Friday, October 30, 2020

Capital Markets: "Investors Scared Before Halloween"


From Marc to Market:

Overview: Investors punished US tech giants for not delivering perfection as prices apparently had discounted, and the subsequent sell-off coupled with month-end dynamics has rocked global equities. Asia Pacific bourses were a sea of red, led by a 2.5% decline in the tech-heavy South Korean Kospi, but most major markets were off more than 1%. European equities are faring better, and are trying to snap a four-day decline. US shares are lower, and the S&P 500 is about 1% lower in electronic trade. Debt markets are not drawing much of a safe haven bid today. Benchmark 10-year yields are a little higher, and the US Treasury is near 0.81%. Given the rout in the equity markets, the currency market is also subdued. The dollar is mostly firmer but in late European morning turnover but little changed. The dollar is holding above key support near JPY104, while the euro has been unable to resurface above $1.17, as the market looks past the stronger than expected Q3 GDP figures. The liquid and accessible emerging market currencies are mostly lower, and the JP Morgan Emerging Market Currency Index is off for the fifth consecutive session. Gold is steady to firmer as this week's 1.7% decline is consolidated. December WTI briefly slipped through the $35 a barrel mark yesterday but has bounced back above $36.50 to pare the biggest weekly loss since April.

Asia Pacific
China's 14th Five-Year plan was large as billed.
It is ambitious and continues to envision China's rise, with a focus on technology, productivity, and modernity. Frustrating for many outside observers, the plan does not have a specific GDP goal, but China's plan to enjoy GDP per capita of developed countries by 2035. China's GDP per capita is estimated at a little more than the equivalent of $10k. Per capita GDP of high-income countries varies greatly, but the lower end is still 3-4 times China. Since the late 1980s, China's GDP per capita has increased by around 30x. However, its demographics are moving from a tailwind to a headwind, which means productivity gains are increasingly essential.

Japan reported a mixed bad [sic] of data. September industrial output rose 4% after a 1% gain in August. This was stronger than most expected (~3%), though it is still 9% below year-ago levels. Housing starts were weaker than expected, falling nearly 10% year-over-year, more than in August. The unemployment rate was steady at 3%. The uptick that many expected seems to have been expressed with an increase in the number of employed people but not at work (6.2% vs. 5.8% vs. 5% in January). The job-to-applicant ratio slipped to 1.03 from 1.04. Lastly, Tokyo's October CPI fell to -0.3% from 0.2% as last year's sales tax hike dropped out of the comparison. The 0.5% decline in the core rate was in line with expectations, after a -0.2% pace in September.....

.... America
The sell-off in tech shares is dominating market talk today.
Without much of a recovery, the S&P 500 is set for its biggest weekly decline since June (~4.8%) or March. It finished September near 3363 and settled yesterday, about 3310. The ten-year yield is about 15 bp higher on the month at about 0.81%....