Saxo News: Chinese Streaming Curbs Create a Stronger Basis for a 0.5% US Rate Hike

There is hope amid Russian-Ukrainian discussions, but it is too soon to dismiss commodities markets. Equities will most likely continue to increase for the time being, until it becomes clear that margins will be squeezed as policy support fades and interest rates rise. As the US economy improves, there is a case for the Fed to raise interest rates by 0.5 percentage points in a row. Micron reports profits and forecast that are higher than anticipated. Iron ore is rising in price. The Bank of Japan is back in the market, but yen weakness may return. China may put additional limitations on live streaming. We discuss potential trades on the ASX and NYSE where crypto sentiment is strong.

What is going on in the markets？

• Equities are soaring as the quarter comes to a close, ahead of angelic-April, often the greatest month for stocks. In April, the S&P 500 has gained 2.4 percent on average during the previous 30 years. However, we advise traders to exercise cautious as market health continues to deteriorate. On Tuesday in the United States, the S&P500 gained for the fourth consecutive day, breaking above a crucial level of 4,600 for the first time since mid-January. Bond yields declined as a result of better-than-expected economic data, with the market now anticipating the US Fed to raise rates eight times, with rates peaking at 2.5 percent by year's end. The S&P 500 and Nasdaq are likely to rise in the short term on the back of better-than-expected Q1 earnings, but the indices are vulnerable to a whipsaw pullback if inflation is hotter than expected, the Fed raises rates more than expected, or before May, and the market is also vulnerable if the war in Ukraine does not end as talks suggest. The main issue for equities, however, is the margin (profit) pressure, with earnings stabilizing from the epidemic rush while simultaneously being squeezed as interest rates increase (with US rates expected to rise in May).

• On Wednesday morning, Asian equities usually started higher. Positive optimism in US markets and stories about Russia reducing its military presence in portions of Ukraine helped. However, confidence is likely to be dampened since no ceasefire or total military departure is imminent.

• Hong Kong's Hang Seng (HSI.I) and China's CSI300 (000300. I) started higher, both up more than 1%. The Hang Seng TECH Index (HSTECH.I) was up 1.2 percent. Tencent (00700) and Meituan (03690) both increased by 2%. BYD (01211) reported above-consensus 4Q sales, while profitability fell short owing to increased material prices. Gross margins declined to 11.3 percent. 3.7 percent lower than last year and 0.7 percent lower than the previous quarter. Great Wall Motor (02333) posted higher-than-expected profits (+25 percent year on year), and its stock price jumped 4%. The CSI300 was up 1.3 percent in A shares, with property developers and securities brokers excelling.

• Australia's share market (ASX200) is surging for the seventh day, up 0.7 percent on Wednesday after the country's budget was released last night. Except for oil and mining, all industries have increased. And the Australian market currently anticipates approximately 7 rate rises this year (the first in June), bringing the year-end cash rate to about 2%. (up from 0.1 percent now). As for the greatest performers, family tracking back Life360 (360), backed by Michael Phelps and the Bryant family, is up 13 percent, while Block (SQ2) is up 7 percent, climbing on no news, but maybe during the end-of-quarter adjustment, and as the 'risk-on' switch has been momentarily flipped on.

• US data supports the argument for a series of 50bps hikes, with an eye on NFP. Consumer confidence in the United States increased from 105.7 in February to 107.2 last month, above expectations. The job openings data in the US overnight, which is highly followed by the Fed, again reiterated labor market tightness; however, the emphasis now shifts to the NFP report on Friday, which, if above forecasts, may cause the Fed to become even more hawkish.

• Micron Technology (MU), the leading memory chip producer in the United States, published a better-than-anticipated prediction for the current quarter, declaring quarterly revenues of $8.7 billion, beyond the $8.2 billion projected. Micron also anticipates higher-than-expected earnings in the next year, so when US trade resumes, all eyes will be on their stock.

• The iron ore futures price (SCOA) rose 1.3 percent to US$157, extending its long-term uptrend. BHP (BHP) shares have held over AU$50.00 for the third day in a row, with BHP shares also staying in their long-term uptrend, backed by China's decreasing interest rates and softening emissions limits. The market, on the other hand, believes Champion Iron (CIA) offers the highest potential in terms of share price growth. However, balance sheet strength benefits BHP (BHP), Rio (RIO), and Fortescue (FMG), which are expected to pay above-market dividend yields of 9.5 percent (BHP), 9.3 percent (RIO), and 15.3 percent (FMG) this year as the iron ore price recovers from a bear market.

• The reduction in retail sales in Japan means that the country's GDP would fall. Japan's retail sales plummeted -0.8% m/m in February, the third straight monthly fall and worse than the market expectation of -0.3%. This is mostly due to the recent increase in Omicron cases, which occurred when restaurant and other business hours were curtailed. The dismal monthly activity numbers, along with rising energy costs, indicate that Japan's GDP may decline this quarter.

What factors should be considered？

• Russia's reduced military presence is simply a momentary respite. Ukraine has put up a good fight against Russian soldiers in Kyiv, and Russia may now be focused on taking the eastern Ukrainian city of Donbas. Furthermore, some of their other demands, such as Ukraine's neutrality (which Ukraine has agreed to) and the retention of Russian military presence in some regions, will remain. Even if a peace treaty is reached (which we believe is improbable), there will be war-related repercussions to cope with. Over the coming year, Europe will continue to make attempts to minimize its reliance on Russian supply, which implies that commodity prices will remain high. The only probable tailwind for Asian markets is that food shortages may alleviate, but any fresh restrictions will continue to harm supply chains.

• For the time being, cryptocurrency bullish optimism has returned. Last week witnessed the largest institutional investments into cryptos since December 2021. Since February 24, digital currencies (including Bitcoin and Ether) have outperformed stocks and bonds. Investors may trade/invest in cryptos using FX on Saxo's platform or via ETFs such as Global X Blockchain ETF (BKCH) or CRYP. Another approach to get exposure is to invest in firms that profit from BTC, such as the worldwide payment behemoth, Block. Afterpay was acquired by Block, which was formerly known as Square. Block is traded on the ASX as SQ2, and on the NYSE as SQ. Bitcoin transactions account for 74% of Block's revenue. So as BTC rises, so does Block, and this helps the ASX200's rise, given that Block is now the ASX's sixth largest firm (bigger than Westpac Bank). Block is a prosperous tech company; profit growth of 32% is predicted in 2022 (Bloomberg), and sales is expected to increase by 8% to $19 billion in 2022. SQ2 is rated Outperform by Macquarie, with a $230 target (it is now trading at $194).

• China may put additional limitations on live streaming. According to “those acquainted with the situation,” China is preparing further restrictions on the live-streaming business.

• Another important component of the US curve is inverted. The US 2y/10y curve momentarily reversed yesterday as well. Nonetheless, given present financial circumstances, we are less concerned about a recession.

• JPY is taking a respite, but it is unlikely to stay. USD/JPY has already fallen below 123. However, a durable rebound in the yen is still improbable until we witness a collapse in the US economy, a big fall of US stocks, or a strong pushback from Japanese authorities. The BoJ has spelled out its intentions to purchase bonds today, with an enhanced offer for 3-5Y bonds (JPY600bn, up from JPY450bn), and for 5-10Y bonds (JPY725bn, up from JPY425bn), with JPY150bn for 10-25Y bonds, and JPY100bn for 20Y bonds.

Potential trading ideas

• In a report issued this week, Peter Garnry, Saxo's Head of Equity Strategy, underlines Vietnam's achievement in profiting from the reconfiguration of global commerce and supply chains. Investors interested in Vietnam equities ETFs might choose VanEck Vectors Vietnam ETF (VNM: bats) and Premia MSCI Vietnam ETF (02804:xhkg).

• CBOT grain prices fell as Russia-Ukraine discussions progressed, but increases are predicted in the near future. Agricultural prices may rise again as markets assess Russia's vows to reduce military involvement in Ukraine. It is too early to price in a war premium in commodities markets. Furthermore, ongoing robust demand and very low supplies of wheat (ZWK2) indicate that prices are likely to rise further.