and coal, thereby forcing utilities and industries to consumer more pipelined gas. Dutch front month futures rose 6.9% to EUR 205.47/MWh while the October to March winter contract closed at a fresh cycle high above €200/MWH. European countries have been filling up their gas storage, largely by factories cutting back on their usage and through LNG imports, the flow of the latter likely to be challenged by increased demand from Asia into the autumn. Further demand curbs and more imports of liquefied natural gas are likely the only option for Europe ahead of the winter. US Treasuries (IEF, TLT) shrug off soft July CPI data US yields at first reacted strongly to the softer-than-expected July CPI release (details below), but ended the day mostly unchanged at all points along the curve, suggesting that the market is unwilling to extend its already aggressive view that the Fed is set to reach peak policy by the end of this year and begin cutting rates. Some Fed members are pushing back strongly against that notion as noted below (particularly Kashkari). A stronger sign that yields are headed back higher for the US 10-year benchmark would be on a close above 2.87% and especially 3.00%. Yesterday’s 10-year auction saw strong demand. What is going on? US July CPI lower than expected The US CPI print came in lower than expected for both the headline and the core measures. The headline softness was driven by huge drops in energy prices from June levels, with the entire energy category marked -4.6% lower month-on-month and gasoline down -7.7%, much of the latter on record refinery margins collapsing. The ex-Food & Energy category was up only +0.3% vs. the +0.5% expected, with soft prices month-on-month for used cars and trucks (-0.4%) and especially airfares (-7.8%) dragging the most on figure. While this may be an indication that US inflation has peaked, it is still at considerably high levels compared to inflation targets of ~2% and the pace of decline from here matters more than the absolute trend. Shelter costs – the biggest component of services inflation – was up 5.7% y/y, the most since 1991. Fed pricing for the September meeting has tilted towards a 50bps rate hike but that still remains prone to volatility with another set of labor market and inflation prints due ahead of the next meeting. Fed speakers maintain hawkish message Fed speaker Evans and Kashkari were both on the hawkish side in rhetoric yesterday. Evans again hinted that tightening will continue into 2023 as inflation remains unacceptably high despite a first sign of cooling prices. The strength of the labor market continued to support the case of a soft landing. Kashkari reaffirmed the view on inflation saying that he is happy to see a downside surprise in inflation, but it remains far from declaring victory. Long thought of previously as the pre-eminent dove among Fed members, he has waxed far more hawkish of late and said yesterday that nothing has changed his view that the Fed funds rate should be at 3.9% at the end of this year (vs. market pricing of 3.5%) and 4.4% by the end 2023 (vs. market pricing of 3.1%). Siemens cuts outlook Germany’s largest industrial company is cutting its profit outlook on impairment charges related to its energy division. FY22 Q3 results (ending 30 June) show revenue of €17.9bn vs est. €17.4bn and orders are strong at €22bn vs est. €19.5bn. Orsted lifts expectations The largest renewable energy utility company in Europe reports Q2 revenue of DKK 26.3bn vs est. 21.7bn, but EBITDA misses estimates and the fiscal year guidance on EBITDA at DKK 20-22bn is significantly lower than estimates of DKK 30.4bn. However, the new EBITDA guidance range is DKK 1bn above the recently stated guidance, so Orsted is doing better than expected but the market had just become too optimistic. Disney beats on subscribers Disney reported FY22 Q3 (ending 2 July) results showing Disney+ subscribers at 152.1mn vs est. 148.4mn surprising the market as several surveys have recently indicated that Amazon Prime and Netflix are losing subscribers. The entertainment company also reported revenue for the quarter of $21.5bn vs est. $21bn with Parks & Experiences deliver the most to the upside surprise. EPS for the quarter was $1.09 vs est. $0.96. If subscribers for ESPN and Hulu are added, then Disney has surpassed Netflix on streaming subscribers. Shares were up 6% in extended trading. Despite the positive result the company lowered its 2024 target for Disney+ subscriber to 135-165mn range. Coupang lifts fiscal year EBITDA outlook The South Korean e-commerce company missed slightly on revenue in Q2 but lifted its fiscal year adjusted EBITDA from a loss of $400mn to positive which lifted shares 6% in extended trading. China’s central bank expects CPI to hover around 3% In its 2nd quarter monetary policy report released on Wednesday, the People’s Bank of China (PBOC) expects the CPI being at around 3% for the full year of 2022 and at times exceeding 3%.  The release of pend-up demand from pandemic restrictions, the upturn of the hog-cycle, and imported inflation, in particular energy, are expected to drive consumer price inflation higher for the rest of the year in China but overall within the range acceptable by the central bank.  The PBOC expects the recent downtrend of the PPI to continue and the gap between the CPI and PPI growth rates to narrow. What are we watching next? Next signals from the Fed at Jackson Hole conference Aug 25-27 There is a considerable tension between the market’s forecast for the economy and the resulting expected path of Fed policy for the rest of this year and particularly next year, as the market believes that a cooling economy and inflation will allow the Fed to reverse course and cut rates in a “soft landing” environment (the latter presumably because financial conditions have eased aggressively since June, suggesting that markets are not fearing a hard landing/recession). Some Fed members have tried to push back against the market’s expectations for Fed rate cuts next year it was likely never the Fed’s intention to allow financial conditions to ease so swiftly and deeply as they have in recent weeks. The risks, therefore, point to a Fed that may mount a more determined pushback at the Jackson Hole forum, the Fed’s yearly gathering at Jackson Hole, Wyoming that is often used to air longer term policy guidance. Earnings to watch Today’s US earnings in focus are NIO and Rivian with market running hot again on EV-makers despite challenging environment on input costs and increased competition. NIO is expected to grow revenue by 15% y/y in Q2 before seeing growth jumping to 72% y/y in Q3 as pent-up demand is released following Covid restrictions in China in the first half. Rivian, which partly owned by Amazon and makes EV trucks, is expected to deliver its first quarter with meaningful activity with revenue expected at $336mn but free cash flow is expected at $-1.8bn. Today: KBC Group, Brookfield Asset Management, Orsted, Novozymes, Siemens, Hapag-Lloyd, RWE, China Mobile, Antofagasta, Zurich Insurance Group, NIO, Rivian Automotive Friday: Flutter Entertainment, Baidu Economic calendar highlights for today (times GMT) 0800 – IEA's Monthly Oil Market Report 1230 – US Weekly Initial Jobless Claims 1230 – US Jul. PPI 1430 – US Weekly Natural Gas Storage Change 1700 – US Treasury to auction 30-year T-Bonds 2330 – US Fed’s Daly (Non-voter) to speak During the day: OPEC’s Monthly Oil Market Report Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Financial Markets Today: Quick Take – August 11, 2022  

Summary:  Risk on mode activated with a softer US CPI print, both on the headline and core measures. Equities rallied but the Treasury market reaction faded amid the hawkish Fedspeak. The market pricing of Fed expectations also tilted more in favor of a 50 basis points rate hike for September immediately after the CPI release, but this will remain volatile with more data and Fed speakers on tap ahead of the next meeting. Commodities, including oil and base metals, surged higher as the dollar weakened and demand outlook brightened but the gains appeared to be fragile. Gold unable to hold gains above the $1800 level. What is happening in markets?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities surged after the CPI prints that came in at more moderate level than market expectations. Nasdaq 100 jumped 2.9% and S&P500 gained 2.1%. Technology and consumer discretionary stocks led the market higher. Helped by the fall in treasury yields and better-than-feared corporate earnings in the past weeks, the Nasdaq 100 has risen 21% from its intraday low on June 16 this year and may technically be considered in a new bull market. The U.S. IPO market has reportedly become active again this week and more activities in the pipeline. Tesla (TSLA:xnas) climbed nearly 4% on news that Elon Musk sold USD6.9 billion of Tesla shares to avoid fire sale if having to pay for Twitter. Walt Disney (DIS:xnys) jumped 7% in after-hours trading on better-than-expected results. U.S. yields plunged immediately post CPI but recouped most of the decline during the US session The yields of the front-end of the U.S. treasury curve collapsed initially after the weaker-than-expected CPI data, almost immediately after the CPI release, 2-year yields tumbled as much as 20bps to 3.07% and 10-year yield fell as much as 11bps to 2.67%. Treasury yields then spent the day gradually climbing higher. At the close, 2-year yields were only 6bps at 3.21% and the 10-year ended the day at 2.78% unchanged from its previous close. The 2-10 yield curve steepened by 6bps to -44bps. Hawkish Fedspeak contributed to some of the reversal in the front-end from the post-CPI lows. At the close, the market is pricing in 60bps (i.e. 100% chance of at least a 50bps hike and about 40% chance of a 75bps rate hike) for the September FOMC after having come down to pricing in just about 50bps during the initial post-CPI plunge in yields. Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hang Sang Index declined nearly 2% and CSI300 was down 1.1% on Wednesday. Shares of Chinese property developers plunged.  Longfor (00960) collapsed 16.4% as there was a story widely circulated in market speculating that the company had commercial paper being overdue. In addition, UBS downgraded the Longor together with Country Garden, citing negative free cash flows in the first half of 2022.  Country Garden (02007) fell 7.2%.  After market close, the management held a meeting with investors and said that all commercial papers matured had been duly repaid. China High Speed Transmission Equipment (00658) tumbled 19% after releasing negative profit warnings.  The company expects a loss of up to RMB80 million for first half of 2022. Guangzhou Baiyunshan Pharmaceutical (00874) declined 4.1% after the company filed to the Stock Exchange of Hong Kong that the National Healthcare Security Administration was investigating the three subsidiaries of the company for allegedly “obtaining funds by ways of increasing the prices of pharmaceutical products falsely”. Wuxi Biologics (02269) dropped 9.3% as investors worrying its removal from the U.S. unverified list may be delayed in the midst of deterioration of relationship between China and the U.S. Oversized USD reaction on US CPI The US dollar suffered a heavy blow from the softer US CPI print, with the market pricing for September FOMC getting back closer to 50 basis points just after the release. As we noted yesterday, the July CPI print is merely noise with another batch of US job and inflation numbers due ahead of the September meeting. USD took out some key support levels nonetheless, with USDJPY breaking below the 133.50 support to lows of 132.10. Next key support at 131.50 but there possibly needs to be stronger evidence of an economic slowdown to get there. EURUSD broke above 1.0300 to its highest levels since July 5 but remains at risk of reversal given the frothy equity strength. Crude oil prices (CLU2 & LCOV2) Oil prices were relieved amid the risk on tone in the markets as softer US CPI and subsequent weakness in the dollar underpinned. WTI futures rose towards $91.50/barrel while Brent futures were at $97.40. EIA data also suggested improvement in demand. US gasoline inventories fell 4,978kbbl last week, which helped push gasoline supplied (a proxy for demand) up 582kb/d to 9.12mb/d. This was slightly tempered by a strong gain in US crude oil inventories, which rose 5,457kbbl last week. Supply concerns eased after Transneft resumed gas supplies to three central European countries which were earlier cut off due to payment issues. European Dutch TTF natural gas futures (TTFMQ2) European natural gas rallied amid concerns over Russian gas supplies and falling water levels on the key Rhine River which threatens to disrupt energy shipments. Dutch front month futures rose 6.9% to EUR 205.47/MWh as a drought amid extreme temperatures has left the river almost impassable. European countries have been filling up their gas storage, largely by factories cutting back on their usage. Further demand curbs and more imports of liquefied natural gas are likely the only option for Europe ahead of the winter. Gold (XAUUSD) and Copper (HGc1) Gold saw a run higher to $1800+ levels immediately after the US inflation report as Treasury yields plunged. However, the precious metal gave up much of these gains after Fed governors warned that it doesn’t change the US central bank’s path toward higher rates this year and next. With China also ceasing military drills around Taiwan, geopolitical risks remain capped for now easing the upside pressure on Gold. Copper was more buoyant as it extended gains on hopes of a stronger demand amid a fall in price pressures.   What to consider? Softer US CPI alters Fed expectations at the margin The US CPI print came in weaker than expected for both the headline and the core measures. The headline softness was driven by huge drops in energy prices from June levels, with the entire energy category market -4.6% lower month-on-month and gasoline down -7.7%, much of the latter on record refinery margins collapsing. The ex-Food & Energy category was up only +0.3% vs. the +0.5% expected, with soft prices month-on-month for used cars and trucks (-0.4%) and especially airfares (-7.8%) dragging the most on figure – again primarily a result of lower energy prices. While this may be an indication that US inflation has peaked, it is still at considerably high levels compared to inflation targets of ~2% and the pace of decline from here matters more than the absolute trend. Shelter costs – the biggest component of services inflation – was up 5.7% y/y, the most since 1991. Fed pricing for the September meeting has tilted towards a 50bps rate hike but that still remains prone to volatility with another set of labor market and inflation prints due ahead of the next meeting. Fed speakers continued to be hawkish Fed speaker Evans and Kashkari were both on the hawkish side despite being some of the most dovish members on the Fed panel. Evans again hinted that tightening will continue into 2023 as inflation remains unacceptably high despite a first sign of cooling prices. The strength of the labor market continued to support the case of a soft landing. Kashkari reaffirmed the view on inflation saying that he is happy to see a downside surprise in inflation, but it remains far from declaring victory. He suggested Fed funds rate will reach 3.9% in 2022 (vs. market pricing of 3.5%) and 4.4% in end 2023 (vs. market pricing of 3.1%). China’s PPI inflation eased while CPI picked up in July China’s PPI came in at 4.2% YoY in July, notably lower from June’s 6.1%).   The decline was mainly a result of lower energy and material prices.  The declines of PPI in the mining and processing sectors were most drastic and those in downstream industries were more moderate.  CPI rose to 2.7% YoY in July from 2.5% in June, less than what the consensus predicted.  Food inflation jumped to 6.3% YoY while the rise in prices of non-food items moderated to 1.9%. Core CPI, which excludes food and energy, rose 0.8% YoY in July, down from June’s 1.0%. In its 2nd quarter monetary policy report released on Wednesday, the People’s Bank of China expects the CPI to be at around 3% for the full year of 2022 and the recent downtrend of the PPI to continue. China issues white paper on its stance on Taiwan China ended its military drills surrounding Taiwan on Wednesday, which lasted three days longer what had been originally announced. In a less confrontational white paper released, the Taiwan Affairs Office and the Information Office of China’s State Council reiterated China’s commitment to “work with the greatest sincerity” and exert “utmost efforts to achieve peaceful reunification”.  The paper further says that China “will only be forced to take drastic measures” if “separatist elements or external forces” ever cross China’s red lines.  Walt Disney results beat estimates Disney reported solid Q2 results with stronger than expected 152.1 million Disney+ subscribers, up 31% YoY and beating market expectations (148.4 million).  Revenues climbed 26% YoY to USD21.5 billion and adjusted EPS came in at USD1.09 versus consensus estimates (USD0.96). Singapore Q2 GDP revised lower The final print of Singapore’s Q2 GDP was revised lower to 4.4% YoY from an advance estimate of 4.8% earlier, suggesting a q/q contraction of 0.2% as against gains of 0.2% q/q earlier. The forecast for annual 2022 growth was also narrowed to 3-4% from 3-5% earlier amid rising global slowdown risks. Another quarter of negative GDP growth print could now bring a technical recession in Singapore, but the officials have, for now, ruled that out and suggest a mild positive growth in Q3 and Q4. Softbank settled presold Alibaba shares early and Alibaba let go of a large number of employees The news that Softbank expects to post a gain of over USD34 billion from early physical settlement of prepaid forward contracts to unload its stake in Alibaba (09988:xhkg/BABA:xnas) and Alibaba laid off more than 9,000 staff between April and June this year added to the pressures over the share price of Alibaba.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 11, 2022  

Summary:  Market sentiment weakened again yesterday, with the US Nasdaq 100 index interacting with the pivotal 13,000 area that was so pivotal on the way up ahead of today’s US July CPI release, which could prove important in either confirming or rejecting the complacent market’s expectations that a slowing economy and peaking inflation will allow the Fed to moderate its rate hike path after the September meeting. A surprisingly strong core CPI reading would likely unsettle the market today.   Our trading focus   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) US interest rates are moving higher again and US equities lower with the S&P 500 at 4,124 yesterday with today’s price action testing the 100-day moving average around the 4,110 level. The past week has delivered more negative earnings surprises and weak outlooks impacting sentiment and the geopolitical risk picture is not helping either. In the event of a worse than expected US CPI release today we could take out the recent trading range in S&P 500 futures to the downside and begin the journey back to 4,000. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Tech Index (HSTECH.I) fell 3%. China internet stocks declined across the aboard, losing 2-4%. Shares of EV manufacturers plunged 4-8% despite the China Passenger Car Association raised its 2022 EV sales estimate yesterday to 6mn, 9% higher from its previous estimate. Hang Seng Index plunged 2.4% and CSI300 fell 1.1%. USD decision time The USD remains largely stuck in neutral and may remain so unless or until some incoming input jolts the US treasury market and the complacent view that the US is set to peak its policy rate in December, with the potential to ease by perhaps mid-next year. Technical signs of a broad USD recovery, whether on yields pulling higher or due to a sudden cratering in market sentiment on concerns for the economic outlook or worsening liquidity as the Fed QT schedule is set to continue for now regardless of incoming data, would include USDJPY pulling above 136.00, EURUSD dropping down through 1.0100 and AUDUSD back down below 0.6900. Today’s July US CPI could prove a catalyst for a directional move in the greenback in either direction. Gold (XAUUSD) briefly tested a key area of resistance above $1800 on Tuesday ... before retracing lower as the recent support from rising silver and copper prices faded. With the dollar and yields seeing small gains ahead of today’s US CPI print, and with key resistance levels in all three metals looming, traders decided to book some profit. The market is looking for US inflation to ease from 9.1% to 8.8% and the outcome will have an impact on rate hike expectations from the Fed with a a higher-than-expected number potentially adding some downward pressure on metal prices. Silver (XAGUSD), as highlighted in recent updates, has been outshining Gold and in the process managing to mount a challenge above its 50-day moving average, now support at $20.33 with focus on resistance at $20.85.  Crude oil Crude oil prices rose on Tuesday on news pipeline flows of crude oil from Russia via Ukraine to Europe had been halted over a payment dispute of transit fees. The line, however, is expected to reopen within days but it nevertheless highlights and supports the current price divergence between WTI futures stuck around $90, amid rising US stockpiles and slowing gasoline demand, and Brent which trades above $96. The API reported a 2.2-million-barrel increase in US stockpiles last week with stocks at Cushing, the key storage hub, also rising. The official government inventory report is due today, with surveys pointing to a much smaller build at just 250k barrels. In addition, the market will be paying close attention to implied gasoline demand with recent data showing a slowdown. Also focus on China as lockdowns return, US CPI and Thursday’s Oil Market Reports from OPEC and the IEA. Grains eye Friday’s WASDE report US grain futures led by soybeans and corn trade higher on the week in response to worsening crop conditions. Just like central Europe, soaring heat and drought have raised concerns about lower production and yields. USDA will publish its monthly supply and demand estimates on Friday and given the current conditions a smaller yield could tighten the ending stock situation. The crop condition report, published every Monday by the USDA throughout the growing season, shows the proportion of the US crop being rated in a good to excellent condition. Last week the rating for corn dropped by 3% to 58% versus 64% a year ago. US Treasuries (IEF, TLT) US 10-year yields are poised in an important area ahead of the pivotal 3.00% level that would suggest a more determined attempt for yields to try toward the cycle top at 3.50%. Of late, the yield curve inversion has been the primary focus as long yields remain subdued relative to the front end of the curve, a development that could deepen if inflation remains higher than expected while economic activity slows. The three-year T-note auction yesterday saw solid demand, while today sees an auction of 10-year Treasuries.   Newsfeed   Taiwan officials want Foxconn to withdraw investment in Chinese chip company Foxconn announced a $800 million investment in mainland China’s Tsinghua Unigroup last month, but national security officials want the company to drop the investment, likely in connection with recent US-China confrontation in the wake of the visit to Taiwan from US House Speaker Pelosi and the ensuing Chinese military exercises around Taiwan. US Q2 Unit Labor costs remain high at 10.8%, while productivity weak at –4.6% These number suggest a very tight labor market as companies are beset with rising costs for work and less output per unit of worker effort. This number was down from the Q1 levels, but in many past cycles, rising labor costs and falling productivity often precede a powerful deceleration in the labor market as companies slow hiring (and once the recession hits begin firing employees which registers as lower unit costs and rising productivity). Japan PPI shows continued input price pressures Japan’s July producer prices came in slightly above expectations at 8.6% y/y (vs. estimates of 8.4% y/y) while the m/m figure was as expected at 0.4%. The continued surge reflects that Japanese businesses are waddling high input price pressures, and these are likely to get passed on to the consumers, suggesting further increases in CPI remain likely. The government is also set to announce a cabinet reshuffle today, and households may see increased measures to help relieve the price pressures. That will continue to ease the pressure on the Bank of Japan to tighten policy. Chipmaker warnings continue, with Micron warning of ‘challenging’ conditions After Nvidia, now Micron has issued warning of a possible revenue miss in the current quarter and ‘challenging’ memory conditions. The company officials said that they expect the revenue for the fiscal fourth quarter, which ends in August, “may come in at or below the low end of the revenue guidance range provided in our June 30 earnings call.” The company had called for $6.8-7.6bn in revenue in its June earnings report. Moreover, they also guided for a tough next quarter as well as shipments could fall on a sequential basis, given the inventory build-up with their customers. Vestas Q2 result miss estimates The world’s largest wind turbine maker has posted Q2 revenue of €3.3bn vs est. €3.5bn and EBIT of €-182mn vs est. €-119mn. The company is issuing a fiscal year revenue outlook of €14.5-16bn vs est. €15.2bn. Coinbase misses in revenue issues weak guidance Q2 revenue missed by 5% against estimates and the user metric MTU was lowered to 7-9mn from previously 5-15mn against estimates of 8.7mn. The crypto exchange is saying that retail investors are getting more inactive on cryptocurrencies due to the recent violent selloff. China’s PPI inflation eased while CPI picked up in July China’s PPI came in at 4.2% y/y in July, notably lower from June’s 6.1%).   The decline was mainly a result of lower energy and material prices.  The declines of PPI in the mining and processing sectors were most drastic and those in downstream industries were more moderate.  CPI rose to 2.7% y/y in July from 2.5% in June, less than what the consensus predicted.  Food inflation jumped to 6.3% y/y while the rise in prices of non-food items moderated to 1.9%, core CPI, which excludes food and energy, rose 0.8% y/y in July, down from June’s 1.0%. China issues white paper on its stance on Taiwan Despite extending the military drills near Taiwan beyond the originally schedule, in a less confrontational white paper released today, the Taiwan Affairs office and the Information Office of China’s State Council reiterated China’s commitment to “work with the greatest sincerity” and exert “utmost efforts to achieve peaceful reunification”.  The paper further says that China “will only be forced to take drastic measures” if “separatist elements or external forces” ever cross China’s red lines.    What are we watching next?   US CPI due today: the core in focus The highly watched US inflation data is due to be released today, and the debate on inflation peaking vs. higher-for-longer will be revived. Meanwhile, the Fed has recently stayed away from providing forward guidance, which has now made all the data points ahead of the September 21 FOMC meeting a lot more important to predict the path of Fed rates from here. Bloomberg consensus expects inflation to slow down from 9.1% YoY in June to 8.8% YoY last month. The core print will gather greater attention to assess stickiness and breadth of price pressures. Will any surprise just be noise given that we have another print for August due ahead of the next FOMC meeting, os is this market looking for an excuse to be surprised as it has maintained a rather persistent view that US inflation data will soon roll over and see a Fed set to stop tightening after the December FOMC meeting? Fed’s Evans will take the hot seat today Chicago President Charles Evans discusses the economy and monetary policy today. Evans is not a voter this year, but he votes in 2023. He said last week a 50bps rate hike is a reasonable assessment for the September meeting, but 75bps is a possibility too if inflation does not improve. He expects 25bps from there on until Q2 2023 and sees a policy rate between 3.75-4% in 2023, which is in line with Fed’s median view of 3.8% for 2023, but above the 3.1% that the market is currently pricing in. Earnings to watch Today’s US earnings in focus are marked in bold with the most important earnings release being Walt Disney and Coupang. Disney is expected to deliver revenue growth of 23% y/y with operating margins lower q/q as the company is still facing input cost headwinds. Coupang, which is the largest e-commerce platform in South Korea, is expected to deliver revenue growth of 13% y/y and another operating loss as e-commerce platforms are facing slowing demand and still significant input cost pressures. Today: Commonwealth Bank of Australia, Vestas Wind Systems, Genmab, E.ON, Honda Motor, Prudential, Aviva, Walt Disney, Coupang, Illumina Thursday: KBC Group, Brookfield Asset Management, Orsted, Novozymes, Siemens, Hapag-Lloyd, RWE, China Mobile, Antofagasta, Zurich Insurance Group, NIO, Rivian Automotive Friday: Flutter Entertainment, Baidu Economic calendar highlights for today (times GMT) 0700 – Czech Jul. CPI 1230 – US Jul. CPI 1430 – US Weekly DoE Crude Oil and Product Inventories 1500 – US Fed’s Evans (non-voter) to speak 1600 – UK Bank of England economist Pill to peak 1700 – US Treasury to auction 10-year notes 1800 – US Fed’s Kashkari (non-voter) to speak 2301 – UK Jul. RICS House Price Balance 0100 – Australia Aug. Consumer Inflation Expectations Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: https://www.home.saxo/content/articles/macro/market-quick-take-aug-10-2022-10082022

Summary:  US equities were not impressed by the lower inflation expectations in the New York Fed’s consumer survey, and Micron’s revenue warning added to the fears with broad losses seen across the semiconductor space. Equity losses broadened as earnings continued to disappoint, and the yield curve inverted further. The US CPI wait game is unlikely to be much more than just noise, but upside risks to USD are seen on stronger underlying dynamics. On the radar today will also be China’s inflation data will be parsed for hints on demand recovery and Fed speakers who may continue to bring up market expectations of Fed’s rate hike path. Markets latest news     Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  US. Equities traded lower in a quiet session, awaiting today’s CPI data.  Nasdaq 100 fell 1.2% after Micron Technology (MU:xnas), added to investors’ concern over weakening demand for microchips when the company issued a negative revenue warning, just a day after another leading chip maker, Nvidia (NVDA:xnas) similarly announced.  The company said that the current quarter revenue could come in at or below the low end of prior guidance. Share price of Micron fell 3.7%. S&P 500 fell 0.4%. After the close, Coinbase Global, Roblox, and Wynn Resorts reported weaker-than-expected results and declined in after-hours trades. U.S. yield curve inverts further Front-end U.S. treasury yields rose 6bps and caused the 2-10-year yield spread further inverted to -49.5bps. The 10-year treasury note yield edged up by 2bps to 2.78% after the Q2 unit labor costs in the U.S. came in at 10.8%, higher than expected.  The 3-year action showed decent demand from investors after yields had risen ahead of the auction.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Shares of leading Hong Kong property developers surged as much as 5% at one point in the morning session, following newswires, citing Executive Council convener Regina Ip, suggested that Hong Kong is considering to remove the punitive double stamp duty imposed on residential property buyers from the mainland.  The Hang Seng Index rose as much as 1% in the morning but both the Hang Seng Index and Hong Kong developers pared gains after the office of the Financial Secretary refuting the speculation after midday.  Hung Kai Properties (00016:xhkg) and CK Assets (01113:xhkg) finished the day 2% higher and Henderson Land (00012:xhkg) +0.7%. The Hang Seng Index reversed and closed 0.2% lower.  Shares of coal miners surged 2% to 5% across the board following reports that a large Shanxi coal mine had an incident and caused temporary suspension of production.  Chinese EV names traded lower on concerns spurred by a 64% MoM fall of Tesla sales in July despite that the China Passenger Car Association raised EV sales estimate to 6 million, 9% higher from its previous estimate. In A-shares, CSI300 was modestly higher, with coal mining, auto parts, wind and solar power storage, and chiplet concept shares outperformed.   EURUSD and USDJPY stucked The US inflation will be relevant beyond the headline print. Key focus is likely to be on the core measure, as it is evident that lower commodity prices may have helped to cool the headline measure. The US dollar rallied sharply on Friday after a solid jobs print, but has since steadied. The next leg higher could depend on the stickiness of the inflation print, which may raise further the expectations of a 75bps rate hike at the September Fed meeting. EURUSD took another look above 1.0240 overnight but reversed back towards 1.0200 in early Asia. USDJPY is also stuck in the middle of the 130-140 range, awaiting triggers for a breakout one way or another. Oil prices (CLU2 & LCOV2) Oil prices steadied in the Asian morning on Wednesday amid renewed concerns on Russian flows to Europe. WTI futures were seen around the key $90 level, while Brent futures touched $96/barrel. API report also showed another week of strong inventory build, coming in at 2.2 million for week ended August 5 as compared to expectations of 73k. The official government inventory report is due today, and China’s inflation data will also be on watch. Grains eye the USDA report US grain futures led by corn traded higher on Tuesday in response to worsening crop conditions. Just like central Europe, soaring heat and drought have raised concerns about lower production and yields. USDA will publish its monthly supply and demand estimates on Friday. The crop condition report, published every Monday by the USDA throughout the growing season, shows the proportion of the US crop being rated in a good to excellent condition. Silver against Gold. Gold (XAUUSD) looking to test $1800 Gold’s focus remains on the geopolitical tensions, despite the recent rise in US Treasury yields. The US CPI and the $1800 resistance area are now the key tests for Gold ahead, and any pickup in rate hike expectations from the Fed could bring bears of the yellow metal back in force. Silver (XAGUSD) has been outshining Gold and in the process managing to mount a challenge above its 50-day moving average, now support at $20.33 with focus on resistance at $20.85.   What to consider?     US CPI due today will be just noise The highly-watched US inflation data is due to be released today, and the debate on inflation peaking vs. higher-for-longer will be revived. Meanwhile, the Fed has recently stayed away from providing forward guidance, which has now made all the data points ahead of the September 21 FOMC meeting a lot more important to predict the path of Fed rates from here. Bloomberg consensus expects inflation to slow down from 9.1% YoY in June to 8.8% YoY last month, but it will be more important to think about how fast inflation can decelerate from here, and how low it can go. The core print will gather greater attention to assess stickiness and breadth of price pressures. However, any surprise will still just be a noise given that we have another print for August due ahead of the next FOMC meeting. Fed’s Evans will take the hot seat today Chicago President Charles Evans discusses the economy and monetary policy today. Evans is not a voter this year, but he votes in 2023. He said last week a 50bps rate hike is a reasonable assessment for the September meeting, but 75bps is a possibility too if inflation does not improve. He expects 25bps from there on until Q2 2023 and sees a policy rate between 3.75-4% in 2023, which is in line with Fed’s median view of 3.8% for 2023, but above the 3.1% that the market is currently pricing in. US New York Fed survey of inflation expectations show sharp decline Median 1-year ahead and 3-year ahead inflation expectations declined sharply in July, from 6.8%/3.6% in June to 6.2%/3.2% in July. Lower income households showed the greatest shift lower in expectations, possibly linked to the sharp drop in petrol prices (the peak in June in one national measure was over $5.00/gallon, a level that fell to below $4.25/gallon by the end of July. China’s PPI inflation is set to ease while CPI is expected to pick up in July The median forecasts from economists being surveyed by Bloomberg are 4.9% (vs June: 6.1%) for PPI and 2.9% (vs 2.5% for June). The higher CPI forecast is mainly a result of a surge in pork prices by 35% in July from June. On the other hand, PPI is expected to continue its recent trend of deceleration due to a low base and a fall in material prices. The convergence of the gap between PPI and CPI is likely to benefit downstream manufacturing industries. Japan PPI shows continued input price pressures Japan’s July producer prices came in slightly above expectations at 8.6% y/y (vs. estimates of 8.4% y/y) while the m/m figure was as expected at 0.4%. The continued surge reflects that Japanese businesses are waddling high input price pressures, and these are likely to get passed on to the consumers, suggesting further increases in CPI remain likely. The government is also set to announce a cabinet reshuffle today, and households may see increased measures to help relieve the price pressures. That will continue to ease the pressure on the Bank of Japan to tighten policy. Coinbase is still losing but is going to give a fight Coinbase (COIN:xnas) reported la loss of USD1.1 billion in Q2, larger-than-expected. Revenues dropped to USD808 million, sharply lower from last year’s USD2.2 billion. Monthly transaction users fell to 9 million, 2% lower from prior quarter. The company sees average monthly transaction users 7 millions to 9 millions in the current quarter. Coinbase Global is worth watching given the fallout in cryptocurrency trading and the recent partnership with BlackRock to ease access for institutional investors. Chipmaker warnings continue, with Micron warning of ‘challenging’ conditions After Nvidia, now Micron (MU) has issued warning of a possible revenue miss in the current quarter and ‘challenging’ memory conditions. The company officials said that they expect the revenue for the fiscal fourth quarter, which ends in August, “may come in at or below the low end of the revenue guidance range provided in our June 30 earnings call.” The company had called for $6.8-7.6 billion in revenue in its June earnings report. Moreover, they also guided for a tough next quarter as well as shipments could fall on a sequential basis, given the inventory buildup with their customers.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast. Source: https://www.home.saxo/content/articles/equities/apac-daily-digest-10-aug-2022-10082022

Macro 2022-04-13 08:25 6 minutes to read Summary:  Markets are waking up about where they left off yesterday, as a US equity market rally in the wake of slightly softer than expected core US inflation in March was reversed back to its starting point. Overnight, the New Zealand central bank hiked more than expected, but guided less hawkish, so NZD fell. The Bank of Canada is expected to beat the Fed to the punch today by hiking by 50 basis points for the first time since 2000.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - US equities tried to shift back to a positive stance yesterday in the wake of a slightly softer core CPI reading for March, but the rally was erased by the close, as attention is set to shift to earnings season which kicks off today in earnest. The Nasdaq 100 index has yet to break down through the 61.8% Fibonacci retracement level at 13,831, a break of which could usher in a full test of the 12,942.5 low. The less yield-sensitive S&P 500 index is farther above its respective 61.8% retracement level (4,299) but posted a weak session to new local lows yesterday, even as sentiment has recovered again overnight. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) were little changed.  Energy and mining stocks outperformed.  China’s Ministry of Transport has issued a notice to local governments to urge the latter to keep highways in operation in areas affected by lockdowns.  China is also piloting in eight cities to reduce the number of days required for quarantine from 14 days to 10 days.  China reported better than expected March export data (+14.7% YoY in USD terms) while imports declined (-0.1% YoY in USD terms). Trade surplus increased to USD47.4 billion (vs consensus $21.7bln, Feb $30.6bln). Stoxx 50 (EU50.I) – the Stoxx 50 index snapped back from new local lows yesterday –emphasizing the importance of the 3,800 area support – and is fairly sideways overnight in the futures, a somewhat better performance than the major US averages, where a rally attempt yesterday was fully wiped out.  A weak euro certainly helps exporters, but energy/power prices continue to weigh on Europe’s economic outlook. EURUSD and EUR pairs  – the euro continues to trade heavily and EURUDS has nearly touched the lows for the cycle around near 1.0800. It was rather disappointing for bulls that the pair failed to get more support from a consolidation lower in US yields yesterday in the wake of the slightly cooler than expected core inflation reading (more below). The ongoing unease as Russia looks set to widen its offensive in eastern Ukraine and concerns that the ECB will remain dovish tomorrow perhaps weighing. The next major level lower is the 1.0636 level posted during the pandemic outbreak panic. USDCAD is at pivotal levels in the 1.2650 area, ... ...about the half-way point of the recent  price range and near the 200-day moving average ahead of today’s Bank of Canada meeting, which is expected to bring a 50-basis point rate hike (to take the policy rate to 1.00%), which would be the first rate hike of more than 25 bps since 2000. But with the Fed seen likely matching the Bank of Canada’s pace of tightening by year-end, the BoC may need to guide hawkish, or CAD may need to find more support from rising oil prices and improving risk sentiment broadly if it is to stage a rally against the US dollar. The technical situation certainly looks pivotal. Gold (XAUUSD) The advance in gold prices was a bit more impressive yesterday as the move higher above the key 1,966 area stuck, though the real challenge remains a bid to retake the psychologically important 2,000 level. The dip in treasury yields yesterday and weak risk sentiment in equities provided some of the boost. Crude oil (OILUKJUN22 & OILUSMAY22)  A solid comeback for oil prices yesterday, as WTI crude joined Brent in trading back above 100/bbl ahead of weekly US crude oil and product inventories from the DoE today. China moving to ease some of the Shanghai covid lockdowns may have boosted sentiment on the demand side. And longer-term supply concerns are in clear evidence as long-dated crude for December of 2023, trades within two dollars of the highest daily close for the cycle back in early March. US Treasuries (IEF, TLT) and European Sovereign Debt. Treasury traders took the slightest easing of the pace of core March US inflation as a signal for consolidation yesterday, as yields dropped all along the curve, and more so at the front end as the market perhaps figures that as long as the pace of inflation rises moderates, it can stop the constant upward adjustments to the perceived path of Fed policy tightening this year. A US 10-year treasury auction saw tepid demand yesterday. Today sees a 30-year T-bond auction. EU yields also eased lower yesterday from new cycle- and multi-year highs. What is going on? New Zealand’s RBNZ surprises with 50-basis point hike, but guides less hawkish.  The market was looking for a 25-basis point move to take the Official Cash Rate to 1.25%, but instead got 50 basis points and a 1.50% policy rate. The argument in the statement was that the bank saw it prudent to bring hiking forward to reduce the risks of rising inflation expectations. At the same time, the statement frets the slowing pace of global economic activity. After an initial spike higher on the impact of the larger than expected hike, the NZD traded lower in the wake of the decision as the 2-year NZ rate dropped some 15 basis points. AUDNZD also retains an upward bias given the demand in resource-rich Australian assets. Australia’s business data also continues to hold up for now, while New Zealand is facing deteriorating business sentiment and chronic labor shortage. UK Mar. CPI out this morning – hotter than expected.  UK March CPI hit +1.1% MoM and +7.0% YoY on the headline (vs. +0.8% /+6.7% expected) and +5.7% YoY (vs. +5.3% expected) for the core CPI reading Crowdstrike (CRWD) rose 3.2% on a Goldman Sach upgrade to buy. Crowdstrikeis the world’s biggest cybersecurity company. The analyst community also likes Crowdstrike  with 93% of analysts rating the stock as a buy. Goldman Sachs expects Crowdstrike’s shares to rise to $285 in a year. USDJPY refuses to drop below 125.  USDJPY dropped below 125 following the US CPI release overnight, focusing on the less-than-expected core print and the fall in US treasury yields. This morning, the pair is trading close to the near-20 year high of 125.86. The move was however reversed suggesting sustained weakness in the yen, which will continue until we see stronger action from the Japanese authorities and not just verbal intervention. The prospect of stagflation remains for Germany.  This is the main takeaway from the ZEW index released yesterday. The economic sentiment index decreased to minus 41.0 in April versus prior minus 39.3 while the current conditions index dropped to minus 30.8 versus prior minus 21.4. The ZEW experts are therefore pessimistic about the current economic situation, and they expect that it will continue to deteriorate. The only glimpse of hope is the decline in inflation expectations.  U.S. Inflation is still uncomfortably high.  March CPI hit 8.5 % year-over-year. This is the hottest annual pace since 1981. The pace of Core CPI rises moderated a bit at +0.3% month-on-month and + 6.5% year-on-year. This is still the hottest pace since 1982. On a year-on-year basis, the sharpest increases are : fuel oil (70 %), gas (48 %), used cars (35 %), hotels (29 %), airfare (24 %) and utility gas (22 %). You can find the full list here (scroll to pdf page 9). It is clear that the U.S. Federal Reserve is behind the curve. Expect a 50-basis point interest rate hike at the May FOMC meeting. What are we watching next? Ukraine war developments as new Russian offensive operations are underway in eastern Ukraine and US President Biden promised a new round of $750 million in military aid and said Russian leader Putin is guilty of genocide. Earnings Watch. The Q1 earnings season kicks off in earnest today week with US mega-bank JP Morgan Chase reporting today, but the more Main Street-oriented banks reporting in coming days, including the largest of these, Wells Fargo, tomorrow, will be interesting for a check-up on credit demand. The UK’s largest grocer Tesco is also worth watching for a sense of the impact of inflation on margins and customer behaviour as a cost-of-living crisis has hit a large portion of the UK population. Today: Tesco, JPMorgan Chase & Co, BlackRock, Fastenal Thursday: China Northern Rare Earth Group, Fast Retailing, Ericsson, UnitedHealth, Wells Fargo, Morgan Stanley, Goldman Sachs, Citigroup, US Bancorp, PNC Financial Services, Coinbase, State Street Friday: Hangzhou Hikvision Digital Economic calendar highlights for today (times GMT) 1230 – US Mar. PPI 1400 – Canada Bank of Canada Rate Decision 1430 – US DoE Weekly Crude Oil and Product Inventories 1500 – Canada Bank of Canada’s Macklem press conference 1700 – US 30-year T-bond auction 2301 – UK Mar. RICS House Price Balance 0130 – Australia Mar. Employment Change / Unemployment Rate   Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:    

Podcast 2022-02-11 08:46 20 minutes to read Summary:  Today, we look at the hot US January CPI data hitting the markets yesterday, with an interesting attempt at a whiplash inducing bounce in sentiment just after the data release dealt an initial blow to sentiment as more Fed hikes were priced into the forward curve. Then markets turned south again when St. Louis Fed President and FOMC voter Stephen Bullard later administered a hawkish broadside with thoughts on an emergency Fed rate hike, a rapid path to 100 basis points of hikes and an imminent start to quantitative tightening. We also look at the impact on commodity markets from yesterday's developments and the Bank of Japan doubling down for now on its yield-curve-control policy and more. Today's pod features Peter Garnry on equities, Ole Hansen on commodities, and John J. Hardy hosting and on FX. Listen to today’s podcast and have a look at today’s slide deck. Follow Saxo Market Call on your favorite podcast app: Apple Spotify Podbean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.

Podcast 2022-02-10 10:00 20 minutes to read Summary:  Today, we look at a the US equity market attempting a recovery into key resistance ahead of the macro data release of the week today in the form of the US January CPI. Elsewhere, bond yields also look pivotal after a very strong 10-year US treasury auction that saw strong foreign demand just after long US yields rose to new cycle highs this week. Plenty to focus on in equity markets after Disney and Uber boosted sentiment after the close and earnings season rolls on. In FX, focus on SEK and PLN on respective central bank developments and the rise in yields in EU countries saw strong demand at sovereign auctions. Today's pod features Peter Garnry on equities, Althea Spinozzi, and John J. Hardy hosting and on FX. Listen to today’s podcast and have a look at today’s slide deck. Follow Saxo Market Call on your favorite podcast app:           If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.

Summary:  Today, we look at a market that seems to be holding its collective breath in a pivotal zone for chart technical as earnings continue to roll in and as yields have surged to new highs for the cycle in many countries, not least in Japan, where the Bank of Japan's yield cap at 0.25% may soon find itself challenged. A look at crude oil and softs, equity market focus, whether the 70's experience is relevant for today's equity market and more in today's pod, which features Peter Garnry on equities, Ole Hansen on commodities, and John J. Hardy hosting and on FX. Listen to today’s podcast and have a look at today’s slide deck. Follow Saxo Market Call on your favorite podcast app:           If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.

Podcast 2022-02-08 10:00 20 minutes to read Summary:  Today, we break down another shaky session for equities as yields continue to surge higher ahead of a series of important US treasury auctions today through Thursday and ahead of Thursday's US January CPI print. We also focus on EU peripheral spreads blowing wider as the market wonders who will replace the ECB's bid if the central bank stops expanding its balance sheet. A look at drivers for the crude oil and metals markets, earnings overview for today and more also on today's pod, which features Althea Spinozzi on fixed income, Ole Hansen on commodities, and John J. Hardy hosting and on FX. Listen to today’s podcast and have a look at today’s slide deck. Follow Saxo Market Call on your favorite podcast app: Apple Spotify Podbean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.

Macro 2021-12-14 08:35 6 minutes to read Summary:  Risk sentiment soured yesterday, with some attributing the market nervousness to uncertainty on how hawkish a pivot the Fed is set to make at the FOMC tomorrow, although Fed rate expectations for next year as expressed in the most liquid futures have eased from recent highs. That meeting is the most significant major macro event risk for the 2021 calendar year, although important ECB and BoE meetings are set for Thursday. What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - yesterday was a very disappointing session for US technology stocks with Nasdaq 100 futures looking to push higher early during the session but ended on the lowest close in four trading sessions. Nasdaq 100 futures are trading around the 16,110 level this morning with the 50-day average around the 15,810 level as the key support level to watch on the downside should risk-off continue. EURUSD – the EURUSD supermajor continues to coil in a tight range ahead of the FOMC meeting tomorrow and ECB meeting on Thursday, both of which are set to bring refreshed forecasts for the economy and policy. The FOMC meeting is likely to carry more weight in terms of the market reaction, especially if the Fed waxes more hawkish than expected (more below) and takes Fed rate expectations for next year to new highs for the cycle. The lines in the sand on the chart include the 1.1186 lows of November, while the recent pivot highs of 1.1355 and 1.1384 bar the upside, with 1.1500 a more structural resistance/pivot zone. AUDUSD – watching the US dollar closely over the next couple of sessions, particularly in the wake of tomorrow’s FOMC meeting and what it brings in the way of a crystallization of the Fed’s hawkish shift (more below) and in the market reaction. If the meeting brings a spike in market volatility, traditionally risk-correlated currencies like the Aussie could show high beta to swings in the US dollar in either direction (I.e., if the Fed waxes more hawkish than expected and this triggers risk-off and a stronger USD). AUDUSD recently broke down through the prior 2021 lows near 0.7100 and tested the huge 0.7000 level before staging a sharp bounce. That 0.7000 level could serve as a kind of “bull-bear” line from here. Crude oil (OILUKFEB22 & OILUSJAN22) has settled into a relatively narrow range with Brent finding resistance at $76, the 21-day moving average while support remains the 200-day moving average at $73.15. OPEC in its monthly oil market report maintained their 4.2 million barrels per day demand growth outlook for 2022 with current omicron-related weakness being offset by a strong recovery during Q1. The Saudi energy minister said the energy transition will cause an oil-price spike later this decade while also warning traders against shorting the market at a time where large speculators have reduced their Brent crude oil long to a 13-month low. On tap today we have IEA’s Monthly Oil Market Report. Gold (XAUUSD) remains stuck just below its 200-day moving average at $1794 with focus on what 20 central bank meetings this week will deliver in terms of inflation fighting measures at a time where the omicron variant continues to cloud the economic outlook. With US inflation rising at the fastest pace since the 1980’s, Wednesday’s FOMC meeting remains the top event. The market is currently pricing in three rate hikes next year with the first one due around June. The other semi-investment metals of silver (XAGUSD) and platinum (XPTUSD) both struggling with the latter’s 850-dollar discount to gold, near a one year high, potentially deserving some attention. US Treasuries (TLH, TLT). The US yield curve bulled flatten yesterday with 10-year yields falling by 7bps to test support at 1.41%. To contribute to this move was news of the first omicron death in the UK, and the winding done of short US Treasury positions before the end of the year. Price action will remain volatile ahead of the Federal Reserve meeting, where Powell is expected to announce an acceleration of the pace of tapering. The focus is going to be also on the Dot plot, where longer term projections might be moved higher, pushing up the long part of the yield curve. However, long-term yields can move higher only that much, as omicron distortions will continue to keep them compressed. It looks likely that 10-year yields will continue to trade rangebound between 1.40% and 1.70% until the end of the year. European sovereign bonds (IS0L, BTP10). The Bund yield curve bull flattened yesterday led by safe-haven buying amid concerns over omicron. Italian BTPS gained the most as the market pushes back on interest rate hikes in 2022. The focus, however, continues to be on the ECB meeting on Thursday. An announcement of the end of the PEPP program in March 2022 is widely anticipated. What’s not clear is whether it will be announced that bond purchases will be compensated by another scheme, such as the APP. It is likely that the ECB will stall as members are torn between inflation and a new wave of Covid infections. If investors feel the support of the central bank is fading, European yields might resume their rise with the periphery and Italian BTPS leading the way. Yet, the move will be contained as yields will remain compressed by covid concerns. UK Gilts (IGLT, IGLS). The BOE might not deliver on a 10bps interest rate hike this week as members are divided concerning Covid restrictions. Michael Saunders, one of the most hawkish MPC members, said that he will need to think about it twice before voting for a rate hike. As expectations for interest rate hikes in the UK are the most aggressive among developed economies. It is possible that if the central bank does not hike, the Gilt yield curve will be steeping with short-term Gilts gaining the most as the market pushes back on next year’s rate expectations. What is going on? China reports first omicron variant case of covid - bringing fears of supply chain disruptions due to the country’s zero tolerance policy on virus cases that can mean profound shutdowns in response to outbreaks. Chinese property developers under new pressure, with the focus this time on Shimao Group Holdings, whose Hong-Kong listing is down over 75% this year and down over 30% over the last week on concerns that a deal between the company’s business units is a sign of financial stress for the company. The company’s 2030 USD-denominated bonds lost almost 13% overnight as the yield rose above 10%. Other Chinese property developer shares were also under pressure overnight. Tesla shares down 5% as growth stocks are under pressure. Tesla shares pushed below $1,000 yesterday adding further pressure to related assets in the Ark Innovation ETF and Bitcoin is also seen lower this morning. Elon Musk sold $907mn worth of shares yesterday according to a filing overnight in order to pay taxes on another round stock options that were exercised. Toyota finally pushes into EV. Japan’s largest carmaker wants to compete with Tesla and Volkswagen announcing $35bn of investments into battery electric vehicles showing the first sign that Toyota is acknowledging that this is the future of the industry. Toyota has so far pursued hybrids on the ground of being more economical, but this push into BEV with 30 new models validates BEVs once and for all, even though Toyota is still saying that it does not know which technology will win. US Harley-Davidson set to spin-off EV motorcycle unit – the plan to spin off Harley’s EV business via a SPAC saw Harley-Davidson shares spike 19% before surrendering most of the gains. Harley’s LiveWire EV business unit will combine with SPAC AEA-Bridges Impact to form a new publicly traded company. The move is meant to take advantage of the premium the market is willing to pay for pure-play EV companies. EU diplomats suggest time running out on Iran nuclear deal - as Iran is progressing rapidly toward enriching uranium for potential use in nuclear weapons. The diplomats worry that without a breakthrough soon, the original 2015 agreement “will very soon become an empty shell.” What are we watching next? The Wednesday FOMC as the year’s final major macro event risk. The FOMC meeting tomorrow is set to bring a very different monetary policy statement from the prior statement after the Fed’s clear pivot to inflation fighting mode. As well, the meeting will see an update of economic forecasts and interest rate policy forecasts (the “dot plot” in which 19 Fed members forecast where the Fed funds rate will likely be in 2022-24 and in the longer term). Most interesting will be the degree to which Fed members have raised their policy rate forecasts relative to what the market is predicting, which is for just under three rate hikes through the end of next year. Prior forecasts have generally come in lower than market expectations. The baseline expectation for the pace of QE “tapering”, or slowing of purchases, is that the Fed will double the pace of tapering, which would mean the Fed’s balance sheet is set to stop growing by the end of March. Anything that suggests a faster pace of tapering than this doubling (for example, a promise to wind down before March) and that hints that a hike at the March FOMC meeting is possible would be a hawkish surprise. The European Council meets on Thursday, and apart from having to deal with Covid-19 and the Russian threat on its eastern borders, the council is also set to decide whether investments in gas and nuclear energy should be labelled climate friendly. The design of the EU green investment classification system is closely watched by investors worldwide and could potentially attract billions of euros in private finance to help the green transition, especially given the need to reduce the usage of coal, the biggest polluter. Earnings Watch – the earnings calendar is getting very thin this week and no major earnings expected today. Wednesday: Inditex, Toro, Lennar, Heico, Trip.com, Nordson Thursday: FedEx, Adobe, Accenture Economic calendar highlights for today (times GMT) 0830 – Sweden Nov. CPI 1000 – Euro Zone Oct. Industrial Production 1100 – US Nov. NFIB Small Business Optimism 1300 – Hungary Central Bank Rate Decision 1330 – US Nov. PPI 1900 – New Zealand RBNZ Governor Orr before parliament committee 2130 – API Weekly Report on US Oil and Fuel Inventories 2330 – Australia Dec. Westpac Consumer Confidence 0200 – China Nov. Retail Sales 0200 – China Nov. Industrial Production During the day: IEA’s Monthly Oil Market Report   Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple Spotify Soundcloud Sticher

Macro 2021-12-10 08:30 6 minutes to read Summary:  Risk sentiment has consolidated after sharp gains earlier this week as the market nervously eyes the US November CPI release today from the US and whether this will trigger a more hawkish FOMC meeting next week. The US White House has already been out attempting damage control from the inflation headlines today, saying that the data will not reflect recent declines in gasoline and other prices.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - US equities and particularly tech stocks consolidated a significant chunk of the sharp gains from earlier this week, with speculative sectors getting the worst of it on the day, although most stocks were down on the day. A high US November CPI release today could spook investors as it would raise the anticipation of an even more hawkish FOMC meeting next week. EURUSD – The EURUSD rally attempt from Wednesday faltered in what now looks a mere tactical squeeze ahead of today’s US November CPI report (more below). Given that the slide in EURUSD has largely tracked with the rise in Fed expectations, the degree to which those expectations are adjusted higher or lower in the wake of today’s US CPI data and then next week in the wake of the FOMC meeting Wednesday and ECB meeting Thursday will likely correlate with EURUSD direction, where the focus is on the cycle lows just below 1.1200 for a possible run at 1.1000 on a break lower and the tactical pivot high near 1.1380. USDJPY and JPY crosses – the omicron variant news of some two weeks ago triggered a huge slide in USDJPY just after it was trying to engineer a break above multi-year highs near 114-50. Similar to developments in crude oil and longer US yields, USDJPY has failed to get back to the upper reaches of the recent range since that sell-off, which bottomed out near the 112.50 area – the current trigger zone for a possible further sell-off wave (most like in a scenario of cratering risk sentiment and US treasuries serving as a safe-haven) that could poke at the important 111.00-50 downside pivot zone. Elsewhere, JPY crosses backed up very sharply this week on hopes that the omicron variant will prove mild and won’t impact the growth outlook, but the scale of the rally or squeeze has been modest relative to the prior sell-off. Watching areas like 127.50-128.00 in EURJPY and 79.00 in AUDJPY in coming sessions for whether another wave of JPY strength is in the cards. Crude oil’s (OILUKFEB22 & OILUSJAN22) week-long rally hit the buffers yesterday with Brent and WTI retracing back towards support at their 200-day moving averages at $73 and $69.80 respectively. A study finding the omicron variant is 4.2 times more transmissible than the delta combined with new restrictions among several nations helped weaken the sentiment, and with end of year approaching many traders are increasingly becoming more risk adverse, potentially leading to more fluctuations. Focus today on omicron news, US inflation data and whether the mentioned support level can be maintained. Wheat (WHEATMAR22 & ZWH2) trades near five-week low following three days of losses which accelerated yesterday after the USDA raised its outlook for global stocks. The 3% drop in Chicago also helped drag down the recent highflyers futures for Kansas and Paris milling wheat. Global stock levels at the end of the 2022-23 season received a boost from production upgrades in Russian (1mt) and Australian (2.5mt) while US export slowed with high prices curbing demand. US Treasuries (TLH, TLT).  Yesterday’s 30-year auction showed that the market is not willing to buy long-term US Treasuries at current low yields. The 30-year auction was priced with a high yield of 1.895%, tailing by 3.2bps. Although the tail was smaller than last month’s 5.2bps, it would have been enough to cause a selloff in long-term Treasuries. However, covid distortions kept yields compressed, hence volatility in rates was avoided. Today’s CPI numbers are in focus as a high number is likely to contribute to more upward pressure in the yield curve. What is going on? The US White House was already out attempting damage control on inflation before today’s CPI release. A White House official, economic adviser Brian Deese, was out late yesterday saying that today’s US November CPI release won’t reflect recent drops in the price of key commodities, especially gasoline and natural gas as it is “backward looking”. China property developers formally declared to have defaulted - as Fitch Ratings noted missed interest payments on Evergrande and Kaisa Group Holdings USD bonds as it downgraded these issues to restricted default. USDCNY and USDCNH bounce sharply a day after posting new low for the year - China fixed the USDCNY level at a far weaker level than expected and announced an FX reserve ratio increase to 9%, forcing domestic banks to maintain higher reserves of foreign currencies.  These are rather obvious signals that China would like to avoid a further rise in its currency after a powerful and broad rally that saw both the offshore and onshore yuan posting new highs for the US dollar for the year just this Wednesday. Bitcoin and other cryptocurrencies close sharply lower – with Bitcoin closing at its lowest levels on a weekday since September. Technically, the 40-45k zone looks important for avoiding a more significant capitulation lower after the recent weekend meltdown that took the price some 20% lower to below 43k before support was found. According to coinmarketcap.com, the market cap of the nearly 15.5k cryptocurrencies is currently near $2.26 trillion after peaking near $2.93 trillion in November, a drawdown of over 22%. What are we watching next? US November CPI data release today, expected at 6.8% year-on-year for the headline number and 4.9% at the core, both of which would be the highest readings in decades. Given that expectations are so high, would a slightly hotter than expected number move the needle on a Friday ahead of next week’s important FOMC meeting? A significant beat to the upside just might make a difference, given that the Fed has clearly made a shift toward fighting inflation and would probably need to bring a March 2022 rate hike possibility into its forward guidance. Fed rate expectations for next year are poised near the high for the cycle, suggesting a 0.8% Fed Funds rate (vs. currently 0-0.25%) is priced in through the December 2022 Fed meeting. The EU is set to decide by December 22 whether investments in gas and nuclear energy should be labelled climate friendly. The design of the EU green investment classification system is closely watched by investors worldwide and could potentially attract billions of euros in private finance to help the green transition, especially given the need to reduce the usage of coal, the biggest polluter. Economic calendar highlights for today (times GMT) 0905 – ECB President Lagarde, others speaking at panel discussion1300 - Poland National Bank of Poland meeting minutes1330 – US Nov. CPI1500 – US Dec. Preliminary University of Michigan Sentiment Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple Spotify Soundcloud Sticher

Macro 2021-12-09 08:40 6 minutes to read Summary:  Global markets tried to gin up additional enthusiasm yesterday on the announcement yesterday from Pfizer that three shots of vaccine may offer far more protection from the omicron variant, but the market traded largely sideways as the sharp rally from the prior day was consolidated. The US dollar is showing signs of consolidating lower ahead of arguably the last two major event risks for the year for the currency, the Friday US November CPI data and the FOMC meeting next Wednesday. What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - US equities momentum waned a bit yesterday and trading flat in early European trading hours. In Nasdaq 100 futures the 16,420 is the key resistance level to watch in today’s session. While Nasdaq 100 futures are flat this morning, Bitcoin is trading 2% lower which if it continues could spill over into US technology stocks as these pockets of the market are connected in terms of risk-off. Bubble stocks were the biggest gainers yesterday and provide another opportunity for retail investors to reduce exposure in bubble stocks ahead of the new year. EURUSD – The EURUSD rallied sharply yesterday as the US dollar was generally on its back foot, but a solid jump higher in EU sovereign bond yields and the official handover of power to the new German government coalition yesterday may have been elements supporting the rally. The move rose as high as 1.1350, just ahead of tactical resistance near 1.1375, the last hurdle ahead of more major trend resistance near 1.1500. In many past cycles, the calendar roll has proven a major inflection point for EURUSD. The December 15 FOMC meeting and December 16 ECB meeting both look important for the provision of new guidance, with the FOMC already having made a clear hawkish shift, while the ECB will have to deliver revised inflation forecasts and guidance on balance sheet policy after its emergency “PEPP” form of QE is set to end in March. AUDUSD – The Aussie has undergone a significant sentiment shift from one of the weakest G10 currencies to one of the strongest in recent sessions, in part on the reversal in risk sentiment, but also aided by China signaling a willingness to ease policy. Speculative positioning in the US futures market suggest a very heavy short position that, if similar to positioning in the OTC market, could provide significant fuel for a squeeze higher in the currency if the backdrop of improving risk sentiment and a focus on inflation risks further boosts the price action in key commodities like iron ore, coking coal and other metals. At any rate, AUDUSD has reversed up through the first resistance near 0.7100 and is now staring down the next pivotal area into 0.720-7250, needing to blast through this and then some to suggest an attempt to put in a bottom after touching the huge 0.7000 level within the last week. Crude oil (OILUKFEB22 & OILUSJAN22) trades higher for a fourth day as omicron demand concerns continue to ease and speculators accumulate length following last week’s washout. Flare-ups around the world resulting in temporary lockdowns is however likely to prevent the market from returning to pre-omicron levels at this point. The EIA reported a small 240k barrels weekly decline in crude stocks while inventories of fuel rose by a combined 6.6 million barrels. Next level of resistance in Brent being the 21-day moving average at $77.20 followed by $77.60. Gold (XAUUSD) remains stuck below the 200-day moving average, currently at $1793 with the market struggling for direction ahead of Friday’s key US inflation data. Support from a softer dollar continues to be offset by worries that a succession of expected US rate hikes in 2022 will drive up US real yields, thereby reducing a key source of support for gold. Ahead of Friday’s CPI data, the market has priced in three rate hikes next year with the first potentially coming as soon as May. Focus on silver (XAGUSD) which following its recent 13% slump is trying to establish support at $22, thereby supporting a lower XAUXAG ratio has stopped rising after finding resistance above 80 ounces of silver to one ounce of gold. US Treasuries (IEF, TLT). Haven bid for bonds faded as news hit the market that a third vaccine dose gives coverage for the omicron strain. Ten-year US Treasury yields rose above 1.50%, and yesterday’s 10-year US Treasury auction wasn’t as good as the 3-year auction the previous day. It tailed 0.4bps pricing at 1.518%. The bid-to-cover rose to 2.43x, a little lower than the past six auctions average. The yield curve bear steepened. Yet, we expect long-term yields to remain compressed if Covid infections still are an issue and lead to more restrictions. Today, the Treasury is selling 30-year bonds. If the selloff in the long part of the yield curve continues, we might witness a weak auction. What is going on? China PPI falls less than expected in November as it rises 12.9% year-on-year. The PPI number is widely considered a global inflation barometer as China is “the world’s factory”. The rise was higher than the 12.1% year-on-year expected, but lower than October’s 13.5%. The November China CPI number came in slightly cooler than expected at 2.3% year-on-year versus 2.5% expected and 1.5% in October. Pfizer says three shots of its vaccine offer more significant protection against the omicron covid variant. This news from yesterday sounded more promising than the news from just yesterday from a preliminary South African study that patients vaccinated with two shots showed some, but heavily reduced, production of antibodies in patients with the omicron variant. Pfizer found the same, but says that a third shot can bring the antibody response to similar levels as for the prior covid variants. Pfizer also said an omicron-targeted version of its vaccine could be ready in March. Buffett-backed digital lender Nubank to start trading today. The Brazilian-based digital bank Nubank is raising $2.6bn in its IPO becoming of the biggest IPOs this year with shares priced at $9 and first day of trading today on NYSE. This will mark one of the biggest publicly listed fintech companies in the world and provide a glimpse into the feasibility of running a large digital only bank. Bank of Canada upgrades language on inflation, likely set for January rate hike. The new Bank of Canada policy statement dropped a reference from the prior statement on “temporary” inflation forces, though it still maintained the expectation that inflation would drop toward 2 percent in the second half of next year. The strength in the jobs market was noted. Overall, the hawkish language changes were clear, if relatively small relative to rather aggressive market shift in expectations, and Canadian yields eased a few basis points lower at the front part of the yield curve, though a January rate hike from the bank remains likely, according to market expectations. Brazil hikes policy rate 150 basis points, BRL sees sharp gains. The rate hike to 9.25% was in line with expectations, but the central bank delivered hawkish guidance for another hike of the same size at the February meeting as the bank has clearly gone into aggressive inflation fighting mode. The Brazilian real responded strongly, gaining some 1.4% versus the US dollar yesterday. The EU gas and power market went from bad to worse yesterday after an unplanned outage temporarily cut supplies from Norway’s giant Troll field. Coming on top of geopolitical risks related to Ukraine, low winter supplies from Russia, freezing cold weather and rapidly declining stocks, these developments have driven Dutch TTF one month benchmark gas back above €100 per MWh or $34 per MMBtu. With rising demand for coal driving the cost of EU emissions to a fresh record above €90 per tons, the cost of power has surged as well. In Germany the one-year baseload contract reached a record €189 per MWh, or 5 times the long-term average. What are we watching next? WASDE on tap - Ahead of today’s monthly update on world supply and demand, the grains sector has seen a slight drift lower during the past week as the market tried to gauge the impact of the omicron variant. Today’s World Agriculture Supply and Demand report (WASDE) will primarily focus on ending stocks with expectations pointing to a relatively quiet update. US corn stockpiles are expected to have fallen slightly from November while wheat and soybean stocks are both expected to be higher, both in the US and globally. The EU is set to decide by December 22 whether investments in gas and nuclear energy should be labelled climate friendly. The design of the EU green investment classification system is closely watched by investors worldwide and could potentially attract billions of euros in private finance to help the green transition, especially given the need to reduce the usage of coal, the biggest polluter. This week’s earnings: Today’s focus is Oracle which is still struggling to find an attractive growth trajectory in the age of cloud applications, SaaS business models, and more open-source software on databases with flat revenue over the past four fiscal years. Lululemon has been one of the big winners during the pandemic gaining tailwind from home exercising, but generally the company taps into a longer-term trend of personal health. Analysts expect Lululemon to report 29% y/y revenue growth in Q3 (ending 31 October). Thursday: Sekisui House, Hormel Foods, Costco Wholesale, Oracle, Broadcom, Lululemon Athletica, Chewy, Vail Resorts Friday: Carl Zeiss Meditec Economic calendar highlights for today (times GMT) 0830 – Hungary Rate Announcement 1200 – Mexico Nov. CPI 1330 – US Weekly Initial Jobless Claims and Continuing Claims 1530 – EIA Natural Gas Storage Change 1700 – USDA World Agriculture Supply and Demand Report (WASDE) 1800 – US Treasury 30-year T-Bond auction   Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple Spotify Soundcloud Sticher