Risk is most definitely softer this morning.
In Asia, the ASX closed 0.9% lower, Japan is on holiday & Chinese indices traded in the red.
U.S. futures weaken, oil slips and the dollar continues its recent resurgence.
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China’s factory gate prices fell last month at their slowest pace since February, official data showed on Monday, suggesting the country’s manufacturing sector continues to see a rapid recovery from the COVID-19 shock.
The producer price index (PPI) eased 0.4% from a year earlier, the National Bureau of Statistics said in a statement. The index was expected to decline by 0.8%, according to a median forecast in a Reuters poll, after a 1.5% drop in November. Monthly PPI rose at its fastest pace in four years.
The data comes as Chinese manufacturing activity expanded in December but at a slightly slower pace amid higher raw material costs.
Prices for raw materials fell 1.6% from a year ago, compared with a decline of 4.2% in the previous month, the data showed. PPI rose 1.1% last month, the fastest pace since December 2016.
“Judging from the current significant rebound in global commodity prices, (annual) PPI could soon enter positive growth territory,” said Zhang Yongjun, analyst at China Centre for International Economic Exchanges.
The consumer price index rose 0.2% last month from a year earlier, following a 0.5% decline in November, the National Bureau of Statistics data said Monday. The median forecast in a Bloomberg survey of economists was for it to be unchanged.
The pick-up in inflation was largely driven by higher food costs. Pork prices, a key item in the country’s CPI basket, posted a smaller decline of 1.3% last month. Prices plunged 12.5% in November after hog supplies recovered from swine disease in the previous year.
“December inflation data, especially after adjusting for volatile pork price inflation, suggest neither significant inflation nor deflation risks, so we expect no policy response from Beijing,” Nomura Holdings Inc. economists led by Ting Lu wrote in a note.
Aside from food, energy prices are also rising as China suffers a severe cold spell, which has boosted power demand. Core inflation, which removes the more volatile food and energy prices, eased to 0.4% after remaining steady at 0.5% for several months.
“The headline CPI may fall back to deflation as food prices resume a downward trend when the cold weather passes. Nonetheless, we expect the fluctuations in prices to have little bearing on the central bank’s decision to start normalizing its policy this year.”
-- David Qu, China economist
China’s state-run media called for retaliation after the Trump administration removed decades-old restrictions on interactions with Taiwan officials just days before President-elect Joe Biden takes office, one of its biggest moves yet to reshape U.S. ties with the Asian democracy.
The Communist Party-backed Global Times warned that Secretary of State Michael Pompeo’s moves were pushing the world’s biggest countries toward conflict. Hu Xijin, the newspaper’s editor-in-chief, said on Weibo China had a “precious window of opportunity for mainland China to teach a heavy lesson to the ‘Taiwan independence’ forces” and re-establish “strategic leverage” in the Taiwan Strait.
“While Pompeo tries to cross Beijing’s red line on national sovereignty and territorial integrity, he should not expect that China will sit back and do nothing,” said a commentary published in the official Xinhua News Agency on Sunday. “Those political clowns will be punished for what they have done to harm China’s core interests.”
“For several decades the State Department has created complex internal restrictions to regulate our diplomats, service members, and other officials’ interactions with their Taiwanese counterparts,” Pompeo said in a statement Saturday in Washington. “The United States government took these actions unilaterally, in an attempt to appease the Communist regime in Beijing. No more.”
The announcement by Pompeo is one of a number the administration has launched or strengthened in the final days of its term, including an initiative to punish companies with close ties to the Chinese military. He also issued a joint statement on Saturday with the foreign ministers of the U.K., Canada and Australia expressing “serious concern” about the arrest of 55 activists and politicians in Hong Kong last week.
The fallout from U.S. sanctions on Chinese military-linked companies widened as banks and money managers raced to comply with an executive order that bans new investments from Monday.
Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. will delist 500 structured products in Hong Kong, including warrants and callable bull/bear contracts on Hong Kong’s benchmark Hang Seng Index, the Hang Seng China Enterprises Index and China Mobile Ltd., according to filings to Hong Kong Exchanges and Clearing Ltd. The city is the world’s largest structured product market with more than 12,000 listed products, HKEX figures show.
Separately, the $14 billion Tracker Fund of Hong Kong said it would refrain from making new investments in companies covered by the ban, adding that the fund is no longer “appropriate” for U.S. investors. Managed by State Street Global Advisors Asia Ltd., the tracker fund is Hong Kong’s most actively traded ETF.
Investors have been scrambling for more clarity on how regulators, exchanges and financial intermediaries will implement the vaguely worded executive order issued by Donald Trump in the waning days of his administration. The New York Stock Exchange said last week it will delist China Mobile and two other Chinese telecom companies. MSCI Inc. deleted the stocks from its global benchmark indexes on Friday, triggering a rush to sell that pushed volume in the stocks to historic highs and drove China Mobile’s share price to a 14-year low.
The order said that designated stocks cannot be purchased by Americans starting on Jan. 11, and that holdings by Americans must be fully divested by November when transactions will be frozen.
Hong Kong’s exchange said it’s working closely with banks to ensure orderly delistings. “We do not believe this will have a material adverse impact on Hong Kong’s structured products market,” the exchange said in a statement Sunday. The city’s securities regulator said it has also been in close dialogue with the affected issuers and has reminded them to carefully assess the impact of the U.S. sanctions on their products.
China continued its pushback against U.S. sanctions, issuing new rules to protect its firms from “unjustified” foreign laws and allowing Chinese courts to punish global companies for complying with foreign restrictions.
The rules on “counteracting unjustified extra-territorial application” of foreign laws allow Chinese authorities to issue orders saying that companies or people in China don’t need to comply with foreign restrictions, the Ministry of Commerce said in a statement Saturday.
The measures went into effect immediately, and although they don’t mention the U.S. directly, China has long complained about the extra-territorial application of U.S. law through sanctions and restrictions on trade. The rules also allow Chinese citizens or companies to sue for compensation in Chinese courts if their interests are damaged by the application of foreign laws, and could put global companies in legal jeopardy in China for complying with U.S. sanctions.
“The new order will be enforceable in China primarily through court actions brought by parties who believe they’ve been damaged by someone else’s compliance with a foreign sanction,” Nicholas Turner, a lawyer at Steptoe & Johnson LLP in Hong Kong who specializes in economic sanctions, said Saturday.
“Companies with significant business interests in China may need to tread carefully to avoid being subject to claims by counterparties in China under prohibition orders issued pursuant to this new framework,” he said. Still, it remains to be seen whether it “will be effective at discouraging companies from complying with U.S. sanctions in the region or elsewhere.”
“The release of new regulations ahead of the inauguration of the Biden administration served the purpose of drawing China’s red line in protecting Chinese companies’ interests and rights,” Tommy Xie, an economist at Oversea Chinese Banking Corp. in Singapore, wrote in a note Monday.
The white-knuckle Bitcoin ride took another twist Monday as a two-day tumble in the digital currency stoked concern that the polarizing cryptocurrency boom may run out of steam.
Bitcoin, the largest cryptocurrency, slid as much as 18% over Sunday and Monday to as low as about $33,500. That’s the biggest two-day slide since May last year and follows a record high of almost $42,000 on Jan. 8.
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Oil prices fell on Monday, hit by renewed concerns about global fuel demand amid tough coronavirus lockdowns in Europe and new curbs on movement in China, the world’s second-largest oil user, where infections jumped.
“Covid hot spots flaring again in Asia, with 11 million people (in) lockdowns in China’s Hebei province...along with a touch of Fed policy uncertainty, has triggered some profit taking out of the gates,” Stephen Innes, chief global market strategist at Axi, said in a note.
Mainland China saw its biggest daily increase in virus infections in more than five months, authorities said on Monday, as new infections rose in Hebei, which surrounds the capital, Beijing.
Shijiazhuang, the provincial capital and epicentre of the new outbreak, is in lockdown, with people and vehicles barred from leaving, as authorities seek to rein in the spread.
Most of Europe is now under the strictest restrictions, according to the Oxford stringency index, which tracks measures such as travel bans and school and workplace closures.
Retail sales in Australia rose by 7.1 percent month-over-month in November 2020, compared with an initial estimate of a 7.0 percent growth and after a 1.4 percent increase a month earlier.
This was the fastest gain in retail trade since May, boosted by the reopening of retail stores in Victoria following the easing of coronavirus restrictions as well as Black Friday and pre-Christmas shopping.
Rises were recorded in household goods retailing (12.7 percent vs -0.1 percent in October), clothing, footwear, and personal accessory retailing (26.7 percent vs 6.8 percent), other retailing (7.9 percent vs 2.0 percent), department stores (21.1 percent vs 4.5 percent), and cafes, restaurants and takeaway food services (6.7 percent vs 5.4 percent).
The release of new game consoles and new iPhones added to sales in household goods and other retailing.
Prime Minister Boris Johnson meets with Cabinet colleagues to discuss whether current lockdown edicts are working to reduce spiralling cases
Tighter coronavirus restrictions are being considered by ministers, The Telegraph understands, amid concerns the latest lockdown is not being followed strictly enough.
Rules banning people from different households who are not in a support bubble from exercising together are under discussion, in a move which would bring the restrictions more closely in line with the first lockdown in March.
The introduction of rules on face coverings in offices is also being mooted in Government circles, as some businesses are feared to have become lax.
Prime Minister Boris Johnson held a meeting with Cabinet colleagues on Sunday evening at which they discussed whether the current lockdown rules were working to reduce spiralling coronavirus cases at a sufficient rate.
Earlier, Minister for the Cabinet Office, Michael Gove, chaired an emergency 'Covid O' committee which examined ways in which the lockdown could be “improved”, including stricter new measures and initiatives to boost adherence.
Concerns were raised by scenes at the weekend of crowded seafronts and parks.
The move came as 563 further deaths were recorded on Sunday and 54,940 new cases. New modelling suggests that 1 in 5 people in England have now had the disease, demonstrating the rampant spread of the virus throughout the community.
Ministers view scaling up fines for rule-breakers as another option open to them to boost compliance, The Telegraph understands.
Their willingness to increase penalties was shown last week when the UK raised the fine for inbound passengers who fail to fill in their passenger locator form from £200 to £500.
Democrats in the U.S. Congress will try to remove President Donald Trump from office this week, either by pressuring Vice President Mike Pence or in a historic second impeachment attempt, after Trump’s supporters stormed the Capitol building.
MONDAY: INTRODUCING RESOLUTION ASKING PENCE TO ACT
Republicans are likely to block the attempt to pass the resolution without a full, recorded vote.
TUESDAY: A VOTE ON THE 25TH AMENDMENT REQUEST
If Republicans block immediate action, the House will hold a formal, recorded vote on Tuesday, according to Pelosi.
The measure is expected to pass the House, where Democrats hold a 222-211 majority.
The vote would apply pressure to Pence, but it would not force him to act. It gives him 24 hours to respond.
AFTER THAT: IMPEACHMENT
Assuming Pence does not act, the House would next bring impeachment legislation up for a vote, Pelosi said.
ON TO THE SENATE
Impeachment is akin to an indictment -- it leads to a trial in the U.S. Senate, which earlier this year acquitted Trump in his first impeachment.
A two-thirds vote would be needed to convict Trump of the impeachment charge and remove him from office.
Timing is also an issue as Trump’s term ends Jan. 20, when Biden is sworn in.
The Senate is required to consider impeachment charges as soon as they get them from the House, but it is not due to return until Jan. 19.
That means the Senate would be consumed with impeachment during Biden’s first weeks in office, rather than voting on his Cabinet nominations and other policy priorities, such as responding to the COVID-19 pandemic.
The House could avoid this scenario by simply waiting to send the impeachment charge to the Senate for 100 days, as Democratic Representative James Clyburn suggested on CNN on Sunday.
That would allow Congress to focus on Biden’s agenda. By the time the Senate turned to the impeachment charge, Trump would be long out of the White House. But if they voted to convict, he would be prevented from holding public office in the future.
That last line is probably key, with little to suggest that Trump can actually be removed from office in the next 10 days..
Looking ahead, a few central bank speakers to monitor, but little of note on today's calendar.