Risk sentiment is fiercely positive in Asia, with KOSPI gaining nearly 4% to post another record high (aided by strong Hyundai gains).
General positivity across the board; stocks up, yields up, oil up.
Asian shares rose to record highs on Friday, with Japan’s Nikkei hitting a three-decade peak as investors looked beyond rising coronavirus cases and political unrest in the United States to focus on hopes for an economic recovery later in the year.
The upbeat mood came after Wall Street hit record highs on Thursday while bond prices fell as markets bet a new Democratic-controlled government would lead to heavy spending and borrowing to support the U.S. economic recovery.
“Market participants are fairly optimistic with how things are progressing, whether it’s in the political landscape, particularly of course in the United States the potential for more stimulus certainly is a boon to the economy,” said James Tao, analyst at CommSec in Sydney. “You’ve got the vaccines now coming through, getting the approvals - it’s all happening pretty quickly,” he added.
The buoyant mood lifted MSCI’s broadest index of Asia-Pacific shares outside Japan up 1%, touching a record high.
China’s government has told the country’s media to censor reporting on an antitrust probe into tech group Alibaba, whose founder Jack Ma has disappeared from public view as misfortunes mount for his business empire, according to people familiar with the matter.
The move by authorities to exert control over the media coverage of the prominent group’s woes shows that the issue has become a matter of national political sensitivity in China.
Beijing has cracked down in recent months on Mr Ma’s business empire. The $37bn initial public offering of Alibaba’s payments affiliate Ant Group was cancelled by authorities at the last minute in November, while the following month, competition regulators announced an anti-monopoly investigation into Alibaba.
In his last public appearance in October, Mr Ma, one of the country’s richest people, made a speech criticising China’s state-owned banks and financial regulators.
At the end of December, the Chinese government’s propaganda arm directed media outlets to “strictly invoke” the official line on the antitrust investigation into Alibaba and to “not make changes or engage in extended analysis without permission”.
A city of 11 million people near China’s capital has been locked down after the emergence of some 200 virus cases, the worst outbreak in about two months in the country. Authorities in Shijiazhuang banned people and vehicles from leaving the city, located in the province of Hebei that surrounds Beijing. Testing will be rolled out city-wide, and five hospitals have been emptied to treat Covid patients. Meanwhile, China's Sinovac vaccine was shown to be 78% effective against Covid-19 in late-stage trials in Brazil.
China has cancelled the Democratic Republic of Congo’s interest-free loans that matured in 2020 and promised to fund infrastructure projects as the Central African nation joined the Belt and Road Initiative.Chinese Foreign Minister Wang Yi said Beijing would write off loans to DRC worth an estimated US$28 million to help the country overcome the impact of Covid-19, and give US$17 million in other financial support. Interest-free loans account for only about 5 per cent of the loans China has advanced to Africa.
While meeting Congolese President Felix Tshisekedi in Kinshasa, Wang said most of the sum pledged, US$15 million, would be channelled towards development projects. The remaining US$2 million would be used to support DRC’s mandate as head of the African Union bloc for the next financial year. China also committed to funding refurbishment of the Congolese foreign ministry headquarters.
DRC took 53 loans worth US$2.4 billion from China between 2000 and 2018, mostly to fund power, transport and mining projects, according to the China Africa Research Initiative at Johns Hopkins University.
Chinese companies have already invested heavily in the mineral-rich DRC, which is the world’s largest cobalt producer, accounting for about 60 per cent of production, according to the International Monetary Fund.
Global index providers MSCI Inc and FTSE Russell said they would cut three Chinese telecom companies from their benchmarks in response to a U.S. investment ban, crushing the share prices and widening the fallout from the U.S. sanctions.
FTSE had already removed 11 other companies from its indexes and MSCI had cut nine. The New York Stock Exchange said on Wednesday it would delist U.S.-traded American Depositary Receipts of the three telecoms on Jan. 11.
The latest deletions followed the U.S. Treasury department clarifying that the investment ban extends to subsidiaries with similar names to 35 companies on a Defense Department list of Chinese firms it says have military links.
China has described the U.S. moves as wanton oppression of its companies.
Glad we can finally put that one to bed after the NYSE indecision.
Joe Biden is considering asking Congress to help suffering Americans in two steps: give them the balance of their coveted $2,000 coronavirus payments, followed by a $3 trillion tax and infrastructure package.
Why it matters: Biden is confident he can get multiple packages through Congress after Democrats won both Georgia Senate elections. The president-elect's team also wants to get cash in Americans' hands as quickly as possible, according to people familiar with the matter.
The big picture: In July Biden rolled out his Build Back Better plan, which includes billions of dollars for caregivers, incentives for manufacturers and some $4 trillion for green jobs and infrastructure spending.
He proposed paying for this plan with a series of tax increases on the wealthy, including taxing capital gains as regular income and increasing the marginal tax rate for top earners to almost 40%.
Democrats are concerned that if they miss early opportunities to combat COVID and reverse its broader effect on the economy, the twin problems could cripple the rest of Biden’s presidency.
The first bite would come in the form of $1,400 payments that would be added to the $600 in cash Congress approved last month. Also included in this quick-hit package would be money for state and local aid, as well as funding for vaccine distribution.
Biden's push for a tax and infrastructure plan, which is part of his “Build Back Better” program, will slide to later in the spring and be considered under budget reconciliation rules.
They allow the Senate to pass measures with a simple majority, instead of a more challenging filibuster-proof 60 votes.
Hyundai Motor Co. backed away from a statement confirming it is in talks with Apple Inc. on developing self-driving car that fueled a $9 billion surge in the Korean automaker’s market value Friday, saying instead that it received requests for potential cooperation from a number of companies.
Revising its statement for the second time in a matter of hours, Hyundai said it had been contacted by potential partners for the development of autonomous electric vehicles, removing any reference to Apple. Shares of Hyundai surged as much 25% after local Korean media initially reported on talks, and continued to trade near those levels even after the statement confirming discussions was revised.
By naming Apple initially, Hyundai risks the ire of the technology giant known for its secretiveness when it comes to new products and partnerships. With development work still at an early stage, Apple will take at least half a decade to launch an autonomous electric vehicle, people with knowledge of the efforts have told Bloomberg News. That suggests the company is in no hurry to decide on potential auto-industry partners.
“Apple needs to partner with a carmaker because it doesn’t have production capabilities and sales networks to sell its cars,” said Lee Han-Joon, an analyst at KTB Investment & Securities Co. in Seoul. “Building up those capabilities can’t be done quickly so Apple will need a partner for that.”
Bitcoin fell more than 5% on Friday, a day after topping $40,000 for the first time.
The world’s most popular digital currency slid to as low as $36,618.36 on Bitstamp exchange, after reaching an all-time high of $40,402.46 in the previous session.
Market participants had warned of a correction after the $40,000 milestone was reached.
Increased demand from institutional, corporate, and more recently retail investors has powered bitcoin’s surge, attracted by the prospect of quick gains in a world of ultra-low yields and negative interest rates.
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Shares of Tesla surged to a record high in heavy trading on Thursday, with the electric car maker’s stock market value exceeding Facebook’s for the first time.
Shares in the company led by Elon Musk jumped nearly 8% to end the session at $816, putting its market capitalization at $774 billion and making it Wall Street’s fifth-most-valuable company, just behind Google-parent Alphabet and ahead of Facebook.
Facebook’s stock market value was $765 billion after its shares rose about 2%, according to Refinitiv data.
Over $39 billion worth of Tesla’s shares were bought and sold during the session, a record for Tesla and more than the next three most traded companies combined, which were Apple , Alibaba Group Holding and Amazon.com.
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A recent rise in U.S. bond yields and market inflation expectations have bolstered Federal Reserve officials’ hopes the central bank’s new monetary policy approach is taking hold and could be further buoyed if a Democratic-led Congress rolls out more spending.
“I am encouraged to see the rise in market indicators of inflation expectations. ... That is what we are trying to support,” Richmond Federal President Thomas Barkin said on Thursday in an interview with Reuters.
Barkin said he regarded a recent rise in interest rates on Treasury bonds as also part of a “reflation trade,” a sign that investors were factoring future hikes in prices into their decisions by demanding higher interest rates, rather than representing a worrisome tightening of financial conditions.
“The ingredients for higher inflation are in place,” St. Louis Fed President James Bullard said in separate comments to reporters. “You have very powerful fiscal policy in place and perhaps more to come,” with Democrats now about to control the White House as well as the U.S. Senate and House of Representatives.
“You have a Fed that ... wants to temporarily have inflation above target. You have the economy poised to boom at the end of the pandemic,” once the impact of new coronavirus vaccines is felt, Bullard said. The yield on the benchmark 10-year Treasury rose above 1.07% on Thursday, hitting its highest level since March. The 5-year forward inflation expectation rate hit nearly a two-year high of 2.05%.
After nearly two years of study, the Fed in August changed its approach to monetary policy to allow for higher inflation, hoping to meet its 2% target on an average basis by letting prices drift higher for some time in order to offset years in which inflation had been weak.
That would also allow, in theory, a lower unemployment rate since the central bank would try to sustain the sort of “hot” economy that leads to rising prices.
The massive uncertainty about the economy and the course of the pandemic late last summer has since given way to what Barkin said was more “clarity” around where things stand - with two coronavirus vaccines being distributed, fiscal buffers in place to help many American households, and consumers “not far away” from the point when they will “engage in the economy with a lot more confidence.”
The pace of the vaccine distribution will play a large role in when that happens, with some policymakers expressing dismay at the effort so far.
“We are looking at a long period where the fed funds rate will stay at essentially zero,” Harker said, referring to the central bank’s key overnight interest rate. He added that he saw no signs that “inflation is going to go out of control.”
Chicago Fed President Charles Evans expressed more skepticism about the inflation to come, even with the additional government stimulus that might be on the way to help battle the economic fallout of the pandemic and the recession it triggered.
The boost to inflation from added fiscal spending, he told a bankers group on Thursday, is not “nearly as strong as I would like.” He said he believes inflation won’t reach 2% until 2023, and that it would not be unreasonable for the Fed to wait until mid-2024 before raising short-term rates from their current near-zero levels.
San Francisco Fed President Mary Daly, in an event Thursday put on by the Manhattan Institute’s Shadow Open Market Committee, said she believes a stronger labor market will eventually give rise to higher inflation, though the upward push on prices from a tight job market is likely weaker than it was in the past, making a sudden surge unlikely.
That means, she suggested, the Fed can allow the job market to strengthen further than it might have in the past.
At the same time, Daly said she was reassured by a recovery in inflation expectations, which showed market participants, households and businesses are beginning to believe the Fed will deliver on its aim to overshoot 2% inflation.
Looking ahead, it's NFP day!
That would be the smallest gain since the jobs recovery started in May and leave employment roughly 9.763 million jobs below its February peak.
A negative print would not be unexpected.
Aside from some short term volatility around the release, employment increases are still very much in the 'nice to have' camp.
Pandemic restrictions are still limiting 'business as usual' and unemployment support remains firmly in place until mid-March (at least).
Once again, we are in the perverse stimulus loop where worse employment data may actually be positive for markets because it leads to longer fiscal and monetary support.
Today's speech (and Q&A) by Fed Vice Chair Clarida on 'U.S. Economy and Monetary Policy' is noteworthy.
This week has seen talk of QE tapering towards the end of 2021 by Fed members Bostic & Harker.
HSBC's Brent Donnelly notes;
Talk of tapering right now with CPI at 1.2% and Core PCE at 1.4% (and U-3 at 6.7%) makes absolutely no sense in a strong form interpretation of the Fed’s Average Inflation Targeting (AIT) framework.
It sounds more like the old framework of just watching and forecasting and doing whatever makes sense at the time with no backward-looking aspect.
Ever since Jackson hole (late August 2020), the market has been trying to assess whether this AIT framework is strong and credible or if it’s more of a squishy one like the 6.5% UR threshold that was famously adopted in 2012, then ignored and eventually discarded in 2014.
If the market decides that the Fed might taper in late 2021, the narrative will change dramatically and the idea that the denominator for discounting all assets =0 might change a bit.
On the other hand, this could just be another case of too many cooks in the kitchen and Clarida will set things straight.
I'll take the 'too many cooks' option at this stage of the recovery, but it pays to be prepared...