Early Morning Call: buoyant start to the month for Hong Kong's Hang Seng

Indices overview

US indices ended the last session of October in negative territory, yet the Dow Jones recorded its biggest monthly increase since 1976, up 13.95%. The S&P 500 rose by 8% in the period, and Nasdaq composite gained 3.9%.

In the Asia Pacific region, equity markets closed higher, with Hong Kong’s Hang Seng leading the gains. In Europe, indices open higher.

As expected, the Reserve Bank of Australia (RBA) raised the cash rate by 25-basis points (bps) to 2.85%. It was the RBA's seventh straight rate hike, taking borrowing costs to a level not seen since April 2013. The Bank revised its inflation outlook, and now sees inflation peaking around 8% this year, compared to a previous forecast of 7.75%, adding it expects to raise interest rates further over the period ahead.

In China, Caixin manufacturing PMI remained in contraction territory for the third straight month. The index rose to 49.2 in October, from 48.1 the previous months, to match the official NBS PMI data released yesterday.

According to an economist at the Caixin Insight Group, "The current domestic and international environments remain complicated and tough, and unfavourable factors affecting economic development have increased, in particular, the spread of the coronavirus in many regions significantly restricts both supply and demand."

Forex

The US dollar is on the back foot this morning as traders weigh the odds of a less aggressive Federal Reserve (Fed), which is starting its two-day meeting later today.

If the Fed is widely expected to deliver another 75 basis-point hike, many economists think that chairman Jerome Powell could signal that the Fed will slow the pace of its hikes in the coming months.

The dollar consolidation has had a positive effect on commodities, which are mostly up this morning.

Equities

In the UK, BP reported a better-than-expected third quarter (Q3) profit of $8.15 billion, boosted by very strong natural gas trading. For the full-year (FY), BP now expects upstream production to be slightly higher than 2021.

The company announced another $2.5 billion in share repurchases and continues to expect to be able to deliver share buybacks of around $4bn per annum.

Ocado announced a partnership with South Korean company Lotte Shopping to develop Lotte's online. Lotte Group is one of the largest business conglomerates in South Korea, with a total annual revenue of around £45bn.

In the US, the earnings season continues. Pfizer is expected to post earnings of $1.44 per share, on revenue of $21.33bn, before market opens. Once again this quarter, its Covid-19 products, Comirnaty vaccine and antiviral pill Paxlovid, are expected to be the key contributors to the pharmaceutical giant's sales.

Comirnaty sales are expected to reach $2.74bn this quarter, while Paxlovid sales should rise to $8Bbn.

After the US closing bell, Uber Technologies is forecast to post a loss of 17 cents per share in the third quarter, to be compared to the $1.28 loss posted for the same quarter a year ago. Revenue is expected to rise by 67% year-on-year (YoY) to $8.12bn.

Advanced Micro Devices is also due to report earnings after the US close tonight. Expectations are of earnings of 80 cents per share on revenue of $6.68bn.

Commodities

Could rice be the soft commodity to watch?

We are starting to see reports saying that world rice production is set to drop in 2022-2023, for the first time in three years, as unfavourable weather conditions in China, South Asia and California will affect yields.

In China, the world's largest producer and consumer, output is set to drop due to the dry weather in southern provinces. Bad weather has also affected yields in India, and flooding in Pakistan has destroyed whole fields.

The situation is similar in the US, where rice production is expected to drop to a 30-year low due to drought in western states. Rice is the third most cultivated grain, and tightening supplies could support price inflation in many countries.