Market Close Jan 21

Fiscal spending optimism sustains rally 

Reflation trade resumes as Biden expected to get fiscal aid approval; US Treasuries seen weakening amid expectations of a steeper yield curve; bitcoin fall takes crypto into “danger zone”

Fiscal spending optimism sustains rally 
White House Press Secretary Jen Psaki takes questions from journalists at the White House after the inauguration of Joe Biden as the 46th President of the United States. Photo: Reuters

(ATF) Hong Kong: Asian markets extended gains on confidence the new Biden administration’s fiscal spending would lift incomes and boost corporate earnings.

Japan’s Nikkei 225 index advanced 0.82%, Australia’s S&P ASX 200 added 0.79%, China’s CSI300 jumped 1.62% but Hong Kong’s Hang Seng index inched down 0.12% as tech heavyweights Alibaba and Xiaomi weakened. Regionally the MSCI Asia Pacific index climbed 0.81%.

Alibaba fell after the previous day’s recovery, which had been fulled by the reappearance of China's most famous businessman and the company’s founder Jack Ma, suggesting the tech behemoth's crisis is over.

Optimistic sentiment

Overall investor sentiment is optimistic about growth resuming under Biden’s presidency.

“We expect growth to be revised upwards,” said Alicia Levine, Chief Strategist at BNY Mellon Investment Management. “Fundamentally, our sanguine view of growth and markets remains intact with a twist: the rotation into value we saw in Q4 of 2020 will have room to run. This is a sector play.

“Markets are likely to price in a fuller reflation trade of higher yields and a steeper yield curve. Investors can also expect lower price earnings ratios and should prepare for a weaker US Dollar. Some of these changes have already been signalled and investors should remain prepared.”

The US dollar weakened to 90.1, down 0.3% against a basket of currencies and US Treasuries weakened slightly with the 10-year yield edging up a basis point to 1.08%.

Rescue plan

Analysts expect Biden to win approval for his $1.9 trillion American Rescue Plan and even half the outlay amounted to a massive 4.5% of GDP in additional fiscal stimulus – compared with a roughly 4% of GDP output gap.

“The high likelihood of passing such a stimulus even as the economy recovers highlights the sea change in US fiscal policy,” said macro research firm BCA Research.

“Energy and financials can continue to outperform despite Biden’s negative regulatory impact. Big Tech has less to fear from Biden’s executive orders but more to fear from the macro backdrop.”

Bitcoin fell 2% to $32,827 and according to some analysts is entering the danger zone.

“Demand for cryptocurrencies is plummeting as the global crypto market cap drops below the $1 trillion level. This doesn’t seem like the end for the crypto bubble, you just might need to see Bitcoin drop to $30,000 level before that institutional money sees value in it,” said Edward Moya, Senior Market Analyst, New York, OANDA. 

“Bitcoin volatility is not going away anytime soon, but right now it seems the cryptoverse is in for a lot more pain in the short-term.” 

Also on Asia Times Financial

Asia Stocks

  • Japan’s Nikkei 225 index advanced 0.82%
  • Australia’s S&P ASX 200 added 0.79% 
  • Hong Kong’s Hang Seng index inched down 0.12%
  • China’s CSI300 jumped 1.62%
  • The MSCI Asia Pacific index climbed 0.81%.

Stock of the day

Education company Scholar Education rose as much as 13.5% after it said , the number of students enrolled for the winter terms that began in January 2021 increased by approximately 40%, as compared with that in the same period of 2020.