Tuesday, October 27, 2020

Capital Markets: "Markets Take Collective Breath and Beijing Tweaks Fixing Mechanism"

 From Marc to Market:

Overview: The surging pandemic sapped the risk-taking appetites as some investors hunker down for what could be a volatile period ahead. The S&P 500 lost nearly 3% at its lows before rebounding 1% in late dealings. However, the US's fiscal stimulus remains highly likely even if not immediate, and more intensive trade talks between the UK and EU have already begun. The spread of the virus also means policymakers must be vigilant in their response, and many countries will need to extend their efforts. Equities in the Asia Pacific and Europe are mostly lower. Chinese and Indian markets were more resilient, while the Antipodeans experienced a 1.7% slide. Europe's Dow Jones Stoxx 600 is off for the ninth session in the past 11 for around a 5% pullback. The S&P is seen little changed. It surpassed the 50% retracement of the rally off last month's lows (~3379), and the next retracement is near 3339. Bonds markets are mostly quiet after Asia Pacific markets played a little catch-up after yesterday's yields softened in the US and Europe. The US benchmark 10-year note yield is around 0.80%. The dollar is mixed, but mostly little changed. The euro slipped below $1.18 but is back above it in the European morning. The dollar remains below JPY105.00, Many Asian emerging market currencies edged higher, the Chinese yuan is a little softer. The Turkish lira remains under pressure, and the dollar rose to new a new record above TRY8.15. Gold is little changed, holding above $1900, while December WTI is firm but holding mostly below $39 a barrel.

Asia Pacific
There were three pieces of data out in the notable region.
First, industrial profits slowed in China in September. The year-over-year pace slowed to 10.1% from 19.1% in the year through August. For the first nine months of the year, profits are still off around 2.4%. Second, South Korea's economy expanded by a stronger than expected 1.9% in Q3 following a 3.2% contraction in Q2. The year-over-year decline narrowed to 1.3% from 2.1%. Third, New Zealand's September trade figures show the 12-month trade surplus reached a six-year high (~NZD$1.71 bln). Two highlights lie ahead: The BOJ meeting and possible lower economic assessment, and Australia's quarterly inflation report ahead of next week's central bank meeting due to first thing tomorrow.

China appears to have boosted imports from the US last month. Some reports estimate it at nearly $10 bln of oil, soy, and auto parts. Many private observers figures are far from the US's estimate at the end of last week, suggesting China had met around 70% of its purchase agreements. Meanwhile, the US is going forward with new weapon sales to Taiwan. The US has approved a $2.4 bln package of land-based anti-ship missiles. These measures enjoy bipartisan support....