Tuesday, October 13, 2020

Capital Markets: "Markets Look for Fresh Incentives"

 From Marc to Market:

Overview: The S&P 500 and NASDAQ gapped higher for the third consecutive session and continued to advance. The benchmarks reached their best level since early September. Hong Kong markets were closed due to a storm, but the MSCI Asia Pacific gained for the seventh consecutive session. Most markets were higher, though Taiwan and South Korea were exceptions. European stocks are struggling a bit, and the consolidative tone is threatening to end the three-day advance. European yields are softer, and the peripheral yields are slipping to new record lows, and premiums over German continue to narrow. The US 10-year yield is off a couple of basis points, after not trading yesterday to about 0.75%. The dollar is mostly firmer, though the New Zealand and the Swedish krona are a little better. The Australian dollar and euro are off about 0.2%, the most among the majors. Eastern and central European currencies, with the exception of the Turkish lira and Russian rouble, are weighing on the complex of emerging market currencies. After yesterday's pullback, the Chinese yuan firmed slightly today. Gold is little changed around $1922 an ounce, and oil has steadied, and the November WTI contract is up about 2% to reclaim the $40-a-barrel mark.

Asia Pacific
China's trade figures have become among the most high-frequency reports. The September surplus fell to $37 bln from almost $59 bln. The median forecast in the Bloomberg survey was for a $60 bln surplus. The miss was due primarily to imports, which surged by 13.2% (-2.1% in August). Economists had expected less than a 0.5% increase. The imports may have been flattered by inventory building ahead of US sanctions. Imports of integrated circuits rose by more than 28% (~11% in August). Overall, the imports of high-tech products rose by over 20%. Imports from Taiwan rose by 35.8%, South Korea17.2%, and Japan 13.4%. Oil imports were off 14.1% year-over-year, after a nearly 25% drop in August. Exports to the US rose by 20.5% (9.5% in August) while imports from the US rose by a quarter. The bilateral surplus stood at $30.8 bln. More broadly, exports rose 9.9% year-over-year, which just missed the median forecast. Of note, exports of medical instruments rose by nearly 31%, and the category that includes protective masks surged by almost 35%, both of which were less than August.

Japanese bank lending, excluding trusts, slowed last month to 6.2% from 6.6% in August. Deposits rose by 9%, and bankruptcies fell to a 30-year low. These figures likely reflect the winding down of the distribution of government assistance. The percentage of loans guaranteed by private credit companies is estimated to be near 70% (JPY35 trillion) in August. Separately, Prime Minister Suga's honeymoon proved short, as support for the cabinet slipped 7 percentage points to 55%....


.....Access to UK fishing waters has become a larger issue than the direct economics would suggest is necessary. It is one of the few areas the UK has an advantage and is pressing it hard. It has offered a re-negotiated agreement that as a clear sunset provision. Three-quarters of EU fishing catch comes from the UK waters (~650 mln euros), and the UK sends about three-quarters of its catch to the EU. The EU Parliament must approve the agreement, and while French President Macron may be pressing a particularly hardline, the UK has alienated many potential allies......