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On March 4th, Daiwa Research reported that it expects Baidus (09888.HK) Kunlun Chip IPO valuation to be higher than its peers due to its larger revenue scale and better profitability. Currently, Kunlun Chip derives most of its revenue from external demand, with major clients including Tencent and a large telecommunications operator. Management stated that chip production capacity constraints are not a short-term concern for the company, as Kunlun Chip has secured sufficient supply to support development over the next two years. The bank reiterated its "Buy" rating on Baidu with a target price of HK$175 and maintained its earnings forecasts for this year and next. Recent catalysts include the Kunlun Chip listing and details of the 2026 dividend plan.Bank of Japan Governor Kazuo Ueda: It is crucial for the government to ensure market confidence in long-term fiscal sustainability.On March 4th, Jefferies Group released a report estimating that memory chip costs will surge 3.6 times this year for the vast majority of smartphone OEMs. Therefore, the bank estimates that Xiaomi-W (01810.HK) smartphone sales will plummet by 55%, partially offset by a 31% increase in average selling price. The main cuts are concentrated in mid-to-low-end phones, and approximately 60% of Xiaomis shipments have an average selling price below US$150. The bank forecasts that Xiaomis smartphone gross margin will drop by 7 percentage points this year to a record low of 4%. Coupled with a downward revision of its gross margin forecast for Xiaomis automotive business, the banks revenue and EBIT forecasts for Xiaomi this year are 16% and 34% lower than its market peers, respectively. Using a sum-of-the-parts estimation method, the bank drastically cut its target price for Xiaomi from HK$43.36 to HK$30.45, a reduction of nearly 30%, maintaining a "hold" rating, citing overly high market expectations for the company and the downside risk to earnings from persistently high memory costs.March 4th - Magdalene Teo, a fixed-income analyst at Julius Baer, stated that risk premiums, as measured by credit default swap (CDS) spreads, have widened due to increased uncertainty regarding the trajectory and duration of the Middle East conflict. CDS spreads in Asia are rising because prolonged disruptions to global shipping routes could exacerbate inflation and other problems, leading to tighter financial conditions. Teo stated, "The combination of rising oil prices and a stronger dollar is not an ideal situation for many Asian economies."Bank of Japan Governor Kazuo Ueda: Compared to the past, companies are more actively passing on costs affected by exchange rate fluctuations, and we remain highly vigilant about this when formulating policies.

USD/CAD declines to 1.3500 on firmer Oil prices, BoC concerns over US inflation, and Fed Minutes

Daniel Rogers

Apr 10, 2023 14:35

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The USD/CAD maintains losses close to 1.3500, shattering a four-day winning trend, as traders brace for key Easter Monday data/events on major bourses. However, the recent decline in the Loonie-U.S. dollar exchange rate may be due to the increase in the price of WTI petroleum oil, Canada's primary export. In contrast to the recent increase in ardent Fed forecasts, the Bank of Canada's (BoC) dovish bias poses a challenge to pair sellers.

 

After increasing for three consecutive weeks, WTI crude oil prices gain 0.61 percent intraday near $80.00. Recent increases in the price of black gold may be due to geopolitical concerns surrounding China and Taiwan. In addition to the supply cut by OPEC+ and the faltering US dollar, the energy benchmark is sustained by the supply cut by OPEC+ and the weakening US dollar.

 

However, the US Dollar Index (DXY) has fallen for three consecutive weeks and is under pressure near 102,000.

 

Fears of higher Fed rates versus inaction from the Bank of Canada (BoC) grew after the upbeat US Jobs report versus the lack of significant positives in the March Canadian jobs report.

 

As a result, the CME's FedWatch Tool indicates a 69% chance of a 0.25 basis point rate hike in May, up from 55% prior to the US employment report.

 

Canada's headline Net Change in Employment increased to 34.7K in March from 21.8K in February, compared to the market consensus of 12K, while the Unemployment Rate came in at 5% versus the analysts' estimate of 5.0%. During the specified month, the Participation Rate decreased to 65.6% from the expected and previous rate of 65.7%. In addition, the average hourly wage fell 5.2% year-over-year in March, down from 5.5% in February.

 

In contrast, the US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls (NFP) increased by 236K in March, the lowest increase since January 2021 (considering revisions), compared to the expected 240K and the previous 330,000. Additionally, the unemployment rate fell from 3.6% to 3.5%, while the labor force participation rate rose from 62.6% to 62.6%. The annual wage inflation rate decreased from 4.6% to 4.2%, below market expectations of 4.3%.

 

Futures on US equities ended higher, but yields remain under pressure ahead of the crucial BoC monetary policy meeting, US inflation, and Fed Minutes. Given the dovish concerns from the Bank of Canada (BoC) and the likely hawkish comments in the FOMC Minutes, the USD/CAD may see additional gains, barring any unexpected developments.


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