Markets Feb 07

Markets this week: Trade, Inflation and loans data

Investor sentiment will also be driven by progress in distributing coronavirus vaccines and the trend in Covid-19 infections, especially the emerging variants and mutations

Markets this week: Trade, Inflation and loans data
Policewomen wearing protective face masks wait to register their names to receive a Covid-19 vaccine manufactured by Serum Institute of India at the Civil Hospital in Ahmedabad, in the state of Gujarat. Photo: Reuters 

(ATF) Economic events

Financial markets this week will parse through details of US President Joe Biden’s $1.9 trillion Covid-19 relief package approved last week with cash on the sidelines likely to be put to work as risk appetite grows. Investor sentiment will also be driven by the vaccine progress and the trend in virus infections especially the variants and mutations. Global infections now exceed 105.5 million with 2.3 million dead.

“Vaccinations in January were largely as we forecasted but the rollout is diverging across developed markets (DMs). While the UK is progressing rapidly, the EU is held back by limited supply, and the US faces distribution challenges,” said Goldman Sachs analysts in a note.

“We expect vaccine deliveries to accelerate in Europe and the US as supply disruptions ease and new vaccines arrive. We assume that Johnson & Johnson distribution starts later this month in the US, in March in the UK, and in early April in the EU, and that Novavax inoculations kick off in April in the UK and US.”

Tensions between the world’s two biggest economies will remain at the back of investors’ minds after U.S. Secretary of State Antony Blinken  told top Chinese diplomat Yang Jiechi in a phone call the United States will stand up for human rights and democratic values in Xinjiang, Tibet and Hong Kong. Yang said "Let's each manage our own business" and urged Washington to "correct its mistakes."

Many Asian markets will see holiday truncated trading volumes on account of the Lunar New Year break.

On the economic data front, Asia-Pacific will see trade numbers out of China and Japan, as well as producer price data from both economies plus consumer inflation and new loans numbers for the former. Trade data is expected to give fresh insights into the extent to which trade flows may be being adversely affected by the pandemic and associated supply  constraints, after PMI releases showed surprise weakening of new export orders for goods from mainland China in January.

“The export decline was linked to a number of factors, including further Covid-19 restrictions amid rising infections, supply shortages and shipping bottlenecks due to container shortages. Both import and export data from China and Japan will therefore be scrutinised for more clues as to the potential impact of the further COVID-19 waves not just on local economies, but also the wider global recovery after better than expected PMI data,” said Chris Williamson, chief business economist at IHS Markit.

Fund flow

Bond funds saw record inflows in the week to February 3 as money continued to pour out of money market funds with emerging market equities posting their 19th week of inflows in the past 20 weeks and the best start to the year since 2018, fund flow tracker EPFR data showed.

Global EM debt funds extended their stellar outperformance in term of inflows, recording their 30th inflow in the past 31 weeks.

The popularity of Asian emerging markets benefitted frontier markets too with inflows into Pakistan and Vietnam hitting record highs.

But DM equity funds continued to lose momentum as Japan, Canada and Europe Equity Funds reported modest inflows and US Equity Funds reported the biggest outflow for year-to-date.

US Equity flows were roiled by retail investor behaviour as they switched their attention from GameStop shares and pushed the price of silver to an eight-year high amid efforts to squeeze short positions.

“Retail investors also steered significant amounts of money towards fund groups offering exposure to the global reflation story expected during second half of the year, when better weather and widespread vaccination programs give consumers the scope to unleash more than a year’s worth of pent-up demand,” said Cameron Brandt, EPFR’s Director of Research.

Economic data calendar

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