Global Market Quick Take: Asia – September 20, 2024

In the news:

• Stock Market Today: S&P 500 closes above 5,700 for first time ever as tech glows (Investing)
•  FedEx cuts full-year guidance after big fiscal Q1 earnings miss (Investing)
• Japan CPI inflation hits 10-mth high in August; BOJ meeting approaches (Investing)
• UK consumers take fright as new government warns of pain, survey shows (Investing)
• Nike names former executive Elliott Hill as CEO (Yahoo)
• Dollar slips in choppy trading as traders grapple with Fed's giant rate cut (Reuters)

Macro:

• The US Jobless Claims data for the week coinciding with the usual BLS survey window fell to 219k from the prior 231k, beneath the expected 230k. The 4wk average fell to 227.5k from 231k. Continued claims for the preceding week, fell to 1.829mln from 1.843mln (revised down from 1.85mln), and beneath the expected 1.854mln.
• The Bank of England kept rates unchanged at 5% with an 8-1 vote split and continued to emphasize a gradual approach to policy easing. The MPC also voted unanimously to reduce the stock of Gilts by GBP 100bln between October 2024 and September 2025 (as expected). Overall, the tone of the policy statement was one of caution with the MPC very much in data-dependent mode. This prompted a hawkish repricing for the rest of the year with just a 64% chance of a cut seen in November (vs. 100% pre-release) and a total of 40bps of easing seen by year-end (vs. 52bps pre-release).
• The Norges Bank, Norway's central bank, kept the policy rate unchanged at 4.5% as expected and said the rate would likely remain at 4.5% through year end. This reaffirmed market’s view that Norges Bank will not be quick to join the G10 rate cutting cycle.
• Japan’s August CPI was higher than previous month as expected. Headline inflation rose to 3.0% YoY from 2.8% previously while core measure rose to 2.8% from 2.7% in July. The core-core measure (ex-fresh food and energy) also rose to the 2% target from 1.9% in July, suggesting that the Bank of Japan may feel confident to signal further normalization at the meeting today. However, political considerations may play a part as well given the LDP elections next week.

Macro events: China’s PBoC LPR, Bank of Japan Policy Announcement, Quad Witching

Earnings: Tamboran

Equities: On Thursday afternoon, US stocks soared following the Federal Reserve’s 50 basis point rate cut, fueling optimism for a "soft landing" of the US economy. The Dow Jones jumped over 500 points, while the S&P 500 rose by 1.7%, both reaching new record highs. The Nasdaq 100 surged 2.7%, leading the market gains as investors welcomed the Fed's efforts to stabilize growth. Tech stocks were at the forefront, with Nvidia and AMD rising 5% and 7% respectively while Tesla and Meta climbed 7.3% and 4%. Economic growth sectors like financials and industrials also saw gains; JPMorgan Chase climbed 1.8%, while Caterpillar and Home Depot advanced 4.8% and 1.5%, respectively. The rally extended to small-cap stocks, marking their seventh consecutive session of gains, with the Russell 2000 gaining 2.1%. The broad market rise indicated increased confidence in the Fed’s capability to control inflation while maintaining economic growth, further supported by a larger-than-anticipated decline in weekly jobless claims.

Fixed income: Treasury yields closed with mixed results. Short-term yields outperformed, while intermediate to long-term yields rose, leading to a sharp steepening of the 2s10s and 5s30s spreads. No new catalyst drove this price action as investors continued to digest Wednesday's FOMC meeting, extending the post-decision steepening trend. In SOFR options, larger flows turned hawkish, aiming to reduce the Fed cut premium priced into this year's remaining two meetings. front-end Treasury yields were up by about 2 basis points, while yields from the belly out to the long end were down by 1.5 to 4.5 basis points. This steepening move widened the 2s10s and 5s30s spreads by 5.5 and 3.5 basis points, respectively, building on Wednesday’s post-FOMC curve movements. There was minimal activity in swaps, with Fed-OIS pricing in around 70 basis points of combined easing over the next two policy meetings, suggesting at least one half-point cut. Further out, roughly 200 basis points of additional cuts were priced in by the end of next year. Former Treasury Secretary Lawrence Summers remarked that inflation would likely prevent the Federal Reserve from lowering interest rates as much as anticipated in the coming years.

Commodities: WTI crude oil futures closed at $71.95 per barrel, marking an increase of 1.47%, while Brent crude prices settled at $74.88 per barrel, up by 1.67%, driven by expectations of stronger global energy demand and higher risk premiums due to rising tensions in the Middle East. Gold prices climbed by 1.09%, settling at $2,586 an ounce, maintaining record highs for the precious metal. Silver surged by 2.3% to around $31 per ounce, reversing losses from the previous session as the dollar retreated from recent highs, alleviating downward pressure on commodity prices.

FX: As the markets digested the Fed’s 50bps rate cut, a broad risk-on environment prevailed. The US dollar was choppy but ended the day lower, and the Norwegian krone (NOK) led the gains as the Norges Bank continued to highlight postponement of rate cuts to 2025. NOK was up 0.9% against the USD and over 1% against the Japanese yen and Swiss franc, which tumbled due to the risk-on environment. The Australian dollar and British pound also gained, the formed aided by Australia’s strong employment data and the latter helped by Bank of England’s hold decision and a cautious approach to cutting rates. The Japanese yen will be bracing for the Bank of Japan announcement today where no rate hike is expected, but a hawkish rhetoric could bring back some gains after the currency has been hurt despite the Fed’s 50bps rate cut.

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