Thursday, January 7, 2021

Capital (Capitol) Markets: "Dollar Bounces after Insurrection Put Down"

From Marc To Market:

Overview: After the National Guard were called to put down an insurrection in Washington, DC, the dollar is having its best day in around a week. The euro's three-day rally has been halted even though German factory orders surprised on the upside. The greenback is firmer against all the major and most of the emerging market currencies today. Equities are moving higher. All the markets in the Asia Pacific but Hong Kong rallied today after the 8-day advance stalled yesterday. Hong Kong appeared to have been dragged lower by concern that the US would delist Alibaba and Tencent. Europe's Dow Jones Stoxx 600 gapped up to new highs but has moved to close the gap. US shares are trading around 0.5% higher. Pressure remains in the debt markets. The MSCI Emerging Market equity index is at its best level since 2007. The US 10-year benchmark is firm near 1.05%, while most sovereign 10-year bonds are up to 3-4 bp higher today. Gold held $1900 in yesterday's slump. It now meets resistance near previous support around $1930. Oil prices are firm, and the February WTI contract has pushed above $51. In early November, it was below $40.

Asia Pacific
Japan's Prime Minister Suga has declared Tokyo and the three surrounding prefectures to be in a state of emergency that will last at least until February 7.
The emergency does not mean a stringent lockdown. The restrictions appear less than what was imposed last year. Still, Suga's public support has waned. His personal conduct has been criticized. Hopes for an early election to secure his own mandate after Abe's resignation looks to be pushed back, though an election must be held by late October. Meanwhile, the high-frequency data showed labor cash earnings dropped 2.2% in the year through November. This was considerably worse than the 0.9% median forecast in the Bloomberg survey and the fastest drop since last May. It is the eighth consecutive year-over-year drop and casts a pall over the consumption outlook. Household spending will be reported tomorrow. It rose in October (year-over-year) for the first time since September 2019 but likely fell in November.

China reported a slightly larger than expected rise in December reserves. Its reserves rose by $38 bln in December, following a $50.5 bln increase in November, to stand at $3.22 trillion. Bloomberg's survey median forecast was for $3.20 trillion. The other major reserve currencies appreciated so valuation may have helped lift the reserve holdings. The challenge is that between the trade surplus and capital inflows, many economists would expect greater yuan appreciation (less than 1% in December) or stronger growth in reserves. The PBOC appears to have various levers that can be used, including policy banks and sovereign wealth fund. The US Treasury's recent report was mostly critical of China for the lack of transparency in currency matters.

Objecting to Australia's alliance with the US, Beijing has blocked a wide variety of its imports. However, Australia's trade figures have been fairly resilient. Earlier today, it reported that November exports rose 3%. Economists surveyed by Bloomberg expected a 2% decline. Exports to China fell by about A$300 mln in November, but this was more than offset by the nearly A$1.3 bln increase in exports to the US and A$150 bln increase of shipments to Japan. Exports to Singapore also rose by around A$1 bln. Iron ore exports fell 7.9% from a record-high in October. Coal exports were off by nearly as much. Gold exports surged by almost 40% in the month (to A$2.6 bln). Australia's imports jumped 10% in November, more than three times greater than expected. The trade balance was a A$5.02 bln surplus down from a revised A$6.58 bln in October.... 


That last bolded bit isn't quite true. China began its campaign against Australia when the Aussies demanded a real investigation into the source of the coronavirus. The fact that the U.S. made similar demands is neither here nor there.