Trade of the Day: Stocks and futures in a broad rally after Fed boosts risk appetite; US Treasuries and gold dumped; Oil firm
Quote of the Day: “We are constantly asked (by EM and Asia-Pac investors) about our view on the US dollar. We believe investors are focusing on the wrong currency – they should be asking about the renminbi. China is 45% of Asia Pacific GDP, comprises a third of the MSCI EM and MSCI China firms derive the bulk of their revenue locally,” said Adrian Mowat, chief strategist at CLSA when delivering his 2020 outlook on Thursday.
Number of the Day: 63%. The haircut to be borne by holders of every $1,000 perpetual bonds of Tewoo Group, who will now get $370 following a workout. This is the first offshore default by a Chinese state-owned entity in 20 years, showing a decline in the willingness of the government for bailouts. S&P Global said it expects to see more market-based debt workouts, rather than full bailouts as witnessed in the past.
Tip of the Day: “There are clear signs that the tech cycle is bottoming out; the key questions now relate to the speed and timing of the recovery. The majority of consensus estimates project a rise in semiconductor sales of between 5% and 8% y-o-y in 2020, after a near 15% contraction in 2019. Asian economies that specialize in tech production, such as South Korea, China and Singapore, should benefit from increased tech demand,” Nomura analysts said in a 2020 outlook report published on Thursday.
Asian stocks rose after the US Federal Reserve said “the labor market remains strong and that economic activity has been rising at a moderate rate,” while signaling it would keep interest rates unchanged and policy accommodative through 2020.
MSCI Asia Pacific ex-Japan jumped 0.8%, while Japan’s Nikkei benchmark edged up 0.18%. Hong Kong’s Hang Seng index rallied 1.3% as technology, energy and utilities gained. The Stoxx Europe 600 Index rose 0.2%, while US futures are up 0.1%, indicating a strong start at Wall Street later today.
“The statement made it clear that the Committee will keep policy accommodative and believes that “the current stance of monetary policy is appropriate to support their economic outlook,” said BofA Securities in a research note. “Chair Powell also emphasized that inflation has been running below its target and the Fed is strongly committed to supporting inflation expectations higher and achieving its 2% inflation goal on a symmetric basis. Given that core CPE inflation is running at 1.6%, his comments suggest that the bar is likely high to raise rates in the near term.”
China’s commerce ministry spokesman said Beijing and Washington are in close communication on trade. The United States is due to impose tariffs on almost $160 billion of Chinese imports on Sunday.
Markets are also monitoring the UK elections with a YouGov poll predicting that it is going down to the wire, an expectation which has rattled the British pound. “YouGov has not ruled out a hung parliament which it correctly predicted would happen in 2017. The risk here is that speculators may have put all their eggs into one basket. Any outcome other than a Tory majority could quickly send GBP lower into 1.25-1.30,” said DBS analysts in a note. The pound was at $1.32 off Wednesday’s lows.
Later in the day, new ECB President Christine Lagarde will chair her first meeting of the governing council where she is expected to keep monetary policy easy and provide indications about a broad policy revamp.