From Marc to Market:
Overview: The week is winding down and risk-appetites seem vulnerable even though the MSCI Asia Pacific Index pared its first weekly loss in four, led by gains in Tokyo and Hong Kong. With those gains, Japanese markets turned positive for the week, while Hong Kong's loss was narrowed to just below 5%. Europe's Dow Jones Stoxx 600 gave up its initial gains and is lower near midday in Europe. If it does not recover, its losing streak would extend to three weeks, the longest since before the vaccine was announced. US futures are heavier ahead of today's massive expiration of equity futures and options. The 10-year US Treasury is steady around 1.33%, while European yields are mostly 2-4 bp firmer. The US benchmark yield is up by less than a single basis point on the week, while eurozone rates are 3-5 bp higher. For its part, the US dollar is sporting a heavier bias against most of the major currencies, led by the Australian and Canadian dollars. On the week, the Norweigan krone is the strongest (~0.7%) ahead of an anticipated rate hike next week. Emerging market currencies are mixed today, leaving the JP Morgan Emerging Market Currency Index slightly lower. It is off about 0.4% for the week, the second consecutive weekly decline. Gold tumbled 2.25% yesterday, its biggest fall in a month, but after falling to $1750 yesterday is near $1765 near midday in Europe. Oil is trading a bit heavier, and November WTI is threatening to end a five-day rally that has carried it from a little below $68 a barrel to almost $73. It is slipping below $72 today. Iron ore continues to plummet. The Chinese contract fell for the 13th session in the past 14 for a 25% drop this month. Copper is more than 1% higher on the day to reduce this week's loss to 2.5%. Coming into today, the CRB Index is up 1.5% for the week, the fourth consecutive weekly advance.
Asia Pacific
China's Xi had expressed an interest in joining the successor of the Trans-Pacific Partnership late last year, and within 24 hours of the new security pact between the US, the UK, and Australia, Beijing formally applied. This seems like political posturing. Last year, China launched its own regional trade pact, which included, among others, Japan, South Korea, and Australia. That pact has not stopped China from boycotting various Australian products, primarily over Canberra's foreign policy alignment with the US. Moreover, not counting the US, the new TPP only has four members that are not in China's Regional Comprehensive Partnership: Chile, Peru, Canada, and Mexico. Many members may be reluctant to turn China down straight away, and it might be accepted as a working party, but it is not a sure thing. Numerous Chinese policies seem to go against the spirit if not the letter of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, like the flow of data, the role of state-owned enterprises (which appears to become more dominant lately), and protection of intellectual property. Ascension requires unanimity, and it does not require much of a stretch to assume that full membership is blocked, eventually. Press reports recount how President Trump withdrew from the TPP; few acknowledge that both of the leading Democratic challengers in 2016 (Clinton and Sanders) were also opposed. As an aside, the UK has formally applied for CPTPP membership in February.
China will launch the "Southbound Link" next week that will draw mainland capital into Hong Kong. It complements the 2017 Northbound Link" that drew HK funds into the mainland. These bond links, in turn, complement the equity links with Shanghai (2014) and Shenzhen (2016). Beijing is gradually opening its capital account but in a very controlled and deliberate manner. An annual quota for the "Southbound Link" will reportedly start at CNY500 bln (~$78 bln). There will be a daily quota as well. The yuan is still not convertible and purposely so. The introduction of the digital yuan at the Winter Olympics early next year will not make it convertible. Beijing is loath to give up its control. Still, the gradual opening of the capital account is a constructive development....
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