Trade of the Day: Asian shares weaken after a recent rally, Europe higher; US futures, gold flat; US Treasuries lower.
Quote of the Day: “We would also caution that in spite of the (Phase 1) agreement, the risk that tensions flare up with China in the new year still exists, especially if China fails to follow through on its commitment of goods purchases – commitments it has said it would adhere to only if there is market demand and conditions supported them. As such, we would characterize the Phase 1 deal as welcomed but more of a fragile truce than a permanent settlement,” said Libby Cantrill, Head of Public Policy at PIMCO.
Stock of the day: Peking University Founder Group bonds rallied by 10-15% ahead of the expiry of the grace period to repay a bond that matured in early December. The company missed this payment and is currently in talks with bondholders this week to seek an extension of the bond maturity. The group has outstanding bonds that are due in 2020, 2021 and 2022 all of which are trading at distressed levels.
Number of the Day: $524.2 billion. Dividend paid by Asia-Pacific corporates in 2019, an all-time high. IHS Markit expects the dividend outlook to remain bright in 2020 when payouts are seen rising 5.6% to an aggregate $553.3 billion.
Tip of the Day: “For 2020 we launch two new long-term themes: 5G Fast Forward and Resource Stewardship. 5G will create opportunities for the service providers that create networks and deliver data to end-users, it will have a much broader impact in improving commercial productivity through enabling more efficient working which has a large impact on economies across the globe and will accelerate the creation and use of “big data.” Regulation around the effective management, use and conservation of scarce resources, with a focus in this instance on waste management and recycling challenges should lead to greater capital expenditures that will be relevant a broad range of companies engaged in diverse fields,” said Deutsche Bank Wealth Management in its report outlining the themes for 2020.
Asian markets traded with a soft undertone taking a breather after recent highs as the euphoria around the Phase 1 trade agreement between the United States and China began to subside with questions emerging about China’s adherence to its part of the bargain. Bank of Japan and Bank Indonesia both left their interest rates unchanged as expected but analysts expect BI to resume easing in 2020. “We continue to expect BI to resume easing next year, with two 25bp rate cuts in H1 20, although we think the likelihood of cuts may be declining at the margin,” said Barclays economists in a report after the central bank left its 7d-reverse repo rate steady at 5.0%. On the other hand, economists expect the Bank of Japan to be on prolonged hold keeping its short-term policy rate at -0.1% and its target for 10-year bond yields unchanged at 0%. On the other hand, escaping the negative rate environment was Sweden’s central bank, Riksbank on Thursday raised the key rate to zero from -0.25%. The central bank is one of the pioneers of negative rate policy and the impact of its exiting the sub-zero policy will be closely watched. Traders also await a Bank of England (BoE) policy meeting later Thursday.
MSCI Asia-Pacific ex-Japan shares fell 0.4% and the Nikkei 225 index was down 0.29% while Australia’s S&P/ASX200 benchmark was 0.27% lower. The Hong Kong Hang Seng index declined 0.3% as utilities, insurance and basic materials weighed on the benchmark.
But Europe has opened on a slightly more upbeat note with the pan-region Stoxx Europe 600 Index gaining 0.2% and US futures flat. Markets were cool after the US House of Representatives voted to impeach President Donald Trump on charges that accuse him of abusing power and obstructing Congress. The outcome is unlikely to have a major impact on the market which is focused on the trade dispute and the US Federal Reserve’s policy. Besides, the Republican-controlled Senate is widely expected not to vote to remove Trump from office.