Monday, November 25, 2019

Capital Markets: "Hong Kong, China, and UK Election Hopes Fan Modest Risk-Taking"

From Marc to Market:
Overview: The combination of the victory of the pro-democracy movement in Hong Kong and an apparent concession by China on intellectual property rights is helping bolster risk appetites to start the week. Equities are higher. Hong Kong's Hang Seng led Asia Pacific equities with a 1.5% gain, the second biggest this month. Korea and India's bourses also gained more than 1%. Europe's Dow Jones Stoxx 600 is up about 0.75% through the morning sessions, and US shares are also trading with an upside bias. Core benchmark 10-year bond yields have edged higher, as have Chinese and Korean yields. Japan and the Antipodean yields eased. The dollar is mixed. Sterling is leading the major advancers, gaining around 0.4% (~$1.2880). The dollar-bloc currencies and the Swedish krona are firmer, while the euro, yen, and Norwegian krone are nursing small losses. Oil is steady. Gold is heavy and looks poised to test the month's low near $1445.

Asia Pacific
Beijing announced it would raise the penalties on violations of intellectual property. It is also into lowering thresholds for criminal punishments for such violations and making it easier for the victims to receive compensation. On the surface, this may look like a concession to the US, which has been pressing hard for greater protection is intellectual property rights. Yet, the problem is often not that China has the wrong laws, but that the laws are not enforced. The contradiction is between the declaratory policy (what it says) and operational policy (what it does).

Hong Kong's pro-democracy forces scored a stunning victory in yesterday's election. It appears to have won about 85% of the 452 seats that were contested compared with about a quarter in the last election in 2015. There was a recover voter turnover, nearly twice the 2015 turnout. While this is clearly a rebuke of the HK government and China, the district council seats are not sufficient in themselves to enact fundamental change. It nevertheless lays the foundation for next year's Legislative Council elections, for which the popular vote selects half the members.

The IMF called on the Japanese government and the Bank of Japan to step-up their cooperation while endorsing Prime Minister Abe's fiscal plans (supplemental budget in light of the sales tax increase and typhoon). It suggested that the BOJ target shorter-term rates while cutting its purchases of longer-term bonds to steepen the yield curve. The IMF also suggested the central bank adopt a target-range for inflation as opposed to a point-target to enhance its flexibility, and repeated its call for structural reforms. It shaved this year's GDP forecast to 0.8% from 0.9%. The IMF forecasts 2020 growth of 0.5%, which is what it estimates trend growth..... MUCH MORE