Market Commentary – January 28, 2021

Kevin Jock

28th January 2021

    Reassurances from the Fed failed to stave off Wall Street’s dive as corporate earnings outlook raise concerns over extended valuations. This despite tech giants like Apple reporting their highest-ever net-profit quarter and Tesla topping analyst expectations. Meanwhile, Federal Reserve Chairman Powell delivered a doubled edged message yesterday. Reiterating the central banks commitment in sustaining monetary easing and dispelling rumours of tapering whilst articulating a slower US and global recovery amid a resurgence of COVID-19.

    Likewise, economy-linked stocks across Europe soured with the German government slashing it’s GDP forecast for 2021 and other Euro members likely to follow to suit. The re-evaluations come amid extensions in coronavirus lockdowns. Pandemic risk was further elevated following a dispute between EU and AstraZeneca. Brussels has claimed the vaccine maker is in breach of contractual commitment by prioritizing deployment towards the UK implying delays to Europe’s inoculation campaign.

    Asia-pacific benchmarks extended overnight sentiment. The S&P200 slumped 75 index points, Hang Seng declined for 3 consecutive days and Nikkei fell as much as 310 points. Japan faces deployment woes of their own, with health experts insisting local clinical trials before the scheduled roll-out in March.

    Risk aversion saw the U.S. dollar gain amid the stock rout. Among majors, the euro fell 50 pips following ECB members warning the bank may consider piecemeal interest rate cuts to curb the currencies demand. Despite growth concerns, crude stayed above $52, gold edged lower to 1,844 and bitcoin bounces off 30,000 back to 31,000

SP500-1

Figure 1 (Source: IS Prime): S&P 1-minute : Risk aversion reigns with Fed sobering up to slower economic growth amid a deluge of disappointing earnings outlook

Headliner to Review

  • The Federal Reserve kept the interest rate and asset purchases unchanged at near zero. It was consistent with the market expectations.
  • The German Economic Affairs lowered its forecast for this year’s gross domestic product (GDP) to resume growth of 4.4% from the original estimate to only resume growth of 3%. The government debt to GDP ratio is expected to rise to 72.5%, and the public sector budget deficit accounts for 7% of GDP. At the same time, it is expected that the German economy will not return to the level before the outbreak of the pandemic until the middle of next year.
  • The durable goods orders in the United States in December last year only rose 0.2% month-on-month (the previous value was increased by 1.2%), which was less than market expectations of 1% rise. It has risen for eight consecutive months. The core durable goods orders continue to rise by 0.7% on a monthly basis (the previous value is increased by 0.8%), which is better than market expectations.

Headliner to Watch

  • Following a historic rebound in GDP Q3, U.S. growth expected to moderate back to 4.4% for Q4. With unemployment claims edging lower to 880k. Macroeconomic indicators suggest despite a lack of fiscal stimulus, economic activity has remained resilient throughout.

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Authors:
Antony Tan
Ben Li
Kevin Jock