Risk sentiment pretty shaky in Asian markets (excl. China)...

Let's kick things off with the China data drop.

INCREDIBLY, their economy expanded in 2020.

Who could EVER have guessed that would happen? WOW!

China's economy picks up speed in fourth quarter, ends 2020 in solid shape after COVID-19 shock

China’s economy picked up speed in the fourth quarter, with growth beating expectations as it ended a rough coronavirus-striken 2020 in remarkably good shape and remained poised to expand further this year even as the global pandemic raged unabated.

Usual China data caveats aside, here are the readings...

Gross domestic product grew 2.3% in 2020, official data showed on Monday, making China the only major economy in the world to avoid a contraction last year as many nations struggled to contain the COVID-19 pandemic. And China is expected to continue to power ahead of its peers this year, with GDP set to expand at the fastest pace in a decade at 8.4%, according to a Reuters poll.
GDP expanded 6.5% year-on-year in the fourth quarter, data from the National Bureau of Statistics showed, quicker than the 6.1% forecast by economists in a Reuters poll, and followed the third quarter’s solid 4.9% growth.
“The higher-than-expected GDP number indicates that growth has stepped into the expansionary zone, although some sectors remain in recovery,” Xing Zhaopeng, economist at ANZ in Shanghai.
“Policy exiting will pose counter-cyclical pressures on 2021 growth.”
Overall, the slew of brightening economic data has reduced the need for more monetary easing this year, leading the central bank to scale back some policy support, sources told Reuters, but there would be no abrupt shift in policy direction, according to top policymakers.
On a quarter-on-quarter basis, GDP rose 2.6% in October-December, the bureau said, compared with expectations for a 3.2% rise and an upwardly revised 3.0 gain in the previous quarter.
Highlighting the weakness in consumption, retail sales fell 3.9% last year, marking the first contraction since 1968, records from NBS showed. Growth in retail sales in December missed analyst forecasts and eased to 4.6% from November’s 5.0%, as sales of garments, cosmetics, telecoms and autos slowed.
While this year’s predicted growth rate of over 8% would be the strongest in a decade, led by an expected double-digit expansion in the first quarter, it is rendered less impressive coming off the low base set in pandemic-stricken 2020.

Industrial production beats, retail sales miss has been the theme of the year.

China also has a huge productivity challenge, with an IMF report finding that China’s economy is only 30% as productive as the world’s best-performing economies like the U.S., Japan or Germany...

As the state sector increases in size, private firms are crowded out and productivity decreases.

Yet Bloomberg reports Stock Analysts Are Most Bullish on Chinese Companies in a Decade...

About 86% of the more than 5,600 total stock recommendations in the benchmark CSI 300 Index are now a buy equivalent, according to data compiled by Bloomberg as of Jan. 14.
That’s an increase of five percentage points from a year ago, and has seen China overtake long-time leader Korea as the major market that analysts are the most upbeat about in the Asia Pacific region, the data show.
Vaccine rollouts boost bets of a rebound in economies, especially export-focused ones like China and South Korea, as well as corporate earnings.

China still faces many challenges, not least the tensions between Beijing and Washington and how they would play out under the new U.S. administration led by President-elect Joe Biden.
As well, rising labour costs, the aging population, and a recent spike in credit defaults add to risks for an economy that is still trying to reduce a mountain of debt.
“We should be alert to the following problems in 2021: first the imbalance of economic recovery. Compared with investment and export, consumption is weak as a whole and has yet to return to normal levels,” Wang Jun, Beijing-based chief economist at Zhongyuan Bank.

China laid out plans last year to refocus their economy on domestic demand and develop a 'dual circulation' policy. Low productivity growth & weak domestic consumption will need to be overcome if China is to have any hope of achieving this.

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Bitcoin Retreats From $40,000 Level Strategists View as Key

  • JPMorgan strategists say Bitcoin needs to climb above $40,000
  • Otherwise the cryptocurrency may be at risk of a further slide

The price must go higher otherwise it will go lower...

The cryptocurrency could be hurt by an exodus of trend-following investors unless it can “break out” above $40,000 soon, a team including Nikolaos Panigirtzoglou said. The pattern of demand for Bitcoin futures and the $22.9 billion Grayscale Bitcoin Trust will help determine the outlook, they added.
“The flow into the Grayscale Bitcoin Trust would likely need to sustain its $100 million per day pace over the coming days and weeks for such a breakout to occur,” the strategists wrote in a note on Friday.
Traders seeking clues about investor appetite for risk have been gripped by Bitcoin’s stunning rally and turbulent 12% slide from a record of almost $42,000 on Jan. 8. The cryptocurrency boom since March embodies the ebullience in financial markets awash with stimulus to fight the impact of the pandemic -- as well as the concern that some of these gains may prove unsustainable.
Trend-following traders “could propagate the past week’s correction” and “momentum signals will naturally decay from here up till the end of March” if Bitcoin’s price fails to break above $40,000, they said.
Bitcoin dipped about 4% to $35,100 as of 1:14 p.m. in Tokyo on Monday. Ether, another popular digital coin, shed 5% to $1,200.
Exactly what’s driven the yearlong near-quadrupling in Bitcoin’s price remains murky. Commentators have cited day traders, wealthy buyers, hedge funds, companies and even signs of interest from long-term investors like insurers.
Bitcoin’s proponents argue it’s maturing as a hedge for dollar weakness and the possibility of faster inflation in a recovering global economy. Others say its defining characteristic remains speculative booms followed by busts.

No mention of the recent dollar bounce...?

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Biden indicates plans to cancel Keystone XL pipeline permit on 1st day in office, sources confirm

U.S. president-elect Joe Biden has indicated plans to cancel the Keystone XL pipeline permit via executive action on his first day in office, sources confirmed to CBC News on Sunday.
A purported briefing note from the Biden transition team mentioning the plan was widely circulated over the weekend after being shared by the incoming president's team with U.S. stakeholders.
The words "Rescind Keystone XL pipeline permit" appear on a list of executive actions supposedly scheduled for Day 1 of Biden's presidency.

This should be no surprise to markets. Biden's opposition to the pipeline has been public record since early 2020.

Coincidentally, the WSJ reported yesterday that the Keystone XL Oil Project Pledges Zero Carbon Emissions...

The Keystone oil pipeline’s developer plans to announce a series of overhauls—including a pledge to use only renewable energy—in a bid to win President-elect Joe Biden’s support for the controversial project.
In a bid to save the project, Canada’s TC Energy Corp is committing to spend $1.7 billion on solar, wind and battery power to operate the partially completed 2,000-mile pipeline system between Alberta, in western Canada, and Texas, company officials say. They also are pledging to hire a union workforce and eliminate all greenhouse-gas emissions from operations by 2030.
Keystone executives hope to keep the $8 billion project alive by making it a showcase for how fossil-fuel projects can still be environmentally friendly and generate good-paying union jobs.
Union leaders, many of whom endorsed Mr. Biden, have made it clear they are willing to push back if Mr. Biden rejects these types of projects. The oil industry has a long history of solid wages and commitment to union workers, which labor leaders trust more than the new wind and solar companies that have yet to build the same track record, said Sean McGarvey, president of North America’s Building Trades Unions.
They have major concerns about whether big infrastructure projects can still be developed reasonably in the U.S. after so many have faced repeated delays. Expediting them will be critical for industries far beyond just conventional energy.

Will it be enough to save the pipeline?

Low Rates Inflate Asset Prices: RBA

Confidential analysis by the Reserve Bank of Australia suggests house values could jump 30 per cent over three years if borrowers believe the cut in interest rates is permanent.
The RBA is on alert for ultra-low borrowing costs inflating a credit-fuelled asset bubble and financial regulators are ready to act if necessary, but so far the central bank believes lending standards are prudent.

Not so confidential now, is it?

An internal RBA document released on Friday in response to a Freedom of Information request says the biggest risk to the economy was high unemployment, and that stronger household balance sheets from low rates could help counteract the danger.
While some market economists have warned that the current extremely low interest rates pose medium-term financial stability risks to the economy, on balance the central bank saw rising asset prices as a net positive.
RBA staff analysis conducted in November said the $200 billion in ultra-cheap loans to commercial banks, government bond buying and the 0.1 per cent interest rate would assist the recovery from the COVID-19-induced recession.
A rise in the price of houses and other assets such as shares would increase household wealth, improve household cash flow, lift consumer spending and stimulate business investment, the bank's economists noted in an internal briefing note dated November 23.
Looser monetary policy would also put downward pressure on the exchange rate.
The analysis noted that a permanent 1 percentage point cut in the overnight cash rate would increase real house prices 30 per cent after about three years, the RBA noted.
If the interest rate reduction was temporary, house prices would rise 10 per cent over three years.
RBA governor Philip Lowe has pledged that he does not expect the 0.1 per cent cash rate to increase for "at least" three years.
"Monetary policy appears to have larger effects in local areas in which housing supply constraints are binding, mortgage debt is higher and there are more housing investors," the RBA's economists noted.
The findings are consistent with public remarks by Dr Lowe, who has said one of the transmission mechanisms of lower interest rates is strengthening household balance sheets by boosting their cash flow and supporting asset prices to induce spending.
It contrasts with a famous paper he co-wrote in 2002 for the Bank for International Settlements in which Dr Lowe warned low rates could fuel risky credit growth and asset price rises that may need to be counteracted by tighter monetary policy.

Looking ahead, nothing much on the calendar.

U.S. cash markets are closed due to MLK day although futures are open...

Via @PriapusIQ