Monday, March 29, 2021

Capital Markets: "Markets Look for Direction after Large Block Trade[s] and Before Key Data"

 As mentioned in the post immediately below, uncertainty in the equity market is overshadowing any jubilation over the Ever Given being refloated.

From Marc to Market:

Overview: The large block trade (~$20 bln) before the weekend, apparently from a family office, continued to have ripple effects today, but the MSCI Asia Pacific Index barely noticed. It extended its pre-weekend rally of 1.3%, and only South Korea and Australia fell among the major markets. Europe's Dow Jones Stoxx 600 edged to new highs since last March but struggled to sustain the upside momentum. Financial and real estate sapped the strength that had been coming from consumer staples and information technology. US futures indices are nursing 0.3%-05% losses. The US 10-year yield is a little softer at 1.65%, while European yield benchmarks have edged slightly higher. The dollar is stronger against most currencies today. Sterling and the Australian dollar, among the majors, are showing a little resilience, while the Swedish krona is off around 0.6%. Emerging market currencies, except for a few from East Asia, are lower, led by the 0.7% fall of the Mexican peso, followed by around a 0.65% loss of the Turkish lira. The JP Morgan Emerging Market Currency Index is lower for the fifth time in the past six sessions. Gold is trading heavy, around $1725 near midday in Europe. It continues to trade within the $1719.30 and $1755.5 range set on March 18. Progress on moving the ship blocking the Suez Canal was reported, and oil prices softened after last week's choppy action ended with a 4.1% gain to almost $61. The May WTI contract found support a little below $59.50 and recovered more than a dollar in the European morning to approach $61.00 a barrel.

Asia Pacific
After announcing retaliatory sanctions on the EU and UK at the end of last week, Beijing announced over the weekend that it would sanction two Americans. The Chair and Vice-Chair of the US Commission on International Religious Freedom are now barred from visiting or doing business in China.
The Chair, incidentally, is the wife of Senator Manchin. Beijing also sanctioned a member of the Canadian parliament too. A few months ago, Nike and H&M expressed concern about forced last in Xinjiang's cotton industry, and last week faced consumer boycotts and backlash in China. Some H&M stores were shut by landlords, according to press reports. These are mainly symbolic moves and will not change the behavior on either side. Former US Secretary of State Kissinger has characterized the broader confrontation as the "foothills of a Cold War." This implies the likelihood of escalation. The Biden administration's invitation to Xi (and Putin) to a global climate change summit is a polite gesture. Still, any agreement requires, as Reagan instructed, trust but verification, both of which are obstacles, especially given the poisoned atmosphere.

Separately, but not totally unrelated, China's trade punishment of Australia is set to continue.
Beijing's temporary sanctions on Australian wine, in place for months, has formally been extended to five years. The tariff ranges from 116% to 218%. China was the largest buyer of Australian wine. China claims the wine was subsidized and dumped (sold below either the price in Australia or below "market value"). However, China has taken action on many commodities, including barley, coal, beef, and lobster. Australia has threatened to take the case to the WTO, but the Biden administration has continued to block appellate judges' appointments, which undermines the conflict resolution mechanism. Australia ran A$5.7 bln trade surplus with China in January, as Canberra reported a record trade surplus. February trade figures are due out later this week. Japan is the only G7 country not to sanction China. Still, pressure appears to be mounting ahead of Japan's Prime Minister Suga's expected trip to Washington to be the first foreign leader to visit President Biden, possibly as soon as April 9. ...

There are several moving parts of the vaccine rollout. The UK had secured favorable contracts but lacks the manufacturing capacity to produce sufficient vaccines. The EU has the manufacturing capacity but did not secure favorable contracts, and when they did, it appears they backed the wrong ones. The US has both the manufacturing capacity and favorable contracts. Indeed, the NY Times warned of a coming glut of vaccines in the US....