Overview: The poor price action in North America yesterday failed to spur much knock-on effect today. That said, US participants may remain on edge as Georgia votes today which will greatly impact the shape of the Biden agenda.
The MSCI Asia Pacific Index extended its advance for an eighth consecutive session, and European shares are little changed, caught between rising energy and falling utilities. US shares are firm. Bond yields have edged up 1-2 bp in Europe and the US but were lower in the Asia Pacific region.
The dollar is softer, with the Antipodeans and Swedish krona leading. Sterling, where England and Scotland are imposing new nationwide lockdowns, is a laggard. Emerging market currencies are mixed, and the JP Morgan Emerging Market Currency Index is giving back a fraction of yesterday's 0.5% gain.
Gold is pushing toward $1950 after briefly dipping below $1935 in early Asian turnover. Oil steadied as the OPEC+ meeting is continuing today, and most reportedly do not favor an increase in output next month. After approaching $50 a barrel yesterday, February WTI found support ahead of $47 a barrel and has been bid back above $48 in Europe.
Asia Pacific
It appears that the US authorities have given greater guidance to the NYSE, and it has retracted its decision to de-list China's three-largest telecom companies. This is an unexpected reversal that saw their shares rally in Hong Kong and China as several oil companies that were thought to be next.
The global competition over semiconductor chip fabrication intensified last year, and the industry appears to be in flux, with M&A activity and some users, like Apple (NASDAQ:AAPL), deciding to produce their own. One of the leading producers, Taiwan Semiconductor Manufacturing (NYSE:TSM), signaled that it would spend $22 bln on capex this year, 10% more than anticipated. Taiwan's information technology sector (~1.2%) lifted Taiex higher (0.65%) today.
The second-largest daily increase in Covid cases in Tokyo is ratcheting up pressure on Prime Minister Suga to declare another state of emergency for Tokyo and three other prefectures. Reports suggest a decision will likely be made on Thursday. Japanese stocks had rallied into the year-end, but the prospect of new social distancing and a state of emergency has spurred some profit-taking, and the Nikkei is off a little more than 1% between yesterday and today.
The dollar fell to almost JPY102.70 yesterday but managed to close back above JPY103. However, it has been unable to push above yesterday's highs (~JPY103.30) and has been trending lower since early Asian activity. It is back below JPY103 in the European morning. We look for some consolidation, though a marginal new dollar low is possible.
The Australian dollar posted an outside down day, but there has been no follow-through selling, and it remains in striking distance of the $0.7740 resistance. Here too, consolidation looks likely in North America.
The PBOC set the dollar's reference rate at CNY6.4760, as widely expected, but it is the first setting below CNY6.50. The dollar fell to almost CNY6.43 before recovering late in the session as state-owned banks were reportedly active dollar buyers. They could be taking profits on long yuan positions, but this kind of activity could be on behalf of policymakers, which some critics argue.
Europe
Prime Minister Johnson has declared the third lockdown for England, and Scotland leader Sturgeon is doing the same. Wales is keeping its schools open until shortly after the middle of the month while considering fresh initiatives.
The Nord Stream 2 pipeline, which aims to double gas shipments from Russia to Germany, has fallen afoul again of US sanctions. A Norwegian firm has indicated it can no longer certify the work, which is needed to allow it to be operational, due to the threat of US sanctions. The pipeline in Danish waters was to have begun in the middle of January.
German economic data surprised on the upside. First, November retail sales jumped 1.9% after a 2.6% surge in October. Economists in the Bloomberg survey were looking for a 2% decline. Information technology purchases rose 7.3% after a 10.6% gain in October (and declines in August and September). Second, and baffling is the decline in employment during last month's lockdown. Jobless-ness fell by 37k instead of increasing by 10k as economists expected. The unemployment queues fell by 40k in December. The unemployment rate is steady at 6.1%.
Eurozone money supply growth accelerated in November to 11% from 10.5%. This is a new cyclical high and the strongest growth since 2008. Household lending was steady at around 3.1%, and lending to non-financial businesses was unchanged at 6.3%.
The euro could not sustain the push above $1.23 yesterday, but the subsequent decline held $1.2240. It is recording session highs in the European morning above $1.2280. While a new marginal high is possible, we suspect consolidation is the more likely scenario. An option for over a billion euros struck at $1.23 expires tomorrow.
Sterling posted a key reversal yesterday by making a new high (just above $1.37) and then selling off and settling below the December 31 low. However, yesterday's low (~$1.3540) held, and sterling appears to have scope toward around $1.3620 today.
America
While the NYSE's reversal on China's telecoms was unexpected, there was another surprise by US officials. The Office of the Comptroller of the Currency published a note yesterday clarifying that national banks and federal savings associations can participate in independent node verification networks (blockchain) and use stablecoins to conduct payment and other bank activities.
The December ISM manufacturing report will be released today. It is expected to have slipped to 56.7 from 57.5. However, yesterday's manufacturing PMI unexpectedly ticked up to 57.1 after the preliminary reading showed a decline to 56.5 from 56.7. New orders were strong at 65.1 in November and may have slipped. Employment will be watched, especially ahead of Friday's national report, after returning below 50 in November after rising above the boom/bust level for the first time since July 2019 in October. The US also reports December auto sales. They fell in the October-November period and are expected to have recouped some of the losses. The Bloomberg survey's median forecast looks for a 15.8 mln seasonally-adjusted annualized pace from 15.55 in November. Last December, the US sold 16.7 mln (SAAR) vehicles. All eyes are on the Georgia run-off elections today, but the results will unlikely be known until at least the Asian session tomorrow, if not Europe. A large number of people have already voted, and more from Democratic areas than Republican. The recent polls show some momentum toward the Democrats.
Canada reports November industrial and raw material prices for November, which are not market movers. Yesterday, Markit reported that December's manufacturing PMI rose to 57.9 from 55.8. It stood at 50.4 in December 2019. Output was at a two-year high. Employment also ticked up to a two-year high as well. On Thursday, Canada reports November trade figures and the IVEY survey, followed by Friday's jobs data. The expected job loss is growing, and the median forecast in Bloomberg's survey now sees a 30k decline.
Mexico has a light diary today. Yesterday, it reported another robust month of worker remittances, which are exceeding the country's trade surplus. The highlight of the week is the December CPI figures on Thursday. The year-over-year rate is expected to ease a little but remain above 3%.
The US dollar staged a key upside reversal against the Canadian dollar yesterday. It made a new low near CAD1.2665 before reversing higher to test CAD1.28 and closed above the December 31 high. Still, there has been no follow-through US dollar buying, and the greenback has returned to the CAD1.2730-CAD1.2735 area, where it opened yesterday. Here too, a consolidative session seems most likely. The greenback also registered an outside up day against the Mexican peso. After falling to roughly MXN19.7160, it snapped back to almost MXN20.00. The dollar is a little softer today and held the MXN19.80 support area, making us favor a consolidative session.