Market Close Jan 15

Markets pause as lockdown fears take hold

US Treasuries firm after Powell assurance; Morgan Stanley raises yuan target on strong exports; Investors see EM opportunities as risk rotation story sustains

Markets pause as lockdown fears take hold
Pension fund managers and religious investors on Friday asked top social media companies to step up their content control efforts to reduce the threat of violence ahead of the inauguration of US President-elect Joe Biden next week. Reuters image.

(ATF) Hong Kong: Asian markets ended the week on a jittery note as the US stimulus stoked rally lost steam and the spike in infections stoked worries around another round of lockdowns and a setback to the economic recovery.

Authorities in China, UK and Germany are considering tightening lockdown restrictions amid a rise in the number of infections. Globally the infection count has crossed 93 million and the death tally is just shy of 2 million.

Worries around US President Donald Trump abrupt measures and sanctions announced in the final days of his presidency also kept investors on the edge as President elect Joe Biden is unlikely to roll back any of these measures immediately.

Japan’s Nikkei 225 index slid 0.62%, Australia’s S&P ASX 200 ended flat, and China’s CSI300 dipped 0.23% but Hong Kong’s Hang Seng index added 0.27% as mainland investors piled into sanction-hit stocks. Regionally the MSCI Asia Pacific index slid 0.42%.

Analysts expect the weakness to be short-lived as emerging markets appeared attractive to global investors.

“Although a short-term market correction is worth considering, according to our analyses, the risk rotation story remains sustainable over the medium term,” Monica Defend, director of Currency Strategy and Global Head of Research at Amundi, said. 

“After the recent catch-up in the US, we expect higher potential in the EZ when switching from Credit HY to equities. Investment opportunities should continue to be available in the Emerging Markets in the first half of 2021.”

Treasuries firm, gold and dollar up

US Treasuries firmed with the 10-year yield dipping 1 bps to 1.11% after Federal Reserve chairman Jerome Powell said a rate rise is off the agenda. The economic worries pushed oil prices off their 10-monyth highs with the WTI down 1.4% to $52.84 per barrel.

Safe havens gained with Gold adding 0.4% to $1,854 per ounce and the US dollar rose 0.2% to 90.4 versus a basket of currencies.

The yuan also rebounded after the PBOC drained cash from the system and announced a higher fixing. It set the mid point at 6.4633 per dollar, firmer than the previous fix of 6.4746. 

The sentiment around the Chinese currency has remained bullish with Morgan Stanley raising the year end target to 6.25 per dollar versus the earlier 6.40.

“Sustained strength in exports and manufacturing capex recovery are offsetting a temporary pause in travel activity recovery amid winter's Covid-19 resurgence,” Morgan Stanley strategists said in a note. 

“We expect export growth to remain robust in coming months (excluding favorable comparison bases) amid domestic supply chain resilience and unfinished orders. Potential additional US fiscal stimulus could also add further impetus to China's export momentum. Meanwhile, import growth would continue to catch up with improving manufacturing capex.”

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Asia Stocks

· Japan’s Nikkei 225 index slid 0.62%

· Australia’s S&P ASX 200 edged up 0.01% 

· Hong Kong’s Hang Seng index added 0.27%

· China’s CSI300 dipped 0.23%

· The MSCI Asia Pacific index slid 0.42%.

Stock of the day

Smartphone maker Xiaomi fell as much as 13.6% after the Pentagon added nine companies including Xiaomi to its list of firms with links to China’s military and banning them.

Asian markets Covid-19 China lockdowns Jerome Powell yuan dollar Treasuries