Monday, January 4, 2021

Capital Markets: "Rising Equities and Slumping Dollar Greet the New Year"

 From Marc to Market, January 4:

Overview: The first day of the New Year, but it feels a lot like last year. The dollar is under pressure, and equities are higher. Outside of Japan and Malaysia, The MSCI Asia Pacific Index extended last week's 3.6% gain. It has not rallied for seven consecutive sessions. Led by mining and energy, Europe's Dow Jones Stoxx 600 is up 1.5%, which would the largest gain in two months and puts the benchmark at its highest level since last February. US shares are also trading with an upside bias. Benchmark 10-year yields were a little higher in Asia but are off 2-3 bp in Europe. The US 10-year yield is slightly firmer, around 0.93%. The dollar is heavy, with European currencies leading the majors. Sterling is an exception, and it's struggling around little changed levels. The JP Morgan Emerging Market Currency Index fell in the last two weeks of 2020 but has jumped 1% today to quickly recoup the year-end losses. Gold has rallied in the wake of the dollar's slide (and crypto gains), and near $1935, it is at a two-month high. Oil prices are firm as OPEC+ meets to consider February output after increasing output by 500k barrels a day this month. WTI is near $50 a barrel.

Asia Pacific
The official Chinese PMI and the Caixin version both saw manufacturing cool but still expanding. Of note, Japan's manufacturing PMI rose to the 50.0 boom/bust level (49 in November) and its best reading since last April. Taiwan was also strong at 59.4 (from 56.9) and its best in a decade. South Korea was unchanged at 52.9. Australia slipped to 55.7 from 56.0.

Last week, the NYSE said that it would delist three of China's largest telecom companies given the US sanctions. There is some thought that President Trump will expand the efforts, and there is some speculation that oil companies may be next.

Despite the Japanese government considering a new lockdown for Tokyo and the weakness in Japanese stocks, the yen is trading at its best level since last March. The dollar broke below JPY103 in late Asian turnover before finding a bid near JPY102.70 in early European activity. There is little meaningful support ahead of JPY102.00. The intraday momentum reading is stretched. Initial resistance may be offered by previous support in the JPY103.00-area. The Australian dollar is firm but holding just below the high made on New Year's Eve (~$0.7742), which is the highest it has been since mid-2018. The next target is the $0.7800-area. The PBOC set the dollar's reference rate at CNY6.5408, but the news today is that the dollar fell below CNY6.50 for the first time since 2018. The yuan's 1% gain today is the most in nearly three months.

The manufacturing PMI for the eurozone slipped to 55.2 in December from the flash reading of 55.5, but the takeaway is that it is at its highest level since May 2018. The recovery remains intact. Employment rose in Germany, France, and Italy. Spain's employment fell for the second month. New orders were mixed. Germany was unchanged, while France and Spain fell, and new orders rose in Italy.

The UK reports a mixed batch of data itself. In November, consumer credit was weaker than anticipated, but mortgage approvals (a 13-year high) and lending rose more than forecast. The December manufacturing PMI rose to 57.5, edging past the preliminary reading of 57.3 after 55.6 in November. It is the strongest reading since November 2017. New orders rose to 56.7 from 54.9, which is its highest reading since August 2020....