APAC Strategy Team, Saxo Bank:
Summary: On Monday morning in Asia, Middle East tensions escalated as Israel declared war against Hamas following a deadly attack on Saturday. This led to a 3% surge in oil prices, a higher opening for the dollar, and gains in JPY and CHF, while US equity index futures retreated by around 0.7%. The focus today is on the potential spread of instability in the region. On Friday, the S&P500 and Nasdaq 100 rose by 1.2% and 1.7%, ignoring a hotter-than-expected payrolls report. Treasury yields fluctuated significantly after a surge in non-farm payrolls, with 10-year yields reaching 4.885% before settling at 4.80%. China’s A-share market reopened after the Golden Week, with domestic trips recovering by 4.1%, and tourism revenues growing modestly by 1.5% compared to 2019 levels before the pandemic. Due to the typhoon, the morning session of the Hong Kong bourse will be cancelled and trading is expected to resume in the afternoon.
d is likely to continue as the short-end benefits from safe-haven bids, and the long-end suffers from the prospect of higher energy prices if the conflicts between Israel and the Palestinian militant groups escalate.
China/HK Equities: The Hang Seng Index rallied by 1.6% bouncing from near the year-to-date lows last Friday, in very light volume, led by healthcare and property stocks. Today, the focus will be on the performance of the mainland A-share market which resumes trading after the 6-trading session holiday and the tension in the Middle East. Due to the typhoon, the morning session in the Stock Exchange of Hong Kong will be cancelled and the afternoon session will begin at 2:00 pm local time.
FX: Risk-sensitive trades were in focus early in Asia amid the Middle East tensions. The dollar gapped higher at the open, and gains were also seen in JPY and CHF. USDJPY retreated from Friday’s post-NFP highs of 149.53 while USDCHF stayed below 0.91 and EURCHF dipped below 0.96. NOK was the early outperformer on the G10 board as oil prices jumped 4% higher. USDNOK slid below 10.9 while USDCAD traded around 1.3660. Risk-sensitive currencies AUD and NZD plunged.
US nonfarm payrolls surprised on the headline as it blew past expectations. The economy added 336k jobs in September vs. 227k prior (revised higher from 187k) and 170k expected. Wages and unemployment rates however showed that labor market may be cooling slowly under the hood. The unemployment rate remained at 3.8% while wages rose 0.2% M/M again in September, beneath the 0.3% expectation and 4.2% Y/Y, easing from the 4.3% prior expectation.
Canadian labour market data was also strong, with employment up 64k jobs in September (+20k expected). The unemployment rate was unchanged at 5.5% while hourly wages accelerated to 5.3% Y/Y.
According to estimates by China’s Ministry of Culture and Tourism, during the 8-day Golden Week holiday, domestic trips increased by 71.3% Y/Y to 826 million, or 4.1% from the Golden Week in 2019. Domestic tourism revenues grew by 129.5% Y/Y to RMB753.4 billion but only saw a tepid increase of 1.5% from the level in 2019 before the pandemic. Cross-border entries and exits nearly tripled from last year but reached only 85.1% of the level in 2019.