Trade of the Day: Asian stocks sluggish, Europe gains; US Treasuries, gold weak; British pound recovers after overnight fall.
Quote of the Day: “When it comes to the dollar, next year is likely to have a lot in common with previous years: predictions of dollar weakness that are ultimately dashed,” said Gregory Daco, chief US economist at Oxford Economics.“We see a series of key macro-economic factors supporting dollar strength in 2020. Among these are favorable US growth performance, interest rate differentials, elevated uncertainty, repatriation flows, and dollar funding shortages.”
Stock of the day: Peking University Founder Group bonds rose 10-15% even as discussions continued with its onshore 270 day RMB 2 billion bondholders on an extension of the current grace period ending 23 December 2019. According to CreditSights the company is seeking an extension of the deadline to February 2020. Peking Founder Group has US$2.95 billion of outstanding US dollar bonds on which a cross-default clause will be triggered if the domestic bonds were to default.
Number of the Day: 4.6% Fitch’s growth forecast for India in the financial year to March 2020. The rating agency affirmed India’s BBB-rating on Friday and said while the growth showed a sharp deceleration from the previous year’s 6.8%, it was higher than the average growth of 2.8% among countries rated BBB.
Tip of the Day: “An upturn in Chinese manufacturing exports to the US from the Phase One US-China trade deal will also provide a boost to the Asian manufacturing supply chain for intermediate goods and materials, which will help the export sectors of many Asian economies, given the importance of China as a key export market,” said IHS Markit analysts in a report.
Asian markets were steady digesting this year’s hefty gains with just a handful of trading sessions left in 2019 and as investors awaited details of the US-China Phase One deal. US Treasury Secretary Steven Mnuchin said the United States and China would sign their Phase One trade deal in early January after the agreement had already been drawn up and translated, and that it would not be subject to any renegotiation. He said increased Chinese purchases of US agricultural, manufactured goods, energy and services would add about a half percentage point to US economic growth during the next two years. MSCI Asia-Pacific index edged down 0.12%, Australia’s S&P/ASX 200 benchmark fell 0.25%, Japan’s Nikkei dipped 0.2% and Hong Kong’s Hang Seng index rose 0.25% with telecom, property and energy stocks driving the gains. In 2019, MSCI Asia index has risen 16%, the Nikkei 19%, and the S&P/ASX 200 21%. Hong Kong, which is in a technical recession, has given modest returns this year with the Hang Seng up just 8% this year.
The past week has seen flows into emerging markets as investors expected trade-related tensions to ease. “EM bond funds experienced the third-largest weekly inflows of the year, reaching levels not seen since January. Most of these inflows were into active hard-currency funds, which have lagged in previous weeks,” said Barclays analysts in a weekly fund-flow report.
“EM equity funds saw an acceleration of the strong flow momentum seen since October and recorded the largest inflows of the year. We believe the strong performance of EM assets in December on the back of the US and China closing a ‘phase-one’ trade deal has likely boosted flows into EM funds, with EM credit, local and equities recording (one of) the strongest month-to-date performances this year. At the same time, expectations for 2020 are upbeat for EM which has likely encouraged flows into EM assets.”
This is considerable given that investors were unlikely to take aggressive positions ahead of a holiday truncated week.
“East Asian industrial economies such as South Korea and Japan have suffered significant negative contagion effects due to the spillover effects from the US-China trade war to the Asian manufacturing supply chain. The improved Asian export outlook for 2020 will also provide a positive boost to the APAC economic growth outlook for 2020,” HIS Markit economists said in a report. South Korea’s Kospi index has returned 8% this year but half of the gains have taken place in the past month when a resolution to the 18-month trade dispute started to emerge.
India’s central bank announced a special open market operation to buy long dated bonds and sell an equal amount of short dated bonds that would keep liquidity intact but have the effect of flattening the yield curve by capping long term yields. Parallels are being drawn with the US Federal Reserve’s twist operations conducted in 2011.