Tuesday, January 26, 2021

Capital Markets: "Subdued Activity as New Incentives Awaited"

 From Marc to Market:

Overview: After rallying strongly to start the year, Asia Pacific equities, led by the high-flying Hang Seng, sold-off, led by Tencent. Most markets in the region were off at least 1%. Australia and India escaped the profit-taking due to holidays. Europe's Dow Jones Stoxx 600 is faring better and looks poised to snap a two-day fall, led by materials, financials, information technology, and consumer staples. US shares are trading a little heavier. The US earnings season picks up today, with Microsoft, J&J, Texas Instruments, AMD, 3M, and GE, among others. The US 10-year yield, which the consensus expected to push above 1.20%, slipped below 1.03% yesterday, its lowest level in nearly three weeks. It is hovering below 1.05% in the European morning. Yesterday's decline dragged Asia-Pacific yields lower, but core European yields have come back firmer, though Italy's 10-year yield extended yesterday's drop despite the seemingly political uncertainty. The dollar is trading higher, with the Scandias and Antipodeans bearing the brunt. The yen, euro, and Canadian dollar are slightly softer. Emerging market currencies are mixed. Even though most of the freely accessible emerging market currencies are lower, the JP Morgan Emerging Market Currency Index is trading to snap a three-day decline. Gold is trading slightly off but remains within the range seen before the weekend (~$1837.50-$1871). March WTI is firm near three-day highs a little above $53 a barrel.

Asia Pacific
MSCI is dropping more Chinese companies from its China All-Share Index to be in line with US edicts.
This entails excluding China National Chemical, China Nuclear Power, China Shipbuilding Industries, among others. This drives homes an element of American soft power, and one in which the Biden administration is in no hurry to change.

China's President Xi complained about the US without naming it in his speech at the World Economic Forum. While he brandished multilateralism as a cudgel to hit the US, while he was quite unwilling to apply it to China's behavior in its own neighborhood. It discourages countries from seeking remedy for disputes in international forums and insists on bilateral negotiations where its power can be brought to bear. Xi had nothing to say about its unilateral trade disruptions with Australia, Canada, or in the past, Japan. Separately, reports suggest Germany is considering sending a naval frigate into the region for a series of port-of-calls in South Korea, Australia, and through the disputed waters of the South China Sea.

South Korea reported Q4 20 GDP expanded by 1.1%. While it was slower than Q3 growth of 2.1%, it was better than the 0.9% median estimate in the Bloomberg survey. The year-over-year contraction of 1.4% was also a little less than expected and could be among the least in the OECD. The preliminary data suggests the strength of its exports helped offset the weakness in domestic demand. China is its number one export market (~25%), and the US is the second-largest (~12%). Vietnam is the third-largest South Korean export market (~~8%)....