Early Morning Call: APAC indices fall as China's service activity slows

The Hang Seng

The Hang Seng was by far the worst performer in the Asia Pacific (APAC) region on Wednesday as traders digested the latest service activity data in China. The Caixin services purchasing managers' index (PMI) fell to 53.9 in June from 57.1 in May, the lowest reading since January. The data broadly tracked the government's official PMI released last week.

On Monday, the Caixin manufacturing PMI managed to keep its head above the water in June, falling to 50.5. This means that the composite PMI, which compiles manufacturing and services activity, is down to 52.5, making it a sixth straight month of expansion.

Macroeconomic indicators

The market awaits a few macroeconomic indicators today at 10AM, the producer price index in the eurozone is expected to be down -13% in May year-on-year (YoY), and later in the afternoon, US factory orders are forecast to rise 0.8% in May month-over-month (MoM). The Federal Reserve (Fed) will release the minutes of its last meeting, at which it left the Federal Funds Rate on hold.

The pause in rates followed a run of consecutive rate hikes at every meeting since March 2022. The updated economic projections suggest rates may reach 5.6% by year's end, thus suggesting two more increases.

The Federal Reserve

Fed Chair Jerome Powell recently reinforced the view that the board is leaning towards two rate hikes and hasn't ruled out consecutive-meeting rate increases. The latest economic projections from the Fed indicate that the fed funds rate is expected to gradually fall to 4.6% in 2024. Furthermore, the minutes may reveal the board's intention to keep interest rates higher for an extended period, with a rate hike possibly delayed until the end of the first quarter or second quarter of 2024 if inflation falls towards the desired trajectory.

AO World

AO World said profit recovered in its 2022–23 year as it benefited from a plan to reduce costs and improve margins. The British online electricals group's financial year earnings before interest, taxes, depreciation, and amortization (FY EBITDA) reached 45 million pounds, in line with guidance and up from 23 million pounds in 2021–22. Revenue fell 17% to 1.14 billion pounds.

Oil overview

Oil prices remained range-bound after two of the world's largest oil producers said earlier this week, they would cut supplies further to support prices. Saudi Arabia's voluntary oil output cut of one million barrels per day will be extended for another month to include August, and Russia will cut oil exports by 500,000 barrels per day in August.

Soft commodities

On the soft commodities market, soybeans rose over 5% last Friday, while corn prices have been falling. At the end of last week, the US Department of Agriculture announced that farmers in Illinois, Minnesota, and North Dakota had shifted from soybeans to corn. Analysts are now concerned that soybean supplies will be tight and expect the soybean and soybean oil markets to remain bullish.