Asian markets weaker after pandemic worries drive losses on Wall Street
Despite opening in the black, Wall Street quickly slipped into the red on Monday as investors focused on alarming coronavirus case numbers in the US, the UK and elsewhere, with the certainty of more economic disruption in the near term even as the rollout of vaccines promised improved economic conditions later this year. Indeed, the S&P500 had been down more than 2% mid-session, before eventually clawing its way back to a loss of 1.5%. Uncertainty regarding the outcome of today’s Georgia Senate run-off races probably didn’t help matters, although the possibility of Democrat wins – and thus a clearer path to increased fiscal easing – meant that UST yields closed little changed despite the losses on Wall Street, while the 10Y break-even rate breached 2% for the first time since 2018
After opening lower, Asian equity markets generally shrugged off Wall Street’s blues today on a relatively quiet day for economic news from the region. But in Japan, where new car sales rose at the end of their worst year since 2011 while PM Suga said he will consult experts on Thursday before announcing new emergency coronavirus restrictions in the Tokyo area, the TOPIX closed down 0.2%. In contrast, China’s CSI300 rallied a further 1.9% to a fresh 13-year closing high while South Korea’s Kospi recovered from modest losses to advance 1.6% to a new record. The Hang Seng posted modest gains, led by telecommunication stocks, after the NYSE announced the reversal of an earlier decision to delist three Chinese telecommunications companies. Stocks closed little changed in Australia and ACGBs made gains (with 10Y yields back below 1.0%) despite news that the number of job ads had increased to an 18-month high in December. But on the first day of local trading this year, Kiwi stocks climbed more than 2% against the backdrop of news of further strong house price gains.
In Europe, following yesterday evening’s announcement by UK PM Johnson of more stringent lockdown restrictions in England – the tightest since the first wave of Covid-19, which are expected to last to mid-February – stocks are largely opening lower despite some much stronger-than-expected German retail sales figures. But major government bonds are also a touch weaker after yesterday’s gains. And while it weakened this morning after strengthening in Asian time, Sterling is currently above yesterday afternoon’s lows trading close to $1.358, albeit still more than 1 cent down from this time yesterday. With the German trend in new Covid-19 cases still unfavourable – if nowhere near as grim as in the UK – Chancellor Merkel is set to meet with state leaders today to discuss an extension and possible tightening of the national containment measures beyond the current deadline of 10 January and probably at least to month end.
German retail sales defy expectations with strong growth in November
Defying expectations of the steepest drop since April, German retail sales continued to see solid growth in November, rising 1.9%M/M in real terms following growth of 2.6%M/M in October. That left sales in November up 5.6%Y/Y, and the average in the first two months of Q4 more than 3% above the equivalent level in Q3. Sales of food, beverages and tobacco were up 0.8%Y/Y while non-food items were up a strong 8.5%Y/Y, with online and mail order sales up 31.8%Y/Y.
As in many other major economies, German consumers continued to spend on all sorts of stuff for the home, with sales of furniture, household appliances and building materials up a vigorous 15.4%Y/Y. At the same time, they continued to eschew spending on clothing and footwear with such sales down 20.0%Y/Y. Admittedly, total sales in November were likely boosted by Black Friday shopping as well as the decision of consumers to bring forward sales ahead of the reversal of the temporary VAT cut this month. But while sales are also bound to have fallen back in December in response to the closure of non-essential stores – which looks set to be extended at least to the end of this month – today’s data continue to underscore the general resilience of the German economy to the second wave of Covid-19.
German labour market data for December are due before the end of the hour, with jobless claims expected to rise for only the first time in five months, by about 10K. That would push the claimant count rate back up to 6.2% after falling in each of the two previous months to be still 0.2ppt below the peak reached in the summer. Euro area bank lending figures for November are also due later this morning.
Senate run-off elections the key focus in the US today; ISM manufacturing report also due
In the US, the key focus for investors over the next 24 hours – and potentially longer – will be the two run-off Senate elections in the state of Georgia. Recall that the Democrats need to win both of these races in order to tie the Senate 50-50, thus giving them control via the tie-breaking vote of VP-elect Kamala Harris. Should the Democrats gain control of the Senate, this would open the way to easier fiscal policy settings, but probably also increased regulation and taxes – a policy direction that would have significant implications for a range of financial assets. Voting closes at 7pm EST and counting of all votes – including absentee ballots – will begin at that point. While the counting should proceed relatively quickly, despite a record turnout for a run-off election, polls have indicated a tight contest so it is quite possible that the result will remain uncertain at the end of today. Moreover, with so much at stake, recounts and legal challenges could extend the period of uncertainty if the preliminary results are less than decisive.
On the data front, most interest will centre on the ISM manufacturing report for December, with the headline index likely to moderate further from the elevated readings seen over the past couple of months. Auto sales data for December will also be of interest in light of the drop-off reported in November.
Japan’s auto sales up at end of worst year since 2011, money base growth at 27-month high
A relatively quiet day for data in Japan saw the release of vehicle sales and monetary base statistics. Regarding the former, total sales increased 7.4%Y/Y in December – up from 6.0%Y/Y in November. That, however, left them down 12.3%Y/Y over 2020 as a whole, marking the worst full year for sales since 2011. Sales of cars increased 8.2%Y/Y but were down a similar 12.2%Y/Y for the year as a whole. And sales of trucks increased 4.0%Y/Y to be down 12.7%Y/Y in 2020. However, with travel – especially leisure-related – curtailed by the pandemic, sales of buses plunged 37.4%Y/Y to be down 31.3%Y/Y last year compared to 2019. Meanwhile, spurred by its increased asset purchases in response the pandemic, the BoJ reported that the monetary base increased 18.3%Y/Y in December – the fastest pace of growth since May 2017. Banknotes in circulation grew 5.5%Y/Y, but banks’ reserve balances at the BoJ increased at a much stronger 23.1%Y/Y.
Australian job ads hit 18-month high in December
The impressive recovery in Australia’s labour market looks to have continued into year-end judging by the ANZ’s count of job advertisements. The number of ads increased a further 9.2%M/M in December, lifting the series to the highest level since June 2019 and a gain of 5.0%Y/Y. This bodes well for the unemployment rate remaining well below the peak forecast by the RBA when the next figures are released a fortnight.
Kiwi house prices end 2020 on a strong note, with best quarter since 2004
With the RBNZ having foreshadowed the reinstatement of LVR restrictions on 1 March, predictably demand for housing appears to have driven another steep increase in home prices in December. The Corelogic price index increased a further 2.6%M/M, raising annual growth to 11.2%Y/Y – the fastest pace since mid-2017. Moreover, the 6.1% lift in prices in Q4 marked the largest quarterly increase since 2004 – a development that will please neither the RBNZ nor the government.