Market Close May 04

Economic upgrades lift mood

Gold weakens as economic reopenings loom; Australia central bank upgrades GDP; DBS upgrades HK GDP 

Economic upgrades lift mood
Hong Kong published its GDP data on Tuesday showing its economy grew in the first quarter of this year.

HONG KONG: Asian markets were broadly higher as reopening trades lifted stock prices although holiday closures in Japan and China skewed activity.

Australian markets were lifted by the central bank’s upgrading of its GDP growth forecast for 2021 from 4% to 4.75% against a background of "strong growth this year and next" in the global economy.

“The global economy is continuing to recover from the pandemic and the outlook is for strong growth this year and next,” the RBA said in its post-meeting statement after it kept its monetary policy settings unchanged.

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On Monday, after market hours, Hong Kong published its GDP data which showed its economy grew in the first quarter, snapping six consecutive quarters of annual contractions. Government advanced estimates showed on Monday the economy grew 7.8% in January-March, compared with a revised decline of 2.8% in the previous quarter.

Australia’s S&P ASX 200 climbed 0.56% and Hong Kong’s Hang Seng index added 0.70% while regionally the MSCI Asia Pacific index inched up 0.05%.

“The Reserve Bank of Australia upgraded its forecasts for GDP growth and inflation but reiterated that it is prepared to extend its asset purchases,” said Marcel Thieliant at Capital Economics.

“We stick to our forecast of another $100bn extension in the Bank’s bond purchase programme, though this would happen in July rather than in June.”

Following Monday’s GDP release, DBS revised Hong Kong’s 2021 growth forecast to 6% from 4%.

'CONSUMPTION STABILISING'

“The recovery was led by the external sector and the domestic consumption is stabilising. Property prices in the luxurious segment will continue to catch up with the mass market,” said Samuel Tse, DBS Bank’s economist.

“However, an emerging downside risk is possible – renewed restriction on mobility if the Covid variants begin to spread locally.”

US Treasuries weakened with the 10-year yields rising two basis points to 1.62% and the dollar jumped 0.5% against a basket of currencies to 91.4.

West Texas Intermediate crude added 0.1% to $64.57 a barrel and Brent crude edged up 0.2% to $67.67 a barrel as the recovery trade gave a fillip to the prospects of higher oil consumption.

CYCLICAL ASSETS

“We expect the reflation trade to continue going forward. This bodes well for cyclical assets such as industrial commodities, pro-cyclical currencies, and global equities. Within global equities, we expect a rotation in leadership towards European stocks which are a high beta play on global growth,” said BCA Research analysts in a note.

Gold weakened as it lost the haven bid in the risk on environment. It eased 0.4% to $1,785.50 an ounce.

Later in the day US trade balance, factory orders, durable goods data releases are expected and on Wednesday Chicago Fed President Charles Evans gives a virtual speech at an event hosted by Bard College while Cleveland Fed President Loretta Mester gives a virtual speech to the Boston Economic Club.

Asia Stocks

  • Japan and China markets shut
  • Australia’s S&P ASX 200 climbed 0.56% 
  • Hong Kong’s Hang Seng index added 0.70%
  • The MSCI Asia Pacific index inched up 0.20%.

Stock of the day

Jiangxi Copper shares rose as much as 8.8% as prices of copper surged and is in striking distance of the all-time peak of $10,190 set in 2011. BofA Securities analysts have said the world risks “running out of copper”.

“We forecast copper market deficits, and further inventory declines, this year and next,” said Michael Widmer, commodity strategist at BofA Securities. “If our expectation of increased supply in secondary material, a non-transparent market, did not materialise, inventories could deplete within the next three years, giving rise to even more violent price swings that could take the red metal above $20,000/t ($9.07/lb).”

Jiangxi is the largest integrated copper producer in the world.

Read more:

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Hong Kong Hang Seng ASX 200 Gold Brent Jiangxi Copper