Market Commentary – January 21, 2021

Kevin Jock

21st January 2021

    America ushered in their 46th President as Wall Street welcome’s Joe Biden with record highs fuelled by prospects that looser fiscal expenditure will kick-start economic growth. In his inauguration speech Biden addressed the nation, focusing on unity and cooperation among fellow American’s juxtaposed by the 25,000 heavily geared troops guarding the ceremony. Despite gaining a majority on the Senate floor, it’s not all smooth sailing ahead. Various business leaders have vowed to lobby against planned corporate tax hikes, tight regulation and increases in federal minimum wage.

    European benchmarks ended their session near intra-day highs as all eyes were on the U.S. The ECB will meet on Thursday, but no changes are expected given the expansion in bond-purchases since December. ECB President Christine Lagarde will more likely shift burden on towards governments and their fiscal policy to chart 2021’s course as fresh lockdowns impact recovery.

    Asia-pacific indices pointed higher following overnight optimism. Australian job data helped bolster the S&P200 higher by 28 index points, whilst the unprecedented Mainland Chinese interest in Hong Kong stocks, saw the Hang Seng hit the 30,000 level. An estimated $27bn has been poured in the market via the stock connection since the start of the year. Though uncertainty still overshadow future US – China relations. Whilst the Biden is not expected to adopt Trumps’ hard-line approach to China, thus far the incoming administration has not signalled relaxing the existing sanctions. In final bout of tit-for-tat, China has sanctioned various out-going Trump officials including Secretary of State Mike Pompeo. Meanwhile the Nikkei edges higher after the BOJ revised their 2021 growth forecast higher noting enough stimulus has been delivered that will eventually offset the pandemic.

    The U.S. dollar retreated among majors as the Treasury is set to light up the printing press. Crude ranges around $53 as investors balance between COVID restricting demand recovery and fiscal stimulus boosting economic activity. Gold rises $31 whilst bitcoin appears to find itself in a state of equilibrium as volatility subsides.

Hang Seng-1

Figure 1 (Source: IS Prime): Hang Seng Daily : 27bn capital inflows see’s the Hang Seng reach 30,000 a level untouched since early 2019

Headliner to Review

  • Canada maintained the interest rate at a record low of 0.25%, in line with market expectations.
  • The employment change in Australia dropped from 90,000 to 50,000. Unemployment rate dropped slightly from 6.8% to 6.6%. Both figures met market expectations.
  • The U.S. Mortgage Application Index fell by 1.9% to 946.8 on a turnover basis, reversing the previous sharp rise of 16.7% to 965.2 and approaching a 10-month high.
  • The refinancing activity index in US fell by 4.7% month-on-month (previous value surged 20.1%) to 4,484.2, ending three consecutive weeks of rising; the home purchase mortgage loan index continued to rise by 2.7% per week (previous value rose 8%) to 348.2.
  • The 30-year fixed-rate mortgage interest rate rose from a record low for the second week to 2.92%, and the weekly increase accelerated to 4 points

Headliner to Watch

  • Unemployment claims expected to remain elevated at 930K. Until either COVID subsides or stimulus is injected back into the economy, labour markets remain lethargic.
  • Kiwi inflation set to decline from 0.7% to 0.2%. As with global economies, price levels are expected to remain stagnant until a return to normality.

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Antony Tan
Ben Li
Kevin Jock