Market Commentary – January 6, 2021

Kevin Jock

6th January 2021

    Wall Street tempers Monday’s losses as the U.S. Senate majority hangs in the balance on Georgia’s run-off election. Early results show Democrats in front by a 7-point margin with the gap expected to slim down razor thin. Whether President-elect Joe Biden’s presidency will be a lame duck for the next four years hinges upon Tuesday nights results.

    Elsewhere, European counterparts remain on edge amid a volatile session despite closing relatively unchanged from yesterday’s close. The FTSE shrugged off the latest lockdown woes on the back of oil majors surging from OPEC’s meeting.

    With Georgia’s vote counting still on-going, Asia-pacific indices tumbled with the S&P200 the worst performer, down 70 index points thus far. The 1% decline on the Hang Seng was further exacerbated by the NYSE’s 360 rotation back in favour of delisting three Chinese state-run telecom groups again. The exchange’s initial backflip drew fury among Treasury Secretary Steven Mnuchin and the Trump administration. Meanwhile, the Japanese Nikkei slips 0.38%.

    The U.S. dollar continues to debase, hitting its lowest point since February 2018 among majors. Investors remain weary of the Thai baht’s recent appreciation following a hawkish tone from the Thailand’s central bank whilst a new coronavirus wave is set to impact economic projections. Authorities in China signalled their appetite for a strong yuan however discouraged a freefall in USDCNH as they set the fixing slightly higher at 6.4604.

    Gold trades at an 8-week high at 1,950 on ever increasing inflation expectations whilst bitcoin recovers entirely from Monday’s crash. Oil prices just a tad shy from $50 after surging to a 10-month high as Saudi Arabia pledges to cut enough output to offset production increases from Russia and Kazakhstan.

Crude Oil-4

Figure 1 (Source: IS Prime): Crude Oil Weekly : As OPEC’s meeting concludes, Saudi Arabia’s sacrifice see’s crude hit $50.

Headliner to Review

  • The World Bank raised its 2020 global economic forecast to only a 4.3% contraction (previously expected to shrink by 5.2%), but lowered the global economic growth rate for 2021 to only growth of 4% (previously expected to increase by 4.2%) to reflect that the recent global economic outlook remains highly uncertain. However, China’s economic forecasts for 2020 and 2021 have been revised up to 2% and 7.9% growth from the original estimates of 1% and 6.9%.
  • Caixin Services PMI in China dropped from 57.8 to 56.3, which was worse than the original estimates of 58.1.
  • ISM Manufacturing PMI in US strongly beats expectation. ISM Manufacturing PMI increased from 57.5 to 60.7, which was much higher than the forecast 56.6. ISM Manufacturing Prices increased from 65.4 to 77.6, which was also much higher than the forecast of 66.0.
  • Canada’s Industrial Price Index (IPPI) fell monthly to 0.6% (previous value continued to fall by 0.4%), and it has fallen for three consecutive months, mainly due to the decline in prices of timber and other related products.

Headliner to Watch

  • US ADP non-farm employment change expected to slow to 60k last month from 307k largely a result of lethargic economic activity stifling labour demand.
  • FOMC will release their meeting minutes today. No surprises expected as the central has signalled definitively the super accommodative stance.
  • BOE Governor Bailey is due to testify about the financial stability report before the Treasury Select Committee in London. Though Mr Bailey should be answering questions relate to the state of the economy, many expect the Governor to face queries in relation to their handling of the $237m London Capital and Finance scandal.

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Antony Tan
Ben Li
Kevin Jock