From Marc to Market:
Overview: Higher interest rates, driven by inflation expectations, is forcing an adjustment to equity markets. The S&P 500 is poised to gap lower today following slides in the Asia Pacific region and Europe. Japanese and Taiwanese indices advanced by steep losses were seen in China, Hong Kong, and India. Europe's Dow Jones Stoxx 600 is off about 0.7% in late morning turnover, among its steepest loss here in February. The US 10-year Treasury yield around 1.37%, while European yields are narrowly mixed. Despite the upgrade by S&P to AA+ from AA, New Zealand bonds, like Australian bonds, have sold off hard. Yields jumped 13 and 17 bp respectively and are now up 47 and 55 bp over the past month. The Reserve Bank of Australia was forced to defend its 3-year bond cap for the first time in three months and bought A$1 bln. The US dollar is mixed. The Antipodean currencies and sterling are firmer, while the Swiss franc and Norwegian krone lead the rest lower. Emerging market currencies are also under pressure, with the Mexican peso again the weakest. The JP Morgan, Emerging Market Currency Index fell a little less than 0.2% last week and is off almost twice as much today. Gold snapped a six-day slide at the end of last week with a 0.5% bounce. It is extended the recovery today to test $1800. Crude oil is consolidating inside the pre-weekend range, leaving April WTI trading around $59.60.
Asia Pacific
There is tension between global investors wanting to invest in China and some US efforts to restrict it, though the Biden administration's stance is not clear. Key indices that serve as benchmarks for international investors did eliminate some Chinese companies after the US banned Americans from investing. Still, the pull is strong. FTSE Russell announced it will add 11 more Chinese companies (from the STAR Market, the NASDAQ-like stock market) to its global benchmarks.
Some headlines declared that the yuan's share of SWIFT transactions rose to a five-year high last month. It is true, but consider that it accounted for 2.48% of all transactions, The dollar's share, in contrast, was 38.26%, and the euro's share was 36.60%. Sterling and the yen also account for more SWIFT turnover than the yuan. One takeaway is that China cannot weaponize access to the yuan the way the US can to the dollar, which leaves Beijing to rely on trade as it is threatening to do with rare earths. Before the weekend, China announced it would boost the rare earths mining quota by 27% from a year earlier (84k tons vs. 66k for the first part of 2020).
Although the US and Europe are pressing Taiwan for help in alleviating the semiconductor shortage, which is hitting auto production in Europe, Asia, and the US and could boost consumer electronics prices, it is not merely an industry shortage. US efforts to contain China's expansion into leading tech sectors through trade barriers, export controls, and sanctions, exacerbating industry supply management. The chip shortage follows the imposition of Huawei restrictions (building chip inventories for its survival) and SMIC (China's largest chip fabricator).
Japan and Taiwan reported strong export figures last week, and earlier today, South Korea joined the party. It reported that exports rose 16.7% year-over-year in the first 20-days of February. This understates the case. Adjusted for the number of workdays, South Korean exports rose by nearly 30%. Exports to China were up 37.7% year-over-year, and semiconductor exports rose by 27.5%....
....MUCH MORE
Yesterday:
