Risk sentiment tipping positive as we start 2021; ASX & Chinese indices posting gains, Japanese indices are lower as the government considers declaring a one-month state of emergency in Tokyo.
Oil is flying ahead of the OPEC+ meeting today.
U.S. futures are flat, metals are higher, and the dollar still can't find a friend.
Activity in China’s factory sector rose in December as the world’s second-largest economy sustained its recovery to pre-pandemic levels, a business survey showed on Monday, however, increasing cost pressures slowed the pace of expansion.
The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 53.0 from November’s 54.9, with the gauge staying well above the 50-level that separates growth from contraction but missing expectations and easing to the softest pace in three months.
Analysts polled by Reuters had forecast the headline reading would slip to 54.8.
China’s vast industrial sector has staged an impressive recovery from the coronavirus shock thanks to surprisingly strong exports. The economy is expected to expand around 2% for the whole of 2020 - the weakest pace in over three decades but much stronger than other major economies still struggling to contain infections.
Commenting on the China General Manufacturing PMI ™ data, Dr. Wang Zhe, Senior Economist at Caixin Insight Group said:
"In December, the negative impact of the pandemic on the domestic economy further subsided and the manufacturing industry continued to recover.
Both the supply and demand sides continued to improve.
Overseas demand also steadily increased.
In terms of the trend, we expect the economic recovery in the post-epidemic era to continue for several months, and macroeconomic indicators will be stronger in the next six months, taking into account the low bases in the first half of 2020.
Meanwhile, we need to pay attention to the mounting pressure on costs brought by the increase in raw material prices and its adverse impact on employment, which is particularly important for the design of the exit from stimulus policies implemented during the epidemic.”
Japan’s factory activity ended a record 19-month run of declines in December as output stabilised for the first time in two years, suggesting manufacturers are shaking off the negative impact from the coronavirus pandemic.
The private-sector data contrasts somewhat with last week’s government figures that showed industrial output growth stalled in November because of declines in car production on weakening U.S.- and Australia-bound shipments.
The final au Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) rose to a seasonally adjusted 50.0 in December from the previous month’s 49.0 and a preliminary 49.7 reading.
Commenting on the latest survey results, Usamah Bhatti, Economist at IHS Markit, said:
"Japanese manufacturers signalled a broad stabilisation in operating conditions at the end of a tumultuous year, as the headline PMI registered at the 50.0 no-change threshold in December.
This pushed the PMI to the highest level since April 2018 and ended a sequence of 19 straight declines – the longest in the survey history.
"The overall health of the Japanese manufacturing sector was boosted by output levels steadying following nearly two years of consistent declines.
Although new orders reduced in the latest survey period, the fall was the softest recorded in the current sequence dating back to January 2019.
"Buoyed by improved operating conditions, Japanese manufacturing firms increased employment levels for the first time since February, albeit only fractionally.
Nevertheless, ongoing issues of an ageing population have continued to hold back
Japanese manufacturing employment, as firms continued to report retirements.
"Businesses reported a sustained increase in optimism, with a third of respondents predicting a rise in output over the coming 12 months. This is in line with the IHS Markit forecast for industrial production to grow 7.3% in 2021."
Japan said on Monday it would consider declaring a state of emergency for the Greater Tokyo metropolitan area as coronavirus cases climb, casting fresh doubt over whether it can push ahead with the Olympics and keep economic damage to a minimum.
The emergency declaration would mark a reversal for Prime Minister Yoshihide Suga, who has resisted any such drastic steps despite criticism that the government was acting too slowly.
Japan saw a record 4,520 new cases on Dec. 31, prompting the capital, Tokyo, and three neighbouring prefectures to seek an emergency declaration from the national government. There were 3,158 new cases on Sunday, according to public broadcaster NHK; Tokyo and its environs accounted for about half of them.
“Even during the three days of the New Year’s holidays, cases didn’t go down in the greater Tokyo area,” Suga told a news conference.
“We felt that a stronger message was needed,” he added, when asked to explain the change of heart on a potential emergency declaration.
Suga did not say when the government would make a decision, or what restrictions would follow. The first state of emergency, declared last spring, lasted more than a month, shutting down schools and non-essential businesses.
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Oil prices have pushed higher overnight, fuelled by speculation that OPEC+ will agree to maintain the current output cuts at today's meeting.
OPEC warned of risks to the oil market from the resurgent pandemic, a day before the group and its allies meet to consider whether to increase production.
“The outlook for the first half of 2021 is very mixed,” OPEC Secretary-General Mohammad Barkindo said at a preparatory meeting on Sunday. “There are still many downside risks to juggle.”
The alliance of producers led by Saudi Arabia and Russia will decide on Monday whether it can continue to restore crude supplies without capsizing the price recovery they spent most of 2020 working to achieve.
At a long and late meeting on Sunday, several countries including Saudi Arabia sounded cautious about increasing production further in February on top of the 500,000 barrels-a-day hike this month, delegates said. Riyadh has publicly kept its views under wraps, while Russia has backed an additional boost.
“We think the producer group will opt to forgo any further production increases for February with Covid-19 cases continuing to climb and the slower than expected vaccine rollout,” said Helima Croft, chief commodities strategist at RBC Capital Markets LLC.
With the gathering on Monday, the coalition is switching to meeting every month -- rather than just a few times a year -- in order to fine-tune production levels more precisely.
Currently idling 7.2 million barrels a day, or about 7% of world supplies, the producers plan to return a further 1.5 million barrels a day in careful instalments.
Barkindo also outlined the need for caution.
Restrictions on movement remain in place in a number of countries amid a new strain of the virus, he said. It’s too soon to know how key sectors of the economy will be affected, and for the tourism and leisure industries the return to pre-crisis levels could take a couple of years.
Oil inventories in developed nations remain 163 million barrels above their five-year average level, Barkindo added. Despite the market’s rebound, crude prices remain far below the levels most OPEC members need to cover government spending.
While the IEA anticipates no fresh surplus, it warned that the existing inventory overhang will linger to the end of the year if OPEC+ opens the taps.
Chinese oil majors may be next in line for delisting in the U.S. after the New York Stock Exchange said last week it would remove the Asian nation’s three biggest telecom companies.
China’s largest offshore oil producer Cnooc Ltd. could be most at risk as it’s on the Pentagon’s list of companies it says are owned or controlled by Chinese military, according to Bloomberg Intelligence analyst Henik Fung. PetroChina Co. and China Petroleum and Chemical Corp., also known as Sinopec, may also be under threat as the energy sector is crucial to China’s military, he said.
“More Chinese companies could get delisted in the U.S. and the oil majors could come as the next wave,” said Steven Leung, executive director at UOB Kay Hian in Hong Kong. At the same time, the impact of removing the telecom firms is probably minimal as they were thinly-traded in the U.S. and they haven’t raised much funds there, he said.
“The bottom line is the impact will be very limited,” said Neil Beveridge, an analyst with Sanford C. Bernstein & Co. in Hong Kong. “Most institutional investors invest through the Hong Kong shares rather than the U.S. ADRs. The biggest downside for investors would be the loss of transparency from SEC filings.”
The NYSE said it would delist the telecom operators to comply with a U.S. executive order imposing restrictions on companies identified as affiliated with the Chinese military. China Mobile Ltd., China Telecom Corp Ltd. and China Unicom Hong Kong Ltd. would all be suspended from trading between Jan. 7 and Jan. 11, and proceedings to delist them have started, the exchange said.
All three of the firms declined in early Monday trading.
In separate statements Monday, each telecom company said it “regrets” the NYSE’s actions, and said the decision might affect the prices and trading volume of the companies’ shares. All three companies said they hadn’t received any notification from the NYSE about the delisting.
Ether reached $1,000 on Monday, a day after Bitcoin breached $34,000 for the first time as the surge in cryptocurrencies continues.
Ether climbed as much as 9% to about $1,035 following a 30% advance on Sunday. Bitcoin held onto most of its weekend gains, dipping about 0.8% as of 1:44 p.m. on Monday in Tokyo to $33,317. The largest cryptocurrency eclipsed its 2017 record late last year and only hit $20,000 for the first time in the middle of December.
Proponents of Bitcoin argue that it’s muscling in on gold as a hedge against U.S. dollar weakness and inflation risk, citing evidence of growing interest among institutional investors. Skeptics view the digital asset’s more than 300% surge over the past year as a risky bubble fueled by investors chasing the momentum in cryptocurrency prices.
“The drivers of the crypto rally, if anything, are strengthening amid still low interest rates, political uncertainty” and the prospect of more government stimulus, Julian Emanuel, chief equity and derivatives strategist at BTIG LLC, said in an email. But he added that volatility can work both to the upside “as well as to the downside.”
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Looking ahead, today's calendar is pretty uninspiring.
The focus will be on the virus and any increase in restrictions, OPEC+, and U.S. politics.
Trump is still pushing to overturn the election results and was recorded on a call with Georgia's top election official asking him to find votes to overturn the election.
This comes ahead of the crucial Georgia runoffs tomorrow, where 3 million early votes have already been cast.