Market Close Jan 26

Markets retreat after US stimulus delay, China bubble warning

Tight liquidity, bubble warning in China hammers Chinese stocks; Market eyeing Fed taper timing hints post-FOMC meeting; Global trade volumes have returned to growth in year-on-year terms

Markets retreat after US stimulus delay, China bubble warning
Thai immigration officers are seen at the arrivals hall in Suvarnabhumi Airport in Bangkok in June 2020. Recent Covid outbreaks have hit tourist arrivals and created fears that a million people employed in the tourism industry could lose their jobs in the first quarter of this year, despite a recent prediction that exports may rise 4% this year. Photo: Reuters.

(ATF) Hong Kong: Asian markets were slammed by concern about the delay in passage of the US pandemic aid package with Beijing’s worries around asset bubbles also hurting sentiment.

PBoC adviser and influential economist Ma Jun said potential bubbles in stocks and properties are a risk if Beijing fails to shift its focus toward job growth and inflation management. Higher borrowing costs in China’s money markets, ahead of next month’s lunar new year holiday, when the demand for cash soars, also weighed on Chinese stock markets.

Japan’s Nikkei 225 index slipped 0.96%, Hong Kong’s Hang Seng index tumbled 2.55% and China’s CSI300 slumped 2.01%. Regionally, the MSCI Asia Pacific index retreated 0.75%. Australian markets were shut for a national holiday.

China's markets underperformed as the overnight repo traded on the Shanghai stock exchange surged to a high of 5.4%, near doubling from the previous close of 2.975%. This was triggered by a combination of the central bank's extended net drain of cash from the financial system and higher holiday demand.

This pushed up the yuan currency to 6.4713 versus the dollar, 85 pips firmer than the previous late session close. It would have surged more had the dollar not extended its rebound with the currency rising to 0.1% to 90.44 against a basket of currencies.

The dollar strength hurt gold prices which fell 0.2% to $1,835 per ounce.

Still, the global pandemic continues to weigh on financial markets even as economies show signs of recovery. Worldwide infections are approaching the 100 million mark and the death count is now over 2 million.

This sombre landmark comes even as data released from the CPB Netherlands Bureau, showed world trade volumes increased by 2.1% on the month in November, having returned to growth in year-on-year terms.

“The regional breakdown for November revealed that the largest increases in real exports were in Asia,” Capital Economics economists Kieran Tompkins and Simon MacAdam said.

“The outperformance of Asia’s export sector is a continuation of what we have witnessed since the onset of the pandemic. They have been the principal beneficiaries of consumer demand shifting away from spending on domestic services and tourism towards goods for working from home and home improvement.”

Financial markets are now focused on the Federal Open Market Committee monetary policy decision and briefing by Chairman Jerome Powell on Wednesday with US Q4 GDP and initial jobless claims the day after also on the radar.

“Chair Powell's press conference will be the main event where he is likely to reemphasize that the current monetary-policy stance is appropriate and will continue to be for some time. We expect Powell to reiterate that the Fed is still a long way from tapering its asset purchases and that it will give ample warning before doing so,” BofA Securities said in a note which added that Fed tapering is most likely to start in 1H22, although there are risks of an earlier start if additional fiscal stimulus is enacted early this year prompting better growth. 


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Asia Stocks

· Japan’s Nikkei 225 index slipped 0.96%

· Hong Kong’s Hang Seng index tumbled 2.55%

· China’s CSI300 slumped 2.01%

· The MSCI Asia Pacific index retreated 0.75%.

Stock of the day

Chinese Web giant Tencent tumbled 9.3% on the heels of a 30% stock surge this year. This fall erased $90 billion market capitalisation after US President Joe Biden said he will ensure Chinese companies cannot misuse and misappropriate American data and will ensure that US technology does not end up supporting China’s “malign activities,” according to a State Department spokesperson.

Asian markets Hang Seng China japan China repo rate surge yuan