Monday, January 18, 2021

Capital Markets: "US is on Holiday, but the Dollar has Legs"

 From Marc to Market:

Overview: The new week has begun like last week ended. Equities are a bit heavy. The MSCI Asia Pacific Index fell for the second session, its first back-to-back loss since before Christmas. China and Hong Kong were the notable exceptions, perhaps helped by stronger than expected GDP. Europe's Dow Jones Stoxx 600, which fell 1% at the end of last week, is a little lower in turnover in the European morning. US stocks won't trade today in the local sessions, but futures are a bit lower. Similarly, US Treasuries won't, and the 10-year ended near 1.08% last week. Bond markets are quiet, though, in Europe, the peripheral yields have edged higher. The dollar is firm. It is advancing against the majors, exception of the yen. The Norwegian krona, Canadian and Australian dollars, and sterling are weakest, with around 0.4%-0.5% losses. Emerging market currencies are also weaker, led by the Mexican peso, Russian rouble, South African rand, and Turkish lira. Gold is recovering from a spike that brought it a little below $1805, its lowest level since early December. The session high was recorded in late Asia, a touch above $1840. The 200-day moving average is $1844. Initially, February WTI slipped through the pre-weekend low to almost $51.75 but has recovered to nearly $52.50. Last week's high was almost $54 a barrel.

Asia Pacific
China reports its economy expanded by 2.6% in Q4 20 after a revised 3% gain in Q3 (from 2.7%). That means for all of last year, the world's second-largest economy expanded by 6.5% (Bloomberg's survey median forecast was 6.2%)
. Of note, industrial output was 7.3% higher in December from a year ago, and for all of last year, it rose by 2.8%. While output was a little higher than expected, retail sales were softer, rising 4.6% year-over-year in December (5.0% in November), and fell 3.9% for the entire year. Fixed asset investment rose 2.9% last year, better than the 2.6% pace in November, but off the 3.2% rate expected by economists. Surveyed joblessness was steady at 5.2%. Of note, coal, gas, and electricity output reached record levels in December. Crude steel output rose 7.2% last year to over one billion tons. Its refineries processed an average of 14.2 mln barrels of oil a day. Before, the focus was on "surplus savings," a criticism that China has built redundant investment. It is this excess capacity that exerts downward pressure on prices.

The Summer Olympics, delayed from last year, are scheduled for July 23-August 8, but the pandemic is once again threatening. The decision to postpone last year was made in late March. This year's decision may entail a cancelation rather than a postponement, but the timing is not clear yet. Local public support has waned, but the government wants to press ahead, of course. Prime Minister Suga's goodwill upon replacing Abe last September has dissipated. In a speech earlier today, Suga pressed ahead with his environmental and digitization initiatives. Suga also confirmed the government's intention to pass a law that adds penalties and incentives to a law on attempts to rein in the virus. Perhaps, the Prime Minister's corporate governance reforms, which require major companies to have a third of their directors from outside the firm, may draw foreign asset managers' attention.

In the last days of the Trump administration, the US has reportedly revoked the licenses of several suppliers of Huawei, including Intel. The US Commerce Department has indicated it will reject a "significant number" of requests to sell to Huawei. Asian chip fabricators and other suppliers of Huawei did see their shares fall in early trading today. This move caps a campaign that has targeted China's three largest telecom companies, its largest chip makers, its top two cell phone manufacturers, the largest social media and gaming companies, the main deepwater energy explorers, the main commercial airplane manufacturers, and the leading drone maker....