Friday, November 20, 2020

Capital Markets: "US Treasury-Fed Dispute Spurs Handwringing but Immediate Market Impact was Exaggerated"

 From Marc to Market:

Overview: News that the stimulus talks between the House Democrats and Senate Republicans was the excuse traders were looking for to extend the US equity gains yesterday, but shortly after the close, confirmation that Treasury was not going to agree to extend several Fed facilities sent stocks reeling. However, the MSCI Asia Pacific Index showed little reaction, and after snapping a 13-day advance yesterday, returned to its winning ways today. The Nikkei, Taiwan, and Thailand were exceptions. European shares are advancing today, and the Dow Jones Stoxx 600 is recouping around three-quarters of yesterday's 0.75% loss. Barring a strong reversal, it will extend its rally for a third consecutive week for a little more than 13%. US stocks are narrowly mixed, and the S&P 500 is off by about 0.1%, and the NASDAQ is up roughly 0.6% for the week coming into today. Benchmark 10-year yields are a little changed across the board. The 10-year Treasury yield near 0.84%, off seven basis points this week. European and the Asia Pacific yields are slightly softer on the day and around 2-3 bp lower on the week. South African bonds are little changed on the session and for the week ahead of the rating decisions by S&P (possible cut the outlook of its rating three steps below investment grade) and Moody's (expected unchanged rating, one notch below investment grade). The US dollar is mixed. The dollar-bloc currencies are firmer, while the euro and Swedish krona are trading a little lower. On the week, the greenback has depreciated against all the majors. Most emerging market currencies are trading higher today. Still, the Turkish lira is seeing some profit-taking after yesterday's advance following the central bank's rate hike and signal of a return to more orthodox policies. The yuan has risen about 0.5% this week, its third consecutive weekly advance. The JP Morgan Emerging Market Currency Index is up nearly 1% this week, also its third weekly increase. Gold is trying to snap a four-day slide today. It is consolidating quietly today and appears in a new near-term range of $1850-$1875. Oil is steady, and the January WTI contract is putting its final touches on the third consecutive weekly advance, during which time it has rallied about 15% to around $42 a barrel.

Asia Pacific
News from Japan was not good. Deflationary pressures deepened as last year's sales tax increase drops out of the year-over-year comparison, and the flash PMI showed a weaker economy.
Headline October CPI was -0.4% year-over-year, the weakest in four years. The core rate, which excludes fresh food, was off 0.7% year-over-year, the most in nine years. Gasoline and electricity prices fell, and government efforts to boost internal tourism lowered the price of accommodations. The preliminary November PMI readings pushed further below the 50 boom/bust with manufacturing at 48.3 (from 48.7), services 47.0 (from 47.7), and the composite to 47.0 (from 48.0). The government is preparing another supplement budget.

China launched a yuan-denominated futures contract. It will be helpful for local producers and consumers. Still, it does not do much for the yuan's internationalization, any more than an oil futures contract did or what a yen-denominated rubber contract does for Japan.
SWIFT figures out earlier this week showed the yuan use on its platform m slipped to 1.66% last month from 1.91% in September. It had a 1.94% share at the end of last year. Instead, the integration of its capital markets is the more important track now. The Trump administration is thought to be pushing ahead with efforts to delist Chinese companies who refuse to subject themselves to an audit. Separately, and as widely expected, the one and five-year Loan Prime Rates were left unchanged at 3.85% and 4.65%, respectively....