Monday, January 11, 2021

Capital Markets: "Greenback Extends Recovery"

 From Marc to Market:

Overview: Julius Ceasar is said to have "crossed the Rubicon" on January 10, 49 BCE, taking the 13th Legion into Rome, defying orders from the Senate, and precipitating the Roman Civil Wat that marked the end of the republic and the birth of the empire. Last week's events paled in comparison despite the US President urging his supporters to march on Washington and demonstrate its strength. It was the only way the "stolen" landslide election would be secured. His personal lawyer called for "trial by combat" as the mob was fired-up. But rather than join them, as Ceasar did, the leaders watched the events unfold from the security of the White House television. Last week's events are rippling through the US political landscape and likely will shape the future of the Republican Party, including its candidate for president in 2024. It may give momentum to the bipartisan effort that provided the framework for the new stimulus. What is perceived as an attack on the body politic may strengthen the center. It most certainly does not mark American exceptionalism, as the populist movement in Europe, including the Five-Star in Italy, and the AfD in Germany appear past their peaks. The dollar is enjoying a firmer tone to start the new week, gaining against all the major currencies and most emerging markets today, building the gains seen at the end of last week. The JP Morgan Emerging Market Currency Index is off for the third consecutive day. The Dollar Index is higher for the fourth straight session, the longest advance since the election. Risk appetites have waned today. Most equity markets in the Asia Pacific region were down, though the Nikkei's 2%+ gain is a notable exception. Taiwan, India, and Indonesian equities bucked the regional trend. Europe's Dow Jones Stoxx 600 is off for the third session. Communication and financials are the most resilient, but the interest-rate-sensitive utilities are off the most. US shares trading heavier too. Bond markets are quiet, with the US 10-year benchmark hovering around 1.10%. European yields are narrowly mixed. Gold extended its sell-off to reach around $1817 before bouncing. Resistance is seen near $1855. Note that the 200-day moving average is just shy of $1840. Crude oil prices are consolidating last week's surge. February WTI rose by nearly 7.7% last week. It is off almost 1% today to retreat back below $52 a barrel.

Asia Pacific
China has responded to US sanctions, protesting what it calls the "extraterritorial application" of foreign legislation. It prohibited compliance with such foreign laws. Depending on enforcement, it could put global firms in jeopardy for complying with US sanctions. It is part of the hardening of "disengagement" efforts and will force third parties to develop new strategies.

As a last-minute disruptive move, the US State Department has lifted the long-standing restrictions on US official conduct with Taiwan. The Secretary of State said US officials should not be "shackled" by self-imposed restrictions of our permanent bureaucracy. We suspect the incoming Biden administration will retain the protocols. The media often says that China recognizes Taiwan as a renegade province, but the truth of the matter is, so does the US and most other countries. The US has a one-China policy, and it has not prevented the sale of sophisticated weaponry to Taiwan. The US insists reunification should be peaceful, while China reserves the right to use force if necessary to unite the country.

China reported its December inflation numbers. CPI rose 0.2% year-over-year after 0.5% decline in November. Food prices are key. Pork prices fell 1.3% after a 12.5% plunge in November. Core inflation in China rose 0.4% year-over-year.
Separately, producer price deflation eased, and prices are off 0.4% from a year ago. They were off 1.5% in November. Both the CPI and PPI were firmer than economists expected. Still, ahead of the lunar new year, there does not seem to be much urgency to adjust policy. Deflationary pressures remain....


Mr. Chandler oftentimes writes a Saturday or Sunday note which differs in format from the weekday overview. Here's January 10's:

Is the Dollar's Decline since the Election set to Correct?