Capital Markets: "Equities are Firm but New Developments Needed or Risk Appetites may Become Satiated"

From Marc to Market:

Overview: Risk appetites have returned today after taking yesterday off. The MSCI Asia Pacific Index advanced every day last week, slipped yesterday, and jumped back today. Most of the national benchmark advanced at least 1.5%, and the Nikkei led the way with a 3% rally to reach its best level since mid-March. European markets re-opened after the long weekend. Last week's four-day rally is being extended today by almost 1% in the European morning. US shares are firm, and the S&P 500 loos set to recoup most of yesterday's decline. Benchmark yields are mostly higher. Italian bonds are eight basis points higher while peripheral yields are 3-4 bp higher. The US 10-year yield is a little below 75 bp. Rekindled risk appetites remove some demand for US dollars, and the greenback is mixed. It is a little heavier against the dollar-bloc currencies. Although the South African rand has appreciated and eastern and central European currencies are mostly firmer, the JP Morgan Emerging Market Currency Index is a little heavier for the second session after rising every day last week. Gold is holding above $1700, and May WTI is softer and struggling to stay above $22 a barrel.

Asia Pacific
Singapore, South Korea, and China have seen new flare-ups of infections, and several countries in Asia and Europe are extending their lockdowns. China reported the highest number of new daily cases in almost six weeks on Sunday (108). The overwhelming majority of new cases are reportedly traced to people returning to China from abroad. Roughly half the new cases traceable to Russia and Chinese cites near the border indicated they would tighten border controls and quarantine measures (28 days in quarantines and nucleic and antibody tests) on new arrivals.

China reported a $19.90 bln trade surplus in March. It had recorded a combined deficit of $7.1 bln in the January-February period. Exports fell by 6.6% (in dollar terms), which is less than half the decline expected and a little less than a third of the decline reported in the first two months of the year. Exports to the EU (-24.2%), the US (-20.8%) and Japan (-1.4%) fell. Imports eased by a little less than 1%. Economists had expected a decline closer to 10%. Imports from the US fell 12.5% and from the EU 6.5%. Imports from ASEAN and Japan rose (10.5% and 4.8%) respectively. Those looking for insight into progress meeting the US trade deal will note that agriculture imports from the US rose 110% in Q1, led by a more than 200% increase in soy purchases. China imported nearly three times more pork in March (391k tons) than March 2019. Pork imports in Jan-Feb were more than double the comparable 2019 figures. Separately, the surge in integrated circuit imports (~43.5% after a 10.5% decline in Jan-Feb) appears to reflect the return to manufacturing and assembly of electronic goods as the economy re-starts.

Just like it makes little sense for the US to be so dependent on China for some types of medicine and rare earths, it makes little sense for China to be dependent on foreign chip makers. We have noted Japan's exports of semiconductor fabrication equipment to China. Now one of China's chipmakers (Yangtze Memory Technologies) claims to have the capability to build the most advanced chips (128-layer 3D NAND flash memory chips). Presently, the 96-layer 3D NAND is being done by global players, but the 128-layer is the next generation....

....MUCH MORE